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Economics for Do-Gooders

Second Fundamental Fact: Economics is not Static.

Economics is about the way the things we both need and desire are produced and distributed. Much of this stuff, and in particular the things we need, as opposed to those we just would like, must be produced on pretty much a daily basis. Food spoils; clothing wears out. Things are largely consumed shortly after they are produced. It is difficult or impossible to “save” them for the future. When we save, what we save is money (more on that later). This is the second essential fact: economics is about something dynamic and ongoing. It is not static.

Why Does That Matter? It is not obvious, and it is hard to make people understand, but it is extremely important. Its importance is related to the first fundamental fact about economics: our dependence on others. Since we cannot produce an excess of what we now need and save it for the future, when we cease to be productive we will necessarily be dependent on the labor those who are productive. The system by which this is facilitated makes no difference. Those who are retired are being supported by those who are working. In fact, all who are not working, whether they rely on Social Security, employer-provided pensions, annuities, their own savings, or—and this is important—they are billionaire heiresses who have never worked a day in their lives, are being supported by those who are working. No one is independent; one either is contributing, has contributed, or is riding on the shoulders of others without contributing.

Social Security, pensions, annuities, and inherited wealth are just different legal and social constructs that we as a society have devised to allow certain designated persons to be supported by others. Who is to be supported and under what circumstances are ethical decisions for society to collectively make; they are not determined by cosmic, eternal laws.

Let us talk specifics. Many in the media have been treating Social Security as if it were less legitimate than saved or inherited wealth because it operates on a pay-as-you-go system. That is, today's retirees are being paid with funds paid through taxes on today's workers. But, as you may have realized from what we have just said, that simply reflects reality: today's workers produce the goods and services consumed by today's retirees. When those retirees were working they supported the older generation of their own day. Having workers set aside savings to support themselves in retirement is just another way of achieving approximately the same result (approximately because each system has different weaknesses and strengths).

We Care For Each Other. The idea that we take care of our children and aging parents, and that our children when grown will take care of us when we grow ancient, is a venerable custom of most societies. Social Security extends that idea beyond the family. Yet many media blowhards have maintained that because Social Security is not a guaranteed contract, it is perfectly legitimate to stiff the old folks even after they have put in a lifetime of supporting both young and old in their own time. Wealth, however, they regard as sacred.


Workers Take Care of the Rich. Wealth is a social construct. It is not a “thing” or a collection of things. It is an artificial device by which society allows people to acquire the products of the labor of others. When it allows productive people to exchange the fruits of their endeavors it is enormously useful. It also can allow productive people to have a dignified retirement. Like all social constructs, it has an ethical dimension. “When should someone be empowered to demand the product of another's labor?” is a question whose answer must be shaped by considerations of what is right and just. It should not be a matter of doing something just because that is what we have always done.

Does the idle heir of a vast fortune have a better right to leisure and comfort than someone who has spent decades doing hard and productive labor? The answer is not the consequence of an immutable law; it is a choice society makes. It is—or should be—a choice to be made thoughtfully and ethically.

[An Important Digression: The Attack on Social Security and Pensions]

[Next: Economic Production.]

Pundits insist that pensions must be reduced and retirement delayed. Are they right? Find out here.