A must-read article appeared over the weekend in Investor's Business Daily, demonstrating the incredible success of social security privatization in Chile thirty years ago Sunday. The author, Monica Showalter (full disclosure: a friend of mine), interviewed the architect of the privatization, Jose Pinera, who self-consciously planned the date to be May 1st, the traditional celebration day of world communism. He knew that his work was going to truly empower workers, and it did. No longer dependent on government for their retirement security, Chileans have far more dignity and security in their old age pensions than do Americans.
Monica privately pointed out to me a number of important htings not in the article:
Do yourself a favor and read the IBD article, and that start aaapushing for privatization of Social Security. We can't begin to solve solve our fiscal problems without it.
Most important thing to mention that hasn't been mentioned: It cost NOTHING. All it required was making implicit debts implicit - from the unfounded liability - and you don't have to pay all of it because savers pay themselves in stead of government. You're gonna have to pay anyway unless you mean to default, so why not pay off the current recipients, let everyone else go private and see the country bloom. Basically, the cash that would have gone into political slush funds (this is the repeatedly raided trust fund that is full of IOUs) instead goes into real savings and those real savings go into real investments, like roads and bridges and educationIf you take a look at Pinera's twitter search feed, you will see an amazing stream of ordinary Chileans sending him thank-you notes for his pension design which is so much better than ours here. The Real Chile is speaking through those little tweets of appreciation.
I did this piece because I am amazed at how insipid the US public debate is over Social Security entitlement solvency is. Any reform of Social Security is always painted as a choice of stealing grandma's check or else doing nothing. Privatization is never mentioned yet it's the best, least-costly solution out there and should avoid cuts - the only thing that gets cut is government spending! Obama just loves painting privatization as stealing grandma's check and we all know what his intentions are. But not even Rand Paul has anything more imaginative than means-testing and benefit cuts as his solution to the Social Security trainwreck - bravely taking the steal-grandma's check side instead of embracing the only truly free market alternative - privatization! Paul Ryan leaves the door open to privatization in his 10-year budget, and his Roadmap is more explicit, but I am not sure that's going to be at the front of the agenda. Yet this is the easiest of the entitlements to resolve! A Ryan aide told me they had studied the Chilean system (and other private systems) and knew it would work here - (a detail that got cut during editing, but I will revisit). So, I wrote this anniversary to get this new idea -- privatization of pensions -- out there.