Will Retirement Become a Personal Responsibility; L. W. Reed

Of course, don't rule out the prospect of a reduction in benefits, which might come in one or more disguises such as raising the age at which one can begin collecting checks. This much is clear: trusting to politicians to take care of you in your old age is costly, unpredictable, and therefore dangerous. Those who warned of this when the system was established in 1935 were pilloried as Lawrence w: Reed, economist and author, is president ofthe Mackinac Center for Public Policy, a free-market research and educational organiza tion headquartered in Midland, Michigan. by Lawrence W. Reed heartless and stingy but they now look like the wisest prophets of their day. It's too bad many of them are not around in 1997 to help us untangle the mess they foretold. As a solution, advocates of the privatiza tion of Social Security often point to Chile's remarkable success in that very endeavor. But Americans need not look any further than Great Britain for some of the same lessons. British workers, optimistic about how they'll fare in their senior years, are relishing the prospect of a pool of pension funds greater than that of all other Euro pean countries combined.

Why do the British have far less anxiety about their financial future than their American counterparts? They are not, as a Heritage Foundation report recently pointed out, "locked into a rigid, financially troubled government-run system." A few years ago, Britain partially privatized its retirement program, allowing workers to invest a portion of their payroll taxes in private pension funds. While Americans are not permitted to invest any amount of their 12.4 percent Social Security payroll tax in private equities or retirement plans, three quarters of all British workers are enrolled in private plans through their payroll taxes. Since 1986, Britons have been earning double-digit rates on their retirement funds while today's young working Americans must hope to live well beyond the age of 100 before their "investment" in Social Security begins to payoff. What's good for the workers is good for the Treasury as well.

731 732 THE FREEMAN • DECEMBER 1997 The Heritage Foundation report, "Social Security Privatization in Britain: Key Les sons for Reformers," says that by restruc turing and privatizing their pension system, allowing consumer choice and competition among private pension plans, and control ling entitlement spending, the British have amassed a pool of financial assets (or cap ital) second only to the United States and Japan. Officials are even predicting that at the rate things are going, Britain will payoff its entire national debt by the year 2030! While both Chile and Britain are valuable models, Americans have domestic examples to learn from. Three counties in Texas had the good sense to get out from under the Social Security pyramid scam years ago. A loophole in the original Social Security law allowed municipalities the freedom to opt out, an escape hatch Congress closed in 1983. Three Texas counties took advantage of it while it was in effect and as a result, retirees under the private plans in use there are getting several times the monthly re tirement check they would have received had they stayed in the government system.

Recently, the Oregon legislature over whelmingly passed a resolution calling on the federal government to allow states to get out of Social Security. Of course, those who worship govern ment, and who think that you and I can't be trusted to take care of ourselves, are work ing their PR machine overtime to preserve the precarious status quo. A new study from the Cato Institute, however, is giving the privatization side plenty of ammunition with which to rebut the statists. Would putting your retirement nest egg in the private sector be too risky? The Cato report, "Common Sense Objections to a Market-Based Social Security System: A Response," shows that even if a worker invested his payroll taxes during the stock market's worst performing quarters in his tory, he could still retire better with private savings than with Social Security. Over the last 70 years, a period that includes the biggest stock crashes in history, stocks and bonds have averaged an annual rate of return of over nine percent-far in excess of the average annual Social Security return of a paltry two percent.

Would paying the cost of private pension fund management make the idea too ex pensive? It's true that the government spends less to manage Social Security mon ies than private firms spend to manage their assets, but that's because the government invests poorly in its own low-paying securi ties. You get what you pay for. Paying pri vate managers to generate a far higher return is a good investment, pure and simple. While it is encouraging to see privatiza tion of Social Security become a genuine topic of wide discussion, every plan put forth so far retains a core element of compulsion. "A privatized system," writes one prominent limited-government advo cate, "should require a mandatory contri bution to ensure that those opting out of Social Security are actually saving money for their retirement." It's a sad commentary on the many decades of increasing reliance on government that even many friends of freedom believe that Americans might not save if the government didn't order them to.

Social Security, make no mistake about it, will ultimately be privatized partially or wholly. America will not forever lag behind Chile and Britain just so it can maintain an antiquated and politicized pension sys tem that's headed for bankruptcy. It's time that Americans take back a responsibility they should never have trusted to govern ment in the first place, one way or another, the sooner the better. D THEFREEMAN IDEAS ON LIBERTY The Efficiencyof NaturalRights by Wendy McElroy T he Hobbesian contention that an almost biological conflict of interest exists be tween human beings, who must compete for scarce necessities, is a stumbling block for those who espouse natural rights. Certainly, it is a common avenue of attack used by critics of natural law. They demand to know how, in a Hobbesian state of nature, where one man's life requires the death of another, can it make sense to speak of a natural right to life, liberty, or anything else? Nature her self seems to argue against the possibility.