The Milton Friedman Moment

By James Schaefer

“There’s no such thing as a free lunch.”   Fifty years ago most Americans believed those words, and they were used by Milton Friedman in a 1975 book of that title.

Jenny Fisher-Sullivan elaborated in the Wall Street Journal (March 3, 2011):

The Fed works for our bankrupt federal government and is bailing it out by monetizing its debt. In turn, the federal government works for the voters who demand goods and services they can’t afford, and who would rather suffer inflation than pay higher taxes or reduce benefits.

Ignorant that inflation adversely affects the middle and lower classes more than it does the upper class and business elites, the masses who vote for social justice eventually end up footing the bill anyway. This is known as poetic justice.

Many Americans are under the illusion that somebody else — a magical and deep-pocketed entity called “the government” — will pay for these services and social benefits.  The truth, of course, is that households and businesses will have to pay the bills.  Sales tax, income tax, payroll tax, FICA tax, real estate tax . . . . .

We are “the government”.

A large part of the spending is directed toward the elderly, so we pay FICA (and our employers pay a like amount of FICA) into trust funds that were meant to help pay for the huge retiree burdens of the future.  Those trust funds have been abused, in ways that would not have been possible if they had been held in individual accounts.  Congress would not have been able to claim the investments in those accounts as an offset to the annual federal deficit, as it has done with all of the Social Security and Medicare trust-fund investments since Lyndon Johnson.  The true budget deficits of the last 40 years would have been reported, and the public would have insisted on fiscal discipline. 

The issue, then, is whether we want to allow the federal government to continue to “manage” these trust funds as a great undifferentiated lump of mad Madoff money, or create accountability by establishing an account for every worker.

One scenario will result in a stronger nation, both morally and financially, and one will result in a nation that is weaker;  burdened by debt from promises made to America’s citizens that are difficult and expensive to keep, and are beyond affordability.

Which do we want to be?

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