All Commentary
Friday, March 1, 1974

The “Social Security” Mirage Current Production Paramount

Unsound economic policy, long continued, tends to become accepted and entrenched. When Federal “social security” first appeared on the horizon there were many skeptics and critics. But with the passage of time this resort to the power of the central government to provide for our retirement years has gained wide approval, has grown like Topsy, and has spawned a flock of other welfare programs, including state and local measures. And protesting voices are now few and faint.

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 governmental agency or combination of agencies can assure 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 position 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 production, 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 attitudes, and modification of methods. Perhaps the outstanding unpredictable influence today is war or fear of war, and the accompanying ups and downs in military manpower and expenditure.

In short, there is no way in which the economic future of an 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 expense of Peter’s. Production remains the key to prosperity, not government promises. This is particularly 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 standard of living is of course undeniable. It is almost equally plain that it is the current flow of consumer goods on which we largely depend to meet our current needs. But these simple truths are so widely ignored, especially in connection with plans and schemes —private as well as governmental —designed to insure our economic future, that they deserve continuing 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 over-all dependence on current output is to take a look at the problem of stockpiling consumer goods under existing conditions. Back in Egypt, long ago, so we are told in Genesis, Joseph stored “corn” in the “seven plenteous 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 followed 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 considerable 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 curtailment 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 interference with agricultural operations. The point I want to emphasize, first, is that in our situation grain is a raw material, not a consumer good. Our output of grain is fed to livestock or sold to manufacturers of packaged cereal products (or exported). Conceivably the government could start a program of making us tighten our belts by storing part of the current flow of canned tomatoes and other packaged foods that could be preserved for some time (and still be fit for consumption under our fussy “Food and Drug” laws and regulations). As far as I know, however, no such program is under consideration or has been suggested.

The fact that we are not accumulating a usable food bank, however, is not the end of the story. The American standard of living today is in substantial measure composed of products that are impossible to store. We can increase the capacity to produce but we can’t stockpile electric energy, either to provide power in productive processes or to consume as lighting and power in our homes and outside. Transportation service — 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 personal services such as haircuts and shampoos. Medical service likewise can’t be stockpiled. We can store books, but educational services in general must be consumed as produced. The same may be said of much of our entertainment, including horse racing and football games as well as a seat at the opera. Obviously we can become 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 future — as a people — by either voluntary or coerced stockpiling of consumer commodities and services, as found in today’s markets, is largely impossible or impracticable. 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 Federal level, is backed by “reserves,” 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 “reserves” involved in any meaningful sense. The funds diverted to social-security recipients, acquired by taxation or borrowing, or generated via the printing press and related means, add nothing to the output of consumer goods or the array of productive resources. Stashing government IOUs, either in the form of fancy engraved paper or just bookkeeping entries, provides no real support for meeting the expectations of eligible payees in terms of standard of living. Such “reserves” are a financial hoax, and the expense of maintaining such a system is money thrown away. It would be an improvement if the system were amended so as to make it plain that we are on a pay-as-you-go basis, over-all.

Stimulating Productivity

I’ve already stressed the fact that no particular level of economic 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, however, some conditions, arrangements, and courses of action that promote productivity, and tend to increase the flow of consumer commodities and services — the ultimate objective of the economic process. Thus if the goal of any nation is that of maintaining —and perhaps improving — the standard 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, demands 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, certainly, is continuing improvement of tools and methods. Almost before our eyes in this country is an amazing picture of what the technological march has done and can do for us. Avoidance of waste, and efficient utilization of natural resources, are important. Another major ingredient is a climate that encourages the hustler, the go-getter, the innovator, the enterpriser. Also should be noted the importance of saving and capital accumulation, including the venture funds necessary to finance risk taking and experiment in business activity. Hard work and diligence, in all levels and branches of the force engaged in production, including supervisors and administrators, are of course essential to efficient operation. Above all is needed an array of sensitive markets, capable of reflecting promptly the results of the interaction of buyer and seller views and desires. And financial facilities that serve to implement specialization and free exchange must be available.

Conversely, we must avoid like the plague all policies and practices that impede the efforts to expand output, increase the size of the economic flow. Union tactics that discourage utilization of improved 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 tendencies in business managements and organizations are similarly objectionable. Dishonesty and fraud in any sector has an adverse impact on the productive process. Interference by government agencies in business operation is seldom helpful, and is currently so extensive that it is putting a damper on individual initiative and enterprise. Onerous, progressive tax levies restrict saving and capital formation, and welfare expenditures on a vast scale, at the expense of the earners, are discouraging to the rank and file as well as to those especially talented and energetic.

In conclusion I want to acknowledge 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.  

  • W. A. Paton (1889-1901) was Professor Emeritus of Accounting and Economics, University of Michigan. He was author (or co-author) of a score of books and many articles, largely in the field of accounting.