The truth about the pension system

Is the pension system sustainable? How would social security have to change to cope with an ageing population? Can we trust the state to continue paying pensions? And, is it a good idea to depend on the decisions of the incumbent government? Professor of Political Economy Jesús Huerta de Soto answers these questions in the documentary series ‘Ni justicia ni social’ (Neither justice nor social justice).

 

At 11Onze our aim is to bring economic knowledge closer to the population so that everyone is aware of what is happening and can think about what needs to be done. This Tuesday, we recommend a production that Value School has recently released. It is the documentary series ‘Ni justicia ni social‘, directed by Jesús Huerta de Soto, Professor of Political Economy at the Rey Juan Carlos University in Madrid.

 

Dependence on the state

The public pension system was created by Otto von Bismarck, the father of modern Germany and its first chancellor. In 1889, he founded the first pension system in history. And he did it for political reasons. At the time, he needed to stop the advance of socialism and, with this measure, he won the favour of the workers. Bismarck then had a very clear long-term goal: to make citizens dependent on the state.

This political measure was successful and spread throughout the world. In 1935, US President Franklin Delano Roosevelt (the father of the New Deal) created modern Social Security. He advocated a pay-as-you-go pension system, not a funded system. What is the difference? The funded system means that each worker sets aside a nominal portion of his or her salary and gets it back when he or she retires. Like a public pension plan: you generate your own pension.

The pay-as-you-go system, on the other hand, relies on current workers to pay for current pensions. In other words, the state has an inflow and an outflow of money. In 1935, this was not a problem because in the United States there were 52 workers for every pensioner. Today, however, the European and American average is two workers for every pensioner. And, therefore, the system is collapsing. Even more so if we take into account that pensions are higher than workers’ salaries. This means that maintaining the current pension system equals destroying savings and, therefore, the economic capacity of workers.

However, the pay-as-you-go pension system has the issue that it creates a dependency on the part of workers when they retire. The notion of saving disappears, because they do not have the capacity to save and because, in addition, they rely on the state to pay them a pension. Today, 70% of Spanish retirees depend on their pension. So what needs to be done?

 

Recovering the model of the Second Republic

In Spain, before the coup d’état that led to the Civil War and the dictatorship, there was already what was known as the “Régimen de capitalización en el retiro obrero”. That is a system of nominal capitalisation for workers. Franco opted for the pay-as-you-go system and did so, obviously, by spending the money accumulated by the capitalisation system. This made him very popular, but he had just mortgaged the future of pensions.

In this chapter of ‘Ni justicia ni social’, Huerta de Soto advocates a return to the funded pension system. And he finds a way to prevent the change from one system to the other from having a direct impact on public debt. An economic sleight of hand that depends exclusively on changing the financial system. Again, private banking is in the middle of the problem, but with courageous politicians, it could also be halfway to the solution.

 

Chapter 1 of “Neither social nor justice”. Pensions.

 

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  1. Cristian Palau BatistaCristian Palau Batista says:
    Cristian

    Molt bon article, ho desconeixia… Una coseta mes apresa… Salutacions

  2. Josep Grifoll SauríJosep Grifoll Saurí says:
    Josep

    La propaganda no para de dir-nos que vivim en un sistema neo-liberal quan en realitat és tot el contrari. El lliure mercat, com a columna vertebral del liberalisme, ha quedat pràcticament arraconat pel creixement del sector públic i per la presència de grans oligopolis en molts àmbits de l’economia. La proposta d’un model de capitalització per al sistema de pensions que hi ha al vídeo passa de puntetes sobre qui i com el gestionaria. El model de fincom podria donar una bona resposta a aquesta necessitat.

    • Jordi CollJordi Coll says:
      Jordi

      S’hauria de veure com es fa i que els únics beneficiats del canvi siguem nosaltres, les persones, perquè, al cap i a la fi, el temps va passant i tots, o la majoria, arribarem a jubilar-nos un dia o altre… Moltes gràcies pel teu comentari, Josep!!!

      3 months ago
  3. Daniela SimónDaniela Simón says:
  4. Pere SorianoPere Soriano says:
    Pere

    Antigament en la comunitat els savis triaven el millor, caçador pescador constructor, per lidera el grup i quan sortia un de millor feien el canvi. En algun moment els triats van veure perillar el seu estatus i van decidir auto proclamar-se els millors o hereus dels millors per mantenir-se al estatus més alt. Necessitem recuperar la informació i poder tornar a triar els millors. En el sistema actual necessitem els millors honestos i valents, per prendre bones decisions. Moltes gràcies per la feina pedagògica.

    • Mònica Cornudella says:

      Gràcies per la teva aportació, Pere! Gràcies per enriquir la nostra comunitat i compartir coneixements, ens agrada poder aprendre coses noves cada dia. Ens seguim veient a La Plaça!

      10 months ago
  5. Francesc Estafanell PujolFrancesc Estafanell Pujol says:
    Francesc de Borja

    A veure com acabarem. La resposta dels polítics tindrà molt a veure amb la solució ja que els salaris baixos impedeixen l’estalvi a molts treballadors

    • Pere Saus Marin says:

      Tens tota la raó, Francesc. Esperem que tard o d’hora acabi bé.

      10 months ago
  6. Jordi FerréJordi Ferré says:
    Jordi

    Hi ha coses que no diu el video. Hi havien 60 mil milions d’euros que en Rajoy va treure de la seguretat social per pagar la deuta pública. Deuta que era privada i que en Zapatero va fer pública. Tampoc diu que l’agost de 2011 es van ajuntar tots dos (quan tothom estava de vacances), per canviar la Constitució i a on deia que la major part dels diners havien d’anar destinats a temes socials, passava a dir que la major part dels diners havien d’anar a pagar el deute públic. Deute dels bancs que hem de pagar nosaltres.
    Tampoc diuen que de 38 milions d’espanyols hem passat a ser-ne 47 i mig perque han vingut molts inmigrants que també cotitzen a la seguretat social. Algú ho havia de dir.

    • AlbertAlbert says:
      Albert

      Gràcies per la teva reflexió, Jordi, i per complementar brillantment aquesta informació. És així com ha de ser, que tots els membres de la comunitat compartim coneixement i aprenem plegats.

      10 months ago
  7. alicia Coiduras Charlesalicia Coiduras Charles says:
    alicia

    Es ka mateixa trampa que les pagues extraordinaries,ja t’ho guardo jo tu no ets capaç d’estalviar i et quedaras sense vaxances,sense pagar renda i sense nadals
    I de mentre ho te l’estat ,quina vergonya de pais

    • Jordi CollJordi Coll says:
      Jordi

      Malauradament, ja saps com fan funcionar les coses els que tenen poder de decisió sobre nosaltres. Primer s’arreglen les coses per ells, només faltaria, s’apugen el sou amb els diners públics, cobren dietes que no passen per renda, aquestes dietes també les cobren encara que no les necessitin…, i moltes coses més, i després t’enganyen impunement i fan servir el fons de les pensions per rescatar a la banca tradicional, vergonyós. Moltes gràcies pel teu comentari, Alícia!!!

      10 months ago
  8. Mercè ComasMercè Comas says:
    Mercè

    El panorama espanyol és desolador.
    Benvingut 11Onze. Benvinguda comunitat. Encara som a temps de fugir-ne
    Convençuda de que a l´estat no se li ha de donar res voluntàriament. Els autònoms que tenen la possibilitat de cotitzar un mínim i un màxim més val que dediquin els diners a estalviar de la manera que creguin convenient. Ni un euro a les arques de l’estat si no t’hi obliguen.

    • Mònica Cornudella says:

      Exacte Mercè, ens toca canviar el sistema financer, tant sí com no! Ens seguim veient a La Plaça.

      10 months ago
  9. Joan Santacruz CarlúsJoan Santacruz Carlús says:

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