Silly panic over a dwindling supply of workers to fund entitlements
According to Froma Harrop, using the nation’s falling fertility rate as a reason to rein in entitlement spending overlooks an important counterbalance: rising productivity.
If you drove to work today, did you worry about too few cars on the road? Do you wish more people were waiting in line at the public tennis courts? Are you eager to see new housing developments replace your favorite truck farm?
If your answer to all three questions is “no,” you’re like most people. And America’s falling fertility rate would seem to have its benefits. But if you’re scraping for new ways to undermine Social Security and Medicare, portraying this demographic reality as a major disaster offers new opportunity to stampede the public into turning against these entitlements.
Here’s the argument: In 1950, we had almost 17 workers for every retiree. Now the ratio is 2.8 workers for every beneficiary. By 2030, it will be only 2.0 workers for every retiree. Social Security and Medicare are doomed, so let’s pull the plug now.
Let’s not. Why will follow, but first some background. The fertility rate is the number of children women bear over their lifetime. Rates are falling almost everywhere. They’re down in Europe, Asia and Latin America. Mexico is now at the replacement level.
How do you keep programs like Social Security going when the ratio of workers to beneficiaries keeps dropping? Productivity. Productivity measures a worker’s output in a unit of time. If computers help a worker produce four car batteries in the time it took to make two, that worker’s productivity has doubled.
Productivity gains traditionally result in higher pay for workers (though workers have seen little of those benefits recently). This is why Social Security remains afloat as the ratio of workers to retirees continues downward. Also helping, Social Security payroll taxes were raised in the early 1980s to provide a cushion of savings for now, when the baby boomers start retiring.
As for the future, Dean Baker at the Center for Economic Policy and Research supplies the math. If productivity grows at an average rate of 1.5 percent a year, as it has over the past two decades, productivity will be almost 40 percent higher in 2035 than it is today. Thus, workers in 2035 will be spending only about a quarter of their productivity-driven pay increases on retirees and keeping the rest. Not a bad situation.
Baker also reminds us that the ratio of workers to retirees is expected to stabilize around then for the rest of the century, while productivity will continue to grow. So the demographic heavens are not crashing down on Social Security.
Medicare is a somewhat different story. Its rising costs need curbing. But even here, there are many ways to cut waste. We don’t have to eviscerate the program with voucher schemes or turn it into welfare through means-testing.
Scaremongering over demographics is a divide-and-conquer strategy: Convince younger workers that they are paying for plush programs sure to collapse by the time they get old, and they’ll bring them down. And as a double-scoop, say that these programs make the “demographic winter” worse by having government replace the children who traditionally supported their elders. For example:
“The most insidious effect of the Social Security and Medicare regimes is that they actually shift economic incentives away from having children,” Jonathan V. Last, a writer for the conservative Weekly Standard, says in his book, “What to Expect When No One’s Expecting: America’s Coming Demographic Disaster.”
Here’s a counter-argument: These programs reassure parents bearing the considerable expense of raising children that they won’t be destitute if they can’t save enough for their old age.
But love or hate these programs, setting off false alarms is not an honest way to win converts. Today’s demographic changes require adjustment, not running-in-the streets panic.
© , The Providence Journal Co.
Providence Journal columnist Froma Harrop's column appears regularly on editorial pages of The Times. Her email address is email@example.com