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Press Release

Jonathan Potts

For immediate release:
December 1, 2004

Carnegie Mellon Professor: Privatizing Social Security Will Hurt More Than It Helps

PITTSBURGH—President Bush's plan to allow workers to invest a portion of their Social Security taxes in private savings accounts could have devastating effects on the retirement system as well as the nation's economy, according to Silvia Borzutzky, a political scientist at Carnegie Mellon University.

The introduction of private Social Security accounts would incur transition costs that could range from $1 trillion to $7 trillion, producing a federal budget deficit as high as $2 trillion, Borzutzky said. Furthermore, private accounts would be subject to the volatility of financial markets. As Borzutzky notes, between March 2000 and March 2001, the Standard and Poor's Market Index dropped by 30 percent, which would have substantially reduced the value of retirement funds invested in the market.

"At least 75 million Americans have never invested in the stock market. It can be assumed that those who depend on Social Security for their survival are the least qualified to understand the complexities of the market and are most likely to lose money as a result of poor investments," Borzutzky said.

Borzutzky is the author of "Vital Connections: Politics, Social Security and Inequality in Chile," a study of that nation's transition to a private social security system in 1980. She found that administrative costs for Chile's system are about three times as high as in the United States and fall disproportionately on low income groups. The number of people covered by social security dropped under privatization, and the national savings rate did not increase.

"Privatization does not solve the basic problems of the Social Security system because it does nothing to deal with the most basic cause of the problem: the fact that people today live much longer than in the past," Borzutzky said.

Borzutzky is an associate teaching professor in the Department of Social and Decision Sciences, which is part of the College of Humanities and Social Sciences (H&SS) at Carnegie Mellon. H&SS is the second-largest academic unit at Carnegie Mellon and offers more than 60 majors and minors. The college emphasizes interdisciplinary study in a technologically rich environment with an open and forward-thinking stance toward the arts and sciences.


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