Interview with José Piñera [Extract, El Mercurio, September 4, 2001] What is the main conclusion of the recently published Interim Report of President’s Bush Commission to Strengthen Social Security? It is the recognition, at the highest level, that the U.S. Social Security system is going bankrupt. It is as if the captain of the Titanic had seen the iceberg on time and had sounded the alarm. In which way the U.S. Social Security system is similar to the Titanic?  Because Social Security is the biggest government spending program in the United States, and in the world, with an annual expenditure of approximately $400 billion, almost one fourth of the federal budget. And it is heading directly towards an iceberg. And what would be the iceberg?  The demographic megatrends that lead to an increasingly aging population. That not only entails the bankruptcy of the pay-as-you-go system (the visible part of the iceberg), but it also reduces to confiscatory levels the rate of return to current and especially future workers (the big, hidden part of the iceberg). What would happen if this Titanic finally collided with the iceberg? The U.S. government would have to either reduce Social Security benefits, which on average are only $742 per month, or increase taxes on workers, which already are high and unfair, especially for the poor and African Americans, or issue billions of dollars of debt in the capital markets. Or a combination of all of the above. In any case, it would be a huge crisis with a global impact.  What do you propose? There are many cosmetic changes that can slow the speed and prolong the agony of this S.S. Titanic, but the only real solution is to transfer the passengers to another ship. Ultimately, I propose to replace Bismarck’s social collectivist retirement system with another that is based on individual responsibility, a system that is truly consistent with the ideas of America’s Founding Fathers. I believe that pay-as-you-go, state-run, Social Security is a historic anomaly for the USA. It was adopted in the decade of the 30s because capital markets were destroyed by the Great Depression and the U.S. was going through a terrible social crisis.  Why could the Chilean model be the solution? Because the essence of the Chilean retirement model is that each worker saves money during his or her lifetime to finance their needs in old age. If you take into account that global demographic trends make the pay-as-you-go system unsustainable, and given the huge development of capital markets, which allow capital accumulation at a compound interest and with multiple ways of risk diversifying, I think that a system of personal retirement accounts is the solution for the 21st century. If Americans, Italians or Japanese, etc. do not procreate enough, they will have to save the sufficient dollars, euros or yens to pay for their old age. Isn’t it difficult to solve the transition problem, the move from one system to the other? Of course it is, but I can assure you that it is easier to transfer passengers from one ship to another before crashing into an iceberg than after. We did it successfully in Chile two decades ago. In our Social Security Project at the Cato Institute we have published several studies that prove that it is possible, through diverse formulas, to finance the cash flow requirements of the transition. The fact that President Bush is addressing this issue years before the system starts to collapse is both visionary and courageous.