Privatize Social Security?

December 29, 2010

If empirical observation shows a better solution to old-age pensions and public debt, shouldn’t we take a serious look at it? It’s worked wonders in Chile:

Pinera’s proposal began with scrapping the payroll tax on the country’s social security system and inviting all workers to take the money they were contributing and move it into a private pension.

Workers would be free to choose the fund, how much to put in, and at what age they would retire, with a minimal safety net built into the design. Past contributions would be refunded to workers by government bond. And anyone who didn’t like the idea was free to remain with the system as it was. It was a huge success: 95% of Chile’s workers chose the private system.

Pinera told the public to expect a compounded 4% rate of return under the private plan. But as of 2010, the average annual rate of return was 9.23%, far higher than promised.

By contrast, the U.S. social security system, which today accounts for a quarter of the U.S. government budget, is slated to give retiring workers in the next decade a 1% to 2% rate of return. And those entering the system today will see a negative return.

Chile’s implicit pension debt fell to just 6% of GNP — compared with 100% in the U.S., 300% in France and 450% in Italy, leaving Chile with no net debt.

Better still, the accumulated savings in the pension funds fueled Chile’s spectacular economic ascent, taking real incomes from about $4,000 per capita in the early 1980s to $15,000 today, and GDP to the 6% range most years for nearly 20 years. With that record, is it any surprise that Chile this year earned itself a membership card into the club of rich nations, the OECD?

We know our current system is heading for collapse, so, other than fear fed by the demagoguery of the Left, what’s to stop us from looking at a model similar to Chile’s? Shouldn’t workers be able to keep their own money in their own retirement accounts, instead of relying on handouts from a government-run Ponzi scheme?

via Fausta

LINKS: Further observations at No Runny Eggs

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California: Brown’s austerity budget?

December 29, 2010

The LA Times has an interesting article today about incoming Governor Brown’s proposed budget – interesting mainly for what it hints at and leaves out, and secondarily for a bit of media bias. First, the proposal:

Gov.-elect Jerry Brown is laying the groundwork for a budget plan that would couple deep cuts to state services, including university systems and welfare programs, with a request that voters extend temporary tax hikes on vehicles, income and sales that are set to expire next year.

The blueprint Brown will unveil when he takes office early next month also is expected to take aim at several tax breaks and subsidies that have been fiercely guarded by the business lobby in Sacramento, according to people involved in budget discussions with the incoming administration.

Among the breaks are multibillion-dollar incentives for redevelopment projects and hundreds of millions of dollars of “enterprise zone” credits meant to encourage investment in blighted neighborhoods. Also targeted is a recent change to state business tax formulas that has saved corporate California roughly $1 billion.

The combination of austere spending and extended tax hikes is designed to confront both parties and their allied interest groups with painful choices that Brown says are necessary to truly resolve the state’s massive budget problems. He intends to take swift action, using the political capital of a new governor to confront a deficit that could easily subsume his governorship.

In a symbolic gesture to garner the trust of a skeptical public, Brown has already pledged to cut his own office budget by 25%.

First promising sign: the Governor-elect recognizes we’re in a deep mess and cannot keep spending the way we have been for the past 25 years :

California state spending has outgrown the state’s tax base by 1.3 percentage points annually for 25 years. Simple arithmetic dictates that in lieu of constant tax increases, this perpetuates a deficit.

From 1985 to 2009 state GDP in California grew by 5.5 percent per year, on average (not adjusted for inflation). Annual growth in state spending was 6.8 percent, on average. Three spending categories have dominated this spending spree: public schools, cash assistance and Medicaid. Making up half of state spending, they are outlets for traditional redistributive welfare state policy.

(h/t Wyoming Liberty Group)

Back to the Times article, Brown plans to ask for cuts to California’s welfare, public school, California State University, and University of California allocations. He also wants to change or eliminate special enterprise zones (areas of lowered taxes to encourage local hiring) and the way a particular tax is calculated for businesses. Finally, he wants voters to approve an extension of onerous tax increases enacted a few years ago, which will expire with this fiscal year.

It’s a mixed bag, with something to tick off everyone. By one theory of politics, that means he must be doing something right. Teacher’s unions and the universities, for example, will hate the cuts to education. But, let’s be blunt here: CSU and UC students, even after recent fee hikes, are still heavily subsidized and charged nowhere near market rate for what they get. And higher education is a public good, not an unalienable right. If the state can’t afford to keep subsidizing it at current levels, then logic dictates cutting back. And it’s not as if public school performance in California has warranted giving the teachers unions more, instead of forcing some competition and choice into the system, as has New Orleans.

The proposals to cut back business enterprise zones will surely anger business communities, but the article mentions (but does not cite directly) studies arguing that those zones have not had the desired effect. Shouldn’t fiscal conservatives be open to the idea of ending programs that don’t work, even if they are ones conservatives sympathize with?

One of the greatest obstacles Brown’s proposals face is the extension of tax rates. California is already one of the mostly highly taxed states in the nation, one of the reasons businesses and people are leaving for other states that don’t punish success nearly as much. Here in the Golden State, if you make more than $47,055, but less than a million, you pay the second-highest rate, 9.55%. Sales tax in Los Angeles county is 9.75%, which is a 1.5% premium over the state rate of 8.25%. And auto registration fees (the dread car tax, which was part of why Gray Davis lost his job in 2003) is 1.15% of the car’s value. Brown is hoping that spending cuts will persuade a skeptical and angry public to extend these tax rates in a special election in return for deep spending cuts. We’ll see.

The devil, of course, is in the details, and Brown’s representative was deliberately vague, probably not wanting to show his hand in advance of what is sure to be a hard fight in the legislature. Here are some questions I have for the once-and-future governor:

  • Are these spending cuts permanent reductions in bloated state spending, or just a temporary cutback until the economy picks up, at which point we’ll go on a binge again?
  • When would the extended tax rates expire? When the economy recovers, will you consider tax cuts to stimulate economic growth?
  • Will you push for an increase in school choice to break the stranglehold of the teachers unions and make sure we’re getting value for the money we put into education?
  • What will you do to reform California’s regulatory environment, which helps make this state the worst in which to do business?
  • What will you do to curb the corrupting influence of other public-employee unions?

I’m sure there are a lot more questions, but these are a start — as is Brown’s plan. We’ll see what comes out in the details in the months ahead.

TANGENT: The article does a pretty good job with the basics, but still reflects the LA Times’ pro-Democrat, pro-progressive bias. When discussing portions of Brown’s proposal that the business community might not like, it mentions only opposition with no word about people who might be hurt by the changes. When talking about cuts to welfare and education, we get pity-words about students and the poor, with no attention given to the effectiveness of those programs — unlike we see in the discussion of enterprise zones.  Not egregious, not outrageous, but sadly typical.

(Crossposted at Sister Toldjah)


Jihad terror plot busted in Denmark

December 29, 2010

I’m surprised Jyllands-Posten doesn’t put armed guards in front of their offices to protect their people, since brave, brave jihadis are still trying to kill them for publishing satirical cartoons five years ago:

Five men planning to shoot as many people as possible in a building housing the newsroom of a paper that published cartoons of the Prophet Muhammad were arrested Wednesday in an operation that halted an imminent attack, intelligence officials said.

Denmark’s intelligence service said it arrested four men in two raids in suburbs of the capital, Copenhagen, and seized an automatic weapon, a silencer and ammunition. Swedish police said they arrested a 37-year-old Swedish citizen of Tunisian origin living in Stockholm.

“An imminent terror attack has been foiled,” said Jakob Scharf, head of the Danish Security and Intelligence Service, or PET. He described some the suspects as “militant Islamists with relations to international terror networks” and said that more arrests were possible.

PET said it seized a 44-year-old Tunisian, a 29-year-old Lebanese-born man and a 30-year-old who were living in Sweden and had entered Denmark late Tuesday or early Wednesday. The fourth person detained was a 26-year-old Iraqi asylum-seeker living in Copenhagen.

And let’s not forget that some of the cartoonists who drew these “blasphemous” doodlings are still in hiding, in fear for their lives.

Freedom of speech? Forget it. Tolerance of other opinions, even ones you don’t like? Bah! What matters is the promise of rewards in the afterlife for killing the enemies of Allah, as in Qur’an 9:111 :

Lo! Allah hath bought from the believers their lives and their wealth because the Garden will be theirs: they shall fight in the way of Allah and shall slay and be slain. It is a promise which is binding on Him in the Torah and the Gospel and the Qur’an. Who fulfilleth His covenant better than Allah? Rejoice then in your bargain that ye have made, for that is the supreme triumph.

NOTE: The image at the top is one of the Dread Cartoons of Blasphemy. Visit Zombietime for the full archive.