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Social Security & The Free Rider Problem
There is a slowly unfolding global catastrophe being driven by two factors:
- Public pensions
- Birth control
The second provides unfettered access to one of our core pleasures without all the pesky little side effects (or at least the ones that crawl and ask for your car keys). The second ensures that other peoples’ pesky little side effects — which are quite expensive and time-consuming, by the way — will pay for your old age.
The result?
A massive free rider problem — the largest in human history. Humanity is about to get a lot older, and as we’ve removed the need to rely on our own offspring, there suddenly aren’t enough offspring. This has an impact not only on public pensions but on private savings as well. If there aren’t enough producers, then you will see (and are seeing) long-term inflation as labor becomes more and more expensive and rare.
Is all hope lost? Maybe not. Taking the US as a particular case, imagine this mitigation:
- For those 35 and younger, they will receive their full social security when they retire so long as their own children (adopted or not, it is the cost and trouble of raising children that we’re dealing with) are contributing more to the program than they (the old folks) consume.
- Any amount contributed by the children, beyond what their own old folks consume, would be distributed to others eligible for social security — up to 100% of their previously specified benefit.
- Any amount beyond that would be part of the social security surplus – as presently defined.
It is highly aggressive… then again, the US, EU, China and others are in serious trouble. If you’re infertile or unmarried, well, you won’t be spending all that money on kids, so you should save more for yourself. If your kid is a washout, that sucks. Maybe have a spare, and try and raise children capable of earning a living.
Could this approach mitigate the upcoming catastrophe by reintroducing the traditional economic relationship between the generations?
I am wearing my flame-proof suit and ready for your fireballs!
Full disclosure: I have six kids and I live in a country that is well above the replacement rate for children. Israel is the only OECD country not facing this free-rider problem… Thus, for me, this is more of a thought experiment than a personal challenge. In other words, I don’t feel your pain.
Published in Economy
We just need these fresh ideas. Keeping the status quo is tepid.
I wonder if ricochet is the correct venue for this conversation. Somehow, I get the feeling that the membership here is well above 35 years old. That does not make you incorrect in your assumptions, but to be heard you should be on TikTok.
Yours is the demographic that protects the status quo :)
Although I’ll admit it took me more than 35 years to have 6 kids…
Every “for profit” company eliminated pensions a LONG time ago. Yes, the government is always late, but this is ridiculous. Everyone who works for the government tried and failed to work in the private sector, or they wouldn’t be on the government payroll now. First freeze and eliminate public pensions. Then end public sector unions. Even FDR knew that they were an oxymoron. All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service.
I don’t know…maybe you’re right, but it will take convincing a pretty sizable chunk of the over-62 cohort to accept lower benefits to make any meaningful correction happen. I have two sons (35 and 33 years old, respectively) and one grandson (1 yo). In hindsight, I wish my wife and I’d had at least one more, and that we would have four grandchildren now.
I’m just sayin’…
You don’t always get as many children as you desire. Hard to think as myself as a free rider after as many FICA taxes as I have paid over the years.
“Free long-term birth control means one less thing to worry about.”
Heavy sigh.
IIRC Chile enacted an innovative public retirement program some years back, but I don’t know if it is successful or even still exists.
As I recall, every worker’s paycheck had a small percentage withheld and deposited into a blocked retirement account, to be invested and grow over the years so that, upon reaching retirement age, the worker owned a substantial retirement nest-egg.
Who managed the investments, I don’t remember, but there may have been choices among self-directed investing like our IRAs or maybe targeted investments like annuities or other long-term instruments. All the government’s role was to oversee the withholding and the institutions that held and managed them. The point is that the account belonged all along to the worker.
Akin to W’s proposal that a small slice of the FICA withheld funds ought, at the choice of the worker, to be available to the worker to choose to invest privately, with the government backing up against untoward losses only.
Please explain this. Thx.
I know people that work for government, because it is a good job. Better than private for a few folks. I have worked in government for a stretch and I considered it public service. That said, one way to work around the public sector unions is to contract out everything. It creates lots of bad incentives, but there are already bad incentives. Just ensure competition and hope for the best.
The problem with this is that somehow Leftists would take over the funds and use them to force wokeness on every company in America.
ideally, the current system is supposed to be sufficient to pay everyone what they paid in. Well off kids provide a little bit more for the parents. I don’t see purpose of take the little more from the well off kids to give to the government, so they can give some to the parents.
Probably. Sigh.
And school taxes
And the reduction in smoking. In the early’90s the GAO figured the federal government made $0.20 per pack on cigarettes, not on taxes, but in terms of reduced benefits.
IIRC, a woman’s peak fertility window is a roughly 10-year period starting in her late adolescence and ending in her late twenties.
The typical life trajectory for women in developed countries is to spend those years being turned into a debt-slave for a college degree of dubious value, all so she can work a lame job in a cubicle while her ovaries expire like old fruit. She can then console herself with uncommitted sex, box wine and fur-babies (pets). We are now “shocked” to discover that the current birth rate in the West is below replacement.
“Oh,” you might say, “don’t you know that this frees women to be more economically productive?” Well, in fact, no. Women are actually net tax consumers. Statistically they consume more in social services than they contribute in tax revenue for most of their lives. There is a period from a woman’s mid-forties to retirement age where she provides a small, net positive. Otherwise, working women are, as a demographic whole, an economic drain. This also does not include the lost social benefits. In the past women were involved in civic and charitable activities, as well as providing a watchful eye over their neighborhoods (this is an example of “social capital”).
From the perspective of both economic benefit and societal benefit women provide far greater value to our civilization if they spend their late teens and early twenties locking down a husband and having children.
This has been explained on Ricochet before, so I think I understand what they’re getting at. The premise is that it is every citizen’s moral duty to make children, so those children will grow up and be taxpayers to fund the retirements of people who did not save for their own retirement. People who selfishly refrained from procreating are therefore mooching off of society and should be ashamed of themselves. Some have suggested that these childless, psychologically broken hedonists should be ineligible to receive Social Security benefits, since they have failed to meet their societal obligations.
I’m referring to social security as a public pension, as opposed to a government pension.
At least this lays bare the nature of Social Security – enslaving the children of tomorrow. Now we can do the morally obvious thing and abolish it.
I get this. It took us six years to have our first. Then again, financially, we would have saved far more without children.
I lived in Australia with a fully privatized system. Still a dependency on a certain amount of cash being enough which doesn’t work if there isn’t enough productivity. Of some rely on cash alone, that’s fine. But it had become too widespread.
I wouldn’t be so moralistic about it. It isn’t a moral duty to have children, imo. It is however, a financial catastrophe when a large swath of the population doesn’t have enough. So you want to incentive greater future financial productivity.
I think finances are a selfish reason to have kids. There should be far higher goals. Nonetheless, practically, it helps to have that inventive as part of our reality.
I get that having children can be hard or impossible. Only one of our children is a ‘volunteer’ and I’ve probably done nothing as apparently sketchy as mixing and injecting my wife with fertility drugs in the middle of the night in a Seattle parking lot.
I’m not interested in moralizing individual cases, I’m interested in population wide incentives.
And think of the benefits of wise old grumpy gramps having to move in with his little grand kids :)
Sadly, that’s the way the system was designed. You were largely funding your elders, not yourself.
I worked in the US for a while. I expect to get pretty much nothing of value in return for those taxes.
I think this is kind of the idea of the non-profit sector. WOW, there is a lot of money floating around. Want to attend a luxury bridal show, that will set you back $100. Maybe $300. The Consumer Electronics Show? $350. The Trade part of the Paris Air Show 115 Euro for 2 days.
Want to attend a non-profit show?
AFP Icon Seattle is $3k, the Nonprofit Technology Conference is $1k
Wow.
That said, my concern here isn’t public-sector pensions – which are costly but far less consequential – but public pensions (called social security in the US).
As DataRepublican has been showing, a lot of ‘non-profit’ money is government money outsourced to ‘NGOs.’
LOL perfect.
I don’t know — marijuana may be as toxic as tobacco, but is way more popular. Marijuana may result in as many reduced benefits as tobacco. I just wish the users wouldn’t drive.
Trade lowers prices so that is deflation.
Computers, lower prices so that is deflation.
Artificial intelligence really lowers prices so that’s deflation.
Not having children is deflationary.
So the central banks force deflation for some genuinely non-apparent reason except that that is the only way to keep a fractional reserve banking system together. It’s probably the only way to be militaristic otherwise known as the US Navy keeping trade routes open.
Then we started trading with the Chinese mafia that plowed it into the military. We could have imported deflation from anywhere else.
Because of the potential for war and keeping the fractional reserve banking system together instead of full reserve banking, well, this can’t really be done, but we pretend it can be done with inflation.
We are too stupid and corrupt for this.
Deflation with a full reserve banking system is the only way to live, but nobody does.
The Ludwig von Mises Institute Is Right About Everything™
FDR and LBJ can take FICA taxes at gunpoint without making people procreate FICA slaves at gunpoint. They don’t even think about it.
This is my solution. I’m not that smart so you can probably shoot all kinds of holes in it though. The government prints money all of the time. It prints and prints and prints and prints. They should have switched the whole system where it prints up money and gives each baby two barely self-funded life insurance contracts. One is for all of your welfare and unemployment before you are 50. The other one is for old age, Social Security, and Medicare. It’s your damn problem if you don’t add to them. The government will give you free actuarial calculations. Everybody would also probably be paying into a mutual aid society so they have back up to that. That’s what everybody always did even before the government got involved.
By 1973 both parties recognized that Medicare was an actuarial disaster by a factor of 8X. nobody did anything and now it’s a multi-multi trillion dollar problem.