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Archive for October 22nd, 2015

We should fondly remember the great, late Margaret Thatcher for several reasons, most notably because she saved the United Kingdom from economic collapse.

I’m especially a fan of her famous observation that socialism fails because, sooner or later, you run out of other people’s money.

Though apparently the real quote (as opposed to the versions that circulate on the Internet) is “they always run out of other people’s money.”

And that’s exactly what’s happening in Brazil. It’s even gotten to the point that the New York Times has noticed. Here are some excerpts from a very sobering story about the pension mess in that nation.

It starts with an anecdote about a bureaucrat who retired with a full pension when she was only 44 years old.

When Rosângela Araújo turned 44, she decided that she had worked long enough. So Ms. Araújo, a public school supervisor, did what millions of others in their 40s and 50s have done in this country: She retired, with a full pension. “I had to take advantage of the benefit that was available to me,” said Ms. Araújo, now 65.

But the problem is that Ms. Araújo is the rule rather than the exception.

Indeed, her pension is relatively small compared to the way some government workers bilk the system.

An exploding pension crisis here in Brazil, Latin America’s biggest country, is wreaking havoc on its public finances, intensifying a political struggle over the economy that already has the president fighting for survival. Brazilians retire at an average age of 54, and some public servants, military officials and politicians manage to collect multiple pensions totaling well over $100,000 year. Then, once they die, loopholes enable their spouses or daughters to go on collecting the pensions for the rest of their lives, too. …“Think Greece, but on a crazier, more colossal scale,” said Paulo Tafner, an economist and a leading authority on Brazil’s pension system. …The nation’s economy has soured badly.

Worse than Greece?!? Is that really true?

Depends on what’s being measured. Greece has a bigger and more bloated public sector (and it’s getting worse), but Brazil ranks below Greece for overall economic freedom. So I wouldn’t be surprised if Brazil’s pension system is even worse than the one in Greece.

For instance, I don’t think young Greek women have an incentive to marry old codgers just to get a lifelong pension. That’s apparently so prevalent in Greece that they call it the “Viagra effect.”

In any event, it’s adding up, setting the stage for a fiscal crisis. Particularly when you consider demographic changes.

…economists warn that the pension crisis will grow more acute…, ranking it among Brazil’s most vexing structural binds. Officials had expected a major shortfall in 2030, but they now say that could happen as soon as next year. …Brazil’s plummeting fertility rate — which recently dropped to 1.77 children per woman, below the rate needed for the population to replace itself — which will eventually put even more pressure on a pension system already under intense strain. …Brazil already spends more than 10 percent of its gross domestic product on public pensions, similar to what southern European countries with much older populations have recently spent…an even bigger shock is expected here, given that the population of people 60 or older is expected to reach about 14 percent of the overall population in just two decades, up from about 7 percent now.

You also won’t be surprised to learn that government bureaucrats have rigged the system so that they get the best deal.

…the system also perpetuates inequality by providing special benefits to hundreds of thousands of government employees and their families. …Brazil is estimated to spend about 3 percent of its gross domestic product on survivors’ pensions, about three times the level in many rich industrialized countries. Politicians have been especially skilled at securing big pensions at the state level. In the Amazonian state of Pará, former governors and first ladies were recently receiving lifelong pensions as high as $7,000 a month, even if they served only a few years in office. …“Public pensions in Brazil have long been a slow-motion disaster,” said Raul Velloso, a specialist on public finances.

Gee, I hope bureaucrats in New Jersey, California, and Illinois don’t read this article. They might get some additional ideas of how to pillage taxpayers.

By the way, the lesson from all this is that the only stable pension system – and the one that is impervious to demographic change – is personal retirement accounts.

P.S. As bad as things are in Brazil, the former socialist president of that nation has more wisdom than Obama.

P.P.S. Then again, the Brazilians have a very strange approach to “rights.”

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