by JoeTheEconomist
November 26, 2011 12:35 PM
Many of the proponents of privatization point to the success of privatization in Chile and Galveston County. These people would like to model a new version of Social Security based on the systems in place in these places. The proponents claim that we will see similar results if we implement the plans here. And the question that voters should ask is whether that is a reasonable assumption.
Are the successes of these efforts likely to be repeated in the United States? For example, it is possible for me to slam-dunk a basketball on the moon, where as it is not possible when I am on earth. There are differences in the environment. The voters should ask whether the environmental differences between Chile and/or Galveston County make a reasonable benchmark for the future results of a privatized Social Security system.
There is a significant difference in timing. Both Chile and Galveston County started in or near 1981. So these systems coincided with probably the greatest bull market run in the history of the world. And if we could go back in time, it would have been a good idea to replace Social Security in 1981 with a privatized system. That does not mean that it is a good idea to replace Social Security with either system today. Keep in mind, countries that privatized in the late 90s and early 2000s have not had similar success. I have never been very good at timing markets, so to me it does not make a lot of sense to use systems which perfectly timed the bull-market as a benchmark.
I am not sure that the systems are that similar. The Chilean system covers less than 50% of the population, not 96% of the work force as Social Security does. The Galveston County system covers government workers which provides for longer employment duration than the United States as a whole. Chile has a very different standard of poverty than America does. So I am not sure that the success in Chile means much in terms of the United States and Social Security. I really don't know.
This article may shed some light on the question. "Social Security Privatization: What the Candidates Can Learn from Central Europe and Latin America" was published by the National Association Of Social Insurance. I will caution you that the author seems a little biased against the concept of privatization: she sees privatization as "redistribution of wealth toward the wealthy". That reasoning isn't explained. The rest of the article is worth your consideration.
