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Privatization: Pros and Cons

Privatization: Pros and Cons. Associate Professor Dr. Paul Lockard Principles of Economics. Privatization. Privatization is defined as the elimination of Social Security, and turning over the funds to private companies. The Appeal of Privatization. The Appeal of Privatization. Lower taxes

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Privatization: Pros and Cons

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  1. Privatization: Pros and Cons Associate Professor Dr. Paul Lockard Principles of Economics

  2. Privatization • Privatization is defined as the elimination of Social Security, and turning over the funds to private companies.

  3. The Appeal of Privatization

  4. The Appeal of Privatization • Lower taxes • Higher returns • Self-control • Self-interest • Greater national savings • Greater business investment

  5. The Appeal of Privatization • Lower Taxes • Don’t have to pay pesky Social Security taxes • Neither does employer

  6. The Appeal of Privatization • High returns • You will be smart enough to always have high rates of return • You will be smart enough to outsmart the market • Market always rises, or at least, your returns will always grow

  7. The Appeal of Privatization • Self-control • In charge of your money: you pick stocks or other investments • No one else has hand on your money

  8. The Appeal of Privatization • Self-interest • Don’t have to pay taxes to take care of others you don’t like

  9. The Appeal of Privatization • Increase national savings. • Since more people will have more money, they will save it by investing in the stock market.

  10. The Appeal of Privatization • Greater business investment. - Since we lower taxes on businesses, they can take the money and invest it, to create new jobs and new products. - In addition, the flow of money to the stock market will mean more funds to business.

  11. Why Not Privatize Social Security?

  12. Why Not Privatize? • There are a number of economic and ethical reasons not to privatize.

  13. Why Not Privatize? • Will be very large transition costs • $100 to $200 billion. • Funds necessary to take care of the elderly after the Social Security Trust Fund is out of money.

  14. Why Not Privatize? • Record of countries that have partially or fully privatized has shown that it is: • Far more expensive to the individual investor • Far more expensive to the country

  15. Why not Privatize? • Many in low paying, but essential jobs • Cannot save for retirement

  16. Why Not Privatize? • People who cannot save once they have children • People who cannot save with elderly relatives

  17. Why Not Privatize? • Unfair to women because: • Women work fewer years, and fewer hours • And in general, women work at lower wages • Women cannot save the way men can

  18. Why Not Privatize? • People who become injured or disabled, and can no longer work, or work at the same income levels. • Families who lose an income earner from death or disability

  19. Why Not Privatize? • People who are not financially savvy will lose all or some of their investments. • Reality check: how many people rate themselves as good to excellent drivers?

  20. Why Not Privatize? • What do we do when the stock market drops or goes through a long-term decline? • In four 20 year periods in the past century, inflation adjusted returns were close to zero. • These years were 1901-1921, 1929-1949, 1962-1982, 1964-1984

  21. Why Not Privatize? • An appeal to racism, ethnic prejudices and dislike of women • An appeal to our more selfish instincts

  22. Why Not Privatize? • Whether you are for or against privatization, you must confront the reality of the transition costs, and the problem of who will pay for them.

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