Social Security has a huge free-rider problem. To illustrate, imagine two couples, the Nukes (as in a nuclear family) and the Dinks (as in “double income, no kids”). The Nukes always dreamed of having a large family. But they are hampered by the double burden of paying for the Social Security subsidies of the last generation while they pay for the upbringing of the next generation.
The cost of daycare is roughly equivalent to the later cost of college. The Nukes end up spending $233,610 per child to raise them on top of the $600,000 they pay in Social Security taxes. Those taxes pay for current retirees and are not saved for either the Nukes or the Dinks. On top of that, Mrs. Nuke lost $230,000 in lifetime earnings because of her decision to bear children.
The Dinks, in contrast, avoided all of those child-raising and college expenses. Mrs. Dink stayed in the workforce her entire career, yielding a much higher salary. The Dinks might pay exactly as much in Social Security taxes as the Nukes did. But when the Dinks and the Nukes retire, both the Nukes and the Dinks will rely on the taxes collected from the Nuke children in order to fund their retirement. The Dinks might retire in relative luxury with all the money saved from skipping children; the Nukes might barely scrape by.
Is This System Sustainable?
Forget about whether the system is fair. The right question is whether it’s sustainable. While the instinct to have children might be strong, it’s not so strong as to resist all market incentives. In countries like Greece and Japan, social welfare systems have fueled a demographic death spiral.
In Greece, for example, there are 2.7 million Greeks receiving a pension in a population of 11 million. That’s a crushing burden for the tiny workforce left to pay for everything, which may account for why Greek unemployment is currently 19.5 percent. Add to that the Greek fertility rate of 1.43 children per mother and a net-negative population growth rate, and you can clearly see that Greece is almost beyond saving.
Countries with generous social welfare nets encourage low fertility rates. That’s a studied and observable phenomenon. When people can rely upon the government to take care of them after they stop working, going childless no longer poses a financial risk. And if a couple bearing the cost of raising children also has to pay for a generous benefit system through taxes, it starves the reproductive enterprise of resources, resulting in later and fewer pregnancies.
The decision to have children is a personal one — except that the American government is heavily involved in discouraging people from doing so. For example, a California Court just ruled that insurance must pay for birth control for women. Planned Parenthood assures pregnant women that “Your abortion may be free or low cost with health insurance.” Obamacare does not mandate coverage of fertility treatments but must cover birth control. Older women often encourage young women to wait to have children because of all of the subsidies and lifestyle benefits, even though older pregnancies are physically riskier for women and their babies and delaying childbearing reduces fertility rates.
Being Offended By the Truth Won’t Solve the Problem
At a dinner party attended by two French women in their early thirties, the conversation turned to decisions to delay having children until the right circumstances arose. Oblivious to political correctness, a good friend of mine corrected one of the ladies with information he had picked up in his studies of medical journals: that waiting too long could result in the opportunity being lost forever. The conversation erupted in French exclamations I could not understand until his French-speaking wife entered the room to scold him for hurting their feelings.
Even with Social Security, our country needs babies to survive. The next time you are tempted to scowl at a beleaguered couple juggling squirming, screaming toddlers, consider that these parents are doing you a huge favor by adding to the shoulders that will bear the load of your retirement.
Yet the Dinks and people like them often grumble about the disruption these children cause. They make nasty jokes about women who stay at home with their children or bear large families. It’s fun to laugh at the father who has gotten chubby wolfing down fast food to make time to pack lunches and read stories. Children don’t wait for their parents to make a kale smoothie or spend an hour on the elliptical.
Consider this proposal: What if dads and moms who sacrificed to raise successful adults were the ones retiring in style? Maybe the Nukes should get a little piece of the action if their children end up generating high Social Security contributions with successful careers? Maybe the Dinks, conversely, should be expected to retire on a smaller Social Security benefit if they did not contribute the next generation of taxpayers.
Outraged? Go ahead. But the system is crashing around our ears because the incentives promote choices that are bad for the system. I’m not making a moral comparison between the Nukes and the Dinks, I’m simply pointing out that our current approach is not sustainable.