No Free Lunches for Pensioners

[dweller]

Bush's deceptive plans for the US social security system show why privatisation is not
the answer to the global pensions crisis
by Joseph Stiglitz

It is almost an optical illusion: looming on Japan's horizon, and on Europe's and on America's, is a pensions crisis.
The problem is real, though exaggerated. The illusion is in some of the plans being devised to deal with it.

The main question is whether privatising pension systems, as George Bush has proposed for social security in the
United States, would solve the problem or merely make matters worse. With many countries pondering whether to
adopt variants of the Bush plan, the question requires careful examination.

By itself, privatisation is clearly not the solution. America's troubled private pension system - now several hundred
billion dollars in debt - already appears to be heading for a government bail-out. There was a time when privatisation -
allowing individuals to set up individual savings accounts - seemed better than social security, which invests in
lower-yielding Treasury bills (government bonds). Advocates of privatisation argued that funds would do much better if
invested in stocks, predicting a return of 9%.

But the stock market does not guarantee returns; it does not even guarantee that the stock values will keep up with
inflation - and there have been periods in which they have not. America's social security system insulates individuals
against the vagaries of the market and inflation, providing a form of insurance that the private market does not offer.


interesting observation at the end of article

dp