Tuesday, August 17, 2010

Social Security, and the Chilean AFP System

There’s been a lot of talk, lately, from the American political classes, about “reforming” Social Security. About the need for “tough choices”.

This isn’t surprising. Social Security is a demographic and financial time-bomb. With something like 60 million Baby Boomers about to begin retiring, the so-called “Social Security lock-box” is going to take quite the beating—especially considering that that famed “lock-box” is stuffed not with money but with IOU’s, placed there by the Treasury as it used the Social Security money to finance deficit spending.

People aren’t blind or stupid, even though they do seem to act that way most of the time. They know that Social Security can’t possibly afford to pay off what it owes the Baby Boom generation. Politicians of both parties are making rumbling noises, essentially in two directions: Cutting benefits, and finding an “alternative system”.

One of those alternative systems some American pundits and politicians have been looking at is the Chilean system of AFP’s—
Administradoras de Fondos de Pensiones, literally “Managers of Pension Funds”. 
 
This system is a workable free market solution to the problem of funding worker pensions. Unfortunately for this good idea, the system was imposed by decree by the dictator Augusto Pinochet back in 1980—so right there, you have some major political hurdles to overcome. Already one American politician fried herself irredeemably by merely mentioning the “P”-word: I’m not sure if it was “Pinochet” or “privatization” of Social Security that did her in—but one or the other was to blame. 

The Chilean AFP system is quite simple: All workers—salaried and independent, state and private—are required to have a Cuenta AFP (individual AFP retirement account). Salaried workers are obliged to pay 10% of their earnings to their Cuenta—their account—up to a ceiling of about $250 per month; a worker can contribute more to their Cuenta beyond that $250 ceiling, but that’s voluntary. 

The AFP’s—that is, the companies that actually manage these funds—are all private: Privately run, and privately held. But they are severely regulated by the State, by way of the
Superintendencia de Pensiones. They are regulated specifically (and obviously) as to which assets and investment vehicles the AFP’s can allocate the workers’ monies. The regulatory relationship is rather aggressively adversarial—deliberately so, as told to me privately by a former head of the AFP’s watchdog agency, the aformentioned Superintendencia. This official told me that the bureaucracy assumes that the AFP’s are all trying to actively cheat the workers—a very healthy regulatory attitude, as it insures that the actual rate of corruption remains minimal. What’s more—and crucially—a supervisory bureaucrat can never go work for one of the AFP’s. So the bureaucrat has no incentive to cut the AFP’s any slack.

The AFP’s manage the money in the workers’ accounts. Once a worker retires—at the age that the worker chooses—the AFP turns the worker’s account into a pension. The younger the worker retires, obviously the smaller the pension. Workers have insurance policies, in case of a catastrophic injury or permanent disability, which obliges the AFP to pay the worker the full pension if they are permanently disabled.

Workers cannot take any money out of their accounts before they retire—but they are free to move their account from one AFP to another. Hence AFP’s have the incentive to compete for clients. They therefore compete on two fronts: Higher returns, and lower administrative costs.

Each AFP pursues its own investment strategy with its clients’ money, though all of these investment strategies are carefully vetted by the Superintendencia. The AFP’s offer workers different risk levels for their accounts. State-imposed age limits make older workers ineligible for riskier
fondos (investment portfolios), while younger workers can allocate higher percentages of their Cuenta to higher risk strategies.

Annual returns adjusted for inflation run from about 3.5% to as high as 20%, during good years and depending on the risk of the
fondo—but there can also be bad years: At the end of 2008, most of the AFP’s experienced losses—in October of ‘08, the high-risk Fondo A were down about 45%, though the moderate risk Fondo B had dropped 14.25%, and the Fondo D (for those who will retire in 5 years) and Fondo E (for those about to retire) dropped by 4% and 0.35% respectively. And note that this was immediately after the Global Financial Crisis. On average, the AFP’s deliver about 5% to 8% annual returns, above and beyond inflation.

The system has been in place since 1980, imposed by the dictator
Augusto Pinochet, and implemented by José Piñera, one of the original Chicago Boys, and the brother of the current president, Sebastián Piñera (who had nothing to do with the policy; the brothers famously despise one another, BTW, though publicly they act civil—most of the time). Pinochet left power in 1990, replaced by a Leftist coalition—La Concertación de Partidos por la Democracia—but in twenty years of power and four different Left and Center-Left presidents, the Concertación tinkered with the system a bit, but they never really touched it.

They wouldn’t have dared. There would have been hell to pay if they had—‘cause the AFP system works.

The AFP system not only changed the way people retire—it changed the Chilean people’s views on capitalism. Simply put, I would argue that with the AFP system, every Chilean worker became an instant and fervent capitalist, regardless of their supposed political beliefs.

Historically, Chile was an agricultural country. So the workers on the
fundos—farms and ranches—received cradle-to-grave care in an informal system that was similar to a serf system. With industrialization, this sistema patronal was translated from the fields to the factory floor.

However, the pensions promised to the industrial factory workers were not always paid. Small companies might simply go bankrupt, medium-sized companies might cheat the workers, and large companies might simply ignore the workers.

The State was able to create
cajas previsionales—effectively retirement savings accounts—but these did not invest in financial assets: They were strictly savings accounts, and so naturally, inflation had its way with these monies in due time.

Throughout the XX century, efforts were made to ameliorate the effects of the transition from an agricultural to an industrial economy, to little avail. In reaction to this failure, Socialism and Communism arose to defend workers’ rights, one of which was the right to a fair pension.

Most people depended on a company pension for their retirement—with all the uncertainty that that entails. Company pensions also maintained the
mentalidad patronal—the patronal or serf mentality. People—workers—felt bound to the company: They did not feel free to work for a company, then change jobs, since they would then lose their seniority, which of course would affect their pensions.

So in a real sense, the XX century Chilean industrial economy was no different from the XVIII century Chilean rural economy, with regards workers and their employers—the only real difference was, farm workers had land, and food, and shelter. Industrial workers had none of that basic security—just the promise of a pension.

When the Allende regime won the election of 1970, and began imposing its Maoist-Leninist repressive and terrorist regime—because that’s what it was, repressive and terrorist, regardless of what its defenders might pretend—the situation came to a head. The Allende regime deliberately fomented worker unrest, using the threat of violent worker revolt to goad the different sectors of Chilean society—not just the oligarchs, but the military, the landed aristocracy, the foreign and domestic miners, the civil service, students (college and high-schoolers), etc.

It must be understood
as I have defined fascism and corporatism previously, Chile was a fascist-corporatist country long before Pinochet.

Chile—long before the 1973 coup—was a syndicalist-corporatist country of competing union, social and corporate interests, where the State was one more competing interest among many.

This situation was what led to the near-civil war in September, 1973. Allende—in his urge to have the State (and his person) be the ultimate
patrón de fundo (“plantation owner”)—essentially set the different interests groups of the country on a collision course. He radicalized the workers, played on the middle-class’ sense of economic uncertainty and social stratification, and tried to bring a crack in Chilean society where he could implement his Maoist-Leninist Socialist State. (This isn’t controversial—Allende said so himself in all his speeches.)

In this fascist-corporatist state which was Chile before Pinochet, the individual citizen was merely a cog within one of the corporate entitites or another to which he or she belonged—so naturally, the individual citizen allied himself with one of the competing interests in Chilean society, be it company or Party or union or class, in opposition to some other, competing interest from one of the other sectors of society. In other words, Chilean society was delineated like a
street-gang, with everyone hell-bent on protecting their turf, rather than growing the country.

Pinochet—I believe deliberately—changed that. The more I study his policies, the more convinced I am that that was his conscious goal: To end the corporatist-syndicalist, competing-interest-group mentality that stratified and isolated different social groups in Chile, and which made the country a collection of competing and self-defeating little cliques, to the detriment of the country as a whole.

Whether I’m right or not on this specific issue is beside the point. What I can here say unequivocably is that, so far as the AFP system he forcibly imposed is concerned, it changed Chilean society forever—without question.

By imposing the AFP system in 1980, workers became free to move from job to job, and not be bound to any one company because of fear of losing their pension. Hence it gave the opportunity for real middle-class mobility. (Though Chile had always had a fairly large middle-class when compared to the rest of Latin America, it was stagnant, and bitterly divided by issues of social class: The inordinate social stratification of Chilean society makes the British class system look positively egalitarian in comparison. And much of this social-class bitterness expressed itself politically—with terrible consequences.)

By creating the AFP’s, and making them invest the money of the workers, the Chilean economy suddenly had a lot more home-grown capital chasing returns—so there was more local investment in small to medium-sized firms. Most of the wine and salmon industry in Chile was financed this way.

By freeing companies from the obligation of pensions—from the very idea of pensions—companies could behave like companies, and not like pension funds—or worse, like
fundos. In other words, a company’s financial health of today and tomorrow is not affected by unwise but binding promises made twenty or thirty years ago. Look at GM, loaded with all those promises made to UAW workers—no Chilean company has such a burden. 


It also shuts out the State from managing money—which is something devoutly to be wished. A State with excess cash is a State which will spend that cash—the famed Social Security “lock-box” is a case in point: The money American citizens have contributed to the system is not parked there, carefully earning interest. It’s gone—spent on foolish wars and monstrous health care plans. By keeping this money away from the State, the AFP system reduces the State’s temptation to simply throw money at problems, and instead actually solve them.

Finally, a subtle but exceedingly important effect of the AFP system, which I mentioned before briefly, is that it makes everyone a capitalist. I actually think it’s the most important of all of the effects of the system. In Chile, everyone follows their
Cuenta de AFP as closely as the soccer league. Closer, even: You get a statement in the mail every month, telling you how much you added this month, how much your nest-egg is now worth, and how much you would receive were you to retire right now, or continue to add to your Cuenta until 65. It’s a heady feeling, and it makes Chilean society very protective of private corporations and companies. Strikes happen, but far fewer—usually for genuine financial reasons, not for random political reasons, as used to be the case. And unlike before 1973, striking workers don’t destroy machinery or other assets. It has become politically unpopular—not to say anathema—to disrupt the economy for the sake of making a political statement. People measure work stoppages of any sort by how much the overall economy lost—because that is now the measure of how much an individual’s Cuenta has lost. People actually bitched about the February earthquake in terms of damage to the economy, and how lucky Chile was that it happened at the start of a weekend, instead of in the middle of a work-week—I’m not kidding.

In other words, with the AFP system, every citizen feels he or she has skin in the game, so far as the overall economy is concerned. This is an extremely significant effect of the system—I believe the most significant—as it points the way for other developing nations, and how they should organize their domestic economic life, in order to achieve stability and progress under a Capitalist regime.

Now, the AFP system isn’t without flaws. Critics in Chile tend to focus on two aspects: The dwindling of the AFP’s down to half a dozen companies, and the possible oligopolistic tendencies that that might entail; and the lack of “democratic representation” on the boards of directors of the AFP’s. 

Insofar as the first criticism is concerned, from an original 12 that began in 1980, the number of AFP’s grew to 22 by 1994. Through buy-outs and consolidations, there are now 6. The largest, Provida, has 43% of the market as measured by assets-under-management, the second, Habitat, 24%, the remaining four fractions thereof. But none of the six have acted oligopolistically, and all are tightly regulated. Indeed, all of their mergers occurred under Left-leaning regulators. And to top it off, market share does tend to swing wildly, as customers vote with their feet—after all, they can move their account to a better, higher yielding AFP whenever they want. So in my opinion, the first criticism is a possibility to be prevented, but not a near-term possibility that might cause concern. 

The second “criticism” is really a complaint by Union officials and the professional Left, who are marginalized from participation in this virulently Capitalist scheme because of their own views. The same people and parties who want more “democratic” representation on the boards of the AFP’s are the same people and parties who regularly call for the end of the AFP system altogether. Their “criticism” can’t be taken seriously.

My own criticism goes in another direction: As a Chilean, I object to the fact that workers’
Cuentas diminish during bad years, such as 2008, whereas in good years, the AFP’s enormous profits—albeit well-deserved—remain in their coffers. In other words, I think there ought to be a High-Tide Mark: If the individual Cuentas diminish during a bad year, then the AFP ought to go into its back profits and “top-off” the workers’ accounts. Call it socialism, call it what-you-will: It doesn’t seem fair to me that the AFP—earning good money off of managing its customers’ monies, which they are legally bound to deposit with the AFP’s—should not share the pain when times are tough. The AFP’s have the privilege of receiving citizens’ monies by order of the State—they ought to share the pain when things go south. (This is a similar objection that many people have to hedge funds—and which is why I'd never buy into one.)

These criticisms aside, since Pinochet left in 1990, there haven’t been any serious, structural changes to the basic system. Independent workers and the poor have been encouraged to join, and a few cosmetic changes have been implemented—but basically, it’s worked like a charm.

How does this Chilean pension fund system help the U.S.? Well, in a word, it doesn’t.

Chile is a historically poor country—hence Chileans are aware that the State cannot provide everything. Manipulating the private sector into a course of action which creates a public good—such as the AFP system, such as the ISAPRE (health care) system—yet at the same time creates a profit (and therefore an incentive) for the private sector, is something that Chileans have gotten into only recently; really since Pinochet starting in ’73. But boy has it caught on!

The average American citizen, on the other hand, has gone in the opposite direction. American citizens fully believe that the U.S. Government can do it all—fight all the wars, pay all the bills, in short, “do what’s right”, etc. In other words, Americans believe in a Mommy State—the Great American Teat. It should come as no surprise, then, how willingly Americans allow their basic civil rights and liberties to be trampled by the Government—attitudes such as those exhibited by American politicians and leaders would be cause for outrage in Chile. But American citizens are as docile as sheep—except when it comes to what they believe is coming to them.

Every American believes they are owed Social Security. What was once a stop-gap, temporary measure adopted by Roosevelt at the height of the Depression, which could be easily financed with 30 workers to every retiree, is now a monster-spending program—it has gone off the rails. According to George W. Bush’s
State of the Union speech of 2005, in 1950, the ratio of workers to retirees was 16 to 1. At the time of his speech, it was 3.3 to 1. And by the time the Baby Boomers retire, he said it would be 2 to 1. He said it—George-fucking-dubya-fucking-Bush in a State of the Union speech. Not exactly Noam Chomsky at a Bennington College coffee klatsch.

The Social Security shortfall is inevitable—but American citizens are unwilling to sensibly change their pension system. They lack the political will to do it for themselves, and there is no dictator—such as Pinochet—to force the country to do it.

Therefore, the outlook is inevitable: Social Security will either be cut, or taxes will rise to pay for it.

I believe shrewd policy makers are hoping that inflation helps the cause and gives Social Security beneficiaries a
de facto haircut. These policy makers—Bernanke, Geitner, Summers—seem to believe that inflation is the only way to stave off The Deficit, which of course includes Social Security. But as I have argued, I do not believe you can have “controlled” inflation—and as I have further argued, once the Fed’s “asset purchases” (id est, money printing) reaches a certain tipping point, nearly-flat Treasury yields will reverse and skyrocket, as people lose faith in U.S. sovereign debt, and this will trigger hyperinflation.

If there is hyperinflation—as I believe there will be—then Social Security recipients would be the first to clamor for an “adjustment”. Call it the Mother of all
COLA’s. Therefore, cuts in benefits are unlikely.

Karl Marx said it best: A democracy will fail when the people realize that they control the purse strings. In America, in short order, there will be more retirees—who will be politically better organized—than the rest of the population. Therefore, taxes will skyrocket, to pay for these people who didn’t plan for their own retirement. What would be the effects of way higher taxes in a stagnant economy? You fill in the blanks.  

Social Security should have been privatized back in 1985—now, it’s far too late. 

21 comments:

  1. I'm not sure that privatization would work as well in the United States as it did in Chile. The US Government has, at least for the past 40 years, shown little to no interest in actually regulating the financial services industry, and the financial services industry has returned that favor by devising an endless array of ponzi schemes.

    I find it difficult to believe that the financial services industry will discover a sense of community if they are handed control of the US bonds that comprise the Social Security trust fund, nor that the US Government will suddenly develop a sense of regulatory vigor to police them.

    ReplyDelete
  2. Sounds like Chile has a great pension system. In the US, we should take things one step further by originating all capital creation from individual retirement accounts instead of permitting the Fed and US government to spend money into existence. Let the government and corporations raise money from individual investors. Check out http://www.capitalhomestead.com/ for more details.

    ReplyDelete
  3. I am from Poland and we have pension system based on chilean - but some minor changes created just a parody of it. First - all private pension funds are free to set strategy, but:
    1. Managing company of the one with the worst return any given year have to cover the differnece of profit to next one or average (I don't know and don't care) Effect - all the managing companies trying to be just mediocre
    2. these are also strict rules of investment, but set to polish government bonds and publictly traded companies only. Effect: governmetd have to run on deficit -there should be something to sell to OFE (pension funds) and rest of the money goes to big post- communists dinosaurs. Nothing goes to real economy.
    There is a oligopoly and managment fees are terribly high.
    All in all- no one cares about it. It's just treated as another tax with no hope of any real return. As polish government will defaut, pensions will be just nickiels.
    So beware government and good system nearly copied can become terribly bad in another- because of just some minor changes

    ReplyDelete
  4. For the past two years the government has had to finance lower salary workers whose egg nest cannot pay them a decent pension. The AFP pays you an amount according to the savings you have accumulated. The usual return is 6% of savings.
    I quote you: "Most people depended on a company pension for their retirement—with all the uncertainty that that entails". This is not so. Pensions before 1981 where the "Cajas de Prevision Social" runed by the Government. The INP presently pays pensions to workers that did not change in 1981 to AFP. The system is based on years of work more than savings balance.

    ReplyDelete
  5. Hey you ignorant man, could you please give one single example of the terrorism committed by the Allende's government? Her i quot your statement about the democratically elected government of Allende:
    When the Allende regime won the election of 1970, and began imposing its Maoist-Leninist repressive and terrorist regime—because that’s what it was, repressive and terrorist, regardless of what its defenders might pretend

    ReplyDelete
    Replies
    1. Former Minister of the Interior Edmundo Pérez Zujovic was assassinated by left-wing terrorists in June of 1971, during the Allende government. Christian Democrats explicitly blamed Allende for the assassination, and pointed to Allende ministers as responsible for fomenting and aiding Perez Zujovic’s killers—allegations which at the time were proven true.

      Pérez Zujovic’s assassination was the most high-profile, but it wasn’t the only one. Allende’s government gave weapons, supplies and assistance to several terrorist organizations, including the Movimiento Izquierdista Revolucionario. These organizations assassinated scores of business owners and other “oligarchs”, and used violence to intimidate members of opposition parties.

      One of the triggers for the September 1973 coup was the belief by the military that Allende intended to arrest and summarily execute all command officers who were considered “disloyal” to the Allende government. The fact that the Allende government had explicitly and tacitly supported so many left-wing terrorist groups since taking office—up to and including pardoning them, and refusing to prosecute them for crimes they were known to have committed—was enough for this fear to fuel the coup d'etat on September 11.

      This isn't a Manichean contest: It's not “Pinochet bad—Allende good”. Rather, it’s “Pinochet bad—Allende much, much worse”.

      GL

      Delete
  6. Since I was not given a choice as to whether I contributed or not, I want every cent back plus interest, otherwise they are thieves and should do long prison terms on chain gangs.

    I never approved them using the money for anything but what it was supposed to be.. RETIREMENT... they should all hang.

    ReplyDelete
  7. a shame the Chilean system wouldn't work here in America. The thieves own the whole economic system. to think privatization of Social Security would have done any good, you're crazy. lol nice thought though.

    The way private Business stole/spent pension funds was proof enough not to privatize Social Security. nobody trusted Business to handle their retirement money. too many instances of theft and waste of private pension funds to even consider handling the Social Security System vast numbers.

    the Fox would be left guarding the Hen house.

    Now Government is part of the problem. they are the Crooks' accomplices.

    The Crooks now own both the Government as well the Banks where the money would have been.

    that's about the only real difference here in America. The thieves run the Government and Business. Corporate Control of the American Government. We have no laws anymore. or rather, no one enforces the laws, that is. so we are screwed, now that Business owns the Government. Like a Banana Republic.

    ReplyDelete
  8. RalphSato/ralphsato@netscape.netDecember 29, 2010 at 4:24 AM

    AFP would not work in the US. Bush Jr tried to privatize social security in 2005 but the opposition proved too determined to bring about the necessary changes in public opinion. He did not even have the full undivided support within his own party though the Republicans are as a party opposed to social security. This is known as the "third rail" of American politics, as the very popular Ronald Reagan called it. Jose Pinera came to the US and joined Cato Institute, a Washington DC libertarian thinktank, which led the fight to privatize social security during this time period. One of the problems with privatization is that the cost of administering a privatized system is prohibitive compared to the present government bond invested system. What I have heard about the Chilean system is that this has also been true there. I have heard that in many cases, workers who left their retirement funds with the government as opposed to the privately administered system did much better when they retired.

    ReplyDelete
  9. Ralph Sato/ralphsato@netscape.netDecember 29, 2010 at 4:53 AM

    To bring you and anyone interested in the fight over the future of social security up-to-date, four recent developments in Washington DC are important. First, the mid-term elections. The Democrats took a "shellacking". They lost control of the House by a good margin and barely hung on to a small majority in the Senate. Second, was the Fiscal Responsibility Commission (Deficit Commission) made up of a bipartisan panel of former and current Congressional and executive branch figures. The Deficit Commission produced an alarming picture of the future fiscal state of the Federal government. For social security they recommended some drastic measures including raising the retirement age to 70 from its current 67 years. They also recommended drastic cuts in the benefits structure of social security. Fortunately, the other commission members rejected the report, voting 11 to 7 in favor but short of the 14 in favor needed for approval. Third, the newly changed House includes some radical Republican members who voted to make Paul Ryan (WI) chair of the Budget Committee. Ryan is planning to try to privatize social security again but will very likely not succeed because of opposition from President Obama and the Senate Democrats who retain control of the Senate. Fourth, President Obama who is under pressure because of huge unemployment numbers compromised with the Republicans on social security taxes. They made a deal to temporarily cut payroll taxes which are used to fund social security by 2% for two years to put money in the pockets of workers which they hope will boost the economy. Unfortunately, this unfunded mandate will not be matched by reduction in social security benefits so it will have to be made up by borrowings from the general fund since social security is close to a breakeven condition in the next few years whereas it was running a surplus for the previous 25 years. The question is how do we fund the temporary shortfall in social security in the future after the two years temporary rollback ends.

    ReplyDelete
  10. Ralph Sato/ralphsato@netscape.netDecember 29, 2010 at 8:33 AM

    You may be right that the AFP system has been good for Chileans, ending not only insecurity after retirement but more profoundly the semi-feudal existence that dominated the social system. But I must tell you that conditions are different elsewhere. According to an article in the Economist (Buttonwood, Hands Off Our Pensions, Dec 4), some countries are changing direction going from the privatized pensions to government administered pensions. For example, "Hungary provides the latest example. A reform in 1998 created a mandatory supplementary pension system, with contributions deducted from wages and invested in a private fund. These funds have since accumulated nearly $14 billion of assets. Those assets (and the employee contributions) are now in effect being taken back by the government, since those who opt to remain in the private sector [fund] will face stiff penalties." "Other eastern European countries have not gone quite so far. But Estonia cut its contribution to private-sector pensions, in effect reducing the future retirement income of today's workers, while Poland has been considering similar proposals. Elsewhere, Argentina transferred about $24 billion of pension assets from the private to the state sector in 2008, with the result that $4 billion of annual contributions flowed into the government coffers."

    ReplyDelete
  11. Ralph Sato/ralphsato@netscape.netFebruary 28, 2011 at 7:09 AM

    Doing more internet research I discovered some interesting stuff about Jose Pinera. There is a bunch of YouTube videos showing many interviews on (surprise) Fox News and appearances before various conferences both of serious economists like himself but also other appearances in which he is treated like a rock star. I get a funny reaction when I see this sort of thing. What is a serious economist who is trying to sell a controversial product like privatization of pension systems doing when he is being treated like a rock star. Oh yes, it is called PR (public relations) and is part of the selling program that has been organized by the former Chicago boys on a worldwide campaign. Also I ran across an article in the NY Times with the title, "Chile proposes to reform pension system." It seems that Chile's famous AFP is not working as well as advertised. And the Labor Minister Osvaldo Andrade told reporters, "this is radical reform because it moves us from a system based solely on individual savings to one that includes a pillar of solidarity based on one's right as a citizen, and not contributions. We are integrating systems that are fundamentally different." President Bachelet said in an interview in June (2006), "there are a whole set of problems, strongly linked to a system that had certain presuppositions that have not come true." Dissatisfaction with the inability of the system to provide the benefits promised when Gen. Pinochet imposed it in 1981 has been rising and became an issue in the presidential campaign. And as things stand, about half of Chileans in the labor force will not qualify for a pension for a variety of reasons. By contrast, the US social security system is one of the most popular programs in history though it is unlike the Chilean individual account based system, a pay-as-you-go system. And by the way, the US Congress approved an individual account based retirement system called the 401K retirement account to supplement social security, but like in Chile it has left millions of Americans with insufficient amounts in their 401K accounts for a secure retirement.

    ReplyDelete
  12. The Chilean AFP system as it is called it not doable in the USA nor would it have happened by Democratic means. America is not capable of making such a reasonable analysis and moving to a sustainable system. America has become too stupid and we don't have dictators ...well no 'real' dictators to force us to accept forced solutions.

    As Churchill said, "You can always count on Americans to do the right thing - after they've tried everything else."

    Churchill was talking about past America, not the current statist America.

    ReplyDelete
  13. Herman Cain suggested America adopt the Chilean system. This was his response during the September 7, 2011 republican presidential debate. He did not mention the P word.

    ReplyDelete
  14. Ralph Sato/ralphsato@netscape.netSeptember 13, 2011 at 2:14 AM

    This comment though not on social security directly may be of interest because social security has to do with insuring that the hardships of old age which is a growing condition of mankind in the 21st century as people live longer lives, affects the average standard of living especially in the advanced industrial countries which can afford to support their older population unlike previous generations when poverty was widespread. The Gini coefficient is an acknowledged measure of the inequality gap in countries. Looking at the Gini coefficient of say Western Europe versus the USA, we see that most European countries have Gini numbers between 24 and 28 percent while the USA is currently close to 45 percent. 0 percent would indicate a country where there is no inequality while 100 percent would represent a country of perfect inequality. Looking around the world, it is clear that most African countries have Gini numbers over 50 percent and Latin American countries have Gini numbers between 40 and 55 percent. Where does Chile fall. Chile's Gini number is about 55 percent not far from Brazil's 57 percent and Brazil has for many decades been known as one of the most unequal countries in the world. That the USA is so much worse off than Western Europe on the Gini scale is shameful for an American to face up to as in the past we were inordinately proud of having a middle class society which has underpinned American democratic ideals or so we have been told by countless newspaper articles in the past. As economic conditions worsen throughout the world, the situation is expected to get worse in the future. For me I would prefer to live in a society where there is not the wide gaps in wealth and poverty that we associate with the underdeveloped countries of the world. I realize that there are people to rather enjoy living in such countries especially if they are among the wealthier population of those countries such as we have seen in the Arab spring revolutions of the past year.

    ReplyDelete
  15. Ralph Sato/ralphsato@netscape.netSeptember 15, 2011 at 2:29 AM

    Followup on previous comment. The NY Times reported today (9/14/11) on its front page, "Poverty Reaches A 52-Year Peak, Government Says; Median Income Falls;Truly a Lost Decade-Findings Are Worst Than Expected." The findings of the Census Bureau, which has been reporting on poverty numbers for 52 years, shows an increase of 2.6 million fell into poverty over the past decade, bringing the total in poverty to 46 million. An important consequence of this statistic is that many more Americans are no longer able to afford health insurance. Unlike other advanced industrial countries the USA does not provide universal health coverage for its citizens so we can expect the health of the country to decline in the future. Whats more the recently passed (2010) Affordable Care Act (aka Obamacare) which will relieve much of the hardship over health care by opening up more affordable insurance through so-called exchanges and which bans pre-existing conditions as a way for the health insurance companies to reject insurance applications, is under pressure from the Republicans who have pledged to repeal the ACA if they gain the presidency in 2012. So the USA is socially headed downhill in the not so distant future as we fall under the influence of the increasingly anti-socialist extreme right Tea Party faction of the rejuvanated Republican party.

    ReplyDelete
  16. Ralph Sato/ralphsato@netscape.netSeptember 17, 2011 at 1:29 AM

    More on the direction various countries are taking on inequality versus greater equality. This time we turn to Chile. The Financial Times in its September 15, 2011 edition on page 5, has the story headed, "Pinera faced with healing deep wound of inequality." Sebastian Pinera, the brother of Jose Pinera who promoted the Chilean AFP pension privatization scheme, succeeded the left-leaning Michelle Bachelet, has been beset by protests led by student leader Camila Vallejo, who are calling for greater state support of education."Mr Pinera's popularity has plummeted. Some even wonder whether the social unrest is a sign of an Arab-like Chilean spring and if the country's much-lauded free market model might have reached its limit." "The Chilean model is not broken, but it does need adjustment, Mr Pinera admits. That's only natural. When you are poor, you worry about food and shelter. As you grow richer, other things become more important: the quality of education, health, the environment." "The country is widely seen as Latin America's best managed and most prosperous - it joined the OECD club of rich nations last year. However, it is also one of the world's most unequal: more than half of national income is held by the richest 20 per cent of the population."

    ReplyDelete
  17. TRUTHSEEKER
    Your comments about Allende are not accurate, do you know that in 2005 or so the Gov. declassified some CIA documents, and there is undeniable evidence that the CIA had his hands on the subversion, political, social and economic chaos and unrest during Allende's years? There is an excellent book,called "Legacy
    of Ashes" that details all the "work" of the CIA, since it's creation, in Latin America, Asia, etc. Unbiassed info is the best way to get paid.

    ReplyDelete
  18. Long after this was published but still true is the fact that Social Security was solvent and would still be solvent if the government had not taken the funds and squandered them not to mention the added expenses of illegals. (I still find it hard to believe that someone can come to the US and get Medicaid and SSI benefits without ever paying into the system.) There is another truth that is overlooked by people who write about the terrible condition of social security and in the same breath call it "an entitlement".

    That is an oxy-moronic definition for a program into which approximately 15% of the compensation I have received over the last 41 years has been deposited. An entitlement is something for which you do not pay.

    SSI and Medicare is something I have paid for and am still paying for. If the government wants to call it an entitlement when they have to start paying out, that's fine, but don't act like I don't deserve to collect after having the money taken from my check with the threat of imprisonment for non-compliance.

    If they wish to put an end to the program, I'm good with that, too. All they have to do is give me back the money I paid in. I won't even charge interest at this point. Now that is an offer they should jump on instantly.

    ReplyDelete
    Replies
    1. Well said. Entitlement my A**!!! It's OUR money that the government is calling an entitlement, not theirs.....

      Delete

Whether you agree with me or not, thank you for your comment.

If you liked what I wrote—or if it at least made you think—don’t be shy about making a payment. The PayPal button is there for your convenience.

If you have a question or a private comment, do feel free to e-mail me at my address expat229@gmail.com.

GL