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Our Interview with George P. Shultz
Robert Huebscher
September 30, 2008

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George Shultz George P. Shultz is the Thomas W. and Susan B. Ford Distinguished Fellow at the Hoover Institution. He was sworn in on July 16, 1982, as the sixtieth U.S. secretary of state and served until January 20, 1989. In January 1989, he rejoined Stanford University as the Jack Steele Parker Professor of International Economics at the Graduate School of Business and as a distinguished fellow at the Hoover Institution.

Professor Shultz’ book, Putting Our House in Order: A Guide to Social Security and Health Care Reform, which he co-authored with Stanford economics professor John B. Shoven, is available through the link above.

We interviewed Professor Shultz on September 22, 2008.

How have your career path and interests have taken you from foreign diplomacy to the study of entitlement programs?

I started out as an economist. My first cabinet position was secretary of labor, after which I was the director of the Office of Management and Budget and then secretary of the treasury. I am only best known as secretary of state. I have always been interested in these problems. As I look at the fiscal implications of entitlements, I see it is a calamity we cannot allow to happen. This is not a partisan position. Everyone agrees it needs to be solved.

One of the central themes in your book is the importance of expanding the GDP or, as you characterize it, the “size of the pie.” Can you discuss this and, in particular, the “lump of labor” misconception?

Somehow there is a notion that there is only so much work to be done. There is an assumption that, If you get people out of the labor force, then there is more work for younger people to do. This thinking lurks in the shadows of a lot of policy decisions. The evidence is that it is completely untrue. There is a gigantic expansion in jobs in the US. By contrast, in Europe, they get people out of the labor force to provide opportunities for the young, and these policies have created unemployment for the young. It is a total fallacy.

As the population grows to have a lot more older people, we will need to spend a bigger portion of GDP on their income and support. The growth of this slice of the GDP pie is inevitable, and we need to make the overall pie as big as we can.

You always have all the problems of intergeneration tension – the older generation needs to be supported, but the younger generation has its own set of needs. This does not remove the need to try to grow the overall pie.

In a number of ways, the operation of the Social Security and health care systems inhibits people from working or fails to take advantage of their full potential for work. But if you change incentive structures, you can get people to participate more fully and work longer, if they desire.

You can expect that we will live longer and lead healthier lives. Compare two scenarios. First, assume that people retire at the same age as today. Second, assume they retire in such a way that the total time spent in retirement is the same as today. The difference, projected to 2050, is $1 trillion - a very significant amount. Allowing people to work longer grows the pie in such a way that everyone benefits.

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