The most pressing task for the government of today is to balance the budget. But there are three different understandings of what it is to balance the budget.
There is a minimal sense, in which the expenditure of the government on goods and services is covered by money raised by taxation, without taking account of interest having to be paid on debts already incurred. If that is taken into account, we have a second sense in which external observers would reckon that the economy was not heading for disaster and default.
But a more stringent reckoning would take into account not only current expenditure and the interest on outstanding debts, but the pension rights and other entitlements which the government was creating without adequate funding – the IOUs they are issuing for the next generation to repay.
In the short term we may be able to balance the budget only in the first, and then the second, sense; but only the third definition amounts to balancing the budget as a satisfactory long-term aim.
It is a moot point how far one generation is entitled to saddle later generations with onerous obligations. At one extreme it is argued that without us later generations would not exist, and owing everything to us, they ought to accept whatever burdens we choose to load on them. To which it is replied from the other extreme that posterity did not ask to be procreated, and sees no reason to recognise obligations foisted on them by oldies.
More reasonably, it is evident that each generation inherits enormous benefits from its predecessors, and ought to be ready to shoulder some burdens too. Britain would be a much worse place to live in if Napoleon or the Kaisar had conquered it; my life would have been wretched, and probably short, if we had not successfully stood up to the Nazis in the Second World War or to the communists in the Cold War. I ought, therefore, to be willing to pay some part of the cost of defeating Napoleon, the Kaisar, Hitler and Stalin. Debts incurred in the fight for survival are debts the survivors ought to acknowledge, service and in due course, repay.
It is different, however, with debts incurred for other reasons. Although traditionally there was an absolute obligation to care for one’s parents, to whom one owed one’s very existence, Solon, the founder of Greek democracy, made the obligation of a son to support his father in old age conditional on his father’s having taught him a trade. There are obligations, and hence conditions and limitations, on both sides. It was reasonable to take steps to prevent Huckleberry Finn’s father squandering his son’s fortune. Russian novelists do not condone the father’s demanding his daughter sell her body so that he can buy drink. Similarly, we cannot make out that we are entitled to be profligate at our our successors’ expense. Instead, we need to particularise.
We can, though, generalise Solon’s principle, to see the obligation as not only on children towards their parents, but on all workers towards all those no longer able to support themselves. The young inherit their parents’ world. It is a much better world than the state of nature. Modern man enjoys not only a rich culture, but peaceable institutions, and a technology that enables him to work far more productively than his forefathers. It is reasonable that he should make some return. But it was not all due to the retirees themselves. They too entered into an inheritance they had not earned, and as they had benefited from other men’s labours, should have laboured themselves to benefit their successors.
Admittedly, some of the fruits of their labours are enjoyed now in the form of improved technology and institutions. The young tweet on mobile phones, which were developed only in yesteryear. It could be argued that the institutions of today are better than those of the mid-twentieth century – though the argument might also go the other way – but it is more difficult to maintain that debts wantonly run up by one generation, should be, without question, something that their successors should repay. Although the cost of fighting the Second World War is one that the present generation can be required to shoulder, the improvidence of modern deficit financing is different.
Each generation owes it to its successors not to burden them with debts unmatched by improvements to their inheritance. There will always be disputes about the value of such improvements to the generations that inherit them; such disputes can poison relations between the generation, and even, if they become an issue in politics, undermine the basis of public decision-making. The way to avoid this, provided the currency is stable, is to fund pensions by each person saving part of his income, while he is working, for his retirement. The savings can be invested, mostly in gilt-edged stock or blue-chip equities, to provide a secure minimum when the pension becomes due. Individuals would get what they had paid for. National insurance contributions would be really what they claim to be. Pensioners would be free to make further contributions in their working lives to pay for larger pensions in old age (but it would be sensible to do so only if there were constitutional safeguards to prevent the government from raiding pension funds and depreciating the currency).
At the present time government pensions are not funded, and raise divisive issues. To many it is obvious that the pensionable age should be increased, in view of our living longer and in better health. It is a reasonable argument, and applies to most people, but not to all.
“Contractual” pensions should be sacrosanct: government employees, especially in the armed services, were paid less well than comparable workers in private employment, with the prospect of the pension making up for the difference. In such cases the pension was effectively part of the contract of employment, and should be honoured as such. Pension rights accrued in time past should be honoured, though from now on the conditions could be altered to take account of increased longevity. These should apply to new entrants; those in mid-career should be given a choice of accepting them for the remainder of their career, or leaving the public service, but retaining a right to a pension in proportion to the time spent in the public service.
Funding is not the only problem with pensions. To many it seems that the conflict is not just about money or due to inflation, but inherent. Each generation is having to work harder to provide services not only for their young but for their elders, who are living longer and dying more expensively than in days of yore. The burden of an ageing population is increasing. We must, therefore, it is often further argued, recruit young immigrants from overseas, to come and help bear the burden, or else it will be insupportable. Or so it is said. It is obvious that the latter argument is wrong. The young immigrants we import will themselves become old, and the burden for caring for them will likewise need the import of more young people to help carry it. Sooner or later the inflow must come to a halt – when there is standing room only in the British Isles, if not before. In the end the population must be static or declining. The only stable solution must be one where the actual generation of workers must deal with the actual number of oldies.
But old age is changing. The elderly are much helped by modern medicine and modern technology. Like the working young, they are subject to fewer lengthy illnesses. The TB sanitoria of the early twentieth century have been turned over to other uses. Hospitalisation lasts days, not weeks. Although the elderly go to the doctor more often, and consume more pills, they are not normally crippled by ill health. And, thanks to modern technology, they are much better able to care for themselves. Freezers and microwave ovens mean that they can stay indoors in icy or inclement weather. E-mails and mobile phones enable them to keep in touch even if they are housebound. Handrails and alarm systems make it safer to live alone. Only in extreme old age is expensive care needed.
Old age has its problems, but the financial problem of an ageing population won’t be solved by perpetual growth and immigration, but by each generation providing for its old age while it is working, and by the country as a whole balancing its budget in the third, strict, sense.