Tag: pension

Thirty Years of Private Social Security in Chile

The big international story that broke on Sunday understandably was the death of Osama Bin Laden. But another big story was that May 1 also marked the thirtieth anniversary of the introduction of Chile’s successful private pension system. Implemented by José Piñera (now a Distinguished Senior Fellow at Cato) to replace unsustainable public pensions, private retirement accounts have averaged real annual rates of return of more than 9 percent, contributed to economic growth and the rise in savings, and helped turn working Chileans into capitalists. They’ve been a key to Chile’s economic progress and political maturity. The reform has been copied in part or in full by some 30 countries around the world. And contrary to what American critics on the left claimed at the time, private pensions weathered the global financial storm admirably. It’s only a matter of time before the United States and other rich nations begin addressing the crisis in public pensions in the same way. But the sooner the better. See this piece from Investor’s Business Daily on Chile’s system at 30.

Fiscal Imbalance and Global Power

Over at National Journal’s National Security Experts blog, this week’s question revolves around the health of the U.S. economy, and its relationship to U.S. power. 

The editors ask

How serious a threat is the mounting debt to the nation’s standing as the world’s only superpower? Can the U.S. continue to spend more than all other countries combined on its military forces given burdensome debt levels? In what other ways does the mounting debt undermine the country’s strategic position? […]

My response:

Our long-term fiscal imbalance, which increasingly amounts to a massive intergenerational wealth transfer, is clearly a sign of our decline. But it is a decline that has been a long time coming. (I first wrote about the insolvency of the Social Security system as a college sophomore, 23 years ago.) As such, it is tempting for people to assume that we’ll figure our way out of this mess before a complete collapse. Let’s call them, at the risk of a double negative, the declinist naysayers. And, even if they are willing to admit to the problem in the abstract, the naysayers can point to the more serious, and urgent, imbalances between pensioners and those who pay the pensions in Europe or Japan and say “At least we aren’t them.”

That is a pretty shoddy argument, but it seems to be ruling the day. We can talk about the obvious unsustainability of using taxes on current workers to pay benefits for retirees until we’re blue in the face. And my second grader can do the math on a system that was designed when workers outnumbered beneficiaries by 16.5 to 1, and in which, by 2030, that ratio will fall to 2 to 1. It simply doesn’t add up. (For more on this, much more, see my colleague Jagadeesh Gokhale’s latest.)

But this isn’t a math problem; this is a political problem. The incentive to kick the can down the road is overwhelming. The pain in attempting to deal with the problem in the here and now is, well, painful. It is hardly surprising, therefore, that members of Congress / Parliament / Bundestag / Diet, etc, have become very good at avoiding the issue altogether. And many of those who have chosen to tackle it are “spending more time with their families.”

What does all this mean for the United States’s standing as the world superpower? Less than you might think. Our difficulties in two medium-sized countries in SW/Central Asia have done more to puncture the illusion of American power than our political inability to deal with domestic problems. Our fiscal insolvency might convince other countries to play a larger role, if they genuinely feared for their safety. But other countries, especially our allies, are cutting military spending, while Uncle Sam continues to bear the weight of the world on his shoulders. In other words, our ability to maintain our global superpower status isn’t driven by our economic problems. But it is strategically stupid.

It is here that I take issue with Ron Marks’s contention that we spend less today than during the Cold War. While technically accurate, measuring military spending as a share of GDP is utterly misleading (as I’ve argued elsewhere.) If the point is to argue that we could spend more, I agree. But the measure doesn’t address whether we should do so.

We should think of military spending not as a share of the American economy, but rather relative to the threats we face. In real terms (constant current dollars), we spend today more than when we were facing down a nuclear-armed adversary with a massive army stationed in Eastern Europe and a navy that plied the seven seas from Cam Ranh Bay to Cuba. We spend more than during the height of the Vietnam or Korean Wars. Today, terrorist leaders are hunkered down in safe houses somewhere in, well, somewhere. In other words, what we spend is utterly disconnected from the threats we face, a point that is easily obscured when one focuses on military spending as a share of total output.

We spend so much today not because we are facing down one very scary adversary, but because we are facing down dozens or hundreds of small adversaries that should be confronted by others. After the Cold War ended, our strategy expanded to justify a massive military. Since 9/11, it has expanded further. Our fiscal crisis alone won’t force a reevaluation of our grand strategy. It will take sound strategic judgement, and a bit of political courage, to turn things around.

In the cover letter to his just-released National Security Strategy, President Obama acknowledged that it doesn’t make sense for any one country to attempt to police the entire planet, irrespective of the costs. Unfortunately, the document fails to outline a mechanism for transferring some of the burdens of global governance to others who benefit from a peaceful and prosperous world order. We should assume, therefore, that the U.S. military will continue to be the go-to force for cleaning up all manner of problems, and that the U.S. taxpayers will be stuck with the bill.

Those Who “Serve” Us Celebrate

adamsThose who think that the college-educated, or soon to be so, should have more and more of their education funded by taxpayers – whether those taxpayers themselves attended college or not – are shooting off the fireworks a bit early this year, celebrating increasingly generous federal aid going into effect today.

Perhaps the most galling part of all the increasingly free-flowing aid is how much is being targeted at people who work in “public service.” Ignoring for the moment that the people who make our computers, run our grocery stores, play professional baseball, and on and on are all providing the public with things it wants and needs, to make policy on the assumption that people in predominantly government jobs are somehow selflessly sacrificing for the common good is to blatantly disregard reality.

Consider teachers, as I have done in-depth. According to 2007 Bureau of Labor Statistics data, adjusted to reflect actual time worked, teachers earn more on an hourly basis than accountants, registered nurses, and insurance underwriters. Elementary school teachers – the lowest paid among elementary, middle, and high school educators – made an average of $35.49 an hour, versus $32.91 for accountants and auditors, $32.54 for RNs, and $31.31 for insurance underwriters.

So much for the notion that teachers get paid in nothing but children’s smiles and whatever pittance a cruel public begrudgingly permits them.

How about government employees?

Chris Edwards has done yeoman’s work pointing out how well compensated federal bureaucrats are, noting that in 2007 the average annual wage of a federal civilian employee was $77,143, versus $48,035 for the average private sector worker. And when benefits were factored in, federal employee compensation was twice as large as private sector. But don’t just take Chris’s word and data to see that federal employment is far from self-sacrificial – take the Washington Post’s “Jobs” section!

And it’s not just federal employees or teachers who are making some pretty pennies serving John Q. Public. As a recent Forbes article revealed, it’s people at all levels of government, from firefighters to municipal clerks:

In public-sector America things just get better and better. The common presumption is that public servants forgo high wages in exchange for safe jobs and benefits. The reality is they get all three. State and local government workers get paid an average of $25.30 an hour, which is 33% higher than the private sector’s $19, according to Bureau of Labor Statistics data. Throw in pensions and other benefits and the gap widens to 42%.

Recently, my wife and I have been watching the HBO miniseries John Adams, and I couldn’t help but make the observation: In Adams’ time, many of those who served the public truly did so at great expense to themselves, often risking their very lives and asking little, if anything, from the public in return. Today, in contrast, many if not most of those who supposedly serve the public do so at no risk to themselves – indeed, unparalleled security is one of the great benefits of their employment – but are treated as if their jobs are extraordinary sacrifices. And so, as we head into Independence Day, it seems the World has once again been turned upside down: In modern America, the public works mightily to serve its servants, not the other way around.

The Tax-Defying DC Detective

One of the most read articles on today’s Washington Post website tells the story of a DC detective who tried to get away with not paying federal income taxes.  Here’s what caught my eye:

But federal prosecutors said the 18-year law enforcement officer – who earned $180,000 in 2005, most of it in overtime – should have known better.

$180,000?  Wow – that’s a lot of taxpayer money for a single police officer.  In addition, the odds are pretty good this fellow is going to receive extremely generous retirement benefits, which taxpayers will also be on the hook for.  That he apparently earned the bulk of his salary in overtime also made me wince.  I recall from my days in a state budget agency that the state police liked to play the same game.  Thus, I find it irritating when state and local government officials discuss laying off police officers during an economic downturn and the media pay little or no attention to the salaries and benefits these folks are receiving.