Much of the criticism and skepticism about partial privatization of the Social Security system has derived from fear of trying something new. Many don’t want to take the risk that the new system might fail.
First of all, it should be noted that if an individual who opts for a personal retirement account (PRA) does not want to “risk” any of his retirement on the stock market, all he has to do is invest his money in the same type of U.S. Treasury bonds that the Social Security system does.
Second, to calm their fears, those who oppose the idea of PRAs should take notice of several examples where systems of private investment have worked.
The countries of Chile, Great Britain and Australia are among those that have tried private investment. In all three countries the average return rate has exceeded what would be expected in a government program similar to our Social Security system.
But one need not look to other countries for examples. In 1981, Galveston County, Texas, among other local municipalities utilizing an option available before 1983, allowed its employees to opt out of Social Security and into PRAs.
Cybercast News Service reported, “For the period from 1982 through 1997, the rate of return on funds invested in the Galveston plan has averaged 8.6 percent, a return more than 400 percent greater than Social Security.”
The National Center for Policy Analysis said that under the Galveston plan, “A $50,000-per-year worker would receive $6,843 (per month) from the private plan, compared to $1,302 (per month) from Social Security.”
Also under the Galveston system, as is proposed under President George W. Bush’s plan, the retirees can pass on their money to their children when they die — something not possible under the current Social Security system.
I recently had the chance to speak with Philip Porter, the director of the USF College of Business Administration’s Center for Economic Policy Analysis, about the subject of Social Security privatization. Porter said that as far as he is concerned, we have to privatize, if for no other reason than to find out for sure if it is a better system.
“If it works, it’s a win-win,” said Porter. “It means that we save Social Security without cutting payments, without raising taxes.” He added, “Everybody who volunteers to try this experiment, if it fails, they’re going to get a little less, not a lot less.”
Porter explained that this would be the case because they would be allowed only to invest about one-third of their payroll taxes into personal accounts. He also said that the stock market won’t fail entirely; it may only be stagnant and not grow very much. If, by some chance the market does crash, Porter explained, “The United States will crumble anyway and your Social Security won’t be coming from government either way.”
Porter noted that if the system fails, we would then know that it would not be the way to solve the problem, but if it succeeds, he said, “We solve every problem that we’ve got. So why wouldn’t we try it?”
We already know what the current system brings us: low returns, higher government debt and a younger generation in fear that the system won’t be there for them when they retire. We also know that privatization has worked in many places. So why not experiment on the national level?
Such experimentation is the root of successful reform. Without testing out new ideas and learning from mistakes, society would never progress.
The same experimentation should be done with a system of PRAs, which is truly a risk worth taking. Nothing risked, nothing gained.
Adam Fowler is a seniormajoring in political email@example.com