The Price of Entitlements

[Geee]

National Review:


Some of a society’s most intractable problems come not from its failures but from its successes. Often you can’t get a good thing without paying a bad price.

A prime example is our public old-age-pension system, Social Security. It has been completely successful in wiping out poverty among the elderly. Old ladies no longer have to eat cat food to survive.

But we pay some prices for this. One is a lower savings rate. China has a humongous savings rate, in part because it has no reliable old-age-pension system. People have to save if they don’t want to starve.


In the United States, we got out of the habit of saving. In the decade up to the financial crash of 2008, the U.S. savings rate fell below zero.
We felt comfortable borrowing on the supposedly ever-increasing values of our houses to support current, sometimes lavish, consumption. Now we’re paying the price.

But even if our savings rate rises back to the level of, say, the 1980s, it still may be lower than optimal.

The longer-term price any society pays for a public old-age-pension system is lower birth rates. Farmers had large families in order to provide additional labor during their working years and sources of income for their dotage. So did factory workers a century ago.

In Western Europe, birth rates have fallen below the rate necessary to replace population — in some countries, far below. The American birth rate has remained, barely, above replacement rate largely because of immigration. But immigration has slumped during the recession and may never return to the 1990–2008 level.

Unfortunately, under Social Security, as with most public pension systems, current pensions are paid for by current workers. As lifespans increase and birth rates fall, the ratio of pensioners to active workers falls toward one-to-one.