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Reforming Our Retirement System / Social Security is a kids’ issue

by David Kirp

Partisans in the Social Security wars have advanced a host of proposals to trim benefits, raise taxes or encourage investing in the stock market to bankroll retirement. But no one seems to be talking about how to increase productivity—an odd omission, since productivity is the engine that sustains this intergenerational compact.

While patches in the Social Security formula will likely be needed, the best way to keep the system solvent is to soup up that engine by boosting the earnings capacity of today's children. That means underwriting theireducation, especially during the critical first years of their lives. In this respect Social Security is really a kids' issue.

The rationale for coupling children's needs and retirees' benefits comes straight from Economics 101. Pay-as-you-go pension programs like Social Security depend on workers' earning capacity. Although the ratio of workers to retirees has fallen drastically—from 16-to-1 to 3-to-1 since 1950—productivity gains have helped generate a surplus. By midcentury, the system is projected to be in the red, but even a slight improvement over the anticipated increases in productivity would go a long way to closing the revenue gap.

That's why, to keep Social Security on solid footing, it's smart to invest in kids. There is ample evidence that the surest way to raise productivity over the long term is to provide good childhood-development programs now. A file cabinet's-worth of research reaches the same conclusion: High-quality preschools will boost the earnings capacity of today's kids, which is who those worried about solvency in the mid-21st century have in mind.

Long-term evaluations of model projects like the Carolina Abecedarian program, the Chicago's Child-Parent Centers and the Perry Preschool in Michigan show that preschool experience can significantly reduce the number of repeated grades and special education assignments, boost high-school graduation rates and college enrollment. The results of the Perry experiment are especially remarkable. The median income of those, now middle-aged, who attended Perry 40 years ago is $20,800—that's 25 percent more in earnings, more in Social Security payroll taxes as well, than what a matched group of kids lacking this early start has generated.

A review of this research by the Economic Policy Institute concludes that exemplary early childhood programs consistently generate more than $3 for every dollar invested—“exceptional returns,” as the report is titled. A Rand Corporation evaluation of Head Start, which enrolls nearly a million youngsters from poor families, finds some notable long-term benefits. And a universal preschool program in Tulsa, Okla., that serves a diverse population recorded a 16 percent increase in children's language and cognitive test scores.

Forty states now provide some pre-school programs, and next year Californians will have an opportunity to vote for universal pre-kindergarten. A new report from the Rand Corporation concludes that such a program will yield a nearly threefold return on the state's investment.

These state efforts make an important start. What's really needed is a national strategy that links good preschools, greater economic productivity and Social Security stability. In a recent paper prepared for the Brookings Institution, economistRichard Brandon puts a price tag on such an initiative. At an estimated cost of $31 billion—about 6 percent of what's being spent on elementary and secondary education—all parents could send their children to a high-quality, full-day, year-round, partially subsidized child- development program from birth to kindergarten.

Politicians are habitually inclined to favor quick fixes. Yet when it comes to children, that approach doesn't work, because the full benefits of early-childhood education programs are only realized decades down the road. The Social Security debate provides a rare opportunity to take the long-term view. That means focusing on the interwoven fates of three generations—thinking not only about how to guarantee economic security to retirees, but also about how to better the lives of children, and their children as well.

This article was originally posted on SF Gate.