November 15, 2011--Chile & Galveston

One country that keeps cropping up in Republican debates is Chile. Not when they are fighting about foreign affairs. Rather, Chile is mentioned when they are arguing about domestic policy. Specifically, Social Security.

What's this about?

Back in early September, at one of their first debates, when the subject turned to Social Security, Herman Cain, perhaps to show he was more than about pizza and before he unveiled his 9-9-9 plan, perhaps to show he is a man of the world, claimed that if the U.S. were to adopt the Chilean pension plan, all would be well with our system.

So what do they do in Chile that makes it so compelling to Cain and his colleagues?

Workers there who used to be required to participate in a pay-as-you-go plan (like the one we have) since 1980 (when dictator Augusto Pinochet ruled) were compelled to put all of their payroll taxes into a privately-run retirement account. That way they would benefit from compound interest. Assuming there was any.

Ah, there's one rub that doesn't come up during the GOP debates nor is it probed by the questioners--not that much interest has accrued since the privatized system was put in place. Another rub--only about 60 percent of workers are covered and the administrative costs of running the fund are unacceptably high.

So much for the claim that private companies are more cost-effective than governments.

The plan was concocted by the so-called "Chicago Boys," Chilean economists who had trained under Ayn Rand influenced Milton Friedman at the University of Chicago. (He famously described her as "an utterly intolerant and dogmatic person who did a great deal of good.")

What the Republicans are promulgating sounds like the plan George W. Bush floated prior to 2008 when the Dow was racing past 14,000 and before it crashed to just above 7,000. When that happened, he and his fellow Republicans retreated to political silence. They knew that the American public--many of whom were losing their jobs, homes, and 401(k)s--were unlikely to want to see Social Security privatized which would put that one sure thing at risk.

But now, when the GOP hopes the public has forgotten that cataclysm and who and what caused it, the Bush-Chilean plan is making a comeback. In spite of the inconvient facts derived from the Chilean experience, Romney, Gingrich, Cain, and Perry have resurrected it.

All the nomination aspirants are advocating one version or another of this plan. No matter that in Chile, and other countries where there is a private pension option, the rest of ther social safety nets are much more extensive and secure than ours. For example, Chile has a comprehensive, single-payer, national heath care system that covers everyone.

If we look at what Rick Perry has been saying about Social Security, to make sure we know he is a Real American and not influenced by any "foreign" ideas, he has been touting the Galveston Plan. Galveston, of course is in his home state of Texas.

The government there withdrew its public workers from Social Security and placed them in a locally run savings plan. Perry asserts this has been a good thing--that when teachers and policemen retire they do better than they would if they had stayed in the Social Security system, (Recall that Perry also played with the idea of having Texas secede from the Union when the U.S. economy hit the fan.)

As Herman Cain and Mitt Romney ignore the facts on the ground in Chile, Perry avoids them when it comes to Galveston. If one were to compare Social Security with the Galveston Plan, one would quickly notice that Galveston workers and their employers (Galveston taxpayers) are required to pay more into the private system than they would into the federal system. A total of 13.9 percent annually as compared with 12.4 percent.

Over time this amounts to real money. Also, and this should come as no surprise, the retirement benefits in Galveston County are considerably higher for high-income workers and substantially lower for lower-income workers than if both had participated in Social Security.

Since Galveston keeps coming up, it is little noted that it is in Ron Paul's congressional district. Paul's views of Social Security are even more Ayn Randian than Milton Friedman's. He has repeatedly said that it is unconstitutional (as are, in his view, Medicare and Medicaid) and thus people should be allowed to opt out entirely. If old folks wind up with no money to live on--or need to have an operation--if their families can't pay for them, they should be allowed to die. That view was roundly applauded by the audience at one of the early GOP debates.

And then when in 2008 Paul's Galveston was devastated by Hurricane Ike, to demonstrate his blind and brutal consistency, Congressman Paul voted to deny federal funds for the stricken city.

He argued, "Where in the Constitution does it say . . .?"