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.”
[…] está sofrendo as consequências inevitáveis de um estado de bem-estar social inchado, o Brasil já está sofrendo as consequências inevitáveis de um sistema previdenciário que trata os funcionários públicos […]
[…] That environment leads to statist policies. […]
[…] as Greece is already suffering the inevitable consequences of a bloated welfare state, Brazil is already suffering the inevitable consequences of a pension system that treats bureaucrats as a protected and […]
[…] being said, I wouldn’t be surprised if most people instead chose Thatcher’s famous line about socialism and running out of other people’s […]
And she funded record busting unemployment with the proceeds of North Sea oil. None of that fancy Sovereign Wealth Fund thing Norway went in for. Spend it in a generation, that what Maggie said. Burn it arguing that unemployment controls inflation!
Don’t put it in state infrastructure… let another generation pay for that. Fund tax breaks!
And spend the pensions fund! Implement a PAYE system so that you can spend your father’s pension surplus and get your kids to pay yours! What a gal!
The youth of the UK are looking at that and think: how lucky we were she wasn’t Norwegian!
Yes, Maggie took on the shipbuilding unions that were cramping up UK industry. Saved the UK’s shipbuilding: just look at it today!
Took on the miners.. what a fight. Won that one, too! Just look at coal mining in the UK today. Saved the industry!
She took on the printer’s union! Just look at that industry.
She took on the car unions! Look at British Leyland today! Going from strength to strength.
She encouraged everyone to opt out of those statist public pensions. The pensions mis-selling scandal is a little bit of a blip, I admit. The industry had to pay billions in compensation.
But just look at the roaring success that was the deregulation of the city! That set the banks on their way to roaring house price inflation and record personal debt. Just look how well that’s serving the UK now!
[…] ever-larger public sectors. And now, they’ve finally reach the point Margaret Thatcher warned about: They’ve run out of other people’s money (both in terms of what they can tax and what they can […]
[…] ever-larger public sectors. And now, they’ve finally reach the point Margaret Thatcher warned about: They’ve run out of other people’s money (both in terms of what they can tax and what […]
[…] ever-larger public sectors. And now, they’ve finally reach the point Margaret Thatcher warned about: They’ve run out of other people’s money (both in terms of what they can tax and what […]
[…] what a grim set of numbers. Moreover, the pension system is terrible, as we discussed a few months […]
Socialism ends earlier.
It ends when your flatter effort-reward curves set other, more motivated nations, on trajectory to overtake you.
Then, the slow-growth declining society seals its fate in a desperate attempt to maintain the declining prosperity rankings through ever more desperate redistribution.
Then, finally comes the stage when “they finally run out of other people’s money”.
But the beginning of the irreversible decline comes much earlier. In the structural low growth phase that immediately follows the flattening of the effort-reward curves.
Brazil is an unfortunate reminder that socialism is so demotivating that even a tyranny of imposed capitalism (China) might be more successful than a democracy of statist voter-lemmings.
Liberals typically believe in Darwinism. But they fail to see how it applies to them.
The marginal utility of money already decreases with income and wealth. That is why it is already difficult to keep competent people fully motivated and productive, even before collectivists start harvesting taxation.
Allowing the few who insist on pursuing their greed (somewhat foolishly so in my opinion) is the best system to allow much faster exponential growth.
Exponents are so indomitable that if you have below par growth then it’s not a matter of IF, … but WHEN you will cry uncle … as the faster growth of others first dismantles your prosperity rankings and then eventually compounds you further and further down the poverty rankings of your era.
With a low fertility rate, perhaps Brazil should consider opening its borders to Mexico. I’m sure they could shore up that number. Sure would provide some welcome relief here in the USA. Oh crap- that’s right- Brazil has strict immigration policies that favor its citizens. Maybe they need to fix that.