May 4, 2007


Gunnar Myrdal Was Right: Social Security's fertility problem. (James C. Capretta, May 4, 2007, Weekly Standard)

Barring a political earthquake, President Bush will leave office without achieving his goal of transforming Social Security. That's too bad. A successful Social Security effort would be a significant down payment on much needed entitlement reform. But sooner or later, Social Security will find its way back onto the public agenda. The program's financial problems are simply too big to set aside indefinitely.

In a nutshell, Social Security's long-term prospects are bleak because of rapid and unprecedented population aging. Part of the demographic story is, of course, good news about longer lives. When Social Security started, the average man could expect to live about 12 years after reaching retirement at age 65. Today, he can expect to live 16 years.

But by far the most important factor in aging over the long run is falling fertility. Societies that do not produce children will, quite naturally, grow older. And there is simply no bigger problem than a low birth rate for a conventional "pay-as-you-go" pension system like Social Security. Without a steady stream of "payers," the system cannot "go."

What is not widely understood--despite the work of analysts like Allan Carlson, Phillip Longman, and John Mueller, among others--is that Social Security itself contributes significantly to the problem of low fertility. Odd as it may sound to the modern ear, a primary motivation for having children in earlier times was economic security in old age. As parents became frail and less productive, it was expected that one or more of their adult children would take care of them, oftentimes by bringing them into their homes. Married couples thus "invested" in numerous children, in part, to ensure there would be family members to care for them in their twilight years. With state-run Social Security, the government has largely assumed this family responsibility. Married couples have a greatly diminished economic incentive to have children, because now they are counting on--and paying for--government-based old age support.

This insight is neither new nor conceived of by conservative opponents of the welfare state. As noted frequently by Carlson, Gunnar Myrdal, the eminent Swedish socialist economist, observed in the 1940s that state-run, pay-as-you-go pension systems are built on a fundamental "contradiction": They reduce the economic incentive within a family to have children, even as they remain ever dependent on a new generation of productive workers.

While he certainly won't get to Reform the system on his watch, passing the immigration amnesty would push back the date of Social Security insolvency to somewhere near when the sun explodes.

Posted by Orrin Judd at May 4, 2007 10:38 AM

Yup it is all Bush's fault even though he pushed reform harder than any other president. If the GOP Congress had a spine while it had majorities some reform could have been accomplished.

Posted by: AWW at May 4, 2007 11:07 AM

You would think it'd be trivial to demonstrate that SS as currently designed is a horrific investment plan and that no competent financial advisor would dare to even show a customer such a program, and thereby build a pretty solid majority for restructuring the program. But then you'd realize that even if the government tried to make that case (which should be a slam dunk), the complete financial illiteracy of the public and the media, combined with the agenda of the latter, would ensure failure.

Posted by: b at May 4, 2007 11:40 AM

SS reform among other reforms could have been managed years ago while bubba was still not having sex with that woman ... except that Newt was ...

Posted by: erp [TypeKey Profile Page] at May 4, 2007 11:51 AM

The old folks are so selfish. They raise children to keep themselves alive longer.

My take: it's the high taxes, and govt. interferences, especially in Europe. Who can afford to have children if you don't have a job, and can't afford to have children even if you had a job and paid a chunk of your earnings to take care of the unemployed and the aged.

My cure: allow people to be selfish. Each one to take care of his own. If everyone takes responsibility for himself and his family, the world will be much better.

Posted by: ic at May 4, 2007 12:04 PM

Where are the conservatives here?

The rules are not to be changed in the middle of the game, the prudent having relied of those rules. To do so is to undermine prudence. Really, this is basic to conservatism, sort of Russel Kirk 101.

Posted by: Lou Gots at May 4, 2007 12:39 PM

Good grief, Lou, what are you talking about? We're plenty rich to deal with the transition costs, and no one has EVER proposed not paying out the obligations of the current system. Since when do you speak in such leftist tropes?

Posted by: b at May 4, 2007 12:56 PM

Why should people care as long as they get checks?

Posted by: oj at May 4, 2007 2:36 PM


No, it couldn't have. Spine is insignificant. Votes matter.

Posted by: oj at May 4, 2007 2:37 PM

Bad behavior should always be undermined.

Posted by: oj at May 4, 2007 4:25 PM

oj (2:37 pm):
Amen! I've seen this scene play out multiple times--
Young (below 30) person says, "SS is a ripoff for us--by the time I retire the SS system will be bankrupt. Heck, I could buy a better annuity *today* from an insurance company for less than the SS fee they are taking from my paycheck. They need to change SS."

Old person (70+) gets all huffy and says, "NO WAY. You young people are so greedy. The government made a CONTRACT with the American people with SS, and it cannot be changed. A contract is a contract."

Voters and votes count. And we know who will be [still] voting 10 years from now--and who won't be.

Posted by: ray at May 4, 2007 5:28 PM


Your 70+ example needs to know that the Supreme Court ruled (sometime around 1960, IIRC) that SS is not a contract, is not a promissory note, is not insurance, and can be changed to any degree whenever a simple majority in Congress votes to do it.

Votes do matter - and the GOP is now a minority in Congress because they refused to deal with the issue in January 2005. Bush didn't really lead (he tried, in his own way, I suppose), but Congress certainly did NOTHING.

Had the GOP pushed the issue to a head in the spring of 2005 (to the point of a real Democratic filibuster), they would have won seats in Nov. 2006 instead of losing them.

And today, the Democrats are closer to 60 seats in the Senate than the GOP, no?

Posted by: jim hamlen at May 4, 2007 6:47 PM

jim hamlen:

How do you figure that? The polling I saw indicated the public increasingly disapproved of the concept the more the president tried to promote it. The public is scared of reform, which isn't surprising considering how the press describes it as betting your life savings in a game of financial roulette.

(All in all, Social Security is in a dead heat with school vouchers for the domestic political issue that has attracted the most jaw-dropping misrepresentations...or, to use my preferred term, "lies.")

As for your other point, Milton Friedman put it best when he said that Social Security is not a "contract between the generations" so much as a chain letter.

Posted by: Matt Murphy at May 5, 2007 10:46 PM

Matt, ss it's looking more and more like a Ponzi scheme.

Posted by: erp [TypeKey Profile Page] at May 6, 2007 6:23 PM