Thursday, January 27, 2005

More sloppy NYT reporting on Latin America

The NYT has an article on Chile’s pension system that I found quite disappointing. Many people are commenting on it or otherwise pointing it out, few critically. Here is crooked timer and Brad Delong, for example. It seems that Larry Rohter either doesn’t have a capacity to think critically and analytically, or he is being dishonest in the evidence that he offers in order to paint the privatization as a failure. Frankly, one doesn’t have to resort to clearly biased inference from superficial and anecdotal evidence presented in an unfair way in order to avoid seeming like one is in favor of President Bush’s plan to privatize social security.

Here are a few examples of his really sloppy reporting:

For all the program's success in economic terms, the government continues to direct billions of dollars to a safety net for those whose contributions were not large enough to ensure even a minimum pension approaching $140 a month. Many others - because they earned much of their income in the underground economy, are self-employed, or work only seasonally - remain outside the system altogether. Combined, those groups constitute roughly half the Chilean labor force. Only half of workers are captured by the system.
I think these are unfair criticisms, because both of these facts would also be true under a pay-as-you go system. Some people would need to be subsidized because they did not contribute enough to the system because they were not formally employed throughout their careers. It is also true that people in the informal sector would not receive pensions under a payg system. Indeed, no Latin American country’s system pays pensions to people who are in the informal sector.

Dagoberto Sáez, for example, is a 66-year-old laboratory technician here who plans, because of a recent heart attack, to retire in March. He earns just under $950 a month; his pension fund has told him that his nearly 24 years of contributions will finance a 20-year annuity paying only $315 a month.
This is also a very unfair statement. This person retired early, so it is unclear what kind of tax treatment his pension had, or mention that Saez should have been given a government debt in recognition of his contributions before the system was privatized. Perhaps his pension would be significantly higher after taking this into account.

Most importantly, though, Rohter does not consider the alternative. If Chile had not privatized its pension fund system, it would probably be where Colombia or Brazil are right now. Those pension systems are really shaky, and are causing a real economic burden to the nations. In particular, they contribute to the fiscal imbalances that keep sovereign risk and real interest rates high, thus clamping down growth.



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