Throwing off the entitlement mindset

Written by Star Parker
Posted: November 3, 2007
1:00 a.m. Eastern

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 Piñera. And no one has better credentials to talk about this problem.

Twenty seven years ago, in November 1980, Chile, Dr. Piñera'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, Piñera 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).

And Chile catapulted from one of the lowest per capita GDP countries in Latin America in 1980 to the highest today.

But, where, amidst all this great economic news is the moral lesson?

In talking about the transformation of all pension systems -- government and private alike -- from defined benefit (controlled by others and they tell you what you'll get) to defined contribution (you own it, and put your own funds into it), Piñera touches the root of the problem of today's welfare state He sums things up, pointing out that "life is not a defined benefit."

When our founding fathers signed off, in our Declaration of Independence, on the words that "all men are endowed by their Creator with certain inalienable Rights," they meant "rights" to live your life freely and unimpeded by others. Government's job, as the Declaration goes on, is "to secure these Rights." It's there to protect you.

Over the years, as we've become intoxicated with our own success, and detached from our own roots and principles, our understanding of "rights" and government has morphed into things altogether different. "Rights" have become what everyone is allegedly entitled to (our claims on others) and we look to government to enforce delivery of these entitlements.

The ocean of Social Security and Medicare red ink in which we are about to drown speaks to the efficacy of the entitlement mindset. The nanny state violates, rather than protects, our rights. It doesn't work.

Today we must look to Chile to learn what America's founders knew. Freedom is built on and fueled by personal responsibility

In an international survey released by the Pew Global Attitudes project last July, 62% of Chileans responded that they expect the next generation to be better off than their parents -- highest in Latin America.

In a just released USA Today Gallup poll, only 46% of respondents in the U.S. expressed optimism that the next generation in our country would "live better than their parents."

The entitlements crisis is a moral crisis and we ought to grasp that ownership is part of the "values" agenda. Life is not a defined benefit.

Star Parker is a regular commentator on CNN, MSNBC, and FOX News as well as author of White Ghetto: How Middle Class America Reflects Inner City Decay.

Throwing off the entitlement mindset"

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