Thursday, March 10, 2005

Dismal Science Wankery

viaUB News Services:

As Team Bush watches its Social Security plan take on water like a conceptual Exxon Valdez, I expect them to reach for ever more slender reeds in their attempts to sell a truly lousy idea. So it would not surprise me in the least to see this study published by economist Isaac Erlich thrust into daylight soon.

Policymakers and citizens pondering the merits of Social Security reform should consider new evidence showing that "social security" adversely affects decisions to marry and have children.

A new University at Buffalo study, examining the experience of 57 countries over a 32-year period, concludes that in the U.S. and other countries where social security is instituted as a defined-benefits, pay-as-you-go system, marriage and fertility rates fell sharply over time -- partly as a result of social security itself.

I studied a bit of econometrics in college. And I take a very dim view of studies like these. Econometrics is moderately good at showing correlations between phenomena that may or not be related. Post hoc ergo propter hoc is not a commonly-understood logical fallacy among the regression-happy computer jockeys who now call themselves economists.

According to the study, declines in marriage and fertility rates that are attributable to the specific impact of social security were not observed on average among the subset of countries (Singapore, Malaysia, and the Philippines) in the international sample that utilize government-managed personal saving accounts or privatized pension funds (Chile) as a basis of their social security system, rather than our type of pay-as-you-go social security.

Ehrlich, who supports the principle of social security as a means to secure old-age pension benefits, attributes declines in U.S. marriage and fertility rates partly to a Social Security system that does not strongly link the defined benefits with contributions that are supposed to fund the system.

Prior to the establishment of current form of Social Security in the U.S., the family was the main form of social security, Ehrlich points out. "Working children took care of retired parents as they aged, and so there was an incentive for parents to have large families," he says.

A pay-as-you-go system is, in principle, financially sound if it behaves like a large family where the entire generation of retirees is supported by the succeeding generation of workers, Ehrlich says. "In reality, however," he adds, "the pay-as-you-go system does not provide strong incentives for the system to remain financially sound.

"Today, your Social Security benefits are entirely independent of what your children put into the system or whether you have any children at all. And yet the entire concept of our current Social Security system is based on the present generation of retirees being financed by the next generation of workers, their children.

"There is an obvious disconnect between the financial needs of the system and the needs of the family," he concludes. "The structure of our Social Security system is sowing the seeds of its own financial vulnerability, if not ultimate demise."

The solution, Ehrlich suggests, is to reform Social Security by making it fully funded by individual contributions (thus, also independent of inter-generational support).

Turns out Mr. Ehrlich "supports the principle of social security" if by Social Security you mean the antithesis of what it has meant for the last 70 years: he has been flogging our existing Social Security system for more than a decade.

Erlich's "support" is clear in a quote from another source.

"The crisis has already started, and it's only going to get worse," said Isaac Ehrlich, University at Buffalo distinguished professor and chair of the department of economics, and a longtime supporter of Social Security reform.

Ehrlich has shilled for other Bush economic voodoo before. And he made himself popular with conservatives years ago by writing a study that tried to bolster arguments for the death penalty by claiming that every execution deterred eight murders (a study quickly debunked by the National Academy of Sciences).

...But I digress.

Doesn't the U.S. already have the highest birth rate of any industrialized nation? Other than creating additional drones in an intergenerational Ponzi scheme, why in a world of scarce resources would you want to reverse the normal reduction in birth rates that comes with a rising standard of living?

So if that's your goal, lots of things encourage higher birth rates, Mr. Ehrlich. Like poverty, for instance. And low educational levels. So if you want to raise birth rates, you should be advocating something absurd like making most Americans poorer and less educated.

Oh, wait -- you are. Never mind.


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