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Bush's Defunct Economist

by Fred Block
The case for privatizing Social Security depends on an error of logic. If in the future, there are too few wage earners to support too many retirees, private accounts will not solve the problem.

George W. Bush’s arguments about Social Security perfectly illustrate an observation made by the economist John Maynard Keynes. “Practical men,” Keynes wrote, “who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.” President Bush has demonstrated slavish devotion to T.R. Malthus, one of the founders of political economy who promoted the idea that human population grows geometrically while the food supply grows only arithmetically.

Sadly, the President lacks the intellectual honesty of his notorious forebear who argued that the threat of overpopulation justifies withholding public assistance from the hungry. Malthus insisted that society has, at any particular moment, a limited supply of food. By giving food to those who are not working, there is less for those who are working. And if the employed get too little, they won’t work as hard and production will decline. The consequence is a vicious cycle of increasing conflict for limited resources between those who work and those who are dependent on transfers.

Malthus’ solution was to let the poor starve. He acknowledged that his conclusion was harsh, but he saw it as nature’s way of balancing population and food supply.

Current discussions no longer focus solely on food, but on a broader range of basic consumer goods that include food, shelter, heat, and medicines. But like Malthus, the President’s argument about the unsustainability of Social Security starts with the ratio of employed workers to recipients. “And instead of 16 workers paying in for every beneficiary, right now it’s only about three workers and over the next few decades, that number will fall to just two workers per beneficiary,” the President asserted in his State of the Union address.

The President uses this argument to support his case for the creation of private accounts to solve the system’s long term problems. But it is here that he suddenly ignores Malthus’ logic. Malthus knew that it was impossible for a working-age person to put aside the goods that he or she would need ten or twenty years in the future. The retiree could only consume the goods that were actually being produced at that point in the future.

For that reason, private accounts cannot solve the problem of the worsening demographic ratios. There will still be only two workers to support each retiree, so the threat of a destructive Malthusian struggle between those in the labor force and those in retirement would remain. If there are not enough goods and services to go around, there will be destructive social conflicts even if some people have access to substantial private accounts.

To be sure, the advocates of private accounts insist that the change of policy will increase private savings and this will, in turn, produce increased investment and a much larger economic pie in the future. But this is an unproven argument, especially since the Bush plan is to finance these private accounts by substantially increasing government borrowing which would offset any increase in private saving.

Malthus would be blunter. He would say that if there are going to be too many old people living too long, then let the poorest ones either go back to work or starve, and the ratio between workers and nonworkers will inevitably improve. This is the logic of George W. Bush’s argument, but he doesn’t dare admit it—at least not publicly.

But surely after 200 years, we can do better than embracing Malthus’ dismal logic. The increase in average life expectancy is one of our society’s greatest achievements; it should be the occasion of celebration and joy. We should obey the commandment to honor our fathers and mothers by assuring that all of the elderly get what they need for a decent standard of living—no matter how long they live.

Instead of privatizing Social Security and imagining that everyone will be self-sufficient, we need to think about creating a “moral economy” built on an ethic of care for those who are dependent. This means strengthening Social Security to assure that increasing life expectancy will be a blessing for the elderly.

Future Malthusian struggles can be averted if we invest now to grow the economy. The privatizers insist that we must rely only on low taxes and the benevolence of corporate CEO’s, but they are wrong. We need active public sector leadership to invest in the skills of our young people and in the new technologies that are the keys to our future economic well-being. The first step to a moral economy and future prosperity is to reverse George Bush’s irrational and destructive tax giveaways to the wealthiest of our citizens. Investing those billions in education and new technologies is the real way to protect Social Security.

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