The point here is to have a large population so that drives wages down for the rank and file worker. Otherwise, wages go up, cost of living goes up, and as the elderly retire, there might not be enough people paying social security taxes to be able to cover their expenses.

Mr Gross of Pimco reckons you were right on the recession!
http://www.ft.com/cms/s/0/6a7a056a-af37-11dc-880f-0000779fd2ac.html?nclick_check=1

P.S. I have no idea about economics, I just like reading your blog cos you slag off people who *think* they know about economics =)

. If there are too few people, then the wage rises

It has become an article of faith that the last thing we want is for wages to rise. House prices, executive bonuses, golden parachutes, all those yes, but wages?

anonymous

it would take a pretty drastic fall in population for there to be not enough people paying SS taxes to cover the benefits.

but lets say it were to happen. suppose working population were to fall to one worker per retired person. and suppose that meanwhile wages rose enough so that that we could expect a retired person to get by on, say, 30% of average workers wages.

then, the average worker would need to set aside 15% of his wages, with the boss matching that, as he does today.

now if wages in this hypothetical future are, say, 20% higher than they are now... our poor beleagured future worker will have to get by on ...

lessee...he makes 3000 a month now (2808 net of SS), plus 20%, equals 3600 a month, 15% of that is 540 a month, leaving him struglling with 3060 a month net of SS taxes, while the retiree is getting 1080 a month compared to about 1000 a month today.

yes. i think we can work it out.

now, i made up the numbers, but you should be able to see how extreme you have to get in imagining a future where SS could not be paid for, much less amount to a "burden" on the worker. remember that worker will get that money back when he retires.

if you are wondering where the other 540 came from, i am assuming the boss matches the workers share of the payroll tax, just as he does today. this is not a terrible burden on the boss, as in general the boss gets about as many dollars out of a workers production as the worker does....and indeed when the bosses are talking to the workers about the evils of SS they like to say that the bosses share is "really" the employees money. really.

a better economist than i am can correct that number a bit, but not by enough to really change the picture.

A rising fertility rate is important ... for fractional banking capitalism. This type of economic model requires ever increasing market and debt or it collapses.

In the longer term I see no particular link between unemployment and population growth. More people, more aggregate demand, no reason jobs cannot grow with population. Heck, quite a few Western European countries have much lower pop growth rates than the US, but higher unemployment rates.

The bigger concern about pop growth should be about the environment.

On the SS front, I am wondering if Dean getting unhappy about people being for pop growth is tied to his continued admiration for the gloomy CBO social security projections, that put off the day of reckoning frmo 2041 to 2046. Even though they plug in better productivity numbers, are they not more pessimistic about population growth?

I am partly pointing this difference between Dean and me out for the those who think that he and I and some others are in some close club of conspirators. I seriously get annoyed by Dean's ongoing obeisance to Orszag and the CBO, although I agree with Dean that Orszag has been on the money in emphasizing the much greater importance to future growth of medical costs than social security costs to future budget balances.

In the longer term I see no particular link between unemployment and population growth. More people, more aggregate demand, no reason jobs cannot grow with population. Heck, quite a few Western European countries have much lower pop growth rates than the US, but higher unemployment rates.

The bigger concern about pop growth should be about the environment.

On the SS front, I am wondering if Dean getting unhappy about people being for pop growth is tied to his continued admiration for the gloomy CBO social security projections, that put off the day of reckoning frmo 2041 to 2046. Even though they plug in better productivity numbers, are they not more pessimistic about population growth?

I am partly pointing this difference between Dean and me out for the those who think that he and I and some others are in some close club of conspirators. I seriously get annoyed by Dean's ongoing obeisance to Orszag and the CBO, although I agree with Dean that Orszag has been on the money in emphasizing the much greater importance to future growth of medical costs than social security costs to future budget balances.

Come on Barkley, I need those kickbacks from Orszag. We need something to support CEPR.

(there are definitely low on immigration. The projections are supposed to assume current law, and it's pretty hard for me to see how immigration slows as the baby boomers retire under current law.)

i have my own reasons for being unhappy with orszag.

he writes a "well respected" book proposing a balanced approach to destroying social security in order to save it.

and the foundation of his reasoning is something he calls legacy debt which depends on the idea the life is perfectly fair from one generation to the next except for the tiny relative differences in cost of Social Security (only he fails to observe just how tiny they are, and meaningless).
and that those costs should be judged by what you coulda woulda shoulda gotten on the stock market if only.

Actually Dean those higher fertility numbers are rhetorically useful, to me anyway. Just about every time I point people to Low Cost assumptions they come triumphantly back crowing about fertility assumptions being too high. And they are probably, that is largely a function of the model design, if you are tracking 18 variables and give them all an optimistic bias in one model (Low Cost) and a pessimistic bias in the other (High Cost) all in relation to a base model that is in reality a mixture of neutral to pessimistic assumptions (Intermediate Cost) then some variables in LC or HC will be notably optimistic or pessimistic. It happens that IC fertility assumptions (as opposed to immigration assumptions) are on the surface pretty reasonable making the ultimate fertility assumptions of LC (2.3) perhaps a little high.

The fertility number is almost meaningless in total context (for reasons commenters cite above) and is totally meaningless over the medium term, after all those extra births won't hit the work force for a couple of decades. But for my purposes Low Cost calls for 2010 fertility at 2.08 and 2015 at 2.13 while IC calls for 2.03 and 2.03 respectively. 2.1 thus works on balance in favor of the former. So while the number may be pretty meaningless overall 2.1 fertility works for my argument overall, it removes a rhetorical weapon from the other side.

Given that in many respects the numbers game we are playing with privatizers is somewhat a charade to start with, any number I can take out of play is a bonus. I'll take it.

Bruce

probably the right thing to do when talking to people who understand the numbers.

for my purposes it is sufficient to point out that a few reasonable and robust assumptions suggest it's pretty hard to come up with a problem of any size worth worrying about.. or which could be avoided in any case.

suppose a steady population, and a life expectancy of 85... these are not likely to change by very much, or very fast.

then you get a population where the average worker works forty years, from 25 to 65, and is retired for 20 years, from 65 to 85. in order to get a retirement income equal to 40% of his average real lifetime wages (about the same as 40% of average wages at the time he reties) he would have to save about 20% of his income while working, or save 10% matched by the bosses contribution.

this would imply a SS tax of 10% compared to the present 6.2%.

whether real wages rise or not, or what decisions future generations make about apportioning their own income between current consumption and saving for consumption during retirement, we are clearly not looking at anything like an unsustainable burden.

we are looking at a rational minimum savings plan. and only the hope of making fantastic returns on the stock market argues against keep SS more or less the same as it is today.

i don't see those fantastic returns on the stock market as being even possible, certainly not meaningful.

and i would like to hear Dean on the subject... not just the No Economist Left Behind challenge, which does not, I think, address the problem of providing high stock market returns to EVERYONE who now gets SS benefits...even in a "good" economy.

and what exactly those "high returns" would mean in terms of goods and services, and quality of life, to a whole nation.

i am, by the way, not arguing with Bruce. he and i might disagree about just where to draw the line between current spending and saving for retirement.

just as long as nothing he says is allows the false assumption that there is... or could be... a "crisis."

I don't believe there's a population crisis, but say there was. The quick, obvious fix is ... immigration. People who advocate for higher fertility rates, however, are usually against this common-sense solution. Scratch the surface of their arguments a little, and what you tend to find is nativism.

Barkley I think you may be missing the rhetorical point in play. Privatizers constantly want us to worry about Covered Worker ratio. They point with alarm, or perhaps alarum, at figures that show there were six workers for each beneficiary at some point in the past compared to projections of three workers for every two in the future, and like to tie that back to European style fertility figures. That this all falls apart on examination when you examine Total Dependency (i.e. including children), economic growth overall, and the truly ridiculous Immigration figures, doesn't keep them from trying to pull this same old scare tactic out time and again.

Their argument does not fundamentally or directly rely on population growth or employment as such, instead it projects a mental image of a bunch of deadbeat geezer Boomers acting as a dead weight on younger productive workers. It is part and parcel of the whole "It won't be there for me but I still have to pay for it" thing privatizers have been selling to younger people literally for 24 years.
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To your other point. Personally I don't see this country as being particularly overpopulated, then again my town is about the same physical size as Manhatten and only has three buildings in the eight to ten story range, (over the next decade that should at least quintuple just from projects in the current pipeline). And we don't even use our river water for drinking. For Georgia the river is a lifeline, here it is just mostly a flood risk.

That is while Manhatten and Los Angeles are currently pressed in various respects right up against the limits of sustainability that is not true of South Forks or for that matter Detroit (whose current housing situation would be greatly improved if they got back the million people they lost over the last couple decades). The fundamental problem is the proper allocation of resources, when we get to Benelux density levels (or anywhere near it) then we can talk. But as it is there are whole huge stretches of the upper plains states that are dying from lack of population, and indeed this is causing companies like Google to plop down server farms (and attendant jobs) in small towns well away from urban cores, the combination of cheap power, inexpensive labor and cheap land being pretty irresistable (you can buy entire towns in the West for the price of an Upper West Side Coop).

If we could figure a way to direct the people and jobs to places where they have plenty of water and dirt and power we could sustain a heck of a lot more people than we do now, it just would take a level of social engineering that this country currently isn't willing to accept.

Dale I think No Economist Left Behind carries a little more irony then your question suggests. The challenge does not attempt to measure possible adverse effects of having everyone in the market all at the same time, it doesn't have to go that far that in fact would be piling on. Instead it works at a simpler level: assume Intermediate Cost and get a 6.5% return. Now I like to view NELB in implicit relation to Low Cost, but the fundamental strength of NELB is that it is functionally independent of anyone's personal view of the economy going forward, it doesn't directly call for anyone to defend IC, instead it asserts that those are the current rules of the game and privatizers are stuck with them.

I think we will avoid a housing led recession, Dean is on record for years projecting a more pessimistic outcome, for the purposes of NELB it doesn't matter which of us is right. NELB doesn't make a direct case against private accounts, it doesn't have to. Instead it simply puts the ball in the privatizers' court who to date have proven unable to adequately handle it.

Bruce

i always enjoy your comments. and as usual you are right. I don't have any problem with Deans NELB. I just wish I could prove a strong suspicion I have that the stock market cannot under any scenario replace SS.

any scenario might be too strong. a nineteenth century rate of industrialization could probably do the trick. anymore i don't think that is very likely.

as for the privatizers, i'll say again, they don't have to handle it. they just have to keep on repeating their old lie.

Bruce,

My reply when the privatizers start hysterically hiccupping over the covered worker ratio is to point out that much of Western Europe has such a ratio right now, and by and large is paying their social security just fine, thank you, with some countries such as Germany actually paying substantially more than our recipients receive.

Rising fertility in the U.S. is very good news. People are assets, not burdens.

Dale when I was working for the University of California back in the late eighties they announced that they would temporarily stop funding the retirement plan and that moreover employee contributions would halt as well, the investments were performing well enough to fund current retirement benefits. I don't imagine this continued forever, on the other hand we were talking about a defined benefit plan quite a bit more generous than Social Security.

I do believe the Social Security Administration could diversify their portfolio in ways that gave better long term returns, they just don't need to funnel that through private accounts. It is just another version of the typical bait and switch. Single payer health care does not mean national takeover of health care facilities, investing Social Security in other assets does not require private accounts. Disentangling these concepts is perhaps our second biggest challenge going forward. (First biggest being solvency)

Bruce

i think even CalPers is a smallish number of people. I could be wrong. In any case I would be glad for even a first approximation of how an investment plan that enrolled all workers with the intent of providing for an adequate retirement would work. But an honest approximation, not just hand waving.

I should probably not ask for this, because it is easy enough to present something complex or seductive enough to look good and make it damn hard to argue that it won't actually float....any better than SS.

Forget expecting the government to pay my way when I'm old. That's why I'm in college. Make your own life, don't expect the feds to nurture you!