Subsidized Unemployment; W. Curtiss

726 amount of his social security check. Say his social security check is $140 a month. He has a full time job that pays him $330 a month. He would have to give up all of his social security check; in addition, his withholding for Fed eral taxes would be $20.30 (with two exemptions) and the social security tax on his $330 would be about $34, contributed half by his employer and half by himself. In all then, it would cost him nearly $200 a month to earn $330, where as he could get his $140 social security check by doing nothing. Not a very attractive job, is it! Of course, some people would rather work than be idle in spite of the low return. Because the mathematics of this is figured month by month, a person might work full time for only a few months during which time he would receive no social security, 1971 SUBSIDIZED UNEMPLOYMENT 727 then remain idle or earn no more than $140 a month and thus draw full social security for the balance of the year.

As a person's earnings rise, say to $500 or $800 a month, then working becomes more attractive. And one can look forward to age 72 when he will be able to receive all of his social security check without penalty, regardless of ea.rnings. That Some May Be Subsidized, Others Are Taxed At its beginning, in the mid 1930's, social security was por trayed as an insurance plan to enable retired people to live com fortably after their earning da.ys had passed. The benefits were often called annuities and the withholding referred to as premi ums. It was described as a funded plan with a large trust fund. Most knowledgeable persons today real ize that social security is pa.y-as you-go rather than a funded plan, with workers currently taxed to pay benefits to those who qualify. It is of little avail to suggest that a young worker could more eco nomically build up his own retire ment through a private insurance company. Such .options are seldom available to taxpayers. One might suggest that it would be less ex pensive to educate one's children in independent schools than to pay school taxes year after year, but that is not an open option.

The question we are examining here is why the formula for pay ing benefits is subject to the work income rule. If social security were an annuity plan for elderly per sons who had purchased their rights with premiums, why with hold some or all of the benefits if the person earned more than a given income? The Incentive to Retire The reason for the work-income test is not difficult to discover. In the mid-1930's, unemployment was high. Those who spoke for labor, then as now, seemed to believe that there were just so many jobs available-not enough to go round. A solution, given their premise, was to remove some of the avail able workers from the· work force. How better than to use both the carrot and the stick? The carrot was the social secur ity handouts offered qualified per sons over 65; and in the first sev eral decades of the program the benefits far exceeded the value of prior contributions by employer and employee. The stick wa.s the work-income rule which effectively removed many able-bodied work ers from the work force. In effect the plan said : "We will give you so much a month if you will agree not to work - at least, not very 728 THE FREEMAN December much." In 1961, in the face of increased unemployment, a, fur ther attempt was made to reduce the total work force by permitting men to start drawing .social se curity payments at age 62 instead of 65.

The plan worked, after a fash ion. In 1947, nearly 48 per cent of men 65 years of age and over were in the labor force. By 1970, only 27 per cent of those 65 and older were in the labor force. Oth er factors such as the end of the war, compulsory retirement from business, and a general increase in affluence helped bring the decline. But with the work-income rule re moved at age 72, we find the per centage of men in the work force increasing from 31 per cent at age 71 to 35 per cent at age 73. Making Jobs for Nonworkers The attempt to control unem ployment by regulating the size of the work force or the number of jobs has taken many forms. In the early days of the Industrial Rev olution in England, weaving ma chines were destroyed in the belief that the number of available jobs otherwise would be reduced. In the 1930's in this country, especially in the rubber industry, the work week was reduced to 35 hours to create more jobs - to spread the work. Tightly controlled labor un ions have attempted to limit the number of workers by apprentice regulations, thus hoping to main tain higher wages than would oth erwise prevail.

More subtle ways of limiting the size of the labor force include minimum wage laws. These have effectively kept young workers, especially those from minority groups, from being gainfully em ployed. Given a. free labor market with willing buyers and willing sellers of labor at wages agree able to both, those who want to be employed can get a job. A free labor market creates a tendency toward full employment. 1 In any consideration of employ ment opportunities, one must bear in mind that wants of individuals will always exceed the means of satisfaction however high the level of affluence. The philosophy of the song, "If I Were a Rich Man," seems to deny this. How often one hears from the young, "The day I reach a salary of $10,000 a year, I'll have it made!" But hu man nature doesn't work that way. Achieve one economic goal and an other springs up. So it is with persons who have started drawing social security.

Even though their -incomes pro vide adequate food, clothing, and shelter, most have additional wants 1 See Ludwig von Mises, "The Econom ics and Politics of My Job." Irvington~on Hudson, N. Y.: The Foundation for Eco nomic Education.

1971 SUBSIDIZED UNEMPLOYMENT 729 for the satisfaction of which they are willing and able to work. Does It Hurt ~e If You Work? Now, if they work, who suffers from it? Political interventionists would have us think that other workers would be thrown out of jobs - that one man's productivity is another man's poverty. Of course, this makes no sense in a relatively free economy. Unless someone earns more than enough for his subsistence, there can be no employment opportunity for anyone else. Let's further examine this point. Suppose I am over 65 and drawing social security. I'd like a little more income, so I take a job as a bookkeeper for a, local firm. To be sure, the accounting I do is not done by anyone else, and it might appear that I have kept someone from a productive job. However, my reason for work ing is to earn enough to buy addi tional goods or services - perhaps for a vacation, or better medical attention, or books to read, or to support my hobby of photography.

What matters is that I will spend the money for something - pos sibly an investment - and the ef fect will be to provide employ ment for others, including the person who might otherwise have had my bookkeeping job. This suggests another basic principle of economics: the total welfare of a people is the sum of their productive efforts as individ uals. Those who do not work add nothing to this total of productiv ity, do nothing to help raise the average level of living. The level of living of an individual or his family depends on his working in a productive way in an economy where the capital invested per worker is relatively high. This is the key to a prosperous economy. To arbitrarily preclude anyone from working, whether a . teen ager or someone retired on social security, is to reduce the level of living below its potential. Who Threw the Monkey Wrench? A situation such as developed in the 1930's cannot be explained as a lack of work to be done or as too few jobs to go round. The ex planation must be sought in the unfreedoms or the interventions which keep the buyer and seller from trading to their mutual ben efit.

There may be political reasons for encouraging social security recipients not to work. It has been argued that if social security pay ments were not diminished to those who earn more than $140 a month, then there would be less to payout to other recipients. It is also argued that if the work-in come test were removed, some 730 THE FREEMAN December would receive benefits for which they have "no real social need." This is not an attempt to ap praise the entire social security system. Our purpose is merely to show the absurdity of paying per sons to remain idle. For they might otherwise be gainfully em ployed, to the advantage of themselves in the service of others and to no one's harm. Whatever the stated purpose of social security, whether a compul sory scheme to redistribute wealth, or an actuarially sound retirement system, it currently functions in part to subsidize unemployment.

~ IDEAS ON LIBERTY "Purchasing Power Create's Jobs" SINCE 1930 and our government's deliberate policy of maintain ing wages above the free market level, peacetime unemployment has become our most persistent economic problem .... All the "consumer purchasing power" in the world cannot create even one permanent job in an economy where the return on cap ital is negligible or nothing. That is, if every person in the world had twice as much money as he now has to spend, not one job would thereby be created unless the owners of the factories be lieved they could earn adeq?ate profits. It is the actual and an ticipated return on capital, not consume:;:- purchasing power as such, that causes investment in new buildings and machines, and the resulting creation of more production and more jobs. Thus, laws and coercive union policies that increase wages at the ex pense of profits do not create jobs; they destroy them.

From Cliches of Socialism, No. 37, by Dean Russell CLARENCE B. CARSON THE FOUNDING OF THE AMERICAN REPUBLIC 5 The Enlightenment Impetus FROM THE EARLY 1760's to the mid-1770's, as colonial resistance to British rule mounted, ebbed, and flowed, colonists referred over and over again to the Brit ish constitution, to the rights of Englishmen, to the charters on which the colonies were founded, and so on. This they could do so long as they were attempting to alter British policy and retain ex isting relationships. But once they decided to break the connection with England they could no longer hinge their action on the British constitution nor any longer sup port their institutions with it. Ex perience could be utilized; forms and practices could be abstracted from the British pattern; but all these would have to have a new foundation and new justifications. The new foundation on which they built was the natural law philosophy. This is not to say that the natural law philosophy was new or that Americans had just become acquainted with it.