Productivity increases should mean higher living standards for future retirees
Efforts to convince us that Social Security faces a crisis often start with the demographic argument: the U.S. population is aging. The White House web site says that in 1950 there were 16 active workers supporting each Social Security beneficiary, that today there are only 3.3 workers for each beneficiary, and that by 2050 only 2 workers will be supporting each beneficiary.
The numbers used by the White House are based on the pessimistic assumptions of the Trustees of Social Security, most of whom were appointed by President Bush. But it is true that starting around 2010 there will be a gradual decline in the relative number of active workers until 2035. Then it will level off until 2080 and beyond, at between 2 and 2.5 workers per beneficiary.
The White House says this is a problem, although they never explain why. But the implication is clear: how can the relatively few active workers support the growing number of retirees?
Although the White House and their Wall Street backers would not admit it, they are acknowledging the popular slogan: “Labor produces all wealth.” The labor of active workers supports the entire population — themselves, retirees, the disabled, children, students and the idle rich. Whether you get your money from a Social Security check, a paycheck, a trust fund, or an allowance, the food you buy and your health care, education and police protection all come from workers.
This means that if we really face a demographic time bomb, privatizing Social Security won’t help. With or without private accounts, we will still have the same ratio of retirees to workers.
But the demographic argument is hogwash. Doug Orr, professor of economics at Eastern Washington State, explains in Dollars and Sense (Nov.-Dec. 2004):
“It’s the overall dependency ratio (the number of workers relative to all non-workers, including the aged, the young, the disabled, and those choosing not to work) that determines whether society can ‘afford’ the baby boomers’ retirement years. In the 1960s, we had 1.05 worker for each dependent, and we were building new schools and the interstate highway system and getting ready to put a man on the moon. No one bemoaned a demographic crisis or looked for ways to cut the resources allocated to children; in fact, the living standards of most families rose rapidly. In 2030, we will have 1.27 workers per dependent. … While it is true a larger share of total output will be allocated to the aged, just as a larger share was allocated to children in the 1960s, society will easily produce adequate output to support all workers and dependents, and at a higher standard of living.”
Orr points out that real productivity per worker roughly doubles every 36 years, so that workers and retirees should be able to enjoy a higher living standard in 2040 than today, despite the increase in the senior population.
Where will the goods and services that baby boomers are going to consume in retirement come from? Orr advocates using today’s Social Security surplus to invest in health care training and infrastructure.
Expanding on this idea, the U.S. needs massive investment in the social and physical infrastructure to enable young workers today, and the next generation, to lead fulfilling and productive lives. This means building schools and training enough teachers and aides so that every child graduates ready to be a productive member of society. It means closing prisons and funding every young person with the talent and ability to go to college. It means ending imperial military ventures around the world and devoting those funds and the energy of young people into public works.
Carrying out this program would also create millions of new jobs, with additional billions in payroll taxes going into the Social Security Trust Fund, making it even stronger financially.
A program like this is in the immediate interests of all American workers, as well as the long-term interests of future retirees.