The Unnatural State

The Economist reports that in five nations net transfers (private plus public) go from the young to the old rather than the other way around. Some of these nations are deeply social democratic (Germany, Austria, Slovenia). Some are thought to be conservative (Hungary, Japan). But all have in common large social entitlements.

This trend shows show how welfare states can reverse the natural order of things, where the old give more to the young than the young can ever repay. Families exemplify this principle. Socially too, the intergenerational flow of resources is what creates civilization as each generation receives benefits from the previous one.

Now to be sure, not everything that is natural is good. But few people criticize the special solicitude parents feel for their children or the old feel for the young generally. And entitlements to the elderly cannot easily be justified by abstract appeal to the justice of redistribution. It is simply not the case that the elderly as class are poorer than the young.

The social consequences of this unnatural flow are deeply unfortunate. The weight of the welfare state on the young gives them fewer resources to have families themselves.  As a result, low birth rates are something that nations that transfer from the young to the old have in common as do other nations approaching a similar tipping point. Such societies also become less innovative as the young lack funds to be entrepreneurial and face unfavorable incentives because of the taxation needed to support the welfare state.  Given their level of development, all of the nations listed by The Economist punch below their weight in creating the next new thing.

The United States is not yet a nation which moves net resources from the young to the old. But as U.S. baby boomers retire, the flow of resources to the old threatens to become a torrent. Our Democratic presidential candidates want to increase old age entitlements. And Republican presidential candidates, as Veronique de Rugy notes, have generally been conspicuous by their silence on entitlement reform.

This perverse movement of resources is a necessary rather than a contingent fact of the welfare state. The elderly vote more than the young, who have more distractions, and politicians are thus all too eager to give them goodies. And while individually the elderly would like to direct more resources to their young relatives, when they act in politics they face a kind of tragedy of the commons. They cannot prevent others from living off the state, so they might as well do themselves.

Politicians also design entitlements to mislead voters into thinking the old age entitlements simply return to the elderly what they paid in as youngsters. That is one of the false implications of terming social security a trust fund.   The collapse of restraints on government has led to a system at war with one of the deepest and most celebrated human impulses.