There was general acclaim this year when the Federal government began to pay regular monthly benefits to a part of the aged population. Most people were glad that the government had assumed responsibility for a problem that the individual family by itself was no longer able to handle. But here and there another note was sounded—sometimes in a warning that bankruptcy lay ahead, sometimes in a lament for the individualism of bygone days, and sometimes in a statistical prophecy that the millions of aged yet to come would drag us all to the poverty level.
We may admit, with some of the pessimists, that a country which has no need of a system of old-age security may be better off than one which has such a need. But this is only to say that we wish there were no problem. If all our aged were employable and had work, or if all our aged had property enough to live on, they would have security. But most of them have neither. If all the aged had sons and daughters rich enough to care for them, there would be no great problem of old-age security. But this is not the case. One way to deal with these facts is to blame the individuals—millions of them—and tell them that their fathers and grandfathers were better men than they are. Another way is to recognize that we have changed from a nation of independent farmers and small employers to an industrial nation and that all the changes involved are not beneficent. From this point of view, we see that old-age insecurity has become a political problem because the average individual cannot obtain a competence for old age except by cooperating with his fellows through government.
Taking care of a future aged population and taking care of a present aged population are two different matters. This ought to be obvious, but nevertheless much current discussion centers on statistics concerning the number of aged people who will exist in 1980 or the billions of dollars which the government will have to spend in 1980. Even if the worst fears about 1980 are true, it may be that the burden which the aged now constitute is one we can carry and have no right to shirk. It is on this point that discussion should center.
There are today about eight million people in the United States aged sixty-five or more. They constitute 6.3 per cent of the total population. Our first question is whether we can care for these people by a combination of individual resources and social security. On this we can get some light from the experience of other countries. For example, in recent years the Germans have been paying old-age benefits to six per cent of the total population, the British to more than six per cent of the total population, and the Swedes to ten per cent of the population. If we made money payments to everyone of our eight million persons aged sixty-five or more, the resultant economic burden on the younger working population would be comparable with the burdens which are being carried in European countries.
But in fact we are doing, and under our present programs propose to do, much less than this. The joint Federal-state program of Old-Age Assistance has been helping about two million persons. The Old-Age and Survivors’ Insurance System has just begun to pay monthly benefits, and by the end of this year will affect, at the most, about half a million old people, and perhaps many less. In other words, our two old-age programs will this year pay benefits to less than two per cent of our population, and not to six per cent. As a result of our social security system, every thousand Americans of working age are currently taking care of only one-fifth as many aged persons as are every thousand Swedes of working age. Similarly, the British old-age security system is bandling a burden over three times as great as that carried by our system. If we compare the number of beneficiaries in the United States with those in other industrial countries, our old-age program is an ultra-conservative one. We shall have to increase the number of beneficiaries, or else give up the idea of social security.
But what about costs? Here again we ought first to pay attention to present costs. In Australia and Germany, old-age pension and insurance costs have recently amounted to between two and three per cent of the national income; in the United Kingdom they have been about two per cent of the national income; and in Sweden, about one per cent. Since on a per capita basis we are richer than any of these countries, we should be able to afford three per cent of the national income for this purpose. But even two per cent of the national income is much in excess of what we are spending. In the last fiscal year the state and Federal governments together spent something over four hundred million dollars on old-age assistance. During this calendar year, payments to the aged for old-age assistance and for old-age insurance will not be greatly in excess of five hundred million dollars. If we spent on the British scale of two per cent of our national income for this purpose, our aged would now be receiving one and a half billion dollars, or three times the amount which we shall pay them during this year. In comparison with our income and our wealth, we are doing less, and not more, than other industrial countries.
It is hardly fair to talk about this money which is paid to the aged and not raise the question of where the money comes from. The money for old-age assistance, which is and will he for some time the larger program, comes out of the Federal and state treasuries, and is raised by all the methods of raising money which our governments use. But the money for old-age insurance is obtained by a special tax of two per cent of payrolls, which will in the future be gradually raised to six per cent. This tax will yield over six hundred million dollars during this year, or more than all the payments actually being made to the aged. Except for special cases in which the tax is borne by the employer, it is roughly true to say that half of this revenue is obtained from the wage earners of the country and half from the consumers of the country. Because poor people spend more of their incomes on consumption goods than do rich people, this is a slightly regressive tax, hitting the lower income groups more heavily than the upper. Therefore, our old-age security system does not make the rich pay for the poor: now and for a long time in the future, the pay-roll tax of the Old-Age and Survivors’ Insurance program will yield a revenue in excess of the expenditures of both old-age programs, and this revenue will be provided by a tax which is not progressive with incomes.
The political activities of the pension groups have frightened some people. Pressure for public money has just begun, it is said, and will eventually bring complete political degeneration. Is this a fair statement? On the contrary, these views are nothing but the old fear of democracy put forward about a new subject. Underlying them is the idea that “the people” cannot be trusted—that the job of statesmen is to keep popular demands within bounds. But the fact that for decades our citizens did not ask for old-age pensions shows that only when needs are really pressing will most people turn to the government. The money which the aged receive in benefits is being contributed by their sons and daughters. The aged are not a separate social group, and are unlikely to behave as if they were. The aged and the young live in the same society, have the same interests, and share the same political ideas. Millions of aged live with young people. Millions of middle-aged workers are as afraid of old-age insecurity as are older people. Because of these relations, continuing political pressure for old-age security is to be expected as long as the need is great and the program of old-age security is limited. But there is no reason to anticipate that this pressure will continue until the nation goes bankrupt.
It is true that some pension groups are campaigning for sums which, when multiplied by the number of aged, are too large for our economy to stand. But this does not mean that many aged persons would really advocate that as much as ten billion dollars should be transferred from the working wage earners to the aged. Few of them would advocate that this sum should be taken from the rich and spread exclusively among the aged. What they hope is that the money will come from new production. But there are ten million families receiving less than eight hundred dollars a year. When told this, there are not many elderly persons who would demand that all of the first ten billion dollars of additional in-come should go to the eight million aged, leaving forty million people at a much lower standard of living. The notions of justice of our aged people are not different from those of younger persons. If the aged ask for much more than our economic system can yield, it may be because they know they are getting much less than our economic system can afford.
The unusual volume of unemployment of recent times has greatly added to the apparent size of the old-age problem. It was unemployment which precipitated into public view the old-age problem, which otherwise might have remained hidden for some time to come. Because we have gone through ten hard years, as many as half of the aged people are probably in need of help, and perhaps the number in need is even greater. This makes the necessary benefits of an adequate old-age security system very large—several times what we are now spending. But although the need of the aged is now much greater than it will be in times of better employment, the financial provision we are making is much less than it will be in the future. If old-age assistance paymerits are maintained at the present level, the increase in old-age insurance payments will carry the total payments to the aged to one billion dollars by 1944 or 1945. Thereafter the total will mount steadily and perhaps exceed two billion dollars in 1955, and four billion by 1975. But for the present, payments to the aged are limited, because most of the money comes from the Old-Age Assistance fund, of which the states must provide half, and because relatively few of the present generation of old people will become eligible for old-age insurance benefits.
If employment does not increase sufficiently to ease the present distress among the aged population, there is no doubt that the existing financial restrictions will have to be removed. This should not call for any alarm. The burden we are now carrying is much smaller than that of many other countries, and it is much smaller than the one we have made plans to carry in the future. If we view our initially modest program as one which should be and will be adapted to meet needs as they are demonstrated, the conservative beginning we have made can be turned to advantage. But this advantage will be lost if the existing framework is viewed as a sacred strait-jacket, and if every effort to modify the system in order to deal with present problems is regarded as an immoral raid upon the Treasury.
The more we do to increase employment, the less we shall have to expand our payments for old-age security. This raises the query whether an old-age security system can itself be an instrument for increasing employment. The answer to this question depends upon the source of the funds. If the financial arrangements of an old-age security system are such that money is obtained each year from persons who spend it upon consumers’ goods and given to old people who spend it upon consumers’ goods, there is no resulting increase in the amount spent upon consumption and no consequent increase in the production of either consumers or capital goods. An old-age security system of this kind will, therefore, neither increase nor decrease the volume of employment. On the other hand, if the social security system obtains money from those who would not or could not have used it for consumption or production, and if this money is spent by old persons on consumers’ goods, then the production of consumers’ goods is increased, and indirectly the production of capital goods will also be increased. In this case, there is an increase of employment. But when money is obtained from those who would have spent it upon consumers’ goods, and only part of this money is made available to old people (who spend it on consumers’ goods), and the other part is used to retire bonds, there is a decrease in the production of capital goods, unless the former bondholders spend or invest the money they have thus received. This kind of financial system is the worst possible from the point of view of stimulating employment.
Our present old-age insurance system probably falls within the last category, especially when conditions are bad and profitable investment difficult. For the first fifteen years only a part of what this system will collect will be paid out to aged persons. The remainder will be used to purchase bonds from the Treasury. At the present time, it would be better for employment if the government sold these bonds to persons who had idle money, instead of borrowing money that is collected by a pay-roll tax from persons who would be likely to spend or invest it. But so long as the government buys goods and services with the money which is borrowed from the Old-Age and Survivors’ Trust Fund, most of the decrease in consumption expenditure occasioned by the tax is offset by other expenditures of the government. The total effect of the government’s fiscal program in increasing employment is less than it otherwise would be, because of the financial arrangements for social security. The total effect, however, is positive rather than negative.
When the government’s budget becomes balanced, it presumably will use the money borrowed from the Old-Age and Survivors’ Insurance System to reduce the debt held in private hands. The government bondholders will hold money instead of bonds. This will increase the money seeking private investment but it will not necessarily increase private investment. On the other hand, the collection of the tax will decrease consumption. The old-age insurance system is a force making for decreased employment as long as its reserve is being accumulated. But if other forces making for increased employment are strong, there will be no great damage done. If they are not, the deflationary effect will be important.
Everyone would rather have an old-age system which works to expand employment. But for such a system we should have to find a substitute for the pay-roll tax, or greatly increase payments to the aged and bring in other sources of revenue as a supplement. Employment can be expanded by governmental expenditures only when the government taxes or borrows money which would have been idle. Borrowing would increase the government’s direct or indirect debt, and this process would cause future problems. The second procedure, increasing taxes in the upper income brackets and setting up new taxes upon idle money, would arouse bitter opposition. These unpleasant reactions can be avoided only if employment rises and is maintained at a higher level. If this does not happen, the financial operations of our social security system will have to be altered, so that the system operates to expand employment or so that the system becomes at least neutral in its effects upon employment.
If the inability of private capital to find profitable investment and to give employment to our population should continue for much longer, the changes which will be required in our system of old-age security are only part of the vast changes which will be necessary to deal with our economic problems. The welfare of the whole population as well as the security of our aged population is dependent upon our finding ways to increase the employment of men, machines, and capital. Some men in public life argue that the employ-ment of many millions of additional workers will simply “happen” as a result of a political change, such as the return to power of a party which has been out of power; but to any serious-minded person this must seem very doubtful. Full employment may “happen” as a result of a war; or new inventions, which are unpredictable, may bring it about; but it is unlikely that full employment will “happen” and endure unless we—including the government—take active steps to increase the share of the national income which goes to the consuming population. Old-age insurance might be a part of such a program, but not the whole of it.
This discussion has thus far not dealt with the problem of whether future population changes will impose a burden beyond our capacity. How are we going to meet the burden of old-age security in 1980, when it is estimated there will be twenty-two million people aged sixty-five and over, instead of only eight million as now? Even this prospect is not as dark as some of the more sensational writers would have us believe. Right now, we could, if we had to, make sacrifices and support an additional eight or ten per cent of our population in unproductive idleness. We would be doing something not much different from this if we spent ten billion dollars this year on instruments of war. We did more than this in the last war. In a war, we know that the government is going to have to make large expenditures. We know that many people will have to be supported at the front, and in the factories making weapons of war which cannot be consumed. Knowing this, we organize, and by intensive work we support millions of people who are engaged in the war industries. It will not take as much organization as this to support the aged population of 1980.
The aged are only one part of the problem of economic dependency. The greatest part is the care of our children. For a number of years in the future, as the proportion of aged in the population increases, the proportion of children in the population will decrease. The proportion of these two groups, the very young and the very old, in our whole population will not be different in 1960 from what it is now. Therefore the resources which will be needed for aged dependents will be released by the decrease of young dependents. By 1980, the relative size of these two dependent groups will have risen somewhat, but it will not be nearly as large as it was in the nineteenth century. In 1870, out of every hundred persons in the population of the United States, thirty-nine were children aged less than fifteen years and only three were aged sixty-five or more. Out of every hundred persons, forty-two were in these two extreme age groups. Today only thirty-two out of every one hundred persons are in these age groups. The burden of dependency resulting from the size of the young and aged population was about a third greater in 1870 than it is today. Some of the children of 1870 were productive workers; but even so, it is clear that the real burden of dependency has been greatly reduced in the last seventy years. The expected increase of the aged in the next forty years will not carry us to the position of 1870. Instead of looking forward with fear and trembling to the burden of dependency in 1980, we ought to be congratulating ourselves that we have so much smaller a burden than had our grandfathers.
It is a mistake to judge future burdens by the present exceptional conditions. Merely because the man past sixty-live cannot get a job today, we ought not to plan on the assumption that in the future the man past sixty-five will not and should not work. Elderly persons who have jobs today are not anxious to retire to a lower standard of living. If in the future we cannot afford retirement at a high standard of living, we can provide employment. For instance, the network of trades where experience and character count for as much as strength and speed could be organized so as to give employment to older workers who want to keep active. We would do this if we were at war. This policy is just as sound in peacetime, provided the total number of jobs available can be increased and that better employment for the aged does not result in worse employment conditions for the younger workers. We are fulfilling our duty if we guarantee a livelihood to those who retire, but we are not doing our duty if we force retirement on inadequate means, or if we force retirement on old people able and anxious to work.
If in the next forty years we cannot learn to use our productive capacity and increase it, we can feel sure that the intervening economic distress will be so great that the problem of the aged population will not be our major worry. But why assume that no progress will be made? In the next four decades, the progress of science and the improvement in medical care are likely to prolong the period during which men can work. Insofar as our wealth increases, the number of people we can support in retirement will increase; as our health increases, the number who will have to retire will decrease. If these two forces continue to operate, the good sense of our people can be trusted to avoid social arrangements which would disrupt the economic system. If we are very rich, all twenty-two million of the elderly Americans may be living in retirement in Florida or California in 1980. But it would be wrong to assume that, if their labor were necessary, our children would be allowed by their children to remain idle while the country went to pot.
If we throw our full strength into the fight against the present insecurity and unemployment, we need not fear that this effort will be wasted; the idea that inexorable population changes are bringing problems beyond our powers is simply not true. Most of these fears are bogeymen, serving only to frighten us away from the work that needs to be done now.