Soft privatization

Enrique Diaz-Alvarez enrique at anise.ee.cornell.edu
Mon Aug 3 08:21:31 PDT 1998


Max Sawicky wrote:
>
> > . . .
> > Social Security as it is structured now is a pooling of resources
> > to meet a risk, the risk being that you won't be able to earn a living
> > because of disability or age or death (this last case affecting
> > the family of the deceased). The second part is that it is
> > pay-as-you-go. I rather like this idea, and hope it is kept.
>
> The vulnerable part of the program is not insurance against
> disability, which is generally not addressed in privatization
> plans, but the retirement piece.
>
> Since everyone looks forward to retirement, the question
> becomes why have insurance rather than saving for persons
> who live long enough to retire? One rationale is
> paternalism; people won't save enough or wisely and
> bug the rest of us when they are old and destitute.
> Another is 'poverty insurance.' The benefit
> formula favors those with relatively low earnings
> over their lifetime.

How about a third rationale, efficiency? SS administrative overhead is less than 1% of yearly inflows. The typical no-load mutual fund charges around 2% of _assets_ in fees, which would turn out to somewhere between 20% and 30% of yearly inflows (if I remember correctly, that's roughly how much the Chielan finance industry skims off the retiment system there).

Have we got to the point were it is simply not possible to talk about public sector efficiency?


>
> MBS

-- Enrique Diaz-Alvarez Office # (607) 255 5034 Electrical Engineering Home # (607) 758 8962 112 Phillips Hall Fax # (607) 255 4565 Cornell University mailto:enrique at ee.cornell.edu Ithaca, NY 14853 http://peta.ee.cornell.edu/~enrique



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