Exercise 6. Read and translate the articles. Discuss them with your fellow-students

From Capitalism and Freedom by Milton Friedman

Old age and survivorʼs insurance

The "social security" program is one of those things on which the tyranny of the status quo is beginning to

work its magic. Despite the controversy that surrounded its inception, it has come to be so much taken for

granted that its desirability is hardly questioned any longer. Yet it involves a large-scale invasion into the

personal lives of a large fraction of the nation without, so far as I can see, any justification that is at all

persuasive, not only on liberal principles, but on almost any other. I propose to examine the biggest phase of

it, that which involves payments to the aged.

As an operational matter, the program known as old age and survivor's insurance (OASI) consists of a

special tax imposed on payrolls, plus payments to persons who have reached a specified age, of amounts

determined by the age at which payments begin, family status, and prior earning record.

As an analytical matter, OASI consists of three separable elements:

1. The requirement that a wide class of persons must purchase specified annuities, i.e., compulsory

provision for old age.

2. The requirement that the annuity must be purchased from the government; i.e., nationalization of the

provision of these annuities.

3. A scheme for redistributing income, insofar as the value of the annuities to which people are entitled when

they enter the system is not equal to the taxes they will pay.

The present OASI program involves two major kinds of redistribution; from some OASI beneficiaries to

others; from the general taxpayer to OASI beneficiaries.

The first kind of redistribution is primarily from those who entered the system relatively young, to those who

entered it at an advanced age. The latter are receiving, and will for some time be receiving, a greater amount

as benefits than the taxes they paid could have purchased. Under present tax and benefit schedules, on the

other hand, those who entered the system at a young age will receive decidedly less.

I do not see any grounds -- liberal or other -- on which this particular redistribution can be defended. The

subsidy to the beneficiaries is independent of their poverty or wealth; the man of means receives it as much

as the indigent. The tax which pays the subsidy is a flat-rate tax on earnings up to a maximum. It constitutes

a larger fraction of low incomes than of high. What conceivable justification is there for taxing the young to

subsidize the old regardless of die economic status of the old; for imposing a higher rate of tax for this

purpose on die low incomes than on the high; or, for that matter, for raising the revenues to pay the subsidy

by a tax on payrolls?

We may wish to help poor people. Is there any justification for helping people whether they are poor or not

because they happen to be a certain age? Is this not an entirely arbitrary redistribution?