Monday, August 30, 2004

Demographics, Immigration and Social Security

Tying into a long-running theme of Edward Hugh's, the Wall Street Journal gives coverage to a speech by Alan Greenspan in which he warns of the dangers posed to the solvency of the US Social Security system by a development that otherwise would be cause for cheer - the ever increasing life expectancy of the American workforce. The solution he proffers is much the same as the one I have long recommended.

In 2001, Mr. Greenspan said the acceleration in underlying U.S. economic growth that he was among the first to spot in the mid-1990s could keep Social Security solvent for much longer than expected. But on Friday, he warned against looking to such growth as salvation: "History discourages the notion that the pace of growth will continue to increase."

Instead, Mr. Greenspan, who is expected to retire in 2006 just short of age 80, believes that more people should follow his example. He noted that life spans have increased, people stay healthy longer and work is less physically demanding than a century ago. Despite this, Americans have been retiring earlier, he said. He predicted this would reverse due to concerns about retirement income and a scarcity of experienced labor. Mr. Greenspan suggested Social Security and Medicare benefits be made less generous, such as through later qualifying ages, to discourage early retirement. He predicted that as "an ever-increasing proportion of the electorate is...essentially barred from continuing to work" because of age, political pressure will mount to permit later retirement.
Unfortunately, life isn't as convenient as Greenspan and I might wish it to be, as voters tend to be insistent on their right to expect 2 + 2 to equal 5.
But the idea has critics. Many employers force older workers to retire to make way for younger, more-productive workers. Harvard University President Lawrence Summers said that since mandatory retirement was abolished for university faculty in 1994, Harvard professors now retire on average at age 72: "I view this trend with terror."

And evidence appears to contradict Mr. Greenspan's prediction of political support for later retirement. Politicians have criticized his previous calls for making benefits less generous, such as pushing back the retirement age. The French ruling party was clobbered in regional elections in March in part over raising the qualifying age for state pensions. Unlike Mr. Greenspan, many people don't like their jobs and look forward to retirement. "It's easy to be a professor at 75; it's not so easy to lift heavy objects," said Princeton University economist Alan Blinder.

The popular belief that rich countries could ease the strains of aging via immigration from younger, developing countries fared badly at the conference. Most participants agreed the level of immigration needed to offset the aging of Western populations is politically impossible.
Which leaves us between a rock and a hard place. If later retirement, reduced benefits and increased immigration are politically unacceptable, what alternatives are left to policy-makers? In the end something will have to give, and my feeling is that the way out will require a little bit of each of the three aforementioned options, whatever voters might prefer to the contrary.

There is one part of the article that sticks especially in my craw, however:
Others suggested it may be unfair to the developing countries that, thanks to dramatic declines in fertility and mortality, will in a few decades face an age crunch of their own, but with far weaker finances. "For the rich countries to cherry-pick skilled international migrants to finance their own retirement...seems almost unbelievably shortsighted and self-serving," said John Helliwell of the University of British Columbia.
Mr Helliwell, how do I despise thee, let me count the ways ... I keep running into arguments like this one, and each time I do I get the same feeling of nausea and incredulity at the gall of those who make them. It would be one thing if they came out and said they just didn't want any non-white immigrants, however skilled, but to hide their nativism behind a mask of concern for the poor developing Third World countries is really too much.

Arguments like Mr. Helliwell's are nonsensical not just because they treat the skilled workers of the developing world as if they were mere tools to be disposed of by governments as they please, rather than as individuals with wills and legitimate ambitions of their own, but also because they ignore three important facts:
  1. That these workers are often not doing anything in their home countries with the skills they possess, a reality I can attest to at least in the case of West Africans. What point is there in being an engineer, a doctor or a chemist in a country like Nigeria or Ghana if an absence of suitable jobs leaves you running a threadbare grocery?
  2. That, as with all goods and services, there is a supply response to demand for skilled labor: the very fact that plenty of one's countrymen are going abroad sends a powerful signal to the young that higher education is worthwhile, a signal that would be lacking were all those expatriates sitting at home doing nothing with their learning.
  3. That those citizens of developing countries who leave their homelands to earn a living abroad don't just better their own lot, but are also all that stands between starvation and well-being for large numbers of people who stay behind. Where would the Philippines be without the remittances of its expatriates, for instance?
It would be one thing if this "stealing precious Third World workers" crap were coming from economically-illiterate activists and opinionizers, but Mr. Helliwell is affiliated with the University of British Columbia, and as a Professor of Economics at that. In his case the ignorance excuse simply doesn't apply, and one must attribute his deceptive argumentation to malice.