For decades, Social Security has earned its status as the “third rail of American politics.” Even before the Katrina disaster undermined George W. Bush’s second presidential term, he blew his momentum from the 2004 election on an ill-fated reform of the national pension system that relied on partial privatization. Seven years later, one presidential candidate has called for a shift to the “Chilean model,” meaning a full privatization of Social Security — and he’s rising in the polls this past week. Has Herman Cain ended the “third rail” curse? Investors Business Daily thinks so:
Herman Cain’s victory in Florida’s straw poll is notable, among other things, for his advocacy of “Chilean Model” Social Security reform in a state filled with retirees. It ought to be a wake-up call to all candidates.
Aside from the insta-analysis about Cain’s victory being a protest vote against Texas Gov. Rick Perry, it’s worth noticing that — in Florida, no less — both Cain and Perry, who finished first and second in the weekend’s GOP straw poll, were the two most outspoken candidates about confronting the U.S. crisis in Social Security.
It completely ends the notion that addressing the issue of unfunded pension liabilities — in Social Security, Medicaid and Medicare — is the third rail of politics.
Chile solved a huge fiscal problem by privatizing their pension system in the early 1980s. As IBD reports, pensioners get about four times as much money as they would have from Chile’s failing system had it continued to be bailed out by the government. It also easily outperforms Social Security with an average annual compound return of 9.23% since the 1981 conversion. It also had the benefit of taking pensions out of the political arena, while allowing the Chilean government to shed an enormous budgeting albatross.
Can that work in the US? Of course, but the question will be whether voters see our plight on Social Security as being as desperate as it was for Chile in 1981. Mitt Romney’s proposal for a series of tweaks would probably solve most of the problems we see in the program, especially if retirement ages get indexed to life expectancy. Voters might be more inclined to opt for evolutionary changes rather than revolutionary changes if they think the former will suffice. That’s still a positive change from the “third rail” curse, but I’m not sure that translates into a mandate for tossing out the old system altogether, even if it should be tossed, perhaps especially because of its political weight.
Social Security isn’t the real problem in entitlements anyway; Medicare is a much bigger problem, and no Republican candidate has addressed that in the debates. We hear plenty of talk about repealing ObamaCare, but very little in the way of follow-up to that task. Paul Ryan has a series of proposals on how to accomplish that, in part through greater private control, but the candidates haven’t done much to discuss the implications of the coming Medicare collapse and how to avoid it.