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Milton Friedman on Social Security

I have often speculated that an ingenious way for a socialist to achieve his objective in the United States would be to persuade Congress, in the name of fiscal responsibility, to (1) fully fund obligations under Social Security and (2) invest the accumulating reserves in the private capital market by purchasing equity interests in domestic corporations.

Context. Written after President Clinton proposed that a quarter of the funds set aside for Social Security be invested in the stock market. Just before, he contrasts Margaret Thatcher, who reversed Britain’s drift to socialism by selling off government-owned enterprises, with a plan for the U.S. government to buy private equities.

Social Security Socialism
Column, 1999, The Wall Street Journal, January 26, 1999; reprinted with minor editorial changes in Hoover Digest 1999 No. 2
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Milton Friedman, “Social Security Socialism” (The Wall Street Journal, January 26, 1999; reprinted with minor editorial changes in Hoover Digest 1999 No. 2, 1999). https://miltonfriedman.org/quotes/ingenious-way-for-socialist-social-security-1999

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He also said

  1. To preserve the fiction that Social Security is insurance, however, federal government interest-bearing bonds of a corresponding amount have been deposited in a so-called trust fund. That is, one branch of the government, the Treasury, has given an interest-bearing IOU to another branch, the Social Security Administration. Each year thereafter, the Treasury gives the Social Security Administration additional IOUs to cover the interest due. The only way that the Treasury can redeem its debt to the Social Security Administration is to borrow the money from the public, run a surplus in its other activities, or have the Federal Reserve print the money—the same alternatives that would be open to it to pay Social Security benefits if there were no trust fund. But the accounting sleight of hand of a bogus trust fund is counted on to conceal this fact from a gullible public.

    Context. From an article on President Clinton’s proposal to invest part of the Social Security funds in the stock market. Just before, he explains that Congress has collected more in Social Security taxes than current benefits required, though less than the future liability it was incurring, and that “the excess revenue has been spent in the ordinary course of government business.”

    Social Security Socialism
    Column, 1999, The Wall Street Journal, January 26, 1999; reprinted with minor editorial changes in Hoover Digest 1999 No. 2
    Checked against the sourceRead the source
  2. The link between the payroll tax and benefit payments is part of a confidence game to convince the public that what the Social Security Administration calls a social insurance program is equivalent to private insurance, in that, in the Administration’s words, “the workers themselves contribute to their own future retirement benefit by making regular payments into a joint fund.” Balderdash. Taxes paid by today’s workers are used to pay today’s retirees. If money is left over, it finances other government spending—though, to maintain the insurance fiction, paper entries are created in a “trust fund” that is simultaneously an asset and a liability of the government. When the benefits that are due exceed the proceeds from payroll taxes, as they will in the not very distant future, the difference will have to be financed by raising taxes, borrowing, creating money, or reducing other government spending. And that is true no matter how large the “trust fund.” The assurance that workers will receive benefits when they retire does not depend on the particular tax used to finance the benefits or on any “trust fund.” It depends solely on the expectation that future Congresses will honor promises made by earlier Congresses—what supporters call “a compact between the generations” and opponents call a Ponzi scheme.

    Context. From an article on proposals to replace part of Social Security with individual investment accounts, written while the federal budget was in surplus. The quotation inside the passage is from the Social Security Administration.

    The Biggest Ponzi Scheme on Earth
    Column, 1999, The New York Times, January 11, 1999, as “Social Security Chimeras”; reprinted with minor editorial changes in Hoover Digest 1999 No. 2
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  3. Nixon was the most socialist of the presidents of the United States in the 20th century. ( … ) Well, his ideas were not socialist, quite the opposite, but if you look at what happened during his administration, first of all, the number of pages in the Federal Register, which is full of regulations about business, doubled during his regime.

    Context. The omission is a one-line remark by the interviewer between his two sentences.

    Commanding Heights: Milton Friedman interview
    Interview, 2000, PBS, “On Richard Nixon,” interview conducted October 1, 2000
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