Human Capital: America’s Forgotten Priority
Those who stay at home to parent their children are doubly penalized – first by lost earnings and child care expenses per se, then again when it is time to collect Social Security. Not surprisingly, given these incentives, more and more couples are choosing to bear fewer or no children.
Articles within this series
- Overview
- Human Capital: America’s Forgotten Priority
- Human Capital: The Value of Children
- Next Steps / Related Information
Supply of new human capital is more important, given the increased fraction of elderly
Undercompensation of parenting by the economic system is not, of course, the only reason for declining fertility rates. Declining allegiance to religious and cultural norms favoring larger families, easier access to birth control, later marriage and more frequent divorce, and broader career options for women also play a part. Moreover, human longevity has increased, combining with decreased fertility to produce a gradual but profound shift in the age structure of the population. The percentage of U.S. population age 65 and over increased from 4.1 percent in 1900 to 12.4 percent in 2000 and is expected to reach 19.4 percent in 2030. (Click below to see the age pyramids):
Laurence J. Kotlikoff and Scott Burns, in their book The Coming Generational Storm,1 deal with this phenomenon in more stark detail than does Longman. Because of the changing age pyramid, the declining number of active workers per retiree will soon be insufficient to support our Social Security system – set up as it is on a “pay as you go” basis. Kotlikoff and Burns point out that Social Security, Medicare, Medicaid and a gradually worsening federal debt fueled by tax cuts and discretionary federal spending are increasing the fiscal burden on the next generation to the breaking point. They speculate on what the “breaking point” might look like. It will have to be some combination of default on promises made to the (by-then-retired) Baby Boomers and a decreased standard of living for everybody. Even if as a society we recommit to bearing and nurturing children now, it would clearly be several decades before the age pyramid would revert. However, for reasons that we will discuss further, we believe we ought to do so and at least help prevent a serious problem from becoming worse.
Secular solutions
Longman proposes a series of measures to make the nation more family-friendly: a system of bike trails, powerful tax incentives to walk or use public transportation instead of driving cars, as well as substantial financial rewards for healthy behaviors. The idea is to reduce society’s expenditures on high-tech health care enough to spare resources to invest in children. Longman holds urban sprawl and medical-care system inefficiencies responsible—together with the shortage of human capital—for much of the financial difficulty he foresees for the United States and other nations.
Longman also prescribes several far-reaching antidotes targeted specifically to the economic discrimination against parents.2 He suggests reforming Social Security to give workers with children substantial relief from the Social Security tax, and to give retirees who have stayed home to raise children benefits just as if they had been paid wages for it. He proposes to pay for these changes mostly by dialing down the proposed increases in Social Security benefits, which are currently indexed to wage inflation. Kotlikoff and Burns, like Longman, suggest a provision to eliminate the discrimination against nonworking spouses, but pay for their proposal with a hefty federal retail sales tax.3 The debate over Social Security will continue. The current state of affairs cannot continue, and no matter what solution is chosen, difficult times lie ahead.
Longman foresees that “fundamentalists” – by which he means “all who rely on literal belief in ancient myth and legend, whether religious or not, to oppose modern liberal and commercial values”4 – might be among the few winners in America’s future. He believes such individuals will be more willing than most to buck the economic trends and have children anyway.