By Andrew Biggs - The journal of the American Enterprise Institute
The Ethics and Public Policy Center’s Jim Capretta—whose work on health reform I’m a huge fan of—weighs in on an aspect of the Social Security problem that’s received insufficient attention: falling fertility. Capretta argues that Social Security has stifled fertility in America, which in turn has stifled our ability to support the Social Security program. Steps to encourage higher fertility would make Social Security’s finances more sustainable over time. I’m not sure I agree with Jim’s argument on causation, but I think his policy prescriptions deserve more attention as we think about Social Security reform.
Capretta argues that “the presence of the state-based pension benefit—particularly if it is large—reduces the incentive of younger workers to have children.” The question is, why? Capretta’s answer is that
a motivation for having children in earlier times was economic security in old age. As parents became frail and less productive, it was expected that one or more of their adult children would take care of them. Married couples thus “invested” in numerous children, in part to ensure the next generation would have the economic capacity to provide for them in their final years.
Put another way, parents invested in “human capital”—that is, kids—as a way to save for retirement. With retirement income provided by the government, couples naturally would have less need to have children and fertility would decline.
I can buy this, up to a point. The problem is that, in the same period in which Social Security was developed and its benefits grew, a second innovation took place: it became far easier for individuals to save for retirement through financial capital, such as bank accounts, mutual funds, as so forth. In the 19th century many Americans didn’t really have access to modern forms of saving and so investment in human capital was a rational way to prepare for retirement. But as other saving opportunities arose, it’s likely that parents would substitute financial capital for human capital and reduce household sizes to levels desired for reasons other than retirement security.
For full article:
No comments:
Post a Comment