The U.S Comptroller General and head of the GAO, Government Accountability Office, has described the entitlements crisis facing this country as a "tsunami" that approaches while we continue to party on the beach.
What GAO head David Walker is talking about are the massive upcoming obligations under Social Security and Medicare that we have no funds to meet. Tens of trillions of dollars of supposed commitments, promises made to us by our government, that today we have no clue how we'll pay.
In those rare moments when our political "leaders" screw up sufficient courage to acknowledge this dark and ominous fiscal cloud hanging over us, the discussion is invariably technical. Proposed tax increases, cap increases, retirement age increases, benefit cuts, indexing -- all geared to "save the system."
But who has considered that, despite all the discussion about unfunded liabilities, what we really have on our hands is, at root and core, a moral crisis?
No one explains this better than my friend Jose Pinera.
And no one has better credentials to talk about this problem.
Twenty seven years ago, in November 1980, Chile, Dr. Pinera's home country, approved Social Security reform in which a tax-based, pay-as-you go government retirement system -- essentially identical to what we have here -- was replaced with an ownership based system of individually owned retirement accounts. Yes, in principle the kind of reform that President Bush proposed.
As the then youthful Minister of Labor and Social Security of Chile, Pinera was the godfather, mastermind, architect, navigator, and quarterback of the reform.
Key in execution was to allow every Chilean worker the dignity of choice.
They could choose to stay in the existing system, continue to pay payroll taxes, and qualify for government benefits at retirement, or they could get out and use those same funds to open and invest in their own personal retirement account.
Within months, 90 percent of the Chilean workforce opted out of the government system and into their own personal ownership regime.
The result has been more than just an enormously successful transformation of a failed government retirement system. Chile's social security privatization -- if I may use the word that politicians, even the conservative ones, choke on these days -- has been a driving piston in Chile's economic engine, now the most powerful in Latin America.
The average real (adjusted for inflation) annual return of Chile's personal retirement accounts over the last 26 years has been over ten percent (the historical real annual return on stocks in the U.S. is 7 percent).
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