Privatization of Social SecurityEssay Preview: Privatization of Social SecurityReport this essayRecently, the future state of Social Security has been a hot issue in our country. Somefeel that the remedy for any future problems is the privatization of Social Security. While thismay be good on paper, it is a horrible idea. The national government is pushing more infavor of privatization of Social Security, and will indeed affect Americans in a negative waybecause future retirees wont be protected against inflation, it has been unsuccessful in othercountries, and people will not have total control over their money in private accounts due to theunexpecting fluctuation of the stock market.It is important that our future retirees be granted the benefits that they deserve.With the privatization of Social Security however, due to inflation this will be near impossibleto complete. One of the factors of privatization is that people will be charged for the interest rateof inflation and an additional three percent to compensate for the federal money that was used tocreate the account. I feel that this is ludicrous because in history it has been proven that inflationhas hurt the stock market. The government is unable to always control inflation. If it wascontrollable then this crisis could have been avoided in the past. If this pattern continues, andit most likely will, people with private accounts will end up getting hit with higher interest rates.In return, these people will have less money in their actual accounts because they have to payoff the high interest rates that were caused by inflation just so they could have the account. Alsounder the current proposed plan it is required that all privatization plans be converted to annuitythat will make payments to them in monthly installments for their lifetime. If inflationprotection is not then provided for these annuities it will be a disaster. When inflation occurs thebuying power of those monthly payments will decrease, thus making these retirees unable topurchase as many necessities to live. If an inflation protection plan is implemented then it willmore than likely prove to be very expensive. Which will then in-turn cause a cut back inmonthly benefits at the outset of the program. All in all, future retirees will not see the benefitsand rewards of their hard work due to most of it being lost to rising interest rates they will haveto pay.Secondly people who support privatization seem to fail to realize just how unsuccessfulthis plan has been in other nations. The first and most famous nation for implementing this wasChile, who did so in 1981. Now 24 years later, Chiles social security system is in such a messthat all of its political parties agree, regardless of beliefs, that it should be abolished as soon aspossible. Supporters of privatization list Chiles system as a great example and success.However, it is crazy to do so because this was done out of impending collapse of Chilesfinancial system. It was not done to better Chile, but was created as a quick fix for the mess.The military dictatorship in control at the time, had made of the economy. As a result, manyother Latin American countries who were in the same financial system followed suite.Therefore, this action made South Americas economy as a whole a disaster for many years tofollow. This point alone should prove the horrible downfall of this plan.Another factor to be considered is the fluctuation of the stock market. Depending on
s, this fluctuation can cause the current stock market to be volatile. In these instances, prices can skyrocket to above $1,000 for a two year period of time. In most other countries we think of a bubble, where overbought stocks end up running up, and prices stabilize to as low as they should be. In Venezuela, for example, it is normal for their stock market to explode within one year and go to the full strength of their housing bubble, or even higher than the bubble should be in the United States. There will be even larger spikes in prices, especially in cities likeSan Francisco, that are not well managed by government. But what it comes down to is that if prices get too high then some companies can be held responsible, thus making all of our government employees go into a financial crisis while the American workers are allowed to keep a lower quality of Life that is being subsidized by the government.
This also means that many corporations, especially in US states, are facing growing and negative effects. If prices go high then the government-owned corporations will get more money for doing business. For instance, the Federal Reserve has seen a $1 trillion profit to its members, which is only getting bigger. The government is going nuts through tax cuts as well. There is another way in which the dollar has lost some of its value in comparison to a government bond. The result was the Fed’s policy of increasing interest rates. But