Posted on 09/30/2011 8:53:18 AM PDT by SeekAndFind
For decades, Social Security has earned its status as the “third rail of American politics.” Even before the Katrina disaster undermined George W. Bush’s second presidential term, he blew his momentum from the 2004 election on an ill-fated reform of the national pension system that relied on partial privatization. Seven years later, one presidential candidate has called for a shift to the “Chilean model,” meaning a full privatization of Social Security — and he’s rising in the polls this past week. Has Herman Cain ended the “third rail” curse? Investors Business Daily thinks so:
Herman Cain’s victory in Florida’s straw poll is notable, among other things, for his advocacy of “Chilean Model” Social Security reform in a state filled with retirees. It ought to be a wake-up call to all candidates.
Aside from the insta-analysis about Cain’s victory being a protest vote against Texas Gov. Rick Perry, it’s worth noticing that — in Florida, no less — both Cain and Perry, who finished first and second in the weekend’s GOP straw poll, were the two most outspoken candidates about confronting the U.S. crisis in Social Security.
It completely ends the notion that addressing the issue of unfunded pension liabilities — in Social Security, Medicaid and Medicare — is the third rail of politics.
Chile solved a huge fiscal problem by privatizing their pension system in the early 1980s. As IBD reports, pensioners get about four times as much money as they would have from Chile’s failing system had it continued to be bailed out by the government. It also easily outperforms Social Security with an average annual compound return of 9.23% since the 1981 conversion. It also had the benefit of taking pensions out of the political arena, while allowing the Chilean government to shed an enormous budgeting albatross.
Can that work in the US? Of course, but the question will be whether voters see our plight on Social Security as being as desperate as it was for Chile in 1981. Mitt Romney’s proposal for a series of tweaks would probably solve most of the problems we see in the program, especially if retirement ages get indexed to life expectancy. Voters might be more inclined to opt for evolutionary changes rather than revolutionary changes if they think the former will suffice. That’s still a positive change from the “third rail” curse, but I’m not sure that translates into a mandate for tossing out the old system altogether, even if it should be tossed, perhaps especially because of its political weight.
Social Security isn’t the real problem in entitlements anyway; Medicare is a much bigger problem, and no Republican candidate has addressed that in the debates. We hear plenty of talk about repealing ObamaCare, but very little in the way of follow-up to that task. Paul Ryan has a series of proposals on how to accomplish that, in part through greater private control, but the candidates haven’t done much to discuss the implications of the coming Medicare collapse and how to avoid it.
Cain says he can get 30% of Obama’s Black voters in the General Election. If he does........Can you say: “President Cain”?
It’s not so much that Cain has “ended” the curse as it is this: he is in tune with the mood of the country enough to know that the third rail concept is no longer applicable. And credit to Perry and his ponzi statement too. They both have boldly faced this issue without fear.
I think that by 2012 elections, the third rail will be “avoiding” the issue of these entitlements....SS and Medicare too.
Yeah, but isn’t the black vote only 15% of the total?
But that 15% goes 100% to the Dems. Take 5% away and that’s a huge difference maker.
the Chilean model works quite well from everything I have read about it.
Of course, they could only pull that off because Pinochet had dumped all of their Leftists into the sea...
“Can you say: “President Cain”?”
YES!!!!!!
I think Cain is going to have the same problem as Ross Perot. People like his views and appreciate the fact that he’s not part of the current problem, but then refuse to vote for him because he’s an outsider.
I wish him the best of luck.
I’d like to see a good-looking Chilean model! You know, rules?
Perry was killing the field above 30% when the focus was on social security. He collapsed on the immigration issue, and the inability to make simple defensive moves to minimize the damage. The SS is perfectly acceptable as an issue in 2011...as it was in 2010.
Social Security AND 401K are both SCAMS. Both are designed to enrich groups other then the intended recipients and savers of the money.
Saving for retirement is supposed to be easy and not require an army of “financial advisers” to service each and every person’s “unique” retirement plan. WE ALL have the same need, about 80% of our high 3 or 5 years working income to last for about 30 years with about 3% inflation per year. THIS SHOULD BE A STANDARD CANNED PRODUCT that you buy and the providers compete for your business. IT IS NOT THAT NOW. We go hat-in-hand looking for investments and taking huge risk in something most are not even remotely expert in and try to beat the “house” at their own game. This has YOU LOSE written all over it.
It is against the law right now for someone to package a retirement product outside the confines of an annuity... Annuities are mostly another they win you lose proposition as they are now structured.
In general, if the numbers that the “financial experts” publish are about right, 8% growth and 3% inflation, you should be able to save 25% of your gross income from age 22 to about age 60 and be just fine with the income during retirement years providing about 5% of the accumulated base in near perpetuity. Would you invest 25% of your gross for an insurance policy that would do this instead of you and your employer paying 15% into social security plus 6% match to 401K for another 12%... I would, in a heartbeat and the vendor of such a product would make money in the process... a lot of money.
Yeah, but isn’t the black vote only 15% of the total?
____________________________________________________________
Not in the last Election. It was more like 20%. They cleaned out the crack houses, jail houses and Ho houses to vote for Obama in 2008. They will NOT be that enthusiastic this time. But if Cain gets 30% of Obama’s Black vote, that’s gonna be about 5% of the total vote. That can swing an Election big-time.
The Chilean model is a hoax! Don’t fall for it. Investor firms are pushing it because they will profit immensely, but that doesn’t mean we will.
1. If it sounds too good to be true, it probably is.
2. The promised return of 9.23% per year sounds great, but is it pre or post inflation? Chile had 9% inflation in 2008.
3. Also - how much ends up in the hands of the investors and how much in the hands of the bankers? The over head on the Chilean investment scheme is a whopping 53%!!!! (SS is less than 1% overhead)
4. Why would any conservative think that the government could invest his savings better than himself? If you want a private savings account, you’re much better off getting one without involving the government.
5. Bottomline is really bad — Chilean retirees get the equivalent of about 17% of their income once they retire — Social security pays an average of 42%
I suggest you read http://www.nytimes.com/2005/01/27/business/worldbusiness/27pension.html?pagewanted=print&position= before you get snookered. Here are some quotes from that article:
Over all, Chile has spent more than $66 billion on benefits since privatization was introduced. Despite initial projections that the system would be self-sustaining by now, spending on pensions makes up more than a quarter of the national budget, nearly as much as the spending on education and health combined...
“What we have is a system that is good for Chile but bad for most Chileans,” said a government official who specializes in pension issues and who spoke on condition of anonymity, fearing retaliation from corporate interests. “If people really had freedom of choice, 90 percent of them would opt to go back to the old system.”
...Because many of the claims initially made on behalf of the privatized system proved exaggerated or inaccurate, the transition period has turned out to be longer and more expensive than anticipated. The annual cost to the government, still the guarantor of last resort, has remained steady at 5 to 6 percent of the nation’s economic output. (By comparison, in 2003, Social Security outlays in the United States totaled 4.2 percent of the gross domestic product.)
...For those remaining in the government’s original pay-as-you-go system, the maximum retirement benefit is now about $1,250 a month. The National Center for Alternative Development Studies, a research institute here, calculates that to get that same amount from a private pension fund, workers would have to contribute more than $250,000 over their careers, a target that has been reached by fewer than 500 of the private system’s 7 million past and present contributors.
Dagoberto Sáez, for example, is a 66-year-old laboratory technician here who plans, because of a recent heart attack, to retire in March. He earns just under $950 a month; his pension fund has told him that his nearly 24 years of contributions will finance a 20-year annuity paying only $315 a month.
“Colleagues and friends with the same pay grade who stayed in the old system, people who work right alongside me,” he said, “are retiring with pensions of almost $700 a month - good until they die. I have a salary that allows me to live with dignity, and all of a sudden I am going to be plunged into poverty, all because I made the mistake of believing the promises they made to us back in 1981.”
And you trust the Times not to lie?
It’s sad that banana-republic Chile was willing to adopt a reform developed at the the University of Chicago (which won a Nobel Prize in Economics, I believe), but we’ve fought to keep a Ponzi scheme instead for 30 years.
Even more sad is that Chile abandoned its system in 2008 under pressure from the World Bank, to set up a more ‘traditional’ public system.
a hot model from Chile? :
http://www.stunningtrends.com/wp-content/uploads/2011/09/Miss-Universe-2011-Miss-Chile.jpg
Bottomline is common sense — if bankers are going to collect a huge proportion of the saving system, then obviously the government is going to have to pay more, and the retirees get less.
Investment firms (and their publications) are going to push this kind of thing because they want to rip off retirees. But actually look — it doesn’t matter all the fancy returns and fiscal hand waving; what matters is how much money ends up in the hands of the retirees. In Chile’s government-run corrupt investment scheme, the money to the retiree is tiny, the money to the corrupt is huge.
This is media matters so maybe you can ignore it, but this article says that the government promised a retirement of at least 25% of the person’s salary. The private savings has not even been able to meet that. As a result, the government of Chile has to use other funds to back up the system. So the bottomline is that the private savings system cannot supply even 25% of the worker’s wage. By contrast, our SS supplies 42% of the worker’s wage (http://mediamatters.org/research/200506150009 ). And remember - we only contribute 6.2% of our salary, the Chileans contribute 10%.
Why is Chile’s system so remarkably bad? For the same reason that Investors Daily promotes it — it takes money from the middle class and gives it to their equivalent of Wall street.
It’s a sucker’s deal.
“Even more sad is that Chile abandoned its system in 2008 under pressure from the World Bank”
Do you have a link for this? Doesn’t it kind of imply that the Chilean model was a failure?
I tried to find a link, what I found was this at http://www.oecd.org/dataoecd/52/52/42204972.pdf . What you see is that in 2008, the Chilean retirement system was the worst in countries examined, with a return of -46% from it’s “risky” option!!!!!!
This is what Wikipedia says:
Under the Bachelet government, the pension system was reformed again in the year 2008. Andrés Velasco, the leading economic adviser to the government, addressed the two main problems as the coverage of the population and the amount of the administrative costs. Too many people are outside the pension system, and capital accumulation by using the pension funds is quite expensive[21] The reform follows a recommendation by the World Bank, who has found in the 1980 pension system a strong redistributive component at the expenses of low paid or occasionally unemployed workers. A big part of the Chilean population is not able to finance meaningful pensions, because many workers are not able to regularly contribute a higher amount of money. Additionally many workers have difficulties to achieve the 20 years of contributions to at least qualify for minimum pension. Since the pension funds charge high fixed administrative costs per insured person and only a small portion of the administrative costs depend on the amount of the capital account, capital accumulation by pension funds is very unprofitable for workers with lower incomes. The World Bank therefore recommended that the minimum pension and the Pensiones Asistenciales should be abolished
So in short - the Chilean system was a massive failure.
Please - investigate this crap before buying into it. I know people on this board hate Social Seurity, but it has the really big advantage of being totally corruption-free. 99 cents of every dollar goes directly to retirees, no investment schemes, no fraud, no skimming off the top, and no political favoritism. That’s the real reason that Investors Daily hates SS. It constitutes the greatest flow of money in the country, and the Wall Street villains can’t get their greedy hands on any of it. Of course they are going to try to mislead us into abandoning it!
The World Bank and IMf are communist institutions.
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