Remarkably, I actually heard from some poor deluded free market utopian protesting the facts about social security privatization, pointing (as befits anyone suitably indoctrinated) to the putative great success of private pension plans in Chile. Now, as chance would have it (did he get the same e-mail?) comes Krugman:
Decades of conservative marketing have convinced Americans that government programs always create bloated bureaucracies, while the private sector is always lean and efficient. But when it comes to retirement security, the opposite is true. More than 99 percent of Social Security's revenues go toward benefits, and less than 1 percent for overhead. In Chile's system, management fees are around 20 times as high. And that's a typical number for privatized systems....
A reasonable prediction for the real rate of return on personal accounts in the U.S. is 4 percent or less. If we introduce a system with British-level management fees, net returns to workers will be reduced by more than a quarter. Add in deep cuts in guaranteed benefits and a big increase in risk, and we're looking at a "reform" that hurts everyone except the investment industry....
For the record, I don't think giving financial corporations a huge windfall is the main motive for privatization; it's mostly an ideological thing. But that windfall is a major reason Wall Street wants privatization, and everyone else should be very suspicious.
Then there's the issue of poverty among the elderly.
Privatizers who laud the Chilean system never mention that it has yet to deliver on its promise to reduce government spending. More than 20 years after the system was created, the government is still pouring in money. Why? Because, as a Federal Reserve study puts it, the Chilean government must "provide subsidies for workers failing to accumulate enough capital to provide a minimum pension." In other words, privatization would have condemned many retirees to dire poverty, and the government stepped back in to save them....
So the Bush administration wants to scrap a retirement system that works, and can be made financially sound for generations to come with modest reforms. Instead, it wants to buy into failure, emulating systems that, when tried elsewhere, have neither saved money nor protected the elderly from poverty.
In a plutocracy like the United States, most government policies reflect the interests and objectives of the economically dominant groups. Krugman may be correct that privatization of social security is an kind of ideological idee fixe among the free market utopians, but that still leaves the question: why did that idea get fixed in the first place? Should we really discount the importance of the multi-billion dollar windfall to Wall Street that privatization of social security represents?
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