John Carney agrees with me that supporting our elderly is not an “affordability” problem,but he claims that I fail to see the “real” burden—the dependency ratios and all that. Actually I’ve been writing about that since the early 1990s. The“real” burden is the only thing that matters.
Here’s justa short list of easily accessible things I’ve written at www.levy.org:
Public Policy Brief No. 98 | February 2009 The Case Against Intergenerational Accounting: The Accounting Campaign Against Social Security and Medicare
Working Paper No. 468 | August 2006 Global Demographic Trends and Provisioning for the Future
Policy Note 2006/5 | July 2006 The Burden of Aging
Policy Note 2005/6 | September 2005 Social Security’s 70th Anniversary
Policy Note 1999/8 | August 1999 More Pain, No Gain
Public Policy Brief No. 55 | August 1999 Does Social Security Need Saving?
This is just a small sample; the last one listed (PPB 55) and WP 468 are probably the best things to read first, then do PN 2006/5.
Now to be sure, I think that while his argument that paying benefits to great grandma somehow makes young women infertile is bit of a stretch, there is a tiny bit of truth in it. Research shows that the best form of birth control is the rising status of women. If you liberate women from the drudgeries of subjugation, you kill two birds with one stone, so to speak. They choose to have fewer kids(better for the environment and long run sustainability of the species—althoughI suspect Carney and the other Austerian Austrians don’t accept the results of science) and they get to enjoy greater equality with men.
There could be some impact from Social Security as well as all the other progressive government programs that increase women’s security so that they do not feel so dependent on boorish husbands who just want to knock them up and keep them barefoot in the kitchen. So, OK there is a loose link. As I said, the “publicpurpose” is inherently progressive. Government has an important role in promoting gender equality. And that’s good for the environment, too. I consider both of those to be important roles for government to play.
Carney and I agree 100% on the MMT conclusion that we can always “financially afford”grandma. I think there is a bit of a disagreement on taxes and Social Security spending, however. We make the benefit payments by keystrokes. The purpose of that is to move resources to grandma—we credit her bank account so she can shop at a store rather than dumpster dive.
Now, why do we tax workers with the payroll tax? Not to pay for the benefits (Carney agrees on this, I think). Rather, it is to prevent current workers from buying up all the output, competing with grandma’s small benefit checks for scarce goods and services. That would of course cause inflation once we exhaust capacity.
(I want tobe clear here: I’ve always opposed the payroll tax as a poorly designed way to achieve the goal of ensuring demand doesn’t exceed capacity to produce. Better to have a progressive tax that hits everyone. And John would probably agree with Warren Mosler and me that payroll taxes improperly reduce the incentive to work—which is exactly the opposite of what we need if the problem is that production is too low!)
So the worry is about the real resources. The question is about capacity to satisfy workers,their kids and other dependents, and all the grandmas and grandpas and people with disabilities who collect Social Security. Clearly there is no problem today, and has been no problem in the postwar period. (WWII was a different matter as we had to shift half of all production to the war effort.)
We’ve alwaysoperated way below capacity (US capacity plus the net imports foreigners want to sell to us). Indeed, our economy would have performed much better if we’dpaid all the grandmas more—to raise aggregate demand, to increase employment,and to let entrepreneurs produce and sell more so they could get more profits encouraging ever more investment and creation of capacity.
Carney and other enemies of Social Security always claim the problem is in some distant future—not today—when dependency ratios rise, when we will have fewer workers per grandma. They say the “fact” is that the burden will become too great.
OK NEP has two responses.
1: He’s got his facts wrong, as we have demonstrated in many publications. There are two important issues here. First the total dependency ratio (old + young) peaked around 1965 and will (likely) never reach that level again. Remember that workers had to support 3.7 kids on average back then—so there were fewer grandmas but more Biffs and Buffys. The kind of support needed is different(and yes, grandma support might possibly be more “socialized” than support ofkids—but even that is questionable, and that is a political not economic consideration). But kids are a “burden”, too. (Believe me; I’ve got some. There are times I’d trade them for a few grandmas.) Second, on all projections (even pessimistic ones) the real living standard of workers will continue to rise even as workers are called on to support more old geezers. In real terms, they will be better off than today’s workers.
(As an aside, the presumption always is that gramps and grandmas do nothing to contribute to production. False. Even if they do not work for pay, they help out. Indeed, most of the care for the extremely old people is done by women over age 65—and most of that unpaid. The idea that elderly people are nothing but a burden is false. I’d go ahead and pay them for some of that work. Can anyone say Job Guarantee?)
2: But more importantly: what is the alternative? Soylent Green? Support ‘em or eat ‘em, that is Hamlet’s question. Even if we eliminate Social Security entirely the real burden remains.
And indeed it most likely gets worse. Here’s why. Workers of each generation will need to set aside more saving (to avoid being turned into canned food or reduced to dumpster diving or living with ungracious kids who are resentful that they got stuck supporting parents who live too long) over their whole lifetime. So consumption out of wages will be chronically insufficient for firms to recover costs. Sales will chronically fall short due to the “sinking fund” of worker saving. The inducement to invest and innovate would be much lower. AND THEN SAVING WOULD BE LOWER! (Investment creates saving, you know. Trying to save more does not actually mean you get more saving—paradox of thrift. So unless budget deficits or trade surpluses rise to fill the gap created by lower investment,we end up with less saving to take care of elders thrown off the safety net of Social Security.)
And we know from experience (think 1930s before Social Security) that workers never really saved enough (surveys at the time showed that huge portions of the elderly had no visible means of support)—so many will be reduced upon retirement to living on the fringes of society supported by handouts and fighting with stray dogs for scraps of food.
I know that some Austerian Austrians actually relish such a dystopian future. They love the movie A Boy and His Dog, or Mad Max. It is just the sort of free market society they are trying to create.
But the problem is that it can only be implemented undemocratically. As Carney and others lay their proposals out on the table so that we can see what kind of government they want, the reaction by most people is sheer horror.
"Indeed, our economy would have performed much better if we’d paid all the grandmas more—to raise aggregate demand, to increase employment, and to let entrepreneurs produce and sell more so they could get more profits encouraging ever more investment and creation of capacity."And spread fixed costs across more production, increasing economies of scale and thereby reducing prices for the rest of us.Everybody wins: entrepreneurs, grandmas and non-grandmas.
*please note the heavy sarcasm* In a perfect capitalistic society, wouldn't there be some form of eugenics for those who were economically unproductive and lacked other means? It is the basic argument against government healthcare that I've been hearing in the Republican debates. There is a lot to be said for MMT and I will be coming back to NEP to learn more.
I have read this post with a lot of interest and found it very clear.I actually agree that to pay for the retirement is not a financial problem, rather a resources problem. Do we produce enough to provide staisfaction for everyone?However the real problem comes out when the Governments put their hands inside. It is a matter of fact that to have satisfaction for everyone there must be the correct equilibrium among workers and non-workers. That's is from one side a technical problem, although very likely with modern technology it will come soon the day a single person could produce enough to satisfy everyone. But it is also a psychological problem. If one person has to work to satisfy everyone, very likely that person will not be very happy to be the only one to wake up at 6 and go to work while the others go to the beach.Therefore what has to be avoided is to allow people to retire too soon, because, otherwis, the others will see that while tehy are working there are people that could still earn their salary, are going to the beach.But politicians love to be reelected so they create a class of people that will give them votes simply because they received a benefit against the others. Very simple
I'm going to be glib and dismissive; MMR, to me, is simply opportunism. If all of their entrepreneurial buddies weren't so upset about the deficit, I suspect they would be perfectly content with their old supply-side manuals. That being said, I have to thank them, since their MMT interloping is spurring some outstanding writing from Wray.
"Second, on all projections (even pessimisticones) the real living standard of workers will continue to rise even as workersare called on to support more old geezers. In real terms, they will be betteroff than today’s workers."Really? Haven't the double whammies of increased living standards globally due to democratization which competes for resources that the US has taken on the cheap from the global south and increased take by FIRE combined to create the structural conditions where standard of living for working Americans is falling over time and will continue to fall in absolute terms?
Ttuth is on our side. There cannot be more than minority of people who support extreme far-right policies of economic depreviation and (ultimately) stravation. Unemployment and deprivation are kept up only by network of lies.
“We’ve always operated way below capacity (US capacity plus the net imports foreigners want to sell to us). Indeed, our economy would have performed much better if we’d paid all the grandmas more—to raise aggregate demand, to increase employment, and to let entrepreneurs produce and sell more so they could get more profits encouraging ever more investment and creation of capacity.”All well and good Randy but haven’t you checked this out with the more politically correct MMR theorists? You know the ones who are constantly preaching they are “Apolitical” with a capital “A” and will never have any political agendas on their site which involve such contentious things as slipping in the odd NAIRU rule idea now and again.http://monetaryrealism.com/the-tc-rule-for-fiscal-policy-screams-lower-taxes-and-more-spending/Michael Sankowski“I suggest using 4% for an unemployment target. Why? We’ve hit 4.5% and 4% in the last 20 years, and both times we didn’t have much inflation at all. The suggested target rate for inflation? 4%”
Excellent, as always!
«Research shows that the best form of birth control is the risingstatus of women.»That's not quite right! It is reliable pensions, in particular public pensions.Because the principal reason why women have children is as investments, to be cared for in their old age by at least some of them. This actually leads them to have many, because the more they have the higher the chances some will survive and support their old age mother.When women think that they can get care for their old age from a pension account, children switch from being investments to being luxury consumption, and they have a lot less and rather late. Because there are many competing luxury consumption options that compete with them (bigger house, better car, more exotic holidays, …).This has had a very large effect in that the resources corresponding to pensions are actually produced by their children in the aggregate. Simple way to persuade yourself: all women have pensions and no children.They all retire. What happens?Resources will be actually produced only by the children of women who have invested in having and raising them, but they will be shared by women who did not. Try to imagine the situation with the women: both have the same pension rights, the first had 2 children, the second had none. Both retire. Now both the children of the first woman produce for both women.Of course this has given many women a strong incentive to have no children or just one, as they will be provided for in any case by the resources produced by the descendants of women whose chose to have children, and childless women will actually have a better pension because they did not waste any of their income in having children, so they could have saved more.This is happening on a large scale in countries like Italy, Spain and Japan, where most women have no children or at most one.
"In a perfect capitalistic society, wouldn't there be some form of eugenics for those who were economically unproductive and lacked other means?" That's the "Soylent Green" option Randy mentions: http://www.imdb.com/title/tt0070723/
Mmmm…. soylent green. My fave. Great Article btw.
Nice story but these utility maximizing-type, logical, explanations almost never turn out to be true. And this one doesn't.It is status of women. Let them get out of the house, go to school, get a job, and they no longer want a lot of kids.
A kick in the knee for MMR:
You're ot suggesting that John Carney is being "unrealistic" and that he's been overcome by Austrian Theory are you?
Women aged 20-35 do not have children, in general, because they want to give birth to a bunch of retirement nest eggs. Hardly any real people think that way.
"I know that some Austerian Austrians actually relish such a dystopian future."Eh, that's the central point. It always is. Austrianism are a doomsday cult. I'm surprised few people note this. It's not a political ideology, its a doomsday cult. A great big nihilistic doomsday cult.That's why I don't like MMT being associated with them in any way. Because they're cranks. And while some think that MMT is crankish, it really isn't. But God knows that the cranks are ready to jump on board at the first opportunity. Their economic theory hasn't been faring so well in recent times. A generous person might claim that its been rotten since inception, but hey… So, you just take MMT and tack some nihilistic rubbish about population growth (always the last refuge of the scoundrel) and hey presto! Instant Crank.
go randy go !
Not to mention that if "dependency ratio" ever did become a real problem for the United States, we only need to open the immigration valve a bit more … plenty of able bodied workers of all skill levels more than happy to come work here.
Professor Wray,I liked very much the answer you gave to Blissex when he was making the point that a woman having no kids has an advantage over a woman having two kids because the kids of the second woman will pay also for the pension of the first one while she will even not have to pay for growing the kids. It is right, it is not a matter of economic maximization. Being happy is also to play with the kids, being happy is also, when one is in the elderly years to have someone bringing flowers for the birthday.Nevertheless there is one point that should be considered. You wrote correctly that those working are producing the resources to satisfy the needs of the non-working ones, no matter if they are kids or grandmothers or grandfathers.However there is a substantial psychological difference in the way things are organized nowadays, same as the difference among having or not having kids and if that is making us happy or not.To have kids is a free choice of the human beings, let's say almost a free choice because the bio clock has its impact. So, when I have a kid, it has been my free choice to grow the kid and therefore to use resources for the kid. Paying for the pension plan for the retired ones, even if among those there are my parents and my grandparents is not a my free choice. I could hate my parents, and therefore I could not wish to pay for thei retirement but rather let them live of what they can find in the garbage, because they have been very bad parents; not necessarly because they were beating me (those beating the kids are in reality few) but becasue they oppressed me psychologically when I was young. Believe it oor not, those bad parents are now a lot. I have a friend that is a psychoanalyst and she very often tells about the disasters parents are doing with their kids.I would guess that the increasing number of bad parents is due to the fact that now parents do not have to "earn" the help of their children when they will become old. They are guaranteed by the fact that governments are forcing the transfer of resources from the workers to the retired ones.By the way, I am criticizing very often also the Austrians because they too do not take into account the psychological, human, factor in their economic analysis.
Well, perhaps you have lived in a country where women have had pensions and and healthcare for a long time. In other countries that's still very much true.To the point that in China there is a flourishing market for kidnappings, because women want to have the security of having many children to support them in their old age without having to actually bear them.Note that most kidnapping customers already have 1-2 children, they just buy and raise additional kidnapped ones to have more retirement security. In China and in many cultures the youngest daughter does not marry until her mother dies and stays with her, and the male children send in money for the mother's upkeep. Childless old age women beg in the streets.
«these utility maximizing-type, logical, explanations»It is not a theoclassical style explanation; it is just ordinary opportunism and psychology. Women have been terrified to be old maids, pennyless broken lonely old hag begging in the streets.They have always seen husbands as employers and protectors for their fertile age, and children as old age insurance.The matriarchy, their mothers and grandmothers, have always pushed younger women into marriage and children with scary stories about the alternative, being a poor old childless widow or spinster.Most men have never had the problem, they would die much younger of physical exhaustion, worked to the bone until the last to pay protection money to their lord and to provide for their wife and children.«Let them get out of the house, go to school, get a job, and they no longer want a lot of kids.»But why? You are just describing something, not explaining it. Why ever would they want to stop having children if they go to school and have a job? The reason is that they no longer *need* to have children as old age insurance. They then tend to have 0-1-2 depending on how strong their reproductive instinct is in competing with other purchasing decisions.In any case women have always, always had the option of behaving like a man, and choose work over motherhood. Sterile career women have always existed. It was just, except for nuns, a very bad long term option. In part because most work involved upper body strength, in part because it seemed obviously better to have a support network of an extended family, especially in dangerous times.In any case the debate is temporary because women who don't have an overriding instinctual desire for motherhood are taking advantage of collective old age security to have no children and become extinct. In a few generations there will be a motherhood boom and few women will choose work over children, because only those who did so had descendants.
«if "dependency ratio" ever did become a real problem for the United States, we only need to open the immigration valve a bit more»The difficulty is that if these become residents they can get citizenship and vote, and then why would they vote to pay high taxes on themselves to give generous retirements and free healthcare to native born baby boomers?Since most immigrants being «able bodied» are young, they would vote to spend tax money on schools and roads more than on retirement homes and old age healthcare.What you propose only works if the immigrants are taxed but cannot vote. In other words a two-caste society, where native retired voting "eloi" live off the taxes imposed on immigrant nonvoting "morlocks".The USA business and middle classes clearly would love that, especially the middle classes who look forward to a fantasy retirement of comfort in a McMansion attended on by a staff of cheap illegal immigrant servants.They have tried to achieve it by opening wide illegal immigration, where illegal immigrants work hard and have no rights, but it is hard to attract qualified illegal immigrants, only «able bodied» ones of no qualifications.
As another point,in some countries, including China and India, women abort as many female children as they can, either before or after birth (usually leaving one female child live last to care for them in old age). This is mothers themselves choosing freely to abort most of their female children.The reason is purely economical: female children are a net disinvestment, because to marry them away they must be accompanied by a dowry, in addition to the cost of raising them, while male children are a better investment, because they receive a dowry on marriage.Put another way, female children contribute to some other mother's nest egg (the dowries to her sons), male children are their own mother's nest egg.Also, male children can be made to work harder and longer and starting earlier, and that matters a lot in a poor society, especially an agrarian one.
«Women aged 20-35 do not have children, in general, because they want to give birth to a bunch of retirement nest eggs. Hardly any real people think that way.»And that's largely why they have 0 or few children.Not all the world or history is like Sex-and-the-City…In the dark past those women who wanted nest eggs were constantly pregnant (10-20 pregnancies), trying to beat high miscarriage and infant mortality rates, with the goal of having enough adult children that could support them in their old age.The matriarchy have traditionally regarded men and children primarily as present and future resource providers, and evaluated and used them as such. Then psychological attachments would develop and often turn an opportunistic choice into a more emotional connection, and some rare foolish women would choose first on an emotional basis.The matriarchy was pressuring young women to get married with the richest guy they could get and bear as many children as they could have to make sure they would not end up badly. Also, grandmothers relied on grandchildren for support too. Better to spread the risk.As to spreading the risk, most women have always had children fathered by men other than their husbands (around 20%, with variations depending on circumstances), as a form of genetic and support insurance (and plausible calculations have shown that probably 20% is the optimal tradeoff, instinct can be quite accurate).Note also that very high numbers of children per woman happen in very poor societies where women work hard in addition to bearing and raising lots of children, sometimes from several different men. Again, for retirement.It also used to be that children were useful as workforce in their own right, and mothers had children to offload part of their work.
The issue of the “coercive” role of the state revolves around the issues of entitlement and environmental carrying capacity. Clearly with the latter how much of an “entitlement” you can get from nature has its limits and it would appear that we haven’t as a species quite managed to relate the importance of one issue to the other. However, with regard to the former nature seems to have made an accommodation of sorts that it constantly seeks to balance competition with cooperation and if in doubt opts for cooperation. This was neatly summed up in the recent movie “The Iron Lady” where the Neo-Liberal, Margaret Thatcher, very much believed, under the influence of her father, two things, that if you failed to succeed in life it was your own fault and if you did succeed you were entitled to call the shots over everybody else (a sort of control freak approach to life). The message of the movie was largely about how these Neo-Liberal beliefs failed her. She provoked riots trying to impose an unfair head (poll) tax which gave her wealthy Conservative supporters the jitters. She then tried to resort to a domineering approach with her cabinet ministers because they’d fought her over the head tax and this led to them deposing her as prime-minister. Finally, Alzheimer’s Disease, as some sort of poetic justice, took over her life making her dependent on others, or seeking an entitlement of help from others. It is this latter entitlement to help from others that nature chooses as a strategy for gene survival in us and which we see in cooperation and why we collectively enlist the “coercive” force of the state to achieve. This, of course, is also the reason why the creation of money is ultimately an entitlement issue. David Graeber in his book “Debt” refers to entitlement as “debt” how much is owed to us and how much we owe to others. Human common good and planetary good vitally depends on getting this balance right and as Bill Black’s analogy with “the broken window society” articulates Neo-Liberalism is failing to get it right and breaking an awful lot of windows in its rampage around the planet.
Not clear to me that immigrants vote or would vote for a different mix of public services and benefits than native born … after all they too will retire some day. But guest worker program is also possible. Point is, we have policy options, and that is one of them. Maybe not needed … just pointing it out.
Nicely summed up. Have not seen the movie … yet, but in the wake of these Austrian blog posts, I did find Maggie Thatcher coming to mind – so much so that I researched her now (in)famous words: "there is no such thing as a society". I was pleased to discover the full context of those words, and further realize that it made to difference to my interpretation of them as a cruel and incorrect assertion. Here they are:Prime minister Margaret Thatcher, talking to Women's Own magazine, October 31 1987"I think we've been through a period where too many people have been given to understand that if they have a problem, it's the government's job to cope with it. 'I have a problem, I'll get a grant.' 'I'm homeless, the government must house me.' They're casting their problem on society. And, you know, there is no such thing as society. There are individual men and women, and there are families. And no government can do anything except through people, and people must look to themselves first. It's our duty to look after ourselves and then, also to look after our neighbour. People have got the entitlements too much in mind, without the obligations. There's no such thing as entitlement, unless someone has first met an obligation."Pretty much correlates exactly with what you said she got from her father. In addressing her (somewhat twisted) logic of there not being any entitlement without meeting an obligation, from the MMT point of view, state money creates unemployment in the first case. You can think of imposition of state money being the "obligation" we are all forced to meet – which in turn makes us "worthy" of government entitlements as a consequence.
The difficulty is that if these become residents they can get citizenship and vote, and then why would they vote to pay high taxes on themselves to give generous retirements and free healthcare to native born baby boomers? Because, as Ken notes too, they know they will retire & fall ill themselves someday. If this argument had merit, it would equally well apply against those "immigrating" through natural increase of the native born. In any case, the idea that dependency ratios have any prospect of being a problem is a pack of lies.
The title of the movie "The Iron Lady" was, of course, used in a superbly ironic sense in that Margaret Thatcher proved to be just as vulnerable as the rest of us. Shades of Alasdair MacInytyre's book "Dependent, Rational Animals." Nobody who isn't sociopathic, or even loathed her treatment of others, could leave that movie theater after watching Margaret Thatcher's disintegration without believing she was "entitled" to what ever support her friends and relatives and the state if necessary could give her and in consequence anybody else who found themselves with this illness but without her wealth and needing a state "entitlement".
Both the native born and immigrants are allowed to vote differently at different ages.If the immigrants are all young and can vote, that can change the relative voting power between age cohorts, and the younger voters (native or immigrant) can vote for lower welfare to the older voters, and then change their vote 30-40 years later when they are older themselves.That sounds extraordinarily obvious to me.
«But guest worker program is also possible.»That's the eloi/morlock solution, where native voters tax as much as they can non-voting immigrants. Many countries do that.
Randy, I read this post last week on Canada's old age programs. Lots of similarities with your view.http://fictionalbarking.blogspot.com/2012/02/sense-and-nonsense-about-aging-of.html
The only way the Austro-Chicagoans EVER score points is by mischaracterizing not only their opponents but also their sources, notably Smith and Hayek.
I greatly enjoy, appreciate and learn from your MMT blog, but do you realize that your “fresh new look” has eliminated spacing between words?
For example, from Number 40, “MMT FOR AUSTRIANS 3”:
dependency ratios andall that
Here’s justa short list
This is justa small sample;
the bestthings to read first
Now to besure, I think that while his argument that paying benefits to great grandmasomehow
a tiny bit oftruth in it.
is the risingstatus of women
ALSO NOTE that this problem occurs only with what you post, not with the responses from others.
Maybe it’s my browser (firefox), but I don’t like the new format either, because it is completely chronological, no way to relate a post that is in response to another. Most posters don’t indicate which one they are responding to, and it makes it an incomprehensible mess.
That said, within this particular mess is an idea that I think is key to the understanding of, and discussion of, public purpose.
In a primarily agrarian economy, families took care of themselves first, and neighbors later, because of cultural mores. Within the family unit, the “workers” shared their output with the non-workers, be they children or grandparents.
In the Great Depression, in a more industrial society, this system largely failed because of the poor economic situation. Even those still working had barely enough to care for their own families, much less to do a whole lot for their neighbors who had no employment. Government’s response, including Social Security in particular, changed the social mores, such that caring for the aged became seen as an obligation of the society as a whole, no longer as an obligation of the descendents of a particular aged person.
While some posters have ascribed debatable motivations to certain changes, such as the lower number of children per household, there is no question that these changes and others have occurred. Financial planners make lots of money ensuring that Grandma’s estate will pass intact to her descendants, and her support costs, no matter how large or small, and no matter how affordable they would have been, will be passed to the government, because government (and not her descendants) is now viewed as being responsible for her support and care.
The essence of the “public purpose” debate is just this: who is responsible, financially, for whom? When is it right for government to relieve an able provider from his (traditional) responsibilities toward his family?