rkj (01/26/83)
The recent discussion regarding the current crisis facing
the social security system brought to mind an article written
by William F. Buckley back in the fall of 1980 (prior to the
presidential election). I dug it up and reproduce it below:
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"Everybody knows that our Social Security system is in grave
jeopardy and that as things are going, insufficient funds are being
colle<cted from a decreasing number of younger Americans to support
an increasing number of older Americans. Moreover, we have never
got over the congenital problem. The idea of insurance is to put
away for the rainy day ahead. You're not putting it away if the
government takes it and spends it immediately upon receipt.
Moreover, the government is burning up funds that might otherwise
have been used to capitalize growth.
"The only candidate running for president who came up with any
idea at all about reforming our Social Security was John Anderson,
who suggested (and it was a good suggestion) that qualification for
benefits be put forward to age 68. But even if that were done,
organic weaknesses would remain uncorrected, and the news here is
that three weeks ago, a radical transformation of social security
was initiated in Chile, and regardless of what any American thinks
about, Pinochet, Allende, Letelier, or the Beagle Islands, we should
give it a close look. It is the creature, primarily, of a young
and brilliant Harvard Ph.D. in economics and political theory, a
student of Nobel Prize-winner Kenneth Arrow. His name is Jose
Pinera, and he is a minister of labor.
"1) Henceforward, all social security payments will be made
by the employee, ending the fiction that they are being paid in
part by the employer, a fiction penetrable after a course in
kindergarten economics. The employees will be required to turn
over 17 percent (tax-free) of his wage to the social security fund.
This represents 10 percent for old-age benefits; 3 percent for life
insurance (if you die at the age of 25, wife and kids get the same
benefits as if you lived until 80); 4 percent for health care.
"2) Any qualified money management corporation, properly
capitalized, can bid for the right to manage your share of the
accumulating benefits. The money management corporation will make
its profit from the commission it receives in buying and selling
those securities that under the law (which can change after review,
a year or two hence), the "Administradoras" are permitted to
purchase: municipal bonds, certain categories of mortgages. On
the whole, triple A stuff.
"3) Every year, the average returns on their investments of
the individual Administradoras will be published. The worker,
obviously, will take his account from those doing less well, and
entrust it to those who do better; even as you and I might go from
one mutual fund to another. Any Administradora whose performance
dips more than 7 percent below the average performance of all
Administradora has to dip into its own capital and contribute the
differential to the fund. If its capital is insufficient to make
up the difference, it must contribute what capital it has, the
government will make up the difference, and the fund will be
distributed among other Administradoras.
"4) When a Chilean woman is 60, or a Chilean man 65, the fund
matures. He may then do one of two things: buy an annuity with it;
or make annual withdrawals, tax free. He will, in a word, be
getting back exactly what he put into the fund, plus what the fund
has earned over the years: tax free. If the fund dips below a
minimum level, the differential is put up by the government.
"5) Beginning on May 1, and for a period of five years,
everyone paying into the old system has the option of a) staying
with the old system or b) transferring to the new system. If he
chooses the latter, he is given a bond representing the value of
all the payments made by him or on his behalf to date, and these
are transferred into his account within the Administradoras.
"6) Employers, who under the present arrangements are required
to contribute 28.7 percent per month into social security, will be
relieved of their obligation entirely. However, they will be
required to increase salaries by 18 percent. The net situation: a
decreasing in labor cost of 9 percent to the employer;
approximately the same take-home pay for the employee; and a social
security system that furnishes capital, uses the investment
energies of competing parties, and gives the individual freedom of
choice. Not bad for a political dictatorship."
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