A Dagger Pointed at the Heart of Antarctica

Erik at Alterdestiny has a good post pointing out that John Tierney's valentine in the NY Times to the Chile's private pension fund is, to use a term of art, a crock of shit. Tierney, who should not be permitted to share editorial space with Paul Krugman, uses his Chilean friend "Pablo" as a friendly foil to claim that privatized pensions would be just marvelous for Americans. Tierney quotes his friend, an econ professor at the University of Chile:

"I'm very happy with my account," he said to me after comparing our pensions. He was kind enough not to gloat. When I enviously suggested that he could expect not only a much heftier pension than mine, but also enough cash to buy himself a vacation home at the shore or in the country, he reassured me that it would pay for only a modest place.

Tierney notes that most Chileans "don't contribute regularly to their pensions because they're unemployed or working off the books. That's a common situation in the developing world, no matter what the pension system is. But if you contribute for at least 20 years, Chile guarantees you a minimum pension that, relative to the median salary, is actually more generous than the median Social Security check."

This grotesque — and incorrect — perspective excuses the obvious shortcomings of a system that works only for the wealthy. As Erik writes in response:

But isn't the point of social security to help ensure basic survival for the poor? Not if you're rich like Tierney it's not. For the Republicans, the actual reason for social security to exist is lost in the debate over how much money we can move to the stock market. Maybe if you're rich like Tierney's friend--a major economist in Chile--you can make a lot of money through private accounts. But you can do that anyway if you're rich!! It's called investing your money. We can fund social security to provide a dignified life for less wealthy elderly people while still allowing Americans who want to invest all the money they want so that they can buy their ivory-covered backscratchers when they're 85.

But that would only prolong the life of America's Socialist Revolution, as Bush DC Court of Appeals nominee Janice Brown has described it. We gotta gut the beast! For all their failures thus far, the Bushies have already succeeded in shifting the conversation toward terms like "pensions" and away from clunkier, less personal — but more humane and just — terms like "social insurance," which is what Social Security was designed to be. (But what would you expect from a party that tries to saddle contemporary Democrats with the racist, obstructionist work of their Dixiecrat ancestors? It just shows why history matters in all this. All the classic, old school Democratic racists either bolted the party from 1964-1972 or hunkered down with a slab of fatback and a squirrel gun and held out until death or retirement turned their seats over the Republicans.) In any event, the use of Chile as the latest example only goes to show how badly their earlier point of comparison — Britain's disastrous Thatcherite private account system — has failed to enlighten and instruct.

But don't take my word for it. Lets see what another Chilean economist, Manuel Riesco, has to say about his nation's pension system.

Meanwhile, recent studies by the State Regulator of the private pension administrators, Superintendencia de Administradoras de Fondos de Pensiones, conclude that over half of the affiliates of the system will never be able to save enough in their pension accounts by retirement to fund even the "minimum pension,” which is currently set at about $130 U.S. dollars a month. Not only that but this majority of the workforce is not entitled to the complementary public social security "safety net" either. Two other studies by the government administrator of the public pension system Instituto de Normalización Previsional conclude that about two-thirds of worker affiliates will be unable to save enough for the minimum pension.

All of the studies concur that the government’s guarantee of a "minimum pension" is ineffective, because very few affiliates in need of that guarantee will qualify for its prerequisite of 20 years’ contributions to the system. Most affiliates do not apply for the non-contributive "assistance pension" offered by the state, which currently amounts to about $65 U.S. dollars a month, because it is subject to quotas and targeted toward the extremely poor. This leaves most of the Chilean workforce with no pension entitlement at all--except withdrawing the meager funds accumulated in their individual pension accounts.

These results have been confirmed by none other than the World Bank, an institution that during the past decades championed Chilean-style pension reforms all over the world. In a recent book, suggestively entitled Keeping the Promise, the bank acknowledges that private pension systems are not able to provide income security for old age for sizable portions of the workforce. It suggests that the state should provide some kind of basic pension entitlement that is not subject to any sort of quotas.

The World Bank, huh? Paul Wolfowitz should really look into this.