The Social Security Mirage; W. A. Paton

Acceptance of the present array of handouts under the welfare banner, moreover, has now reached the stage where many seem to forget the fundamental fact that no gove:r:nmental agency or com, bination of agencies can assur,e W. A. Paton is Professor Emeritus of Account ing and of Economics, University of Michigan. He is author (or co-author) of a score of books and many articles, largely in the field· of ac counting. Since his retirement at· Michigan, he has continued his writing and lecturing activities and has done part-time teaching at a dozen cc.l leges and universities, in ten states. everyone of a specified level of consumer goods to enjoy. Laws might be enacted by legislative bodies making dollar commitments to all hands, but such actions would simmer down, broadly speaking, to nothing more than authorizing a certain legal posi tion for each of us in the line of individuals awaiting their 'turns at the economic spigot. No power on earth can guarantee the size of the flow from the pipeline of pro duction, even for a year or two.

This is a world full of more or less uncontrollable factors that have an impact on economic activity and output. Familiar examples are fluctuating weather conditions, varying population, changing at titudes, and modification of meth ods. Perhaps the outstanding un predictable influence today is war or fear of war, and the accompany ing ups and downs in military man power and expenditure. In short, there is no way in which the economic future of an 167 168 THE FREEMAN March entire people can be assured by state action. Redistribution of such output as appears may be forced by government, but the size of the pie is not enlarged by increasing Paul's slice at the ex pense of Peter's. Production re mains the key to prosperity, not government promises. This is par ticularly true in the case of the United States, as we can be sure that no foreign nation or nations will play Santa Claus for us.

That volume of economic output is the basis of the American stan dard of Iiving is of course unde niable. It is almost equally plain that it is· the current flow of con sumer goods on which we largely depend to meet our current needs. But these simple truths are so widely ignored, especially in con nection with plans and schemes private as well as governmental designed to insure our economic future, that they deserve continu ing explanation and emphasis. I have a few suggestions to offer that may be helpful in clearing the air for anyone who is willing to take a hard look at economic reality. Stockpiling Consumer Goods Phony "Reserves" One way to bring to light, very plainly, our overall dependence on current output is to take a look at the problem of stockpiling consumer goods under existing condi tions. Back in Egypt, long ago, so we are told in Genesis, Joseph stored "corn" in the "seven plen teous years" in an amount so large that "it was without number," and then doled it out in the "seven years of dearth." Apparently he had remarkable storage facilities, and a very docile people to deal with. And since the famine was "all over the face of the earth" he also did a big business with the other countries that "came into Egypt to Joseph for to buy corn."

We have no data as to the pricing policies and other procedures fol lowed during the famine years, in dealing with either Egyptians or foreigners, as the granaries were emptied. The Biblical account also provides no details 'as to how the stored grain was commandeered, guarded, and kept from spoiling and insect infestation. A .tyrannical government in the United States could attempt to follow Joseph's example, and seize a part of the current crop of wheat or other grains for stockpiling purposes. Indeed we have had con siderable experience with coerced storing of farm products, although the objective was mainly to induce an artificial scarcity, to force up prices to producers, rather than to increase the future supply of consumer goods. And this venture, as is well known, soon led to cur1974 THE "SOCIAL SECURITY" MIRAGE 169 tailment of supply by restricting plantings and other devices - a fantastic piece of folly from which we are still suffering.

Grain Is a Raw Material But my main purpose here is, not to criticize government inter-· ference with agricultural opera-· tions. The point I want to empha-· size, first, is that in our situation grain is a raw material, not a con sumer good. Our output of grain is fed to livestock or sold to manu-· facturers of packaged cereal prod-· ucts (or exported). Conceivably the government could start a pro·· gram of making us tighten our belts by storing part of the cur·· rent flow of canned tomatoes and other packaged foods that could be preserved for some time (and stilll be fit for consumption under our fussy "Food and Drug" laws and regulations). As far as I know,. however, no such program is un·· del' consideration or has been suggested. The fact that we are not accu·· mulating a usable food bank, how·· ever, is not the end of the story .. The American standard of living today is in substantial measure composed of products that are impossible to stor'e. We can in·· crease the capacity to produce but we can't stockpile electric energy,.

either to provide power in produc·· tive processes or to consume as lighting and power in our homes and outside. Transportation ser vice - by motor vehicle, train, plane, or any other means - can't be piled up for future use. The only way to enjoy a vacation trip or a jaunt abroad is to go. We can't accumulate a stock of per sonal services such as haircuts and shampoos. Medical service likewise can't be stockpiled. We can store books, but educational services in general must be con sumed as produced. The same may be said of much of our entertain ment, including horse racing and football ga:Ipes as well as a seat at the opera. Obviously we can be come informed of what's going on only by the morning paper, the radio and TV presentations, the telephone, the mail service, and so . on. There are other illustrations that might be given, but these shouldn't be necessary to make the point that taking care of our fu ture - as a people - by either vol untary or coerced stockpiling of consumer commodities ,and ser vices, as found in today's markets, is largely impossible or impracti cable. It is primarily the current output of the ultimate products on which we live.

Perhaps I should add here a reference to the notion that many people seem to have to the effect that "social security," at the Fed eral level, is backed by "reserves,"

170 THE FREEMAN March on a sound actuarial basis, which assure the beneficiaries that the promises made will be faithfully kept. This view of the program is truly a mirage. There are no "re serves" involved in any meaning ful sense. The funds diverted to social-security recipients, acquired by taxation or borrowing, or gen erated via the printing press and related means, add nothing to the output of consumer goods or the array of productive resources. Stashing government IODs, either in the form of fancy engraved paper or just bookkeeping entries, provides no real support for meet ing the expectations of eligible payees in terms of standard of living. Such "reserves" are a finan cial hoax, and the expense of main taining such a system is money thrown away. It would be an im provement if the system were amended so as to make it plain that we are on a pay-as-you-go basis, overall.

Stimulating Productivity I've already stressed the fact that no particular level of eco nomic output can be assured by government action, in the face of the uncertainties besetting us. And, of course, neither can private associations, insurance companies, or other nongovernmental' groups, do the impossible. There are, how ever, some condi tions, arrangements, and courses of action that promote productivity, and tend to increase the flow of consumer commodities and services - the ul timate objective of the economic process. Thus if the goal of any nation is that of maintaining and perhaps improving - the stan dard of living' of the population children, grownups in the work force, those not employed for any reason, and "senior citizens" - the road to follow is the stimulation of production. A higher level of consuming, currently or later, de mands a higher level of producing. I've no intention here to go beyond a very few comments on the factors that tend to promote an increasing volume of economic output. A major requirement, cer tainly, is continuing improvement of tools and methods. Almost be fore our eyes in this country is an amazing picture of what the tech nological march has done and can do for us. Avoidance of waste, and efficient utilization of natural re sources, are important. Another major ingredient is a climate that encourages the hustler, the go getter, the innovator, the enter priser. Also should be noted the importance of saving and capital accumulation, including the ven ture funds necessary to finance risk-taking and experiment in bus iness activity. Hard work and dili gence, in all levels and branches of 1974 THE "SOCIAL· SECURITY" MIRAGE 171 the force engaged in production:, including supervisors and admin·· istrators, are of course.essential to efficient operation. Above all i8 needed an array of sensitive mar·· kets, capable of reflecting promptly the results of the interaction of buyer and seller views and desires ..

And financial facilities that serv€~ to implement specialization and free exchange must· be available. Conversely, we must avoid like the plague all policies and prac·· tices that impede the-efforts to expand output, increase the size of the economic flow. Union tactics that discourage utilization of im·· proved machines and methods, or lead to absenteeism, inefficiency:, unreasonably short hours per week, and so on, are surely not conducive to economic progress, for all of us, or for any group in the long run. Noncompetitive tend·· encies in business managements and organizations are similarly ob·· jectionable. Dishonesty and fraud in any sector has an adverse im pact on the productive process. Interference by government agen cies in business operation is sel dom helpful, and is currently so extensive that it is putting a damper on individual initiative and enterprise. Onerous, progres sive tax levies restrict saving and capital formation, and welfare ex penditures on a vast scale, at the expense of the earners, are dis couraging to the rank and file as well as to those especially talented and energetic.

In conclusion I want to acknowl edge that there are still a few of us around who firmly believe that an economy dominantly private and free, with a strictly limited government role, is superior on all counts to any form of socialism or welfare state. And we believe that historically and currently the available evidence supports this stance, overwhelmingly. , IDEAS ON LIBERTY Insecurity THERE IS NO SECURITY to be had from any government so long as its program, intentionally or otherwise, destroys private property, promotes coHectivism, and progressively discour ages production. Under such a government all liberty is soon lost. Serious cause for alarm exists in the United States today. PAUL L. POIROT, The Pension Idea WhatIsSeen BRIAN SUMMERS and MORE THAN one hundred years ago the great French economist, Fred eric Bastiat, wrote his classic es say, "What Is Seen and What Is Not Seen in Political Economy!"l Can such an essay, written in a different time and a different land, have something to say to today's Americans? It certainly can!