Wednesday, June 18, 2008

Peter Ferrara on Obama von Bismarck

Peter's policy proposals aren't exactly my cup of tea, but in the interests of full coverage – and because I think the title is pretty clever – here's a link to his piece in the American Spectator. Here's the lead-off:

For all his talk of a new politics of change and unity across partisan lines, Barack Obama said last week that as President he would deny working people the freedom to choose a better deal for Social Security. No real change for that program, adopted over 70 years ago, following the model adopted by German Chancellor Otto von Bismarck in 1889.

I think he overstates the merits of the Ryan-Sununu plan, which he designed, but that's an issue for another day.


Bruce Webb said...

Chile is a success story only if you cover one eye and squint with the other. For example we have this discussion (with link and excerpts from NYT article) at EV that shows that pension reform was a big issue in the 2006 Chilean elections Chile Confronts Problems Caused by Social Security Privatization. I find this to be kind of typical. People say 'Galveston' or 'Singapore' or 'Chile' touting them as proof of something or other, yet when you poke into the details it is never quite as rosy as pictured.

For a more critical commentary on Chile hear is a piece from some anti-privatizers Trouble in Paradise

Andrew G. Biggs said...

Chile's primary issues were 1) non-coverage of the self-employed; this was an issue in their prior system and wouldn't be an issue in the U.S. A main driver of non-participation by self-employed was a generous minimum benefit, so folks who chose to participate often wouldn't have gained by doing so. And 2) high administrative costs for the accounts. As the accounts have matured (and partly due to further government regulation) costs have fallen. I don't have a number off the top of my head, though I'm confident that admin costs are well below those typical for US mutual funds.

Chile isn't a perfect system by any stretch. But the average replacement rate is around 80%, versus 40% for the U.S., so it can't be all bad...

Bruce Webb said...

Chile subsidizes the losers out of their equivalent of the General Fund. Moreover the contribuition rate is such that if adopted here would backfill the difference between LC and IC. I would be interested to see some reporting on an apples for apples basis.

Andrew G. Biggs said...

Bruce, I'm not sure I'm following your comment. Yes, the guaranteed minimum pension (of which I'm not a big fan) is financed out of general revenues. I believe the cost is around $70 million per year, and overlaps in coverage with costs covered by SSI in the U.S. So I'm not sure that produces a large net cost increase.

The rest of the contribution is roughly consistent with that in the U.S., but maybe I'm not following the Low Cost/Intermediate Cost issue.