If you've only been listening to the edge of the growing debate over Bush's plan to phase out Social Security, you've no doubt heard that Chile initiated private accounts back in the eighties. The Farmer has been looking into the Chilean experience and located two excellent overviews, one by Dan Restrepo and the other by Steve Idemoto. The Farmer presents some excerpts with the usual Farmeresque commentary.
The original articles and the Farmer's Digest version are well worth reading. If you don't have time to read it all, here's the conclusion from the Idemoto piece.
Advocates of Social Security privatization continually crow about Chile’s high returns under individual accounts. In concentrating on returns, however, they miss crucial parts of the story. They ignore the fact that Chile has cut social spending, raised taxes, and cut benefits in order to pay transition costs—transition costs that the government will continue to pay until 2050. They ignore exorbitant management fees that have, over a number of periods, cut these much-vaunted returns to nearly zero. Advocates also fail to mention that these individual accounts have increased economic inequality and left workers vulnerable to market downturns. Moreover, privatized systems must either require retirees to convert a substantial portion of their account into an annuity – which means that the account can't be passed on to heirs other than the spouse – or accept a high percentage of the very elderly outliving their account and falling into dire poverty. Once these factors are taken into account, the case for privatization becomes much shakier.
Got that? They had to cut social spending, raise taxes, and cut benefits in order to pay transition costs. The transition is 70 years long. After the fund managers take their fees the accounts actually lose money in some years. And, in order to pass the thing in the first place, Pinochet had to jail or murder the opposition, especially the labor movement. Okay, he didn't exactly murder the labor leaders just to pass this bill; he murdered them just for the fun of it. But he wouldn't have been able to pass such a bill if there had been any kind of free labor movement still operating in the country.
This is the ideal that the Bush revolutionaries are putting forward. Maybe our grandmothers can give us some tips on how to prepare a tasty meal from cat food. If this program passes, that's what most of us will be eating in our twilight years.