Published October 15, 1987
Policy Review
What first attracted G.K. Chesterton to Christian orthodoxy, he remarked, was that “it was attacked on all sides and for all contradictory reasons.” Fellow skeptics found the monks too meek and the Crusaders too bloody, the vestments too showy and the sackcloth too threadbare, the membership too common and the theology too exclusive. They faulted it for being too optimistic about the universe and too pessimistic about the world; for repressing sexuality too much and (according to the Malthusians) not enough. Yet the common man embraced Christianity. “Perhaps,” Chesterton concluded, “this extraordinary thing is really the ordinary thing; at least the normal thing, the center. Perhaps, after all, it is Christianity that is sane and all its critics that are mad—in various ways.”
I have had a similar, if less exalted conversion, to supporting Social Security. I once thought it should be phased out; I now believe conservatives should try to make Social Security work. I remained dogmatic in my skepticism until I tried to make consistent sense of my fellow skeptics’ arguments. Left and right, elite opinionmakers have reached an extraordinary consensus: Social Security is fatally flawed and needs sweeping reform, if not abolition. The trouble is that the experts, even on the right, cannot agree on the fatal flaw. Martin Feldstein finds Social Security biased against capital; others claim the payroll tax falls hardest on labor. Some find Social Security’s progressiveness intolerable; David Stockman faults it for being a regressive “subsidy for the middle class.” Michael Boskin thinks Social Security is peculiarly biased against yuppies; Allan Carlson insists that public old-age pensions are per se anti-family. Yet Social Security remains overwhelmingly popular with the public—including the young, many of whom think the system won’t be there when they retire.
Such divergence between the general public and the policy elite is a danger signal in a democracy: it usually means either that the public is impervious to information freely available to the policymakers, or that the policymakers are deviating from values broadly accepted by the community. The elite naturally inclines toward the first explanation. After sifting the claims, I became convinced that the elite is wrong and the public is right about Social Security—not only on social but also (given the range of choices available today) on economic grounds. I was forced to conclude that privatizing Social Security would subject the baby boom to a whopping tax increase, and materially hurt the family.
Embarrassed Yuppies
To the average person, Social Security has several attractions. It keeps old people from falling through the economic cracks, while leaving room for a flourishing retirement system. Benefits are tied to one’s work history, though the return is somewhat progressively skewed. Social Security remains the only widely portable retirement pension. And it provided municipal-bond tax advantages for the average citizen long before Individual Retirement Accounts (IRAs).
But a major source of Social Security’s popularity, I believe, is that it is the last major institution in America to embody what used to be called the “family wage”—an adjustment of the pre-tax market wage to accommodate the responsibilities of raising a family. This is what now most embarrasses liberals about Social Security, no less than it offends yuppies. Social Security stands almost alone in accepting the traditional family (in which the father works to support the family and the mother raises the children) as normal. In addition to the basic retirement benefit based on each worker’s lifetime of contributions, there is an extra 50 percent spouse’s benefit. For most married women who work part-time, intermittently, or not at all outside the home, this spousal benefit is greater than the one to which they are entitled based on their own lifetime cash earnings. There is also a widow’s benefit equal to 100 percent of the husband’s basic benefit, and coverage of surviving dependents. To qualify, in general, the couple must remain married, the husband must be steadily employed, and the wife must give up a lifetime of earnings equal to at least one-half of her husband’s. Thus the structure of Social Security—in sharp contrast to welfare—upholds intact marriage, a father’s responsibilities, a mother’s sacrifice.
I once thought all this weakened the free-market principle of linking effort and reward. But I found that the real question is whose effort, and whose reward? Adopt a narrow libertarian viewpoint—assume a nation of relationless adult individuals, all sprung full-blown like Athena from the head of Zeus—and logic leads one to seek to privatize Social Security. Accept, however, the family as the basic unit of society—acknowledge that adults begins as children, and that basing everyone’s pension solely on cash earnings means forcing mothers willy-nilly out of the home—and the same economic logic leads one to want to make Social Security work.
Yet every major Social Security reform proposal would pare down or phase out the “family wage.” Liberal proposals to tax or to means-test benefits would disproportionately hit the family benefits. Proposals by conservatives to privatize Social Security would hit the family twice. Social Security’s benefits for the traditional family, in effect, would effectively be phased out. In addition, the whole baby boom would be forced to “pay twice for retirement,” making it even harder to raise a family.
Chicken Little Privatizers
For half a century, Social Security has operated on a pay-as-you-go system: each generation pays the retirement benefits of its parents. The shift to pay-as-you-go created a windfall for the first generation of retirees, who received more than they paid in. There has been a long and fascinating, but so far inconclusive, debate about whether this windfall reduced saving. What is beyond dispute is that ending pay-as-you-go after 50 years would impose a large windfall loss. After paying Social Security taxes to support their parents, the baby boomers would lose any benefits in return from their children. This amounts to a lifetime tax increase of several trillion dollars to this generation. Columnist Warren Brookes puts it succinctly: “The current generation would have to pay twice as much into retirement systems for a lifetime, and accept no return at all on the Social Security half of their payments.” A du Pont-style income tax credit cannot lift this burden, only shift it around. If the credit is not financed with higher tax rates (no current benefit or spending cuts are proposed) a larger federal deficit sponges all saving financed by the credit, leaving nothing for private investment. Thus the claim that even traditional families would be better off, thanks to a higher return on private saving, is empty. Families lose a second time, either directly, by giving up their Social Security benefits, or indirectly, by paying higher taxes to fund a credit they do not receive.
The privatizers must finally fall back on speculating how high the Social Security payroll tax would have to rise if we had a permanent baby bust, shut off immigration, and pursued Jimmy Carter’s economic policies for the next 75 years. But if the Chicken Littles are right to prophesy an economic Ice Age, the return realized from private investments will also be far less than in the past. And how, exactly, would a several-trillion-dollar tax increased improve things? Either way, it sounds like Humphrey Bogart snarling at the young couple trying to flee Casablanca for America: “You want my advice? Go back to Bulgaria!”
Allan Carlson borrows a more sophisticated economic objection from the Swedish socialists Alva and Gunnar Myrdal: Old-age pensions are intrinsically anti-family since money spent on the elderly is money not spent on raising children. Social Security removes the inventive to have children to support oneself in retirement—demographically undermining itself.
One problem with using this argument to favor privatizing Social Security is that the Myrdals claim private saving has the same effect on the birth rate. Money saved for retirement is also money not spent on raising children. Of course, if Social Security substitutes for private transfers between generations, it does not affect private retirement saving. But in that case, Robert Barro argues, parents simply pass on any windfall to their children. Thus the fact that older parents are now more likely to aid their adult children than vice versa does not indicate a weakening of family ties—only a rational change in financial flows. Japan is presumably the privatizers’ ideal, with no social security system to speak of. Yet Japan has the same fertility rate as the United States (1.8 lifetime births per woman; the replacement rate is 2.1), and it did not experience an American-sized postwar baby boom.
Some argue that anticipating a less favorable “deal” than their parents from Social Security is causing the baby boom generation to marry later and have fewer children. But those who make this argument must accept two necessary corollaries: First, Social Security must have helped produce the baby boomers, whose parents could anticipate a windfall; second, the extra cost of privatizing Social Security would make it harder, not easier, for the baby boom to raise children.
The birth rate in industrial countries has been falling steadily since the 19th century (in fact, one of the few interruptions of this decline in the United States, the baby boom, started after Social Security). The Myrdals were among the first to argue that this “demographic transition” has three causes: urbanization (which ends the economic value of children as unpaid farmhands and geographically scatters the extended family); industrialization (which makes widespread saving and social insurance against old age both possible and necessary); and secularization (which changes attitudes about birth control and abortion).
The first two factors are economic: they removed benefits that once offset the cost of raising children, making children a net cost to their parents, though not to society. In Population: A Problem for Democracy, Gunnar Myrdal wrote that there are two ways to address this mismatch with incentives: “either (1) the burden of supporting the aged must be laid effectively upon the individual young families (by abolishing the whole structure of social policy enacted to support old and needy persons—and, do not forget, by actually denying them the right to live on their own savings, or (2) a large part of the economic burden must be passed from the individual to society as a whole. . . .” In other words, either force families back to the conditions of a precapitalist farm household, or else introduce some kind of family policy.
Socialist Family Policy
In practice, every modern democracy relieves part of the economic burden of raising children—for example, through personal exemptions, public schools, and Social Security family benefits. The Myrdals erred in wanting a socialist family policy—free in-kind medical care, housing, child care, etc. Such a policy nationalizes the functions of the nuclear family. But the “family wage” structure of Social Security helps the family provide such services for itself; keeping Social Security public helps keep the American family private. The Myrdals vehemently opposed the “family wage,” recognizing that you can’t get government into the home unless you first force mothers out of the house. (They also objected that it only helps those who work.)
Like some of the privatizers, the Myrdals erred also not in emphasizing economic factors but in undervaluing values. The Myrdals’ “family policy” included proselytization of birth control, with abortion as a “last resort,” to the fertile (and therefore ignorant) lower classes, to complete their “secularization.” Now, urbanization and industrialization are unlikely to be reversed; but a change in values is always possible. Lord P.T. Bauer notes that in the less developed world, the “attitude to fertility control does not depend on income, status, or urbanization, but on modernization (which as [John C.] Caldwell rightly observes is really a euphemism for Westernization).” As for the West, consider: if abortion were ended in the United States with no other change in behavior, the birth rate could boom from 1.8 to about 3.0 births per woman. Ben Wattenberg, take note.[2]
No one can argue that keeping Social Security will trigger a resurgence of traditional values; Great Awakenings are not kicked off by the retention of federal programs. But no one can doubt that officially upholding the family as the norm is important—or deny that undermining the “family wage” aspect of Social Security would be a serious blow to the family.
Raise Immigration Quotas, Not Taxes
From a conservative perspective, both the family and the economy would be better served by making Social Security work than by incurring the huge cost of trying to phase it out. The sky is not falling. Instead of increasing the burden of retirement saving, we should try to reduce it. Congress should not only repeal the 1988-1990 payroll tax increases; as actuary Robert J. Myers proposes, payroll tax rates should be cut for the next three decades and then adjusted as necessary, so that the trust funds do not exceed, or fall short of, about one year’s reserve. This would not only curb Congress’ proclivities to spend the growing trust fund surplus; it would also leave today’s young workers more after-tax income for raising families and taking advantage of private tax-deferred retirement saving. We should also, in Julian Simon’s words, “raise immigration quotas, not taxes.” One million more immigrants a year would reduce the payroll tax (and other taxes) about 10 percent every 10 years. And we should re-extend the “family wage” concept beyond Social Security. The 1986 tax reform bill was a good start, almost doubling the personal exemption to $2,000 and raising the earned income tax credit from 11 to 14 percent—both proposals introduced by Jack Kemp—but failed to related the credit to family size.
What struck Chesterton about Christianity was that it fitted the common experience of mankind, as a key fits a lock. I would say that the American people seem to regard Social Security more like an ordinary suit of clothes. They may agree that it is an aesthetic absurdity; but that won’t stop them from wearing it. They may politely concede the apparent inconsistency of letting it out today, only to have to take it in later on; but they seem to consider this a slur on their own human proportions. To them, this extraordinary thing is really the ordinary thing, at least, the normal thing. Social Security is not propelled by the waning momentum of the New Deal; its pro-marriage, pro-homemaker, pro-children cast makes liberals increasingly uncomfortable. As long as it remains centered on the needs of the typical family, Social Security sill have its own internal gyroscope. It is by nature a constant balancing act; but in coming decades we will continue to behold the critics sprawling and prostrate, Social Security reeling but erect.
[1] Policy Review (Fall 1987), 46-48. At the time this was published, I was Economic Counsel to the House Republican Conference, or caucus, of which Jack Kemp was Chairman: the third-ranking position in the House GOP leadership.
[2] Wattenberg had recently written a book warning against The Birth Dearth.
