Let me welcome everybody and apologize for having to move our hearing yesterday. We found ourselves in the midst of some 20 or so roll call votes that we were having in the Senate. That made holding our hearing at the scheduled time impossible, and so we were able to reschedule it for this morning. I think we have a favorable prospect today, because we don't have a vote scheduled until almost 10:00 a.m., and then we have almost an hour available after that vote is taken.
Let me begin by welcoming our two guests.
Dr. Jose Pinera is a very distinguished man. He is a Harvard-trained Ph.D economist. He has played a fundamental role in changing the history of his country. His leadership as Minister of Labor and administrator of the Chilean social security system has changed not only the social security system in Chile, but has changed the entire economy and the lives of his people. So fundamental is this change that now a half-dozen other countries are in the process of instituting similar plans. Even China is looking at this system.
In any era, anyone who is public-minded wants to have a profound impact for good on behalf of the people he loves. We have someone with us today who has already accomplished that in his relatively short life.
We are also pleased to welcome before the Subcommittee today Mr. Mark Klugman, who was an official in the Reagan White House. In fact, as a Reagan speechwriter, Mr. Klugman helped write some of the great speeches of the Reagan era. Mark is the Director of the International Center for Pension Reform.
Our jurisdiction on this Subcommittee includes the broad range of issues involved with investment and securities. We are looking at the investment by Social Security, and by individuals who participate in that system, in the private sector. In that context, I thought it would be appropriate to consider the experience in Chile.
Let me make a short opening statement and then recognize Senator Rod Grams. And then, as our other colleagues come in, if they're here by the time Senator Grams finishes, we'll recognize them. If not, we'll go to the testimony.
I'm very excited, Jose and Mark, about having you here. I think the story you have to tell about Chile is important for Americans to hear.
Our Social Security system is in deep trouble. We promised, beginning in the 1930s, a portfolio of benefits to Americans. We now have the Baby Boomer generation, some roughly 80 million people, who are racing toward retirement, beginning in 11 years. Unfortunately, for all practical purposes, we have not set aside assets to pay for their retirement.
Everybody agrees that something needs to be done to reform the system. But there is a common question that everyone uses as an excuse for not taking action: how do you deal with the transition problem?
As Dr. Pi¤era knows better than anybody else, that problem already exists. We have a contingent liability, an unfunded liability, of somewhere between $6 trillion and $10 trillion as a result of Social Security commitments already made. That debt is as real as if we had issued government bonds to the people who have claims against Social Security. In fact, part of any transition toward a funded, secure system would be to issue those bonds to the people who paid into the system, as Dr. Pinera did in Chile. This liability already exists. Only the way we keep the books of the Federal Government hides it, but in reality, the financial obligation is already there.
This very important transition process is something that we would like for you, Jose, to focus on today.
I am convinced that we are going to have to make similar changes in the United States. I think the sooner we make them, the better off we will be.
We know with absolute certainty that within a decade the cash flow in Social Security will turn negative. We know with an absolute certainty that over the next 25 years Social Security, as it is currently structured, will exhaust its assets. Our situation is perfectly analogous, as you have pointed out, to the Titanic heading toward the iceberg. And as you say so well, the question is, what are we going to do?
Where the crew of the Titanic might have turned their ship, with this system that we have, and the unfunded liability having fouled our rudder, the ship can't be turned. The pay-as-you-go system must fail.
So the question for us as we face the transition problems, as we confront the ultimate failure of the system, is, will it be easier to get the people off the ship into a safer ship before they hit the iceberg, or after, once they're in the water, having hit the iceberg?
I think the answer is clear.
So, Jose and Mark, I think your visit here is timely. We're very proud that you came to share
your views and experience with us.
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