Fresnel, Augustin-Jean

Will a subsidy from the general taxpayer could be justified if it is required. I see no grounds on which such a subsidy can be justified. 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?

The only argument I have ever come across to justify the redistribution involved in OASI is one that I regard as thoroughly immoral despite its wide use. This argument is that OASI redistribution on the average helps low-income people more than high-income people despite a large arbitrary element; that it would be better to do this redistribution more efficiently; but that the community will not vote for the redistribution directly though it will vote for it as part of a social security package. In essence, what this argument says is that the community can be fooled into voting for a measure that it opposes by presenting the measure in a false guise. Needless to say, the people who argue this way are the loudest in their condemnation of “misleading” commercial advertising!1

2. Nationalization of the provision of required annuities Suppose we avoid redistribution by requiring each person to pay for the annuity he gets, in the sense of course, that the premium suffices to cover the present value of the annuity, account being taken both of mortality and interest returns.

What justification is there then for requiring him to purchase it from a governmental concern? If redistribution is to be accomplished, clearly the taxing power of the government must be used. But if redistribution is to be no part of the program and, as we have just seen, it is hard to see any justification for making it part, why not permit individuals who wish to do so to purchase their annuities from private concerns? A close analogy is provided by state laws requiring compulsory purchase of automobile liability insurance. So far as I know, no state which has such a law even has a state insurance company, let alone compels automobile owners to buy their insurance from a government agency.

Possible economies of scale are no argument for nationalizing the provision of annuities. If they are present, and the government sets up a concern to sell annuity contracts, it may be able to undersell competitors by virtue of its size. In that case, it will get the business without compulsion. If it cannot undersell them, then presumably economics of scale are not present or are not sufficient to overcome other diseconomies of governmental operation.

One possible advantage of nationalizing the provision of annuities is to facilitate the enforcement of compulsory purchase of annuities. However, this seems a rather trivial advantage. It would be easy to devise alternative administrative arrangements, such as requiring individuals to include a copy of a receipt for premium payments along with their income tax returns; or having their employers certify to their having met the requirement. The administrative problem would surely be minor compared with that imposed by the present arrangements.

The costs of nationalization seem clearly to outweigh any such trivial advantage. Here, as elsewhere, individual freedom to choose, and competition of private enterprises for custom, would promote improvements in the kinds of contracts available, and foster variety and diversity to meet individual need. On the political level, there is the obvious gain from avoiding an expansion in the scale of governmental activity and the indirect threat to freedom of every such expansion.

Some less obvious political costs arise from the character of the present program. The issues involved become very technical and complex. The layman is 153 often incompetent to judge them. Nationalization means that the bulk of the “experts” become employees of the nationalized system, or university people closely linked with it. Inevitably, they come to favor its expansion, not, I hasten to add, out of narrow self-interest but because they are operating within a framework in which they take for granted governmental administration and are familiar only with its techniques. The only saving grace in the United States so far has been the existence of private insurance companies involved in similar activities.

Effective control by Congress over the operations of such agencies as the Social Security Administration becomes essentially impossible as a result of the technical character of their task and their near-monopoly of experts. They become self-governing bodies whose proposals are in the main rubber-stamped by Congress. The able and ambitious men who make their careers in them are naturally anxious to expand the scope of their agencies and it is exceedingly difficult to prevent them from doing so. If the expert says yea, who is there competent to say nay? So we have seen an increasing fraction of the population drawn into the social security system, and now that there remain few possibilities of expansion in that direction, we are seeing a move toward the addition of new programs, such as medical care.

I conclude that the case against the nationalization of the provision of annuities is exceedingly strong, not only in terms of liberal principles but even in terms of the values expressed by proponents of the welfare state. If they believe that the government can provide the service better than the market, they should favor a government concern to issue annuities in open competition with other concerns. If they are right, the government concern will prosper. If they are wrong, the welfare of the people will be advanced by having a private alternative. Only the doctrinaire socialist, or the believer in centralized control for its own sake, can, so far as I can see, take a stand on principle in favor of nationalization of the provision of annuities.

3. Compulsory Purchase of Annuities Having cleared away the underbrush, we are now ready to face the key issue: compelling individuals to use some of their current income to purchase annuities to provide for their old age.

One possible justification for such compulsion is strictly paternalistic. People could if they wished decide to do individually what the law requires them to do as a group. But they are separately short-sighted and improvident. “We” know better than “they” that it is in their own good to provide for their old age to a greater extent than they would voluntarily; we cannot persuade them individually; but we can persuade 51 per cent or more to compel all to do what is in their own good. This paternalism is for responsible people, hence docs not even have the excuse of concern for children or madmen. 154

This position is internally consistent and logical. A thoroughgoing paternalist who holds it cannot be dissuaded by being shown that he is making a mistake in logic. He is our opponent on grounds of principle, not simply a wellmeaning but misguided friend. Basically, he believes in dictatorship, benevolent and maybe majoritarian, but dictatorship none the less.

Those of us who believe in freedom must believe also in the freedom of individuals to make their own mistakes. If a man knowingly prefers to live for today, to use his resources for current enjoyment, deliberately choosing a penurious old age, by what right do we prevent him from doing so? We may argue with him, seek to persuade him that he is wrong, but are we entitled to use coercion to prevent him from doing what he chooses to do? Is there not always the possibility that he is right and that we are wrong? Humility is the distinguishing virtue of the believer in freedom; arrogance, of the paternalist.

Few people are thoroughgoing paternalists. It is a position that is most unattractive if examined in the cold light of the day. Yet the paternalistic argument has played so large a role in measures like social security that it seems worth making it explicit.

A possible justification on liberal principles for compulsory purchase of annuities is that the improvident will not suffer the consequence of their own action but will impose costs on others. We shall not, it is said, be willing to see the indigent aged suffer in dire poverty. We shall assist them by private and public charity. Hence the man who does not provide for his old age will become a public charge. Compelling him to buy an annuity is justified not for his own good but for the good of the rest of us.

The weight of this argument clearly depends on fact. If 90 per cent of the population would become charges on the public at age 65 in the absence of compulsory purchase of annuities, the argument would have great weight. If only 1 per cent would, the argument has none. Why restrict the freedom of 99 per cent to avoid the costs that the other 1 per cent would impose on the community?

The belief that a large fraction of the community would become public charges if not compelled to purchase annuities owed its plausibility, at the time OASI was enacted, to the Great Depression. In every year from 1931 through 1940, more than one-seventh of the labor force was unemployed. And unemployment was proportionately heavier among the older workers. This experience was unprecedented and has not been repeated since. It did not arise because people were improvident and failed to provide for their old age. It was a consequence, as we have seen, of government mismanagement. OASI is a cure, if cure it be at all, for a very different malady and one of which we have had no experience.

The unemployed of the 1930’s certainly created a serious problem of the relief of distress, of many people becoming public charges. But old-age was by no means the most serious problem. Many people in productive ages were on the relief or assistance rolls. And the steady spread of OASI, until today more than sixteen million persons receive benefits, has not prevented a continued growth in the number receiving public assistance.

Private arrangements for the care of the aged have altered greatly over time. Children were at one time the major means whereby people provided for their own old age. As the community became more affluent, the mores changed. The responsibilities imposed on children to care for their parents declined and more and more people came to make provision for old age in the form of accumulating property or acquiring private pension rights. More recently, the development of pension plans over and above OASI has accelerated. Indeed, some students believe that a continuation of present trends points to a society in which a large fraction of the public scrimps in their productive years to provide themselves with a higher standard of life in old age than they ever enjoyed in the prime of life. Some of us may think such a trend perverse, but if it reflects the tastes of the community, so be it.

Compulsory purchase of annuities has therefore imposed large costs for little gain. It has deprived all of us of control over a sizable fraction of our income, requiring us to devote it to a particular purpose, purchase of a retirement annuity, in a particular way, by buying it from a government concern. It has inhibited competition in the sale of annuities and the development of retirement arrangements. It has given birth to a large bureaucracy that shows tendencies of growing by what it feeds on, of extending its scope from one area of our life to another. And all this, to avoid the danger that a few people might become charges on the public.

Another current example of the same argument is in connection with proposals for federal subsidies for schooling (mislcadingly labeled, “aid to education”). A case can be made for using federal funds to supplement schooling expenditures in the states with the lowest incomes, on the grounds that the children schooled may migrate to other states. There is no case whatsoever for imposing taxes on all the states and giving federal subsidies to all the states. Yet every bill introduced into Congress provides for the latter and not the former. Some proponents of these bills, who recognize that only subsidies to some states can be justified, defend their position by saying that a bill providing only for such subsidies could not be passed and that the only way to get disproportionate subsidies to poorer states is to include them in a bill providing subsidies to all states.