NCPA - National Center for Policy Analysis

Friedman Faults Gore's Math

November 1, 2000

Democratic Party presidential candidate Al Gore frequently tries to cast doubt on GOP presidential candidate George W. Bush's proposed Social Security reforms. He claims that Bush's plan would spend the same $1 trillion twice -- once for younger workers in the form of individual investment accounts for retirement, and once for older workers.

Nobel-Prize-winning economist Milton Friedman is calling Gore's hand, however -- disputing his frequent claim that Bush's plan would "undermine Social Security."

Here is an outline of some of Friedman's reasoning:

  • Under current law, the Social Security surplus will be used to buy back government bonds -- thus making them assets of the Social Security trust fund, to be used to finance future payments.
  • Under the Bush plan, $1 trillion of those assets will be held in the form of securities in personal retirement accounts.
  • The plan does not affect the benefits promised to current retirees.
  • For younger workers, the accounts will finance what otherwise would be obligations of the trust fund.

In addition, the higher yield on the personal retirement accounts will benefit both the retirees and the Social Security trust fund.

"In effect, the establishment of personal retirement accounts would convert an unfunded liability of $1 trillion into a fully funded liability," Friedman explains, "which strengthens rather than weakens Social Security."

Source: Milton Friedman (Hoover Institution), "...But Bush's Does," Wall Street Journal, November 1, 2000.


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