Saturday, September 24, 2011


First, let me say that I live in Atlanta. I know and admire Herman Cain. I voted for Herman Cain. But Herman needs to do some research on the " CHEE-LAYIN " Social Security system, rather than take Cliff Notes from The Cato Institute.

I've been to Chile many times. I have many friends who are Chilean. Here's what I can tell you about the system:

The system is about 30 years old. It replaced an old Pay - as - You - Go system, after the overthrow of Pinochet , in 1981. The system is on VERY shaky financial grounds due to

1. High management fees: Almost a third of contributions go to management fees and the net return to workers over the last thirty years has been about 5 % or the same as a bank savings account.

2. Low participation rates: Half of Chilean workers do not participate, including the military, due to the structure of the country's economy.

3. Heavy dependence on an inadequate safety net: The government is obligated to provide subsidies to workers failing to accumulate enough money to earn a minimum pension. Thus, the government pays for all people who can't afford to contribute to a private system or whose private pensions have gone bankrupt or whose investments have failed. But, the government often can't access enough funds leaving retirees with a small fraction of their SS. Often, they receive nothing. Over 41 % of retirees continue to work in Chile because their investment accounts are too small or too infrequent.

4. Prohibitive costs to the government: The transition costs , from the old to the new system , averaged 6.1 % of GDP for the first ten years of transition and are now averaging about 4.5 % of GDP and are expected to continue at that rate for the next 25 + years.

The bottom line ? The old system, in 1980, paid a maximum of $ 1250 per month. To receive that under the new system requires a lifetime contribution of $ 250,000. Only 500 out of 7 MILLION retirees receive this maximum amount.

So, Herman, old friend, be careful what you advocate. Do your homework. Go the Chile ( Not Chilis ). I hope your 9-9-9 plan is better researched than your SS " FIX "


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Ohio JOE said...

With respect, you have not illustrated how the Chilean system is more shaky than ours especially given the fact that we are supposed to be a first world country.

Many of Chile's problem are coming to America but, its benefits are not.

craigs said...

You are right! That wasn't my intent. I was pointing out that Chile has many problems with SS and Herman should be careful feeing it up as a positive alternative. It's major presumed benefit is that it's a private system......but the Government is on the hook to be a financial backup and most people don't feel it is any better than what they had in the 1980s. There are better fixes for what we have than Chile.
I have a problem with the all out approach, like Hermans 999 plan. If a patient is on life support, you don't want to disconnect everything at once and say that's not working, we need something new. In the transition, the patient often dies


Anonymous said...

This is interesting. I agree that as much as we might desire to unhook everything at once, it might kill the patient. What we need is to find ways to do less breathing for the patient and slowly induce him to breathe more on his own. I wish I could believe that we could move faster!


Anonymous said...

Craigs, with all due respect, you tend to always know or know someone or have been there or lived there...I understand the motive within your's much easier to prove a point when you claim first hand knowledge but you seem to conveniently have a lot of first hand knowledge exactly when your argument needs it.