Post on 04-Jun-2018
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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.