Another good reason to oppose the Bush Social Security Reform

Paul Krugman, the dragon slayer has come back from his leave early to slay the ultimate dragon, Social Security privatization. Regardless of your opinion on the "crisis" Social Security may or may not be in, Krugman gives us an excellent reason to oppose privitization today; it hasn't worked anywhere else.

Information about other countries' experience with privatization isn't hard to find. For example, the Century Foundation, at www.tcf.org, provides a wide range of links.

Yet, aside from giving the Cato Institute and other organizations promoting Social Security privatization the space to present upbeat tales from Chile, the U.S. news media have provided their readers and viewers with little information about international experience. In particular, the public hasn't been let in on two open secrets:

Privatization dissipates a large fraction of workers' contributions on fees to investment companies.

It leaves many retirees in poverty.

About those fees to investment companies.

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.

These fees cut sharply into the returns individuals can expect on their accounts. In Britain, which has had a privatized system since the days of Margaret Thatcher, alarm over the large fees charged by some investment companies eventually led government regulators to impose a "charge cap." Even so, fees continue to take a large bite out of British retirement savings.

So how much more money are you going to have to make on your private account to make up the difference between a less than 1% over head and a 15% overhead.
And it will end up costing the government more because the plan will probably leave many seniors in poverty. As Joe Scarborough said the other day that mean the government will have to spend millions to bail seniors out. That's what has happened in Chile, the plan that is given as an example of success. Of course we really know the Bush plan has two real objectives, give a lot of your money to brokerage firms and then eventually kill a very popular and successful program.