The government solution to a problem is usually as bad as the problem.
Milton Friedman
The Debt Bomb: A Decade of DC Spending is Driving America Closer to an Economic Apocalypse
Alexis Garcia reports on America’s exploding debt. Experts blame entitlements like Social Security and government spending. But what is the solution? Can we raise taxes without crushing the economy and the middle class? Does Obama really want to lower the debt, or does he support continued deficit spending? See interviews with Douglas Holtz-Eakin, Brian Riedl, Jason Peuquet and former Congressman Ernest Istook (R-OK).
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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 sixth portion of an autobiography from Nobelprize.org:
As Rose wrote in our memoirs, “As we look back at the events chronicled in this chapter, it all seems like something of a fairy tale. Who would have dreamed that after retiring from teaching, Milton would be able to preach the doctrine of human freedom to many millions of people in countries around the globe through television, millions more through our book based on the television program, and countless others through videocassettes” (p. 503).
Monetary Trends in the United States and the United Kingdom, published in 1982, was the final major product of a collaboration with Anna J. Schwartz under the auspices of the National Bureau of Economic Research that lasted more than three decades. Money Mischief (Harcourt Brace Jovanovich, 1992) collects assorted pieces of monetary history, some of which I had published elsewhere, some of which appear first in this book.
I have continued to be active in public policy since 1977. I continued my tri-weekly column in Newsweek until it was terminated in 1983. Since then, I have published numerous op-eds in major newspapers. I served as an unofficial adviser to Ronald Reagan during his candidacy for the presidency in 1980, and as a member of the President’s Economic Policy Advisory Board during his presidency. In 1988, President Reagan awarded me the Presidential Medal of Freedom and in the same year I was awarded the National Medal of Science.
We have traveled extensively since 1977, including a trip through Eastern Europe in 1990, where we filmed a documentary on former Soviet satellites. The documentary was included in a shortened reissue of Free to Choose.
Perhaps the most notable foreign travel consisted of three trips to China: one in 1980 when I gave a series of lectures under the auspices of the Chinese government; one in 1988 when I attended a conference in Shanghai on Chinese economic development and had a fascinating session in Beijing with Zhao Ziyang, at the time, the General Secretary of the Communist Party, deposed a few months later for his unwillingness to approve the use of force on Tiananmen Square; and one in 1993 when I traveled with a group of Chinese friends from Hong Kong throughout the country. The three visits covered a period of revolutionary economic growth and development, the first stage of a shift from an authoritarian, centrally planned economy to a largely free market economy.
Ever since the 1950s, Rose and I have been interested in the promotion of parental choice in schooling through the use of vouchers. Finally, in 1996, when it became clear that our personal involvement would have to be limited, we established a foundation, The Milton and Rose D. Friedman Foundation devoted to promoting parental choice in schooling. We were fortunate in being able to persuade Gordon St. Angelo to serve as president. He has done an outstanding job. Progress toward our objective of universal vouchers has been distressingly slow, but there has been progress. The pace of progress shows every sign of speeding up, and our foundation has made a significant contribution to that progress.
In 1998, the University of Chicago Press published our memoirs, Milton and Rose D. Friedman, Two Lucky People.
Milton Friedman died on November 16, 2006.
Investing Social Security funds in the stock market would be a fine idea, wouldn’t it? President Clinton thinks so. Nobel laureate and Hoover fellow Milton Friedman thinks not.
President Clinton has proposed that a quarter of the funds set aside for Social Security be invested in the stock market—a truly radical plan…
Suppose the president’s proposed policy had been followed in its most extreme form from the outset of Social Security in 1937 (i.e., that the whole excess of Social Security tax receipts over Social Security benefit payments, not just one-quarter, had been invested in the stock market). Offhand, it looks as if the trust fund would own only about 5 percent of all domestic corporations ($656 billion out of $13 trillion).
But that is too simple. Most of the accruing funds would have been invested at far lower stock prices than those that prevailed at the end of 1997. Suppose that stock prices, dividend yields, Social Security tax receipts, and Social Security benefit payments had all been what they were—that is, not affected by the investment of Social Security funds in stocks instead of government bonds. On that assumption, the trust fund at the end of 1997 would have totaled not $656 billion but more than ten times as much, approximately $7 trillion. In that case, the Social Security trust fund would own more than half of all domestic corporations! To return to my socialist fantasy, full funding would long since have brought complete socialism.
That too is too simple. Neither stock prices nor other economic magnitudes could have behaved as they actually did, with so much extra money flowing into the market. But what this calculation demonstrates is (1) the widely recognized fact of how much better equity stocks are as an investment than government bonds and (2) how seriously the government purchase of private securities would threaten our freedom.
Have we not learned from the experience of the past century that private property is the key bulwark of personal freedom? Has that experience not shown how dangerous it is to transfer a larger and larger fraction of the productive assets of the country into the hands of a government bureaucracy?
If the corresponding sums had been accumulated by private individuals and not used to finance government spending, they would have been a real addition to the nation’s capital and not just a bookkeeping entry. Those sums would have been invested in ways citizens or their advisers chose. The end result would have been more productive investment, a larger stream of income, and a freer, more responsible, more productive society.
Milton Friedman, recipient of the 1976 Nobel Memorial Prize for economic science, was a senior research fellow at the Hoover Institution from 1977 to 2006. He passed away on Nov. 16, 2006. He was also the Paul Snowden Russell Distinguished Service Professor Emeritus of Economics at the University of Chicago, where he taught from 1946 to 1976, and a member of the research staff of the National Bureau of Economic Research from 1937 to 1981.
Reprinted with minor editorial changes from the Wall Street Journal, January 26, 1999, from an article entitled “Social Security Socialism.” Reprinted with permission of the Wall Street Journal. © 1999 Dow Jones & Company, Inc. All rights reserved.
Available from the Hoover Press is the videotape “Social Insecurity: Reforming Social Security,” an episode of the weekly television program Uncommon Knowledge, jointly produced by the Hoover Institution and the San Jose PBS affiliate KTEH.
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