PROJECT ON SOCIAL SECURITY PRIVATIZATION




Social Security: The Inherent Contradiction



Public Opinion and Social Security Privatization



Privatizing Social Security: A Big Boost for the Poor


Empowering Workers: The Privatization of Social Security in Chile



Social Security: Facing the Facts



Dismantling the Pyramid: The Why and How of Privatizing Social Security



Retiring with Dignity: Social Security vs. Private Markets



Testimony: Social Security & Baby Boomers

  On August 14, 1995, the 60th anniversary of Social Security, Cato held a press conference to inaugurate its Project on Social Security Privatization. That event was televised by C-SPAN and covered by ABC’s Good Morning America. The objective of Cato’s Project on Social Security Privatization is to formulate and recommend a viable ‘blueprint’ for privatizing the U.S. Social Security system. The Project is directed by Cato’s director of health and welfare studies, Michael Tanner, and is co-chaired by José Piñera, Chile’s former labor minister and architect of that country’s private pension system, and William Shipman, principal at State Street Global Advisors. A standing advisory board of experts on Social Security has also been appointed that includes Nobel-laureate economist Gary S. Becker and Dorcas Hardy, former commissioner of Social Security (1986-1989). Feature articles on the Project have appeared in Congressional Digest, Pensions & Investments, and National Journal, which reports that Cato "is the center of action" to privatize Social Security.

 

Recent Highlights

Studies:

"Public Opinion and Social Security Privatization," by Cato’s director of health and welfare studies, Michael Tanner. Although Social Security remains one of the most popular government programs, most Americans understand that the system faces serious future financial problems and would support privatization of the retirement system, according to the results of a poll conducted by Public Opinion Strategies on behalf of Cato’s Project on Social Security Privatization. This Social Security Paper summarizes the poll’s findings: More than 88% of Americans believe that Social Security either is in trouble today or will be in trouble within the next 20 years. Fully 60% of Americans under age 65 believe Social Security will not be available for them when they retire. As a result, more than two-thirds believe that Social Security will require "major’ or "radical" change within the next 20 years. The paper generated more than 100 print news stories nationwide.

"Privatizing Social Security: A Big Boost for the Poor," by Cato’s director of health and welfare studies, Michael Tanner. This Social Security Paper demonstrates that the poor would be among those who gain most from Social Security Privatization. Although the the current Social Security system is ostensibly designed to be progressive, transferring wealth to the elderly poor, the system actually contains many inequities that leave the poor at a disadvantage. For instance, the low-income elderly are much more likely than their wealthy counterparts to be dependent on Social Security benefits for most or all of their retirement income. But despite a progressive benefit structure, Social Security benefits are inadequate to provide for the elderly poor’s retirement needs. By providing a much higher rate of return, privatization would raise the income of those elderly retirees who need it most. In addition, any benefits remaining at their death would become part of their estate, inherited by their heirs.

"Empowering Workers: The Privatization of Social Security in Chile," by project co- chairman José Piñera. In this Cato’s Letters booklet, Piñera reviews the Chilean experience and its successes: the transfer of 93% of the labor force to a private pension system, the boosting of Chile’s domestic savings rate to 26% of GDP, the economic growth rate of 5.4% annually, and the annual return on pension investments of 13%.

"Social Security: Facing the Facts," by Mark Weinberger, former chief of staff and counsel for the Bipartisan Commission on Entitlement and Tax Reform. This Social Security Paper argues that Social Security must be reformed now. Anyone who has taken the time to sort through the recent Social Security trustees’ report, says Weinberger, knows that the program is not sustainable in its current form. Of the total $1.53 trillion in federal expenditures in 1995, Social Security was the largest, accounting for nearly 22 percent. By 2005, he says, spending is expected to reach $556 billion (in constant dollars). Alarmingly, the baby-boom generation will not begin retiring until approximately 2010, causing the cost of the program to balloon enormously. An impending fiscal imbalance is mathematically certain. The only way for politicians to keep their commitment, concludes the paper, is if the program’s future beneficiaries act to reform Social Security today.

"Dismantling the Pyramid: The Why and How of Privatizing Social Security," Karl Borden, professor of economics at the University of Nebraska. Social Security is an unfunded ‘pay- as-you-go’ system, fundamentally flawed and analogous in design to illegal pyramid schemes. This Social Security Paper examines the design options involved in the transition to a fully-funded, privatized Social Security system.

"Retiring with Dignity: Social Security vs. Private Markets," by William Shipman, principal at State Street Global Advisors and co-chairman of Cato’s Project on Social Security Privatization. This Social Security Paper contrasts the expected returns of Social Security with those of stock and bond investments. For example, high-wage earners who were born in 1970 stand to earn $1,908 a month from Social Security when they retire, and $11,729 a month if they could invest their Social Security taxes in stocks.

Policy Events:

"Reforming Social Security in Mexico," a conference was held in Mexico City with project co-chairman José Piñera, project director Michael Tanner, and Cato president Edward H. Crane. The conference was co-sponsored by the Centro de Investigaciones Sobre la Libre Empresa in Mexico City and El Economista newspaper.

"Promises to Keep: Saving Social Security’s Dream," a Policy Forum featuring William Shipman, principal at State Street Global Advisors and co-chairman of Cato’s Project on Social Security Privatization. Shipman discussed his new book, Promises to Keep: Saving Social Security’s Dream, co-authored with financial expert Marshall N. Carter. Shipman and Carter propose a solution to Social Security’s impending bankruptcy that would allow people the freedom to invest their FICA taxes in financial assets that will more than meet retirement needs at a fraction of Social Security’s cost.

"No Longer the Third Rail," a Policy Forum with Cato’s director of health and welfare studies, Michael Tanner, and Bill McInturff, partner at Public Opinion Strategies. For more than 60 years the Social Security system has been the primary source of retirement income for elderly Americans. As a result, Social Security is one of the most popular of all government programs. Today, however, most Americans understand that Social Security faces serious financial problems and according to poll conducted by Public Opinion Strategies on behalf of the Cato Institute, most Americans now support privatizing Social Security

"A Progressive View of Social Security Privatization," a Policy Forum featuring former congressman Tim Penny (D-Minn.); Robert Shapiro of the Progressive Policy Institute; Sam Beard, former aide to Sen. Robert Kennedy; and Rep. Charles Stenholm (D-Tex.), co-chair of the Congressional Public Pension Reform Caucus. Although privatizing Social Security is often described as a ‘conservative’ idea, support for reform cuts across political lines. During this Capitol Hill forum, a panel of prominent progressives examined the impact that privatizing the retirement system would have on the poor, economic growth, job creation, and the federal budget.

 

Upcoming Activities

Studies:

"Privatization and Economic Growth," by Martin Feldstein, professor of economics at Harvard University and former member of the President’s Council of Economic Advisers. This Social Security Paper will argue that the combination of improved labor market incentives and higher real return on savings under privatization will add more than $15 trillion to the GDP.

"Privatizing the Social Security trust Fund? Don’t Let the Government Invest," by Krzysztof Ostazewski, professor of mathematics at the University of Louisville. This Social Security Paper will make the case that individuals should be able to decide where to invest their Social Security taxes.

"Financing the Transition," by David Alteg, chief economist at the Federal Reserve Bank of Cleveland. This Social Security Paper will put forth a design scenario for funding the move from the current Social Security system to a private pension system.

"Pension Reform: A Global Perspective," by project co-chairman José Piñera. This Social Security Paper will look at how various countries throughout the world—from Chile to Singapore—deal with the issue of Social Security. Piñera will look at Social security reform in Singapore, Argentina, Peru, Colombia, Uruguay, and Mexico. The paper will also look at Italy, which has begun to privatize some aspects of its social security system and Britain, which provides a low minimum benefit through its traditional pay-as-you-go Social security system, but has also allowed people to opt out of its benefits above this minimum through contributions to an expanded IRA.

"The Impact of Privatization on Financial Institutions," by William Shipman, principal at State Street Global Advisors and co-chairman of Cato’s Project on Social Security Privatization. This study will outline the probable economic and regulatory impacts of privatization on the financial services industry.