Brane Space: Why The Swedish Social Security System Would Not Be Practical In The U.S.

Johan Norberg, WSJ op ed contributor, recently praised the Swedish social insurance system (How Sweden Saved Social Security, 2/23, p. A17 ), writing:

"In 1994 the Social Democrats agreed with the four center-right parties to create an entirely new system based on the principle that pensions should correspond to what the beneficiary pays into the system— a system in which the contribution, not the benefits, is defined.

The reforms were designed to make it impossible to run a deficit and pass the costs to future generations. Crucially, the agreement introduced a balancing mechanism nicknamed “the brake.” When the economy is doing worse than expected, pension benefits are automatically reduced, and when the economy picks up again, the brake is released."

First, Norberg and his Swedish system -promoting ilk take no notice of the fact that it has a relatively homogeneous populace, unlike the U.S. with multiple distinct ethnic groups with diverse economic needs (including different access to health care.) Further, the Swedish civil service is vastly more efficient because Sweden has 30 times less the population to deal with. Also, its corporate systems are relatively free of corruption with much higher levels of trust in one another and the government. That necessarily means the underlying system is easier to correct for to serve the numbers of beneficiaries available.

In addition, Sweden itself does not have the level of inequality of the U.S. - given by the Gini coefficient. To refresh memories: The Gini Index is a measure of how equal a country's distribution of income is. It is a score between 0 and 100. World Economics has inverted the source index data so that 0 represents very high inequality levels and 100 represents perfect equality. Perfect equality means a country's total income is shared equally among its residents, whereas perfect inequality means a country's total income is owned by a single individual.

The most recent evaluation of Sweden's Gini coefficient (2018) was given as 0.70 compared to the (2021) U.S. value of 0.49. This means the U.S. is a significantly more unequal society as it would have to be if just three billionaires have more wealth than half of the U.S. population. E.g.

Bernie's Right: 3 Billionaires Have More Wealth Than Half of America (inequality.org)

So Norberg is comparing economic apples and oranges in his deluded WSJ piece. Sweden also has more safety nets available as our Swedish friend (Dina) can attest - which helped her numerous times, especially when unemployed or ill. (Garnering paid sick days). As she also has pointed out, the pay-ins to Swedish system are vastly more capital intensive than in the U.S. with its meager payroll taxes. If in the U.S. "pensions corresponded to what the beneficiary pays in" as Norberg suggests, most of the elderly population - likely over 75% - would be in poverty and have to rely on 'Go Fund Me' pages or on charity from family to survive.

My own Social Security payout - if based on what I actually paid in (given so many years living overseas) would be roughly $200 a month, if that. The same would apply to nearly all the current U.S. senior population who all receive significantly more than they actually paid in. To be specific, according to the Poynter Institute - a couple in 2012 would have received roughly one -third more in benefits than what they paid in. But the same aged couple in 1960 would have gotten back more than 8 times what they paid in. Why?

Let's bear in mind that especially since 1983, Social Security taxes have clawed back much more than people actually get on paper. This accounts for the differences noted above. See item 4 (next to last) in my earlier post:

Five Facts About Social Security Most Americans Probably Don't Know...

Norberg in his WSJ baloney takes no account of this. Further, if the U.S. were to suddenly revert to this 'formula' (paid in = paid out) the consequences would be catastrophic for most seniors. Hell, it is doubtful wifey and me would even be able to afford our dental bills, ophthalmology tests and medical bills, property taxes and home repairs. We'd have to launch Go Fund Me pages! This then simply doesn't work in a nation as laden with inequality as the U.S.

Norberg goes on with more nonsense:

"Sweden introduced partial privatization of the kind the American left derides as a Republican plot to gamble our money away on the stock market. The Swedish government withholds roughly 2.3% of wages and puts it into individual pension accounts. Workers are allowed to choose up to five different funds in which to invest this money, according to their own risk preference, and can change them at any time free."

Norberg conveniently doesn't mention the nature of these non-gambling funds, but anyone with any degree of financial savvy knows that bond funds can also crater. A particular case occurred in the fall of 2000, when I noticed Janice's 401(k) statement showed her then bond fund had lost $870 in one quarter. Scanning over the company's choices I then advised her to transfer to T. Rowe Price's Prime Reserve fund- based on money market funds - which assured a 1:1 ratio/return and no losses. She made the change and never regretted it, despite getting low returns - but at least no cratering as she had with the bond fund. My point is that the nature of the funds offered for any such privatized scheme is crucial, and even so, it doesn't mean Wall Street wouldn't get a huge chunk out via fees and expenses!

Norberg again:

"Commentators claim partial privatization would mean that pensions could be lost in a financial crash. That ignores that the money isn’t all invested or withdrawn at the same time, meaning that the performance in a single year isn’t crucial. The returns from the normal income pension is around 2% per year, but from the private accounts the average Swede has made an impressive average return of roughly 10% a year since its inception in 1995, despite the dot-com crash, the financial crisis and the pandemic."

Again, this is possible because the corporate system in Sweden is less given to grafting, corruption and corporate gimmicks (like stock buybacks) as well as a vastly lower population - with fewer accounts to manage - so there can be more government oversight. Also, the fact that grifters in the U.S. are able to use flash trading to their advantage to game the system and grab their redemptions before the average oldster can get to his or her phone. The claim of the "impressive returns" of "10 % a year" I'd also have to see supported by actual data, including what specific funds were used for this figure.

Lastly we read:

"Swedish social security isn’t perfect and doesn’t satisfy everyone, but it has the obvious advantage that it actually works and is sustainable in the long run....

No doubt, part of the explanation is that Swedish politicians prepared their citizens with an adult conversation about costs, benefits and what was possible, instead of merely rehearsing slogans and ignoring the inevitable crash."

Again, it works - for now- precisely because the referenced Swedish (10.4 m) population is vastly smaller than the U.S. one (340 m) that would be affected. Hence, there is much less chance to game the system to the disadvantage of the beneficiaries than in any U.S. Wall Street -dominated system. The simple fact we are left with is that trying to apply the Swedish Social Security system to the U.S. would be roughly about like trying to apply the Barbados National Insurance system to Sweden. It's a non-starter and a zero brainer.

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