Milton Friedman on Social Security

by Bruce Webb
(this post was originally intended for publication at Angry Bear, but I am not totally satisfied with it so will just leave it here)

Opposition to Social Security is most often expressed in terms of efficiency with assertions that ultimately it will not work at all ('bankrupt', 'dead broke') or that it will require unacceptable tradeoffs ('tax increases', 'program cuts') or that it is simply unfair burden shifting ('intergenerational inequity'). These arguments generally reduce to 'Private (or Personal) Retirement Accounts would work better'. But on examination the proposals to transition to PRAs don't actually seem to work better, not from the standpoint of individual workers. Which has led supporters of traditional Social Security to accuse opponents of being thieves dying to get ahold of the future revenue stream and/or not wanting to pay back past borrowings.

There is some justice to this charge, an appeal to the banks, insurance companies and others that would benefit from private accounts is explicitly laid out in the 1983 battle plan presented by Butler and Germanis Achieving Social Security Reform: a 'Leninist' Strategy. And a fair reading of the Liebman-MacGuineas-Samwick Non-Partisan Social Security Reform Plan (aka LMS) shows that their emphasis is first on 'sustainable solvency' which is to say putting Social Security on a new pay-go basis over the Infinite Future, secondarily 'fiscally responsible' which they define as minimizing future Fund Borrowing, thirdly on 'economically beneficial' which translates to increased national savings. But at no point if there any real emphasis on return to actual beneficiaries, all pay more and get less and all the benefits are shifted outwards and onwards.

So we cannot dismiss the profit motive OR the desire to minimize the external tax burden to finance Social Security. They are both present. But historically opposition to Social Security has been driven by deeper motives, some people led mainly by Friedman in recent decades simply believe the system is "immoral" and that arguments about efficiency and the "nuts and bolts" are just the needed tools to drain the electricity out of the Third Rail of American Politics. So below the fold I am going to give some links and quotes of people who regret we even HAVE a system of Social Retirement.

As the title suggests the foremost proponent of this view was Milton Friedman. In 1999 the rumblings of 'Reform' were getting louder as Republicans saw they were finally see a possibility of gaining control of the White House and so get past Clinton's 'Save Social Security First' and Gore's 'Lockbox'. In April of 1998 Cato published the following Briefing Paper 46 by Friedman SPEAKING THE TRUTH ABOUT SOCIAL SECURITY REFORM. Which 'truth' is summed up as follows:

A privatized SocialSecurity system should not be mandatory. The fraction of a person’s income that it is reasonable for him or her to set aside for retirement depends on that person’s circumstances and values. It makes no more sense to specify a minimum fraction for all people than to mandate a minimum fraction of income that must be spent on housing or transportation. Our general presumption is that individuals can best judge for themselves how to use their resources.
The ongoing discussion about privatizing Social Security would benefit from paying more attention to fundamentals, rather than dwelling simply on nuts and bolts of privatization.

People who wish can examine the details of the Friedman plan, basically it makes implicit debt explicit and then eliminates Social Retirement altogether, he doesn't want your money and he doesn't think anyone can provide a more efficient solution than the market. And Friedman was even more blunt in the following exchange from 2005 Milton Friedman: Eliminate Social Security, Medicaid, Medicare

Friedman, Paul Snowden Russell Distinguished Service Professor Emeritus of Economics at the University of Chicago, shared his economic theories over lunch October 15 at a California restaurant with nearly two dozen alumni and students who are members of the Milton Friedman Group, the student-led organization that promotes Friedman’s free-market approach.
The event gave participants a chance to pose questions that Friedman had fielded for years from critics. “If you’d abolish Social Security for everyone, what would you do with people who are indigent and incapable of taking care of themselves if they didn’t save during their younger days?” asked second-year student Andrew Van Fossen.
“Social Security isn’t a program for them, it’s for everyone,” Friedman replied. “There’s a much stronger case for government having a program for them than for everybody. But if you look at the record, private charity is a much more effective way of helping people.”
“If you’re going to go from where you are to where you want to go, in the process you’re going to have to have programs of that kind to do it,” Friedman continued. “That’s why, in order to get rid of Social Security, you’re going to have to have private accounts.
“What you should do, in my opinion, is to give every person who now has a claim on Social Security bonds equal to the value of his claim, and set him free. Let him save. Let him do what he wants with it. That would not add a dollar to the debt we now have; it would just convert an unfunded debt into a funded debt,” Friedman said.
Van Fossan asked, “If you did that, how would you protect people from making really stupid decisions?”

“I don’t!” Friedman replied. “Why should I?” a response that drew laughter from the group. “You mean freedom does not include the freedom to make a stupid decision?”

Now I would have a little quarrel with that "private charity is a much more effective way of helping people" piece, after all the guy was born in 1912 and experienced the Depression in full, but at least you can't accuse this guy of hiding behind 'intergenerational inequity' or ducking past debt.