Arnold Schwarzenegger did the opening introduction to the film series “Free to Choose” by Milton Friedman, but then Arnold abandoned the principles of Friedman!!!!
Ep. 4 – From Cradle to Grave [4/7]. Milton Friedman’s Free to Choose (1980)
Many people want the government to protect the consumer. A much more urgent problem is to protect the consumer from the government.
Milton Friedman
In this series I want to both look closely at who Milton Friedman was and what his views were about Social Security reform. Here is the fourth portion of an autobiography from Nobelprize.org:
Thanks to Henry Schultz’s friendship with Harold Hotelling, I was offered an attractive fellowship at Columbia for the next year. The year at Columbia widened my horizons still further. Harold Hotelling did for mathematical statistics what Jacob Viner had done for economic theory: revealed it to be an integrated logical whole, not a set of cook-book recipes. He also introduced me to rigorous mathematical economics. Wesley C. Mitchell, John M. Clark and others exposed me to an institutional and empirical approach and a view of economic theory that differed sharply from the Chicago view. Here, too, an exceptional group of fellow students were the most effective teachers.
After the year at Columbia, I returned to Chicago, spending a year as research assistant to Henry Schultz who was then completing his classic, The Theory and Measurement of Demand. Equally important, I formed a lifelong friendship with two fellow students, George J. Stigler and W. Allen Wallis.
Allen went first to New Deal Washington. Largely through his efforts, I followed in the summer of 1935, working at the National Resources Committee on the design of a large consumer budget study then under way. This was one of the two principal components of my later Theory of the Consumption Function.
The other came from my next job – at the National Bureau of Economic Research, where I went in the fall of 1937 to assist Simon Kuznets in his studies of professional income. The end result was our jointly published Incomes from Independent Professional Practice, which also served as my doctoral dissertation at Columbia. That book was finished by 1940, but its publication was delayed until after the war because of controversy among some Bureau directors about our conclusion that the medical profession’s monopoly powers had raised substantially the incomes of physicians relative to that of dentists. More important, scientifically, that book introduced the concepts of permanent and transitory income.
The catalyst in combining my earlier consumption work with the income analysis in professional incomes into the permanent income hypothesis was a series of fireside conversations at our summer cottage in New Hampshire with my wife and two of our friends, Dorothy S. Brady and Margaret Reid, all of whom were at the time working on consumption.
I spent 1941 to 1943 at the U.S. Treasury Department, working on wartime tax policy, and 1943-45 at Columbia University in a group headed by Harold Hotelling and W. Allen Wallis, working as a mathematical statistician on problems of weapon design, military tactics, and metallurgical experiments. My capacity as a mathematical statistician undoubtedly reached its zenith on V. E. Day, 1945.
Ep. 4 – From Cradle to Grave [5/7]. Milton Friedman’s Free to Choose (1980)
Milton Friedman wrote an excellent article, “Speaking the truth about Social Security Reform,” April 12, 1999, Cato Institute and I will posting portions of that article in the next few days. Milton Friedman, winner of the 1976 Nobel Prize in Economics, was a senior research fellow at the Hoover Institution. Originally published in the New York Times January 11, 1999. Here is the fourth portion:
Should Social Security Be Mandatory?
Should a privatized system be mandatory? The
present system is; it is therefore generally taken
for granted that a privatized system must or
should be as well.
The economist Martin Feldstein, in a 1995
article in the
Public Interest
, argued that contributions
must be mandatory for two reasons.
“First, some individuals are too shortsighted to
provide for their own retirement,” he wrote.
“Second, the alternative of a means-tested program
for the aged might encourage some lowerincome
individuals to make no provision for their
old age deliberately, knowing that they would
receive the means-tested amount.”
The paternalism of the first reason and the
reliance on the extreme cases of the second are
equally unattractive. More important, Professor
Feldstein does not even refer to the clear injustice
of a mandatory plan.
The most obvious example is a person with a
terminal disease who has a short life expectancy
and limited financial means, yet would be
required to use a significant fraction of his or her
earnings to accumulate what is almost certain to
prove a worthless asset.
More generally, 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.
Mr. Feldstein simply asserts that in this particular
case the government knows better.
In 1964, Barry Goldwater was much reviled
for suggesting that participation in Social Securi-
ty be voluntary. I thought that was a good idea
then; I still think it is.
Barry Goldwater’s picture
I find it hard to justify requiring 100 percent of
the people to adopt a government-prescribed
straitjacket to avoid encouraging a few “lowerincome
individuals to make no provision for their
old age deliberately, knowing that they would
receive the means-tested amount.” I suspect that,
in a voluntary system, many fewer elderly people
would qualify for the means-tested amount from
imprudence or deliberation than from misfortune.
_______________________________________
The problem with social security
David John, a Senior research Fellow at the Heritage Foundation, explains his position on Social Security as it relates to taxes and health care. He suggests it would be a good solution for the government to raise the age of retirement.
____________________________________________
I have no illusions about the political feasibility
of moving to a strictly voluntary system. The
tyranny of the status quo, and the vested interests
that have been created, are too strong. However,
I believe that the ongoing discussion about
privatizing Social Security would benefit from
paying more attention to fundamentals, rather
than dwelling simply on the nuts and bolts of privatization.
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