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Sustainable Society:  A society that balances the environment, other life forms, and human interactions over an indefinite time period.







Two "Problems With One Solution"

Jim Griffin*
September 10, 2001


Mexican immigration will lower the future dependency ratio of the US economy and therefore will go a long way toward insuring the "solvency" of Social Security.


The papers last week were full of the debate between Democrats and Republicans over what to do to "save" Social Security. Much of the debate meets Shakespeare's description of "a tale told by an idiot, full of sound and fury, signifying nothing". Beating up each other over what might happen 30 or more years into the future while failing to address today's problems, comes close to irresponsibility if not idiocy.

Now trumps later. The long run is a series of short runs and we must survive today's short run in order to realize our longer run future. The proper course is to forget about the Social Security surplus question -for now- in the ongoing budget process. Congress should consider finance and appropriations bills only within the context of what makes sense for now, in the context of an economy teetering on the brink of what might become a dangerous contraction.

That declaration might seem irresponsibly short-sighted, so let me introduce another topic that was much in the news last week, one that pertains directly to the long run "solvency" of Social Security but that was not integrated into the debate in any treatment that I encountered.

That issue is Mexican immigration, specifically the proposal by President Vicente Fox of Mexico during his state visit to Washington that there be an open border between the two countries for the free flow of labor. Mexican immigration and Social Security "solvency" are intimately, inescapably, intertwined.

Here is a flat-out prediction: the Mexico-US open border question will be resolved more or less as President Fox has proposed. If not in this Congress, then in the next, or the next - depending upon how long it takes the two US political parties to see the win/win situation staring them in the face. It is an inevitability.

Maybe even Sen. Phil Gramm of Texas thinks so. He vowed several months ago that an open border would happen only "over [his] dead political body". Last week he announced that he would not seek re-election in 2002. RIP.

These are the stylized facts that will determine the outcome: 300 million Americans of median age 36 with median incomes of about $40,000; 100 million Mexicans of median age 16 with median incomes of about $5,000. Add in 30 million Canadians with demographic and income profiles similar to those of the US and it is possible immediately to see the North American Free Trade Agreement (NAFTA) as a May-December marriage of romance and mutual convenience.

An open border to the free flow of labor is the consummation of that marriage. And it is directly pertinent to the long run Social Security issue. After all, the Social Security Administration has done its projections on the basis of the demographics within US borders. But the demographics that will count in the years ahead are those of the US economy, which is already, or will be, continental.

What is a retirement system, after all, but a funding mechanism to permit non-workers to command a share of the current output of workers? In a system with a low ratio of non-workers to workers -a low "dependency ratio"- there is only a light burden on current workers. There is only a modest need for transfers to non-workers and therefore only a small financing or funding problem. In systems with high dependency ratios, the burden is heavier: a greater share of current output must be transferred away from workers for the benefit of dependents -which sets up a more problematical conflict between tax rates and benefit schedules.

It is this tax rate vs. benefit schedule conflict that currently defines the debate in Washington, but the conversation between Presidents Fox and Bush over an open border offers a solution that ultimately will finesse the question. A retirement system defined to include Mexican demographics with those of the United States and Canada projects a lower dependency ratio in years to come, and therefore a less pressing transfer and finance problem, than one defined on the United States alone.

NAFTA already provides for the virtually free movement of goods and services within North America. Americans are already able to command Mexican products, with their embedded youthful labor content. But who will climb the ladder, in a future autumn, to clean the leaves from my gutters and downspouts when I am no longer able -and the local neighborhood kids are all grown up and working at wages beyond my means at the time?

An open US-Mexico border, or immigration generally, is the answer.

The market these days is not in the mood to see or hear good news. The Social Security debate plays as a problem. So does the immigration issue. If these are problems, however, they go a long way toward solving each other.
Aeltus Weekly, September 10, 2001
Aeltus Investment Management
Hartford, CT
See at < http://www.aeltus.com/news/weekly/20010910/ >.


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