The NYT brings us the disturbing news that Chile's private pension system is not delivering on the promises that it made to workers 25 years ago when it was established. As an example, the unfortunate experience of Dagoberto S'aez is highlighted. Apparently Mr. S'aez voluntarily entered the private system when it was established believing that he would be better off than those who stayed in the public system. Now, 24 years and a heart condition later, Mr. S'aez finds that he will earn only $315 a month from his plan compared to $700 for his colleagues that remained with the public system. The obvious implication is that the system President Bush is suggesting will lead the American worker to the same dismal fate.
However, several key points are either buried in the article or excluded completely:
1. The private system while producing an average of 10% annual returns has had up to 30% of those returns taken away by pension funds in the form of fees. Nobody proposes these fee levels in the U.S.
2. As many as half of all Chilean workers remain outside of the Chilean official economy as they are hired off the books. This simply is not the case in the U.S.
3. The Chilean system is mandatory for official workers entering the workforce after 1981, whereas the Bush proposal would be voluntary, and only partially private.
4. The Chilean stock exchange is dominated by only three companies and investors tend toward a herd mentality as a result. The U.S. market is the largest most vibrant in the world. U.S. investors would be allowed to invest in the U.S. or any number of other global stock exchanges.
5. Comparisons to the public payout are invalid since they don't consider what the public payout would be had all of these private accounts not been established.
So, there you go. Privatized accounts are bad, just look at Chile's experience, but please, don't consider the huge structural differences. They just ruin an otherwise frightening story.