Sunday, January 09, 2005

Social Security, Julian Simon, and Our Future

Normally I can be relied upon to bash big government as much as the next guy. That aside, Social Security is in a true crisis. This word is ridiculously overused in politics, but this isn't that kind of crisis. This is a real crisis and there are no truly viable government solutions. It's a cultural/social problem. The government can tinker around with the numbers and delay the inevitable for a while, but without change in the behavior of the American people themselves there's no avoiding it.

In a nutshell the problem is this: Taken as a whole, Americans are living it up for today, and failing to reproduce themselves in numbers that will allow succeeding generations to do the same without making draconian changes to the way of life we now know.

RealClearPolitics linked to a piece in the WaPo today by Phillip Longman beginning to make this case:

Ever wonder why Social Security didn't crash and burn years ago? After all, for nearly all of the program's history, each generation of retirees has taken far more money out of the system than it contributed in taxes.

The answer is simple, though largely ignored in the current debate over Social Security reform. Today's retirees may not have paid anywhere near as much in taxes as today's workers do. But most contributed something far more valuable to the system: They created, raised and educated the baby boomers.

In more simple terms, previous generations had more kids - kids who grew up to become productive citizens. This allowed the nation - indeed, every nation in the Western World - to extend it's social compact with government. Regardless of how you feel about the politics that brought it about, it is now a cultural fact that Americans now reject the notion that care for the elderly is primarily the responsibility of their children. The right now inclines toward the position that it is up to the individual himself to prepare for retirement, while the left tends more strongly toward a governmental role. The majority of Americans place themselves somewhere between those two poles.

More from the WaPo article:

The core problem remains one of human capital: As a nation, we are not producing enough children to provide us with the support we will need, and expect, in old age. Today, 18 percent of women ages 40 to 44 are childless. That's up from 10 percent in 1976.

Meanwhile, large families are disappearing. In 1976, almost 60 percent of women ages 40 to 44 had three or more children. Today, that percentage has dropped in half, to 29 percent. All told, Americans no longer have enough children to reproduce themselves, let alone finance the Social Security system.

About that term "human capital"...

There is a cultural presumption among most of the Western world that each new baby born puts a strain on the limited resources of the Earth. Humans, in this world view, are net consumers. Having an additional child is an indulgence. Having a large family is socially irresponsible. How this came about is worthy of serious study, but the fact that this cultural view exists and dominates our culture (and thus our policymaking) is undeniable.

The late economist Julian Simon rejected that view entirely. He believed each new baby was a net producer, and spent the latter part of his life advocating this notion in defiance of the conventional wisdom. From an article in homage to Simon after his death (well-worth reading in its entirety) written by Stephen Moore:

Simon’s central premise was that people are the ultimate resource. "Human beings," he wrote, "are not just more mouths to feed, but are productive and inventive minds that help find creative solutions to man’s problems, thus leaving us better off over the long run." As Ben Wattenberg of the American Enterprise Institute explained in his brilliant tribute to Simon in the Wall Street Journal, "Simon’s central point was that natural resources are not finite in any serious way; they are created by the intellect of man, an always renewable resource." Julian often wondered why most governmental economic and social statistics treat people as if they are liabilities not assets. "Every time a calf is born," he observed, "the per capita GDP of a nation rises. Every time a human baby is born, the per capita GDP falls." Go figure!
Confounding his critics, Simon's position proved impossible to refute. But despite winning acclaim in certain libertarian circles, Simon did not win the culture war. This is best demonstrated in a single anecdote. He decisively routed Paul Erlich, author of The Population Bomb, by easily winning a bet made in 1981 about man's strain on Earth's limited resources. In 1992 Erlich honored the bet, sending Simon a check for $567.07. On the occasion, Michael Fumento noted:

Not that Ehrlich was hurting for the cash. Last year, he also received $345,000 from the MacArthur Foundation – one of its so-called genius awards – and he split a $240,000 award from Sweden's Royal Academy of Science, which also gives out the Nobel Prize.

All of which indicates to Simon that being right may be its own reward, but spending a lifetime being wrong can definitely be more lucrative.

We have now spent a few decades enculturating the false notion that it is socially irresponsible to have babies. And now some are beginning to forsee the catastrophic results. Social Security is only one area in peril of course. But because it's the government's to handle, people are looking for a government solution.

And it's ironic, because the fundamental alteration of the social compact I noted above shifted the caring for the elderly away from the responsibility of their children and into the hands of government and/or private enterprise. But as we all know, neither of those can have more babies. Only people can. Someone's children are going to need to care for the elderly no matter how you structure that support. We can already forsee a time when there just aren't enough children around to handle that burden; especially since they'll need to care for their own children at the same time.

Back to the WaPo article, Longman has some suggestions:

Here's a possible solution. Instead of slashing benefits across the board and borrowing trillions to create a risky system of personal accounts, use the same money to offer substantial tax relief, and extra benefits, to married parents who successfully raise their children.
Anyone other than me see this as political suicide for whomever proposes it? That's because the underlying problem isn't the policy. It's the culture. No one can legislate our way out of this one until winning the cultural battle. This means driving the "Population Bomb" mentality to the margins, and getting the majority to once again accept the idea that it is socially responsible - a positive social good - to have large families.

Longman crunched the numbers to convince himself this is true in Social Security terms. But until it crosses all the way into people believing it's good for our quality of life in most other areas - from the environment, to our food supply, to urban "sprawl" - it will be impossible to correct our demographic-induced problems.

And the key to that might just be revisiting the work of Julian Simon.

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