Making Old Age Less Safe

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 privatizing pension systems, as President George W. 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, privatization is clearly not the solution. America’s troubled private pension system – now several hundred billion dollars in debt – already appears headed for a government bailout. There was a time when privatization – allowing individuals to set up individual savings accounts – seemed better than Social Security, which invests in lower-yielding Treasury bills. Advocates of privatization argued that funds would do much better if invested in stocks, predicting a return of 9%.

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