Times Peppers Chile's Privatized Social Security, But Facts Prove Otherwise

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Like a mother hen jealously guarding her flock [less flattering but unmentionable metaphors also come to mind], the New York Times is loath to see any government program escape the clutches of the state. And even if Social Security is a sick chick, the Times zealously holds her close because she is the biggest money-pot of the bunch.

For the Times, the fox stalking the social security henhouse has been privatization, epitomized by the social security system of Chile, which was privatized more than 25 years ago and has served as a model for many other countries. Even Borat has more Social Security freedom than Americans. His Kazakhstan is among at least twenty countries, including the UK and Sweden, that have implemented a variety of privatized plans.

The Times thus naturally jumps with glee on any evidence of problems within the Chilean system to argue that freedom and capitalism don't work when it comes to social security. Gloats the Gray Lady in its editorial of this morning, "the Chileans are now bailing water. The Chilean government recently announced that in 2007 it plans to pursue far-reaching reforms aimed at creating a larger government role in Chileans’ old-age security."

According to the Times, the problem is that "roughly half of Chile’s labor force has either not participated or has not accumulated enough to generate what the government considers a minimum payout of about $140 a month." That would seem to suggest an inherent flaw in the system. But when you refer to the news article on the subject that appeared in the Times itself just a week ago, you discover that:

"The changes [are] part of a reform package scheduled to go to [the Chilean] Congress early next year, [that] include a guaranteed minimum pension for the country’s poorest citizens, even those who have never contributed to the private system."

Ah-ha! So a major reason behind the call for reform is that Chile is considering a partial conversion of its privatized investment program into a welfare program. No wonder "a larger government role" would be required.

Big-government critics of Chile's system also point to the hefty bite that broker commissions take out of the pot. Even so, that Times article from last week reports that Chileans enjoy a return on investment of roughly 5% on their contributions to the social security system [some say it's more like 10%]. In contrast, the rate of return for contributors to Social Security in the US is virtually non-existent, and even negative in many cases. According to the Heritage Foundation, for example, a 25-year-old man is predicted to receive a –0.82% rate of return on his Social Security taxes.

The Times editorial closes by warning that "another vital lesson to remember from the Chilean experience is that institutions, once dismantled, are not easily restored." True. Once people escape the tender mercies of big government, they don't want to go back.

Contact Mark at mark@gunhill.net