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Immigration? A surging birth rate?

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Opinion pieces and speeches by EPI staff and associates.

[ THIS PIECE ORIGINALLY APPEARED IN PAJAMASMEDIA.COM BLOG ON JUNE 6, 2007. ]

Immigration? A surging birth rate?

Social Security will do fine no matter how, thank you very much

By Max Sawicky

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We tend to get edgy when, as it occasionally does, national economic growth slips from three to one percent a year. But the impact of the “Baby Bust” — the expected slowdown in workforce growth — is in the same ballpark, except it goes on for decades. The retiring of the Baby Boom generation is also held to pose huge difficulties for Social Security, a matter that I have argued elsewhere is overblown, but not negligible. Coincidentally, the economy of the People’s Republic of China will have more than enough workers to grow rapidly for an indefinite period. So if any of this concerns you, the U.S. will need more people. The alternatives are: more immigrants, more sex, or more sex with immigrants.

By the end of this year, the Social Security Administration (SSA) projects an increase in the population aged 20-64 of one percent — about 1.8 million people. Between 2010 and 2016, this projection falls off the table, to less than half a percent annual growth. By the late 2020s, the projected growth rate is one-tenth of a percent. The inescapable implication is slower economic growth. I like to rant about the importance of good stuff that GDP doesn’t reflect, like leisure time, but if tomorrow we shifted to less work and more leisure, the growth rate issues would remain.

Since the beginning of the industrial revolution, machines have been perceived to displace workers. This is certainly true in the short run, with much disruptive damage to individual well-being that the Government ought to address (and usually doesn’t). In the long run, however, it’s not an issue. When machines are substituted for labor, new things for labor to do are found. The income earned in these new jobs increases demand for goods and services, and the economy rolls along, merrily for some, not so much for others.

I suspect nobody would complain if American citizens experienced a permanent surge in the birth rate. If we need more people, we should devote ourselves to how best to absorb immigrants. Of course, we should prefer immigrants to be legal and to have some control over the process — who comes, what they are obliged to do, etc. Assimilation is important, but in my view it is something the U.S. is good at and could do even better.

How many should we be talking about? I ran some numbers. Assume the 20-64 population grew faster, hitting one percent a year for the next 75 years. (Naturally some of them would not work, and there would be other family members, but we’re just doing back of the envelope stuff here. This is a blog, not a seminar.) In 2008, that would mean an additional 215,000 people, over and above the million newcomers (legal and illegal) already assumed by the SSA.

The SSA assumes immigration decreases slightly from that million mark for the ensuing 75 years, even while total U.S. population grows from 305 million to 436 million. Now if you let population compound with a top-up of immigrants, the addition grows to about 3.5 million in 2080, and the cumulative increase is 168 million. So instead of 436 million, we would have over 600 million.

Of course 600 million is huge. But so is 436 million (total U.S. population under the absurdly low immigration projection). So is 305 million, our present population. If you like, you could dial down my one percent assumption, though that means less economic growth than otherwise.

This brings me to Charles Ponzi. Before Nigerian email there were chain letters, and before that, Ponzi. Suppose I offer to sell you a note that pays off sixty cents on the dollar. You give me $10, I give you back $16 next week. That’s a pretty good return. Now if I do that, I can easily make good if by next week I find two people willing to make the same deal, with an extra rake-off of $4 (on top of your ten) for myself. I make a good living as long as I find more suckers people. If I run out, I skip town with your money. (The actual Ponzi story is a little more complicated.)

But suppose instead of sixty cents, I only promise three cents. You give me $10, I’ll owe you $10.30 next week. If I make this deal with ten people, I only need eleven next week to get square, I have $7 left over, and each additional customer adds $10 to my bottom line. Then it’s much easier to keep the program going. It’s also easier if the clientele grows faster, and/or if their incomes grow faster. If the different factors don’t get out of kilter, there’s no problem.

In a nutshell, that’s Social Security. A steadily growing payroll tax base makes a pay-as-you-go system solvent indefinitely. As things stand, the program is not facing much difficulty, as I and others have argued. There is the “pig passing through the python” — the Baby Boom moving to retirement — but it is manageable as things stand. Even so, greater immigration would make the program more solvent than it already is.

That’s why I believe the children are the future: they will pay my Social Security and Medicare, as I do now for others. Why do it through the Government? Because some kids are rotten. Mine is a little angel, but she might decide to run away with the circus. Thank you very much, I’d rather rely on Social Security.

Max B. Sawicky is an economist at the Economic Policy Institute.

[ POSTED TO VIEWPOINTS ON JUNE 12, 2007. ]

 


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