Single Policy Change; M. Skousen

Dr. Skousen is an economist at Rollins College, Department of Economics, Winter Park, Florida 32789, and editor of Forecasts & Strategies, one of the largestinvestment newslettersin the country. The third edition of his book Economics of a Pure Gold Standard has just been published by FEE. The Social Security Fraud Free-market economists have been highly critical of national social insurance ever since the Social Security Act of 1935 was signed into law. Milton Friedman wrote in the early 1960s that Social Security is "without justifi cation"; he was partly responsible, through his Chicago students, for creating the Chilean model. 1 Twenty-five years ago, New York attorney Abraham Ellis dissected the pay-as you-go system as "conceptually flawed" and an offshoot of "the something-for-nothing philosophy, the free lunch syndrome."2 The continuing crisis of Social Security growing deficits, higher taxes, poor payouts has led many policymakers to seek funda mental reforms. The reforms instituted by the 1983 Commission on Social Security, led, ironically, by Alan Greenspan, are no longer viable. (Oddly enough, Greenspan refused even to consider privatization as an option!) Privatization has grown in popularity as the Chilean private alternative has proven so successful, especially for low-income workers.

(See my column, "$4,000 from Social Securi ty?", The Freeman, June 1995.) Private worker pensions are particularly popular in Latin America-Peru, Bolivia, and, most recently, Mexico-as well as Great Britain . .Right now, Social Security is a drag on America's economy. It funnels workers' sav ings into consu~ption-in the form of trans fer payments to retirees or into a trust fund which is invested entirely in Treasury securi ties (thus funding the deficit and government 767 768 THE FREEMAN • NOVEMBER 1996 spending). Imagine what the result would be if everyone's FICA taxes were invested in a true retirement program, into the capital markets instead of consumption? It could turbocharge the U.S. economy, just as it has done in Chile, where the economic growth rate is more than double the U.S. rate. The Cato Institute, a free-market think-tank in Washington, D.C., has been in the forefront of advocating radical reform of Social Secu rity. It has released numerous reports written by pension experts, including Peter Ferrara, William J. Shipman, and Jose Pifiera, the official responsible for establishing Chile's privatized pension system. Recently, Cato issued a study showing that low-wageworkers would gain the most from privatized Social Security. The poor, who rely almost exclu sively on Social Security for retirement in come, would earn "as much as three times the income available under the current system."3 According to a Cato Institute poll, two-thirds of American voters, and more than three quarters of young voters, support privatization.

What's truly amazing is there is wide ranging support for this kind of positive reform-from the libertarian Cato Institute to the establishment World Bank, from Re publican Steve Forbes to Democrat Sam Beard, author of Restoring Hope in America, The Social Security Solution (ICS Press, 1996), which claims that with privatization, the mid dle class could retire as millionaires. MIT Professor Rudi Dornbusch, no friend of sup ply-side economics, recently endorsed privat izing Social Security and education as two key sources of growth. "The resulting capital formation will support rising real wages and therefore offer a long-term answer to the eroding standard of living.,,4 Ideas have consequences! D 1. Milton Friedman, Capitalism and Freedom (Chicago: Uni versity of Chicago, 1962), p. 182. 2. Abraham Ellis, The Social Security Fraud, 2nd ed. (Irving ton-an-Hudson, N.Y.: The Foundation for Economic Education, 1996), pp. 105,201.

3. Michael Tanner, "Privatizing Social Security: A Big Boost for the Poor," Cato Institute, July 26, 1996. 4. Rudi Dornbusch, "Dole Blew a Chance to Be Bold," Business Week, September 2, 1996. fhcSocialCritic Had enoughof theliberalbiasin the popularnewsmedia?Had enoughof "donating" an increasingamountofwhatyouearntosupportinefficient,bloatedsocialprograms? Had enoughof watchingour culturedegeneratebeforeyoureyes? Do you feel likea strangerin an increasinglystrangeland? If you answered "yes" to any of the above questionslthen you will be interestedin a boldI intelligentnew magazineI The SocialCritic.NoI you wonIt find "inside-the-Beltway" gossip in this magaZine.What you will find is vital social and political commentary by great social critics such as Dr. Charles Bairdl Directorof The Smith Center for Private Enterprise Studies. The Social Critica vital conservativeresource now in bookstores acrossAmerica.

http://www.socialcritic.com ---~troducrorYOffer~4%ofih~~ssrondprice.--One-year(six issues)subscription:$18.00 Pleasemake checkor money Two-yearsubscription:$ 34.00(19% off the newsstandprice) orderpayableto: The Social Critic Name _ Mail to: The SocialCritic Address 31121 MissionBlvd., Suite301 City State__ Zip __ Hayward,CA 94544 BOOKS The Return of Thrift: How the Collapse of the Middle Class Welfare State Will Reawaken Values in America by Phillip Longman Free Press. 1996 • 241 pages. $25.00 Reviewed by Chris Weinkopf T he notion that welfare dependency breeds bad habits, and that the end of welfare will restore good ones, is sound, but unoriginal. What distin guishes Phillip Longman's rendition of this con servative staple from previous takes is that he applies it not to the underclass, but to the Amer ican middle class, which, he reports, is every bit as dependent on sundry benefits as welfare moth ers are on food stamps and AFDC. Middleclass entitlements, he argues, will soon bankrupt the federal government, as they already have bank rupted the bourgeois ethic of hard work and thrift.