Power to the people

Recently, NY Times columnist John Tierney slipped the surly bonds of the editors and put out an article detailing how the Chilean pension system could be the model for Social Security reform. Of course he was, in his words, “deluged with letters from readers eager to explain why I am a superficial nitwit.” The main criticism seems to have been that Tierney’s estimations about gain under the Chilean system are unreasonable and private investment could lead to devastating losses in the United States.

Maybe, but probably not, given the long-term gains of a diversified stock-bond mix. Nevertheless, Tierney reveals yet another reason why the Chilean people love their personal pension accounts: it keeps the money out of the hands of politicians.

But there's also another kind of risk to consider, one that Chilean workers kept mentioning to me. The best part of their private accounts, they said, was that they'd put "la plata donde mis ojos la vean" - the money where my eyes can see it. They knew they might lose some of it in the stock market, but they preferred that to watching it all disappear into politicians' hands.

The Chileans and most Americans understand that money doesn’t lay around Washington too long before it’s spent. Here’s an object lesson in the difference between the current entrenched Social Security system and the potential future:

I can't protect my pension against political risk, but Pablo can help protect his against the risks of the stock market. As he approaches retirement, he can gradually shift his money out of stocks and into bonds, like the ones that financed the private road between Santiago and the port city of Valparaiso, which will be paid off by tolls. The Chilean pension system has billboards along the road proclaiming, "Your savings are financing this highway, and this highway is financing your retirement."

Those billboards have been on my mind. My pension depends on 535 politicians who will be asked to vote for steep tax increases or budget cuts that they fear could cost them their jobs. Pablo's pension depends on people driving between Chile's two largest cities.

It’s time to drag this Depression-era program into the 21st century and return the power of the pocketbook to the people.