We are headed for major trouble in these United States. Realistically speaking, the knight on the proverbial white horse who will ride to our rescue is apt to speak Spanish or Vietnamese or, perhaps, Polish. An infusion of young, Immigrant citizens (workers to be blunt) are what stands between America and a very bleak future, so we had better get used to the idea of welcoming newcomers to our shores who share our values, work ethic and aspirations. Concurrently, we should also enact, on a crash basis, policies geared to stimulate steady, long-term economic growth as our highest national priority. The Fed alternately slamming its foot on the brake and then on the accelerator must give way to sensible growth-driven policies that encourage investment, work and entrepreneurship.
There has always been a “them” and “us” faction in America seeking to batten down the hatches and bar the door to immigrants seeking a better life, or to make that doorway as narrow as possible. We’ve even passed legislation in years past to bar certain ethnicities from our shores such as the racist Chinese Exclusionary Act that was in effect for over sixty years. The attractiveness of campaigns laced with America for the Americans rhetoric has long appealed to politicians who look no further than the next election cycle. A little xenophobia mixed with a dash of demagoguery has secured more than one election in America.
Fortunately, America, more than any other nation, still has the world’s best track record for integrating varied cultural and religious ethnicities into the fabric of the land and America has reaped enormous rewards in the process. Immigration has largely fueled the engine of our growth for most of our history. And that is a lesson the moral of which has never been more important to understand than it is today. Here’s why.
When the Social Security Act was first signed by FDR during the great depression there were forty-two workers for every retiree. With that worker-to-retiree ratio it was rather easy and painless to have current workers fund the retirement benefits for the nation’s retired, or retiring, citizens. It was so easy, in fact, that the law was amended a few years later to also provide survivors’ benefits for the rest of the family in the event of the retiree’s death. In 1956 we threw in disability benefits as well. That’s what politicians do. They spend a great deal of time addressing issues or needs with legislation and very little time addressing the cost ramifications of their legislative initiatives. They also secure the everlasting loyalty of those who become the recipients or beneficiaries of their grand largess. We’re not suggesting that social security was a bad idea; only that the financing scheme for this entitlement was, while politically popular, terribly ill conceived. It assumed that the national demographic was going to, by and large, remain the same and made no provisions for automatically adjusting the financing of social security as the demography and population longevity of the nation changed. They left that bit of heavy lifting and sure-to-be politically unpopular responsibility to future congresses.
Less than twenty years after the passage of the Social Security Act the worker to retiree ratio had fallen to 16-to-1 and, today, we find ourselves in the sad position of having only 3.3 workers supporting every retiree on social security. By mid century, we will barely have two workers supporting every retiree.
Other realities conspire to compound the dilemma. There are, today, slightly over 200 million Americans over the age of twenty-five. Over the next twenty years that number will grow to slightly over 250 million. Less than 10% of that growth, according to the US Census Bureau, will come from workers under age sixty-five. A whopping 80% of that growth will come from seniors over sixty-five. Over the years politicians have become entitlement and COLA (cost-of-living adjustment) happy, and the cost of our social programs has expanded precipitously.
We have been breath-taxingly prolific in producing new technological innovation, but not so prolific in producing new babies who become new workers. Were it not for immigration to the United States and the traditionally higher birth rate of immigrant families, America would have a declining population. The last time we had a sustained spike in births in America was immediately following the Second World War during the two decades between 1946 and 1966. Those babies, however, are now entering their retirement years and therein lies the problem. During the years just ahead we will have to accommodate well over 70 million retiring baby boomers. Our ability to sustain their retirement entitlement as well as their Medicare benefits and all of the other entitlements we have built into the fabric of our society will sag and then collapse if we don’t do something and do it soon.
We will not solve this problem merely by trimming social security benefits here and there or promoting family friendly policy. It’s far too late for trying to solve this problem at the margins.
All of the Band-Aid solutions that are being bandied about come with their own sets of inequities. Certainly we can simply reduce benefits. But that would mean that those who have been funding the retirement of others at today’s benefit level would take the hit when they retire. Not a great solution. We can, of course, significantly increase taxes, but those increases, which politically would be assigned to our higher earners, could not come close to offsetting the projected shortfalls. Another popular fix making the rounds would be to have a needs test for eligibility. That, of course, merely penalizes those who work the hardest. In fact, under such a scheme, the harder one worked, the less likely they would be to ever collect benefits. Allowing younger workers to begin investing a portion of what they pay into social security was a favorite of the Bush Administration, but given the recent financial meltdown that alternative is dead for the foreseeable future.
We need to focus on getting back to full employment (anything under 5.0%) and a steady flow of young, productive workers with which to augment those workers who will come from the indigenous population. America not only has a jobs shortage, but, even worse, we have a serious and deepening skills shortage. Education reform has become another third rail in American politics. We have fallen woefully behind virtually the entire industrialized world in educating our pre-college student population.
All of these problems urgently need to be addressed. We are letting the violence in Mexico and the influx of illegal’s across our southern border define American immigration policy. It has caused virtual paralysis in Congress, as immigration reform becomes another can our legislature kicks down the road for others to deal with. America needs sensible immigration reform, not only in the interest of those who want to come, but also in our own self-interest as well.
By Hal Gershowitz and Stephen Porter
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