When it comes to entitlement “reforms,” lately we tend to think of Republican efforts to end Medicare’s guaranteed benefit and replace it with a private voucher scheme. It’s worth noting, however, that the GOP hasn’t given up on privatizing Social Security, either.
On “Fox News Sunday,” for example, Newt Gingrich said he’d like to see the United States adopt Chile’s system.
“Back in 1983, the last time we’ve tried to fix social security, if we had adopted a Chilean model where people have a personal account, there’d be $16 trillion in savings. Right today,” the Republican presidential contender said on “Fox News Sunday.”
“That’s how much the build-up would have been, just based on what’s happened in Chile, which is not a theory. It’s actually happening,” he said.
Just so we’re clear, Gingrich is saying the United States shouldn’t have gone with Reagan’s Social Security reforms, but rather, should have gone with reforms pushed by … Chilean dictator Augusto Pinochet.
But putting this aside, there are two larger problems with Gingrich’s argument. First, in Chile, the public was confronted with a little something known as a mandate – folks were required to purchase private investment accounts. Even Republicans, for all of their rhetorical acrobatic skills, may find difficult in the future to say federal mandates for investment accounts are fine, but federal mandates for health insurance are a communist plot to destroy civilization.
Second, Chile’s system was fine for everyone except the people who needed it: retirees. Many Chilean retirees ended up getting shafted – hidden fees “soaked up as much as a third of their original investment” – and would have been better off if they’d stuck with the public system before
This angle came up a bit in 2005, during the Bush/Cheney privatization effort, but so long as prominent Republicans continue to push the Chile line, it’s worth remembering how misguided the policy is.