Privatization Pros and Cons

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    Privatization: Pros and Cons

    Associate Professor Dr. Paul Lockard

    Principles of Economics

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    The Appeal of Privatization

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    The Appeal of Privatization

    Lower taxes

    Higher returns

    Self-control

    Self-interest

    Greater national savings Greater business investment

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    The Appeal of Privatization

    Lower Taxes

    Dont have to pay pesky Social Security

    taxes

    Neither does employer

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    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

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    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

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    The Appeal of Privatization

    Self-interest

    Dont have to pay taxes to take care of

    others you dont like

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    The Appeal of Privatization

    Increase national savings.

    Since more people will have more

    money, they will save it by investing inthe stock market.

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    The Appeal of Privatization

    Greater business investment.

    - Since we lower taxes on businesses, they

    can take the money and invest it, to createnew jobs and new products.

    - In addition, the flow of money to the

    stock market will mean more funds tobusiness.

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    Why Not Privatize

    Social Security?

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    Why Not Privatize?

    There are a number of economic and ethical

    reasons not to privatize.

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    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.

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    Why Not Privatize?

    Record of countries that have partially or

    fully privatized has shown that it is:

    Far more expensiveto the individual

    investor

    Far more expensive to the country

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    Why not Privatize?

    Many in low paying,but essential jobs

    Cannot save for retirement

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    Why Not Privatize?

    People who cannot save once they have

    children

    People who cannot save with elderly

    relatives

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    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

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    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?

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    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

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    Why Not Privatize?

    An appeal to racism, ethnic prejudices and

    dislike of women

    An appeal to our more selfish instincts

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    Why Not Privatize?

    Whether you are for or against privatization,

    you must confront the reality of the

    transition costs, and the problem of whowill pay for them.