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Quotational Therapy: Part 33 -- Hayek On Social Security.

Friedrich Hayek, On Social Security-

Though all insurance involves a pooling of risks, private competitive insurance can never effect a deliberate transfer of incom from one previously designated group to another.

Such a redistribution of income has today become the chief purpose of what is still called social "insurance"-- a misnomer even in the early days of these schemes. When in 1935 the United States introduced the scheme, the term "insurance" was retained-- by "a stroke of promotional genius"-- simply to make it more palatable. From the beginning, it had little to do with insurance and has since lost whatever resemblance to insurance it may ever had had. The same is now true in most of those countries which originally started with something more closely akin to insurance.

Though a redistribution of incomes was never the avowed initial purpose of the apparatus of social security, it has now become the actual and admitted aim everywhere. No system of monopolistic compulsory insurance has resisted this transformation into something quite different, an instrument ofor the compulsory redistribution of income....

It is essential that we become clearly aware of the line that separates a state of affairs in which the community accepts the duty of preventing destitution and of providing a minimum level of welfare from that in which it assumes the power to determine the "just" position of everybody and allocates to each what it thinks he deserves. Freedom is critically threatened when the government is given exclusive powers to provide certain services-- powers which, in order to achieve its purpose, it must use for the discretionary coercion of individuals.

The difficulties which social insurance systems are facing everywhere and which have become the cause of recurrent discussion of the "crisis of social security" are the consequence of the fact that an apparatus designed for the relief of poverty has been turned into an instrument for the redistribution of income, a redistribution supposedly based in some non-existing principl of social justice but in fact determined by ad hoc decisions....

It seems to be the fate of all unitary, politically directed schemes for the provision of such services to be turned rapidly into instruments for determining the relative incomes of the great majority and thus for controlling economic activity generally....

It has been well said that, while we used to suffer from social evils, we now suffer from the remedies for them. The difference is that, while in former times the social evils were gradually disappearing with the growth of wealth, the remedies we have introduced are beginning to threaten the continuance of that growth of wealth on which all future improvement depends.

Source:

The Constitution of Liberty, 1960.

We talk so often of the nuts and bolts of Social Security, of the solvency crisis and the projected outlays and deficits, that we sometimes neglect the philosophical argument for Social Security reform. From a freedom maximization standpoint, Social Security reform would allow our economy to actualize more of its potential, while removing a major wealth confiscation/redistribution technique from the leviathan government's arsenal.

Hayek, it should be noted, believed in a safety net for the poorest among us. So does President Bush. So do I. So do most conservatives. But to the extent that the safety net becomes a program used for social engineering, and to the extent that people stop viewing a program as last-resort insurance and instead begin depending on it because it is there, the program is a failure.

It is really no wonder, then, that the American personal savings rate is so low. People who are perfectly able to save for their own retirement are consciously deciding to save less (or nothing at all), because the government, in theory, is already taking about 1/8 of every dollar earned and setting it aside in a savings account, to be returned with compounded interest at retirement. Unfortunately, that's not how it works. At all.

And we can do better. Social Security can and should live up to its intentions, without the recess of personal freedom of Americans; but we must remove the federal government's monopoly on the system, giving individuals personal choice and control. Hayek knew it in 1960. We know it 45 years later. It's time for reform.

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John Adams.

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Posted by Will Franklin · 5 August 2005 12:36 PM

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