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Wednesday, June 16, 2021

ANALYSIS/OPINION:

Policymakers rightly worry about COVID-19’s negative impacts on women in the workplace, but the pandemic has accelerated even more threatening consequences for the economy. Births have fallen precipitously, and the lifetime fertility rate is now at a record low of 1.64 births per woman — an average of 2.1 births over a woman’s lifetime is required to sustain the population without additional net immigration.

Working age Americans produce the proverbial economic pie and cut a slice for seniors. Social Security, IRAs and ordinary savings are mechanisms for determining the size and distribution of that portion.


Retirement savings vehicles do little to enlarge the pie but can make it smaller by encouraging retirement at 66 — the minimum age for full Social Security benefits — and earlier.

If workers better heeded financial planners’ advice to save more through tax-sheltered accounts, even fewer seniors would be working, the economic pie would be smaller and the burden on younger Americans would be heavier.

Since 2005, the ratio of working age Americans to seniors has fallen from 5.1 to 3.6. If women continue to have fewer babies, that ratio is projected to fall to 2.4 by 2060. This phenomenon is mirrored among other economically advanced democracies and China.

Policymakers quietly tax senior benefits to compensate.

Fifty percent of workers’ payroll taxes are paid with after income tax funds but for seniors who have prudently saved through IRAs and other vehicles, 85% of social security retirement benefits are taxed. Medicare premiums rise precipitously with post-retirement income, and the dynamics of the system force seniors who can afford to purchase supplemental health insurance to do so.

Those direct and implicit taxes were not imposed as aggressively on earlier generations. As the dependency ratio becomes more onerous and seniors expect a larger slice of the pie, pressures build for policymakers to cook up new ways to deprive them of promised benefits.

Most seniors are counseled to keep a significant portion of their assets in fixed-income vehicles. The Federal Reserve’s policy to boost inflation and keep interest rates low erodes the value of those assets. The returns are often below the rate of inflation and to add insult to injury, the interest is taxed without consideration of inflation.

Easy money is great for the banks. They can borrow from the Fed at near zero cost to help finance business loans, but the Fed is effectively taxing grandma to subsidize Goldman-Sachs.

The average age of American workers is rising, but an older workforce may be less productive. They are slower to embrace new technologies and less inclined to start high-risk enterprises that generate innovations and boost productivity and incomes for everyone.

Over the decade prior to COVID-19, the annual growth in the U.S. labor force was a scant 0.7% and with that, sustaining economic growth appreciably better than 2% is virtually impossible. That makes difficult competing with China and Russia in military resources, R&D and the instruments of soft-power diplomacy.

Immigration can help but assimilation costs — such as higher social service and educational costs and the cultural friction that accompanies competition for resources — become more difficult to bear if fewer native-born Americans are in our schools and vying for jobs, especially on the lower rungs of the income ladder.

Progressives advocate federally-financed childcare, child allowances and guaranteed paternity leaves to ease burdens on working women, but those have had quite limited impacts on fertility rates in other countries.

Notable exceptions include Quebec, France and Georgia — the former Soviet Republic. Catholicism and the Orthodox Church more heavily influence culture in those places — highlighting that social norms and values can be more important than pro-natal policies

As ethnic groups in the United States become more prosperous, middle class and educated they tend to have fewer children. Importantly, the cost of preparing children for a prosperous middle-class life has risen precipitously.

University tuition has significantly outstripped inflation and family incomes for the last generation, and competition for admissions at prestigious institutions whose diplomas more likely guarantee a prosperous and influential future grows ever more intense. The latter has created an arms race among middle class parents to invest in adolescents with private schools, tutors, neat summer experiences and the like.

More importantly, as women advance in the professions, the tradeoffs between careers and child rearing become tougher for reasons having nothing to do with economics.

Economist and demographer Lyman Stone observed, “As jobs, even ‘family-friendly’ jobs, turn into careers, and careers turn into essentially religious or spiritual vocations, family is deprioritized and birth rates decline.”

Without enough babies a civilization cannot survive, and that is an issue feminism, all its benefits notwithstanding, has yet to address.

• Peter Morici, @pmorici1, is an economist and emeritus business professor at the University of Maryland, and a national columnist.


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