Tuesday, 21 June 2005

Reforming superannuation the Reisman way

The problem of superannuation -- what Americans call Social Security -- is what predicated the 'Cullen Fund.' As baby boomers get older and there are fewer and fewer people in the workforce to pay for their pensions, the system begins to get into difficulty.

Invested wisely (as governments will always do) the 'Cullen Fund' is supposed to start picking up the tab at this point, just as President Bush's 'privatised' Social Security is intended to do in the US.

But as George Reisman says of the US system, the "problem is that implementing the President's proposal would almost certainly mean a major increase in the government's power over business... The consequences of the government's necessary control over such stock-market investments would be extremely grave. [To the extent such investments are successful] it would mean that the government would come to control a substantial portion of the stock of most major corporations in the United States."

As a famous National Party ad once said: when the government ends up owning the whole country -- you know what that's called!

And of course, should such investments be unsuccessful, we're all out of luck anyway -- and out of money. George Reisman doesn't just point out problems however. He also has a solution: "The only really proper reform of Social Security," he says, "is the gradual abolition of the whole system." Here in brief is how he proposes to go about it.

N.B. I'll just add these two 'backgrounders' to Reisman's proposal, the first -- from Director of Regulatory Studies from the Cato Institute Ed Hudgins -- stressing the moral themes of autonomy and independence with respect to arguments over superannuation; the second from David Kelley on the history, economics, and philosophy of social security. [Hat tip, Stephen Hicks.]


  1. I am not familiar with Reisman or the US system - just enough to know that things like 401K mean that what works there will not necessarily work here. For that reason, a home-grown approach to the super problem would be better.

    Separating out government ownership of the the Cullen Fund with its investment decisions is not difficult. If you can have a government at loggerheads with the central bank, you can have the degree of independence for fund management.

    The amendment of the current super system is also necessary here, though. At the very least it needs to be shrunk. There needs to be massive increase in incentives for workers to save for retirement. KiwiSaver was a one step forward but several giant steps backward. Whoever decided to attach the housing deposit should be kicked out of the civil service. The deposit component has completely bastardised the intention of the scheme.

  2. I believe he misrepresents Bush's proposals.

    But that tax waver idea is a smart one.

    And of course I like the whole idea. But unfortunately it will never be implemented. Old people vote. And they vote themselves into the pockets of the young and the workers. Democracy will not solve that without a major crisis.

    I predict we will have to wait for the collapse of the system, before we will see any reform.

  3. berend, that's so true and so sad!


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