![tion. Thus, the benefit formula encourages careers of thirty-five years or
less. Several other features of the benefit computation—which we will dis-
cuss in detail in the following—contribute to the disincentives for long ca-
reers.
In this chapter, we examine the disincentives for long careers created by
Social Security. Our main finding is that the structure of these programs
imposes high implicit tax rates on workers late in their careers. As a result
of this distortion, we believe retirements are suboptimally long. The con-
sequences of this distortion are significant: a lot of the stress on public and
private pension systems is caused by the increased length of retirement. We
also outline ways to reduce or eliminate the implicit taxes on long careers
and working at older ages. The potential benefits of a larger work force for
Social Security and Medicare (and gross domestic product [GDP]) are
large.
1.2 Work Incentives in U.S. Social Security
In this section, we investigate the impact of Old Age and Survivors In-
surance (OASI) on the career-length incentives of both stylized and actual
workers. In each year of their working life, we compute the workers’ pres-
ent value of Social Security taxes minus benefits under the assumption that
Removing the Disincentives in Social Security for Long Careers 23
Fig. 1.2 Labor force participation of men by remaining life expectancy, 1965
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- 6. Social Security Policy in a Changing Environment
- 7. A National Bureau of Economic Research Conference Report National Bureau of Economic Research Conference on Research in Income and Wealth
- 8. Social Security Policy in a Changing Environment Edited by Jeffrey R. Brown, Jeffrey Liebman, and David A. Wise The University of Chicago Press Chicago and London
- 9. Jeffrey R. Brown is the William G. Karnes Professor of Finance at the University of Illinois at Urbana-Champaign, and a research associate of the National Bureau of Economic Research. Jeffrey Liebman is the Malcolm Wiener Professor of Public Policy at the John F. Kennedy School of Government, Harvard University, and a research associate of the National Bureau of Economic Research. David A. Wise is the John F. Stambaugh Professor of Political Economy at the John F. Kennedy School of Government, Harvard University, and director of the program on the economics of aging at the National Bureau of Economic Research. The University of Chicago Press, Chicago 60637 The University of Chicago Press, Ltd., London © 2009 by the National Bureau of Economic Research All rights reserved. Published 2009 Printed in the United States of America 18 17 16 15 14 13 12 11 10 09 1 2 3 4 5 ISBN-13: 978-0-226-07648-5 (cloth) ISBN-10: 0-226-07648-2 (cloth) Library of Congress Cataloging-in-Publication Data Social security policy in a changing environment / edited by Jeffrey R. Brown, Jeffrey Liebman, and David A. Wise. p. cm. — (A National Bureau of Economic Research conference report) “This volume consists of papers presented at a conference held in Woodstock, Vermont in October 2006”—Acknowledgments. Includes bibliographical references and index. ISBN-13: 978-0-226-07648-5 (cloth : alk. paper) ISBN-10: 0-226-07648-2 (cloth : alk. paper) 1. Social security— Government policy—United States I. Brown, Jeffrey R. II. Liebman, Jeffrey B. III. Wise, David A. HD7125.S599286 2008 368.4′300973—dc22 2008031051 o The paper used in this publication meets the minimum requirements of the American National Standard for Information Sciences— Permanence of Paper for Printed Library Materials, ANSI Z39.48-1992.
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- 12. Contents vii Acknowledgments xi Introduction 1 Jeffrey R. Brown, Jeffrey Liebman, and David A. Wise I. Innovative Approaches to Social Security Reform 1. Removing the Disincentives in Social Security for Long Careers 21 Gopi Shah Goda, John B. Shoven, and Sita Nataraj Slavov Comment: Erzo F. P. Luttmer 2. Notional Defined Contribution Pension Systems in a Stochastic Context: Design and Stability 43 Alan J. Auerbach and Ronald Lee Comment: Jeffrey Liebman 3. Reforming Social Security with Progressive Personal Accounts 73 John Geanakoplos and Stephen P. Zeldes Comment: Jason Furman II. Retirement Plan Choice 4. Who Chooses Defined Contribution Plans? 131 Jeffrey R. Brown and Scott J. Weisbenner Comment: Brigitte C. Madrian
- 13. 5. The Importance of Default Options for Retirement Saving Outcomes: Evidence from the United States 167 John Beshears, James J. Choi, David Laibson, and Brigitte C. Madrian Comment: Jeffrey R. Brown III. Reducing Financial Market Risk in Personal Retirement Accounts 6. Reducing the Risk of Investment-Based Social Security Reform 201 Martin Feldstein Comment: David W. Wilcox 7. Pricing Personal Account Benefit Guarantees: A Simplified Approach 229 Andrew Biggs, Clark Burdick, and Kent Smetters Comment: George G. Pennacchi 8. Reducing Social Security PRA Risk at the Individual Level: Life-Cycle Funds and No-Loss Strategies 255 James M. Poterba, Joshua Rauh, Steven F. Venti, and David A. Wise Comment: Douglas W. Elmendorf 9. Changing Progressivity as a Means of Risk Protection in Investment-Based Social Security 299 Andrew A. Samwick Comment: Michael Hurd IV. Demographics, Asset Flows, and Macroeconomic Markets 10. The Decline of Defined Benefit Retirement Plans and Asset Flows 333 James M. Poterba, Steven F. Venti, and David A. Wise Comment: Jonathan Skinner viii Contents
- 14. 11. Demographic Change, Relative Factor Prices, International Capital Flows, and Their Differential Effects on the Welfare of Generations 385 Alexander Ludwig, Dirk Krüger, and Axel Börsch-Supan Comment: James M. Poterba V. Mortality Projections 12. Is the U.S. Population Behaving Healthier? 423 David M. Cutler, Edward L. Glaeser, and Allison B. Rosen Comment: James P. Smith Contributors 447 Author Index 451 Subject Index 455 Contents ix
- 16. Acknowledgments xi This volume consists of papers presented at a conference held in Wood- stock, VT in October 2006. Most of the research was conducted as part of the NBER Retirement Research Center with financial support from the U.S. Social Security Administration (SSA) through grant #10-P-98363-1 to the National Bureau of Economic Research as part of the SSA Retirement Research Consortium. Additional funding sources are noted in individual papers. The findings and conclusions expressed in this volume are those of the re- spective authors and do not represent the views of SSA, any agency of the federal government, or the National Bureau of Economic Research.
- 18. Introduction Jeffrey R. Brown, Jeffrey Liebman, and David A. Wise 1 This volume compiles selected studies conducted through the National Bu- reau of Economic Research (NBER) Center for Retirement Research. The center was created in 2003 with funding from the U.S. Social Security Ad- ministration and is structured to provide analysis that can inform Social Security policy. In setting our research agenda, we have been guided by three principles. First, reform must recognize the changing and uncertain environment in which the Social Security system will operate. Second, sev- eral alternative routes to sustainable solvency should be explored. Third, the potential routes to solvency should be evaluated for “resiliency” to fu- ture uncertain demographic, economic, and social trends. While some of the center’s research focuses directly on Social Security reform, other research aims to inform Social Security policy by analyzing the changing economic environment in which future Social Security ben- eficiaries will live. For example, several of our center’s projects have stud- ied trends in private-sector retirement saving—particularly the shift from defined benefit (DB) to defined contribution (DC) pension plans—be- cause the “optimal” Social Security replacement rate may evolve as the structure of private retirement savings changes over time. We have also studied trends in health care costs because decisions about Social Secu- rity benefits, and indeed how much of society’s resources to devote to So- Jeffrey R. Brown is the William G. Karnes Professor of Finance at the University of Illinois at Urbana-Champaign, and a research associate of the National Bureau of Economic Re- search. Jeffrey Liebman is the Malcolm Wiener Professor of Public Policy at the John F. Kennedy School of Government, Harvard University, and a research associate of the Na- tional Bureau of Economic Research. David A. Wise is the John F. Stambaugh Professor of Political Economy at the John F. Kennedy School of Government, Harvard University, and director of the program on the economics of aging at the National Bureau of Economic Re- search.
- 19. cial Security, may depend in part on health care costs. And we have stud- ied the uncertain nature of future demographic, economic, and social trends—such as the age structure of the population, marriage and divorce rates, women’s labor force participation, productivity, market rates of re- turn, and the like. The volume is organized into five parts. Part I introduces several inno- vative approaches to Social Security reform. Part II examines individual behavior in making retirement saving decisions, such as how much to save or how to allocate savings among alternative investment options. Part III analyzes different approaches to reducing the financial market risk faced by individuals who invest in personal retirement accounts. Part IV looks at aggregate trends in retirement asset flows and their effect on macro- economic markets. Part V considers health trends and their projected effects on future mortality. This introduction summarizes each of the chap- ters, drawing heavily on the authors’ own summaries. Innovative Approaches to Social Security Reform In recent years, the debate about Social Security reform in the United States has focused on a limited range of proposals, a fact which may have contributed to the partisan nature of reform discussions. An important aim of our center is to expand the range of approaches considered and to assess the resiliency of alternative proposals to uncertain future demo- graphic, financial, and other trends. The first three chapters in this volume analyze new ideas for Social Security reform. The first considers reforms that would remove the disincentive in Social Security for long careers. The second analyzes notional defined contribution social security systems and evaluates their ability to self-adjust to uncertain future circumstances, and thus to retain their financial stability over the long term. The third devel- ops a reform proposal based on progressive personal accounts, which blend characteristics of funded personal accounts with some of the core objectives of traditional social security policy. In chapter 1, “Removing the Disincentives in Social Security for Long Careers,” Gopi Shah Goda, John B. Shoven, and Sita Nataraj Slavov ex- plore the relationship between Social Security policy and labor market be- havior at older ages. Since Social Security was instituted in 1935, life ex- pectancy at age twenty has increased from sixty-six to seventy-six for men and from sixty-nine to eighty for women. Health at older ages has also im- proved. Such dramatic advances in health and longevity mean that people have the physical and mental capability to work until older ages. Yet people are retiring younger, even as they live longer and healthier lives. Indeed, the duration of retirement has grown by even more than the increase in life ex- pectancy at retirement. Godi, Shoven, and Slavov consider the role of Social Security policy in 2 Jeffrey R. Brown, Jeffrey Liebman, and David A. Wise
- 20. influencing—or, more precisely, distorting—the work and retirement de- cisions of older workers. They highlight the features of Social Security that discourage long careers, discourage work at older ages, and increase the number of years in retirement. The main finding of the chapter is that So- cial Security imposes high implicit tax rates on workers late in their careers. As a result of this distortion, the duration of retirement is suboptimally long, compounding the financial stress on public and private retirement support systems. One example of the distortion in Social Security is how benefits are cal- culated based on the highest thirty-five years of earnings. This means that the thirty-third, thirty-fourth, and thirty-fifth years of work noticeably im- prove retirement benefits by replacing a “zero” in the benefit calculation formula. The thirty-sixth year of work, on the other hand, may or may not count, and if it does, it will replace a lower year of earnings and not a zero in the calculation. Thus, the benefit formula discourages careers of more than thirty-five years. Another aspect of the benefit formula offers dispro- portionately higher benefits to workers with short careers, treating them with the same redistributive advantages as if they were lower earners. Both characteristics of the benefit formula lead to high implicit tax rates at older ages and for longer careers. The authors suggest three reforms that would reduce the distortionary impact of Social Security at older ages. First, they propose using forty years, rather than thirty-five, in benefit computation. Second, they propose disentangling career length and progressivity in the benefit formula. And third, they propose to establish a “paid-up” category of workers who have more than forty years of contributions, who would no longer be subject to the payroll tax. The study finds that these proposed changes would elimi- nate most of the large positive tax rates for older workers. They would also reduce the association between age and tax rate and move tax rates closer to zero for most workers in most years of their lives. With these changes, the implicit tax rates associated with Social Security remain roughly con- stant over a worker’s life, resulting in less distortion of career length choices. The authors find, in addition, that the proposed reforms need not affect the overall progressivity of the Social Security system. However, by reallocating benefits from those with shorter careers to those with longer careers, the reforms would result in less insurance against adverse shocks that cause people to work for fewer years. The study concludes that by eliminating the disincentives against work- ing longer careers, we can capitalize on the good fortunes of increasing life expectancy and favorable health status by paving the way for those in good health to stay in the labor force longer. In chapter 2, “Notional Defined Contribution Pension Systems in a Sto- chastic Context: Design and Stability,” Alan J. Auerbach and Ronald Lee explore a new approach to Social Security reform that is known as “No- Introduction 3
- 21. tional Defined Contribution” or “Nonfinancial Defined Contribution” (NDC). Sweden was the first country to introduce an NDC system. A num- ber of other countries have introduced NDC plans, including Italy, Poland, Latvia, Mongolia, and the Kyrgyz Republic, and proposed plans for France and Germany have NDC aspects. The NDC programs differ in detail, but the basic principle is that they mimic defined contribution plans without actually setting aside financial assets. Thus, some of the benefits of fully funded defined contribution plans can be achieved—particularly the improved labor supply incentives from a more transparent link between current taxes and future retirement benefits—while avoiding the transitional difficulties of converting from an unfunded pay-as-you-go (PAYGO) system. Under an NDC program, a “notional” capital account is maintained for each participant. Balances in this account earn a rate of return that is declared by the pension plan each year, and notional payments into this account are made over the entire life history to mirror actual taxes or contributions by plan participants. After a designated age such as sixty-two, a participant can begin to draw bene- fits, which is done by using the account to purchase an annuity from the pension plan. The terms of the annuity will depend on mortality risk at that time and on a rate of return stipulated by the pension plan. While NDC plans are seen as having various potential advantages over traditional PAYGO systems, the focus of this chapter is on their financial stability over the long term. The stability results from three factors. First, the rate of return in the notional accounts reflects the underlying PAYGO nature of the program and is based on what is expected to be affordable over time. Second, the annuity structure should buffer the system from the uncertain costs of rising longevity. And third, in the event that the pro- gram’s finances move toward imbalance, a braking mechanism can be in- corporated that automatically modifies the rate of return to help restore the plan to financial health. Given the political difficulties of making fre- quent changes in PAYGO pension programs, the attractiveness of an in- herently stable and self-adjusting system is clear. In this chapter, Auerbach and Lee use a stochastic macroeconomic model for forecasting and simulating the long-term finances of NDC-type public pension programs in the context of demographic and economic trends in the United States. Because future patterns of demographic and economic change are uncertain, the model generates a probability distri- bution of outcomes (benefit flows and rates of return) for generations of plan participants for the NDC program, as well as for the overall financial stability of the NDC system. The study finds that an NDC system similar to that currently in use in Sweden, which bases rates of return on the growth rate of average wages and utilizes a brake to adjust the rate of return during periods of financial stress, effectively eliminates the accumulation of debt in the Social Security 4 Jeffrey R. Brown, Jeffrey Liebman, and David A. Wise
- 22. system, even under the most adverse demographic and economic circum- stances. Thus, the system is effective in preventing inadequate funding of Social Security obligations over the long term. What this version of an NDC system does not do is adjust automatically to situations when there is excess money accumulating in the system. Put differently, the braking mechanism is asymmetric, automatically making corrections when the financial balances of the system move toward in- creased debt, but without correction when the financial balances move to- ward asset accumulation. Only a symmetric brake, which raises rates of re- turn during periods of financial strength, avoids large accumulations of financial assets. Other findings from the simulations are first, that the brake can be more gradual than under the Swedish system and still provide a stable distribu- tion of outcomes; second, that an NDC system in which rates of return are based on total rather than per capita economic growth is inherently more stable; and third, that a considerable share of the volatility in the financial performance of NDC systems is attributable to economic uncertainty, rather than demographic uncertainty. In chapter 3, “Reforming Social Security with Progressive Personal Ac- counts,” John Geanakoplos and Stephen P. Zeldes develop yet another ap- proach to Social Security reform. Their reform plan is designed to preserve the core objectives of the current Social Security system and, at the same time, gain the benefits of personal accounts. Advocates for retaining the current system argue that Social Security should redistribute wealth from those who have earned more over their whole working lives to those who have earned less. They also suggest that different generations should share in the risks and benefits of macroeco- nomic growth. So if real wages go up over time, retirees should get some benefit from those macroeconomic gains, even though they are no longer working. Advocates for personal accounts, on the other hand, support ownership by individuals of tangible assets that cannot be revoked by a fu- ture government. They also like the idea that people know the current mar- ket valuation of their retirement resources, as they are accrued over time, so that rational planning for retirement can take place outside of Social Se- curity. Geanakoplos and Zeldes seek to find a common ground between these two approaches and to develop a plan that preserves the core goals of each one. They demonstrate that it is possible to convert Social Security into a system of personal accounts with irrevocable ownership of market priced assets, while at the same time redistributing benefits based on lifetime in- come and sharing macroeconomic gains across generations. They refer to the plan as progressive personal accounts. The proposed system uses the payroll tax to buy assets in a personal re- tirement account for each Social Security recipient. Income-based redis- Introduction 5
- 23. tribution is accomplished through a variable government match (or tax) on these Social Security contributions. High lifetime earners receive lower matches (or a tax) on contributions to their personal account, while low lifetime earners receive a higher government match. Risk sharing across generations is accomplished through the creation of a new kind of deriva- tive security whose payoffs depend on the average earnings of those work- ing at a specific point in time. So if younger workers are doing well and re- ceiving high wages, the old will get higher payoffs from their investment in the derivative security. Every year a worker would pay the Old-Age and Survivors Insurance (OASI) payroll tax and receive a certain number of these securities in the worker’s account. According to the authors, it is possible to create a system of progressive personal accounts that exactly mimics the promised taxes and payouts of the current Social Security system. The resulting system would preserve some of the core goals of Social Security, as it is structured today, but would also improve upon it due to the increased transparency, enhanced property rights, and lower political risk (of legislation removing benefits) that naturally come with individual accounts. Chapter 3 lays out the me- chanics of such a system in detail. Retirement Plan Choice With the growth of 401(k)-type plans, retirement saving is becoming an increasingly important complement to Social Security as a component of financial support in retirement. In addition, some Social Security reform proposals would supplement the defined benefits provided by the current U.S. Social Security system with either voluntary or mandatory personal retirement accounts (PRAs). The increasing importance of individually- owned retirement savings accounts, whether integrated within the Social Security system or outside the system, will make decision making by indi- viduals a more important aspect of retirement planning in the future. The next two chapters in the volume look at how people make decisions about retirement plans when individual decisions need to be made. In chapter 4, “Who Chooses Defined Contribution Plans?,” Jeffrey R. Brown and Scott J. Weisbenner analyze the decisions made by a group of 50,000 workers who currently have a choice between a defined benefit (DB) and a defined contribution (DC) pension system. Their study is based on the experience of employees in the State Universities Retirement System (SURS) of Illinois, where workers make a one-time, lifetime, irrevocable choice among three retirement plans: (1) a traditional formula-based DB plan; (2) a “portable DB plan,” which is slightly less generous than the tra- ditional DB program if one retires from the system, but more generous if the worker takes an early lump-sum distribution; and (3) a completely self- managed DC plan. Individuals who fail to make an active choice within the 6 Jeffrey R. Brown, Jeffrey Liebman, and David A. Wise
- 24. first six months of employment are automatically defaulted into the tradi- tional DB plan. Other aspects of the SURS experience are also relevant to the study. First, the wages of individuals earned from SURS-covered employment are not also covered by Social Security. So for most, the decision made is a decision about people’s primary source of income in retirement. Second, the combined employer/employee retirement contributions to the SURS system are at least 14.6 percent of annual salary, which is larger than the payroll tax paid by those in the Social Security system. Therefore, the SURS system looms large as part of a participant’s lifetime financial plan. And third, the choice of retirement programs is available to employees with diverse job characteristics and earnings, including campus administrators, faculty members, clerical staff, university police and fire protection work- ers, and others. There are two major findings from the study. First, despite initial pro- jections that a majority of new employees would actively select the self- managed DC plan or portable DB plan, the evidence is that a majority of new employees never makes an active pension choice and, thus, are de- faulted into the traditional DB plan. The proportion of new employees not making a choice among plans, and hence defaulting into the traditional DB plan, has been roughly three-fifths over the period 2001 to 2004. Second, approximately 15 percent of new employees choose the self- managed DC plan, despite the fact that the DC plan is likely inferior to the portable DB plan, given the financial features of the various plans and rea- sonable assumptions about future financial market returns. Interestingly, individuals are more likely than average to choose the self-managed DC plan if they are more highly educated, have higher earnings, are married, and work in a location where a higher fraction of other employees also chose the self-managed plan. The findings suggest that these “educated, high earning, young professionals” have a strong preference for DC plans, even when the financial terms are unfavorable. For example, among the 650 individuals in the sample who are full-time, aged thirty to thirty-nine, aca- demics at a university, married, have earnings in excess of $50,000, and are still active employees as of spring 2006, 52 percent of them chose the self- managed DC plan, compared with 15 percent in the sample as a whole. The analysis raises the question of why some individuals appear to make suboptimal choices. The authors speculate that there are at least five rea- sons why they may do so. First, participants may simply have difficulty pro- cessing the complex information that they are provided when making this choice, due either to time constraints or some form of bounded rationality. Second, the information provided by SURS may not be optimally designed to facilitate meaningful comparisons between the self-managed DC plan and the portable benefits package. Third, individuals may understand the rules, but may overestimate their investment abilities, or the expected mar- Introduction 7
- 25. ket return of the DC plan. Fourth, individuals may believe there is politi- cal risk in the traditional or portable benefit plans, arising from the chronic underfunding of the SURS system. Fifth, individuals may place a high value on choice for its own sake. In continuing research, the authors are ex- ploring these alternative hypotheses using a survey of current SURS par- ticipants. In chapter 5, “The Importance of Default Options for Retirement Sav- ing Outcomes: Evidence from the United States,” John Beshears, James J. Choi, David Laibson, and Brigitte C. Madrian look at a very similar issue in the context of 401(k) plans. In this case, the worker’s decision is about whether to enroll in the 401(k) plan, what portion of their income to allo- cate to the plan, and how to invest it among the various investment options offered in the plan. Much like the previous chapter, a core finding is that de- faults matter a lot. Many people avoid making an active decision about their retirement saving, and so the default provisions of their 401(k) plan are what people end up doing “by default.” The chapter summarizes a breadth of empirical evidence on how the de- fault provisions of retirement saving plans impact savings behavior along multiple dimensions, such as savings plan participation, savings rates, as- set allocation, and postretirement savings distributions. The findings are that defaults impact savings outcomes at every step along the way. For ex- ample, some 401(k) plans have automatic enrollment, requiring employees to explicitly “opt-out” of the plan. Others require eligible employees to ac- tively enroll in the plan, or “opt-in.” Automatic enrollment is found to dra- matically raise participation rates. When the 401(k) plan has a default savings rate and a default investment allocation, employees are much more likely to choose those defaults, rather than to specify an alternative. As a result, the higher the default contribu- tion rate, the higher the savings rate among those participating. Defaults even matter when employees leave their jobs, and their 401(k) balances may be left in the account, or they may be distributed to employees with the option to roll over the funds to another retirement plan. When the funds are distributed (which happens automatically in most smaller accounts), they are much more likely to be removed permanently from retirement sav- ing, while undistributed funds tend to be left in the plans. The findings of this study are relevant not only to the design of a com- pany’s 401(k) plan, but also to how one would structure a personal account system within Social Security. For example, a voluntary PRA system within Social Security would lead to higher participation and higher sav- ing if it has automatic enrollment (rather than requiring active enrollment) and if the default savings rate is higher. The findings on asset allocation are also relevant and suggest careful attention to the investment options made available to participants as well as to the default allocations among them. A clear conclusion of this research is that defaults are not neutral—they 8 Jeffrey R. Brown, Jeffrey Liebman, and David A. Wise
- 26. can either facilitate or hinder better savings outcomes. The authors em- phasize that current public policies toward saving include examples of both. Reducing Financial Market Risk in Personal Retirement Accounts The next section of the volume also relates to the increasing importance of individual retirement saving and, particularly, to the potential implica- tions of a PRA component in Social Security. A significant concern, par- ticularly if PRAs were to become part of Social Security, is with the impo- sition of investment risk on plan participants. The concern is that the economic well-being of some retirees could be undermined by poor invest- ment returns. There is, therefore, great interest in strategies that could re- duce the riskiness of PRAs while preserving the other features of PRAs. While the chapters in this section are focused on reducing the risk of PRAs, the results are also relevant to retirement saving taking place in 401(k) plans and other financial accounts that are separate from Social Security. The first chapter in this section considers financial market products that cap downside market risk. The second analyzes an approach in which the government would guarantee a minimum investment return. The third studies the extent to which life-cycle investment strategies could reduce the variance in retirement income levels. The fourth investigates the extent to which increased progressivity in the traditional Social Security system could be used to buffer lower-income retirees against PRA market risk. In chapter 6, “Reducing the Risk of Investment-Based Social Security Reform,” Martin Feldstein presents a market-based approach to reducing the risk of investment-based Social Security that could be tailored to indi- vidual risk preferences. With this new form of risk reduction, substituting an investment-based PRA for the traditional pure PAYGO plan could achieve both a significantly higher expected retirement income and a very high probability that the investment-based annuity would be at least as large as the PAYGO benefit. A key feature of the approach developed in the chapter is a guarantee that the individual would not lose any of the real value of each year’s PRA savings and might be guaranteed to earn at least some minimum real rate of return. In one example of such a plan, the current 12.4 percent PAYGO tax is compared with a mixed plan that has a 6.2 percent PAYGO tax and 6.2 per- cent annual PRA savings. This new mixed plan, when fully phased in, would have the following desirable characteristics: (1) The median value of the combined retirement income (i.e., the sum of the PAYGO benefit and the PRA annuity) would be 147 percent of the traditional PAYGO benefit. (2) There would be a 95 percent probability that the combined retirement income (the PAYGO benefit and the PRA annuity) exceeds the traditional PAYGO benefit. (3) There would be less than one chance in 100 that the Introduction 9
- 27. combined retirement income would be less than 96 percent of the tradi- tional PAYGO benefit. (4) Each year’s PRA saving would be guaranteed to earn at least a 1 percent real rate of return between the time that it is saved and its value at age sixty-six. It is, therefore, referred to in the chapter as a “No Lose” plan. (5) The variable annuity purchased at age sixty-six would have a similar “No Lose” feature, that is, a guaranteed real rate of return of at least 1 percent. The “No Lose” concepts developed in the chapter rely on financial in- struments already available in the marketplace. The idea is that the amount saved in a PRA each year would be guaranteed to retain at least its real value by age sixty-six. The simplest way to achieve such a No Lose PRA ac- count would be to combine Treasury Inflation-Protected Securities (TIPS, which have a guaranteed real return) with equities. The fraction of the an- nual PRA saving that would have to be invested in TIPS to guarantee that the annual PRA saving would retain its real value by age sixty-six depends on the age of the saver and the rate of return on the TIPS of the relevant maturity. For example, if the saver is twenty-one years old and the real re- turn on TIPS is 2 percent, a $1,000 PRA saving would be divided between $410 in TIPS and the remaining $590 in equities. The 2 percent real return and the forty-five-year investment period imply that the $410 would accu- mulate to $1,000 at the initial price level by age sixty-six. Even if the equity portion became completely worthless, the PRA account would be worth the initial $1,000 real dollars. At older working ages, there are fewer years for the TIPS to accumulate and, therefore, a larger fraction of the initial saving must be invested in TIPS. For example, a forty-year-old would have to invest $598 out of each $1,000 of new saving in TIPS to guarantee the $1,000 value of the account at age sixty-six with the remaining $402 invested in equities. In practice, of course, the value at age sixty-six of the annual PRA saving would be worth substantially more than the guaranteed amount because the equity portion of the account would add additional value. Indeed, the likelihood (based on past market returns) is that the equity portion would add very substan- tial additional value. The chapter considers a range of “No Lose” options with varying trade- offs between the guaranteed minimum return and the distribution of pos- sible higher returns. For example, the approach can be easily modified to increase the guarantee from a zero real return (No Lose) to a 1 percent real rate of return. Indeed, different trade-offs might be more or less desirable to different individuals, based on their particular risk preferences. These options are then evaluated relative to the baseline values that would be pro- vided through a traditional PAYGO Social Security system. Simulations are used to derive the probability distributions of retirement incomes rela- tive to the “benchmark” benefits specified in current law. Calculations of expected utility show that the risk reduction techniques developed in the 10 Jeffrey R. Brown, Jeffrey Liebman, and David A. Wise
- 28. chapter can raise expected utility relative to investment-based plans with no guarantees. Finally, the chapter shows how these approaches might be applied to deal with the aging of the population without the large rise in the payroll tax that would otherwise be required. In closely related work reported in chapter 7, “Pricing Personal Account Benefit Guarantees: A Simplified Approach,” Andrew Biggs, Clark Bur- dick, and Kent Smetters develop a methodology for estimating the market cost of return guarantees. Given the size of Social Security benefit en- titlements and the market risks inherent in personal account investing, guarantees constitute a significant contingent liability to the guarantee provider. Most of the existing research on guarantees has estimated their cost, based on a probability distribution of possible investment outcomes, and then used the distribution to calculate an “expected” cost of the minimum guarantee. According to the authors, however, this approach does not re- flect fully how guarantees would be priced in the financial marketplace. In particular, it ignores the greater valuation placed by the market on losses relative to the expected value of the losses. Indeed, the total “market cost” of a benefit guarantee, including the associated cost of market risk, could be several times larger than its “expected cost.” This chapter demonstrates how a model for calculating the expected cost of a benefit guarantee can be modified to present the market price of personal account guarantees as a supplement to expected cost valuations. The simplified method for esti- mating the market price of a guarantee is shown to produce results equiv- alent to the Black-Scholes model. The approach is illustrated using a Social Security reform proposal from Senator John Sununu (R-NH) and Representative Paul Ryan (R-WI). This proposal would introduce personal accounts investing from 5 to 10 percent of wages, depending upon the worker’s earnings level. At retirement, indi- viduals would receive either the proceeds of their personal account or their currently scheduled benefit, whichever is greater. Thus, this plan effectively guarantees that accounts would produce benefits no lower than those scheduled for the current program. In the illustrative policy, the “expected cost” valuation of the proposed guarantee is calculated to be 11.3 percent of total benefits to new retirees in 2050, while the “market value” cost is calculated to be 28.2 percent of benefits. In chapter 8, “Reducing Social Security PRA Risk at the Individual Level: Life-Cycle Funds and No-Loss Strategies,” James M. Poterba, Joshua Rauh, Steven F. Venti, and David A. Wise explore the implications for asset accumulation of different investment strategies. In a Social Secu- rity system with a personal retirement account (PRA) component, retire- ment savers would have to decide how to allocate their PRA portfolios across a broad range of asset classes and financial products. Asset alloca- tion decisions have important consequences for retirement wealth accu- Introduction 11
- 29. mulation because they affect the expenses of investing as well as the risk of low returns. The goal of this study is to assess the relative risk associated with alternative asset allocation strategies in PRAs, though it also offers in- sight on the consequences of different asset allocation rules in 401(k)-type plans. The approach used in the study is to simulate the distribution of balances in PRA retirement saving accounts under various assumptions about the asset allocation strategies that investors may choose. In addition to a range of age-invariant strategies, such as an all-bond and an all-stock strategy, the chapter considers several different “life-cycle funds” that automatically alter the investor’s mix of assets as he or she ages. These funds allocate a higher fraction of an investor’s portfolio to stocks at the beginning of a working career and then gradually decrease the equity fraction as the worker approaches retirement. The authors also consider a “no lose” allo- cation strategy for retirement saving, in which households purchase enough riskless bonds at each age to ensure that they will have no less than their nominal contribution when they reach retirement age and then invest the balance in corporate stock. This strategy combines a riskless floor for retirement income with some upside investment potential, along the lines of what is described in chapter 6. The best asset allocation strategy—the one with the highest expected utility to the investor—is found to depend on the relative importance of four issues: the expected return on stocks, the risk aversion of the investing household, the amount of financial wealth held outside the PRA, and the expenses associated with different investment options. At modest levels of risk aversion, or when the household has access to substantial non-PRA wealth at retirement, the historical pattern of stock and bond returns im- plies that an all-stock investment strategy brings higher expected utility than any of the more conservative strategies. When the expected return on stocks is reduced, however, other strategies may dominate the all-equity allocation for investors with high levels of relative risk aversion. In these circumstances, the value of a mix of stocks and inflation-indexed bonds (TIPS) or an inexpensive life-cycle product may be higher than an all-stocks strategy. The findings also underscore the importance of avoiding high expense ratios. Many of the available life-cycle products have higher expense ratios than could be achieved by the household simply holding a stock index fund and some TIPS (or bonds) and either holding them in fixed proportions throughout their lifetime or rebalancing toward TIPS (or bonds) as they get older. Households who are unable to do this on their own will not do terribly in life-cycle funds, but they will lose money relative to what they could get if they executed very simple investing strategies on their own. A very different approach to reducing PRA risk is explored in chapter 9, “Changing Progressivity as a Means of Risk Protection in Investment- 12 Jeffrey R. Brown, Jeffrey Liebman, and David A. Wise
- 30. Based Social Security,” by Andrew A. Samwick. This chapter analyzes changes in the progressivity of the Social Security benefit formula as an al- ternative means of lessening the overall risk for lower-income Social Secu- rity beneficiaries. Because Social Security benefits provide a larger share of retirement income for lower-income households, Samwick argues, the most direct way to make sure that they do not fall into poverty in old age is to increase the progressivity of the benefit formula. Doing so would lessen the need to provide insurance against the possibility of low returns in the PRAs because low-income retirees would depend less on their PRAs to stay out of poverty. In the illustrative reform plans studied by Samwick, individual PRA ac- counts are created with contributions of 2 percent of covered earnings per year. At the same time, traditional Social Security benefits are reduced by 40 percent. Samwick evalues four different approaches to the 40 percent aggregate benefit cut, each with a different degree of progressivity in the benefit formula. The least progressive version would maintain the progres- sivity of Social Security benefits at its current level, but reduced all benefits by 40 percent. The most progressive version would provide an equal re- tirement benefit to everyone, regardless of past earnings. The other two scenarios are in between, offering moderate increases in benefit progres- sivity. A series of simulations are conducted to analyze the implications of these policy alternatives on the economic well-being of lower income households, as well as to evaluate the optimal allocation of PRA assets among different asset classes. The key finding is that under baseline parameters, a flat Social Security benefit independent of earnings (the most progressive option) al- lows the bottom 30 percent of the earnings distribution to achieve a higher expected utility than under the proportional reductions to the current ben- efit formula even with no investments in equity. An additional 30 percent of earners can lessen their equity investments without loss of welfare relative to those available under the scaled-back current formula. Under more real- istic and less extreme changes to the traditional benefit, about half of the eq- uity risk can be eliminated for the lowest earnings decile, and some equity risk can be eliminated for the bottom six deciles. The optimal allocation to equities in the PRA is not particularly sensi- tive to the progressivity of the reductions in the traditional benefits—in most simulations, the optimal share in equities increases slightly for low earners and decreases slightly for higher earners with more progressive re- ductions in the traditional benefits. Demographics, Asset Flows, and Macroeconomic Markets Many analysts have suggested that population aging will adversely affect the assets of baby boomers when they retire. These analysts argue that Introduction 13
- 31. when a large population cohort is working and accumulating resources for retirement, their demand for investments is high, thereby increasing asset prices. Conversely, when a large cohort retires, they are more likely to sell their assets to finance consumption and thereby drive down asset prices. This argument suggests that the rapidly increasing population of older people in the United States and around the world might lead to lower re- turns in financial markets in the decades ahead. The extent to which these predictions will be realized is difficult to pre- dict. It is particularly difficult in an international context, where macro- economic markets are interrelated, and where financial capital flows freely across countries. The next two chapters in the volume consider the effects of population aging on asset markets, one focused on retirement saving in the United States and one on global financial markets. Chapter 10 is part of a series of investigations by James M. Poterba, Steven F. Venti, and David A. Wise aimed at forecasting the flow of funds into and out of retirement-related asset holdings in the United States. In “The Decline of Defined Benefit Retirement Plans and Asset Flows,” these investigators focus on the flow of funds into and out of “traditional” de- fined benefit (DB) pension plans. A companion study, also referenced in the chapter, focuses on the flow of funds into and out of 401(k)-type sav- ings plans. Together, these studies project the direction and magnitude of asset flows for a very significant portion of retirement-related investments. These analyses provide quantitative documentation, as well as future forecasting, of a fundamental transition in saving for retirement in the United States. What we have experienced over the last twenty-five years is a massive shift from saving through employer-managed defined benefit (DB) pensions to saving in individually managed defined contribution (DC) retirement plans, particularly 401(k) plans. Thus, to understand the effect of demographic trends on the demand for retirement assets in the coming decades, it is important to evaluate the likely flows into and out of both 401(k)-type plans and DB plans. The projections in the chapter suggest that the average (over all people) of the present value of real DB benefits at age sixty-five attained an histor- ical maximum in 2003, when the value was about $73,000. The present value declines after 2003, as the proportion of new retirees covered by DB plans declines. The projections also suggest that the average value of 401(k) assets at age sixty-five surpasses the average present value of DB benefits at age sixty-five in about 2010. Thereafter, the value of 401(k) assets grows rapidly, attaining levels much greater than the maximum present value of DB benefits. If equity returns between 2006 and 2040 are comparable to those observed historically, by 2040 average projected 401(k) assets will be over six times larger than the historical maximum level of DB benefits at age sixty-five, attained in 2003. Even if equity returns average 300 basis points below their historical value, the authors project that average 401(k) 14 Jeffrey R. Brown, Jeffrey Liebman, and David A. Wise
- 32. assets in 2040 would be 3.7 times as large as the value of DB benefits in 2003. The offsetting and dominating influence of 401(k)-type saving, com- pared with flows in DB assets, is the central conclusion of the analysis. Fo- cusing on DB assets alone suggests that an aging population, in conjunc- tion with a shift away from DB plans, will lead to a decline in the real value of pension assets averaged across all retirees in future cohorts. When com- bining projected 401(k) assets with projected DB assets, however, the study finds that real pension assets not only increase, but increase substantially, in future decades. These results underscore the need for further analysis of the factors that determine the diffusion of 401(k) plans across corporations, especially small companies with low-wage workers, as well as the contribution behavior and withdrawal behavior of 401(k) participants. The growing role of 401(k)-type plans in the retirement landscape suggests that understand- ing asset accumulation and drawdown in these plans is a critical com- ponent of any analysis of the effect of demographic change on financial markets. Chapter 11 extends the analysis of demographic change and asset mar- kets from the United States to international financial markets. In “Demo- graphic Change, Relative Factor Prices, International Capital Flows, and Their Differential Effects on the Welfare of Generations,” Alexander Lud- wig, Dirk Krüger, and Axel Börsch-Supan develop a simulation model to analyze the impact of demographic change on macroeconomic markets around the world. While the size, rate of growth, and age distribution of the population is changing worldwide, the magnitude of demographic changes and the tim- ing and character of those changes differ significantly across countries and across regions of the world. There is variation in aggregate population growth rates and trends, variation in the ratio of the working-age popula- tion to the total adult population, and variation in the portion of the pop- ulation at older ages. These demographic variations, and the varying paths of demographic change over time, affect international flows of capital and other resources. And these flows, in conjunction with the demographic changes themselves, affect the macroeconomic characteristics of different countries and the welfare of different generations within them. The authors present the following intuitive explanation, which plays out in their more rigorous macroeconomic modeling. First, changes in the population structure will alter aggregate labor supply and aggregate sav- ings that, in turn, alter the prices for labor and capital. As the working age population declines, for example, labor will become scarcer, relative to cap- ital; real wages will increase; and real rates of return to capital will de- crease. Second, as countries reform their PAYGO pension systems to par- tially funded systems, the additional supply of capital from those reforms Introduction 15
- 33. reinforces the downward pressure on the rate of return to capital. The wel- fare implications of changing factor prices differ across generations, as younger generations gain from wage increases and older generations lose from lower capital returns. The goal of this study is to quantify these effects in an international con- text, accounting for international flows of resources across countries. Much of the work leading up to this study has been in developing an eco- nomic model to make these calculations. The study finds that the rate of return to capital decreases by roughly 80 to 90 basis points if capital is allowed to flow freely across regions. The sim- ulations indicate that capital flows from rapidly aging regions to the rest of the world will initially be substantial, but that trends are reversed subse- quently. However, because long-term demographic trends are highly cor- related across Organization for Economic Cooperation and Development (OECD) countries, the capital flows across countries do not affect much the long-run decrease in the rate of return on capital. In other words, the impact of open markets in moderating the macroeconomic impact of de- mographic change within countries is less important because of the simi- larities in demographic change across countries in the long term. In terms of the generational welfare effects, the simulations suggest that for younger households with few capital assets, increases in wages will dominate the decline in rates of return on capital. For example, abstracting from Social Security and its reform, the cohort born in 2005 will gain about 0.6 to 0.9 percent in terms of lifetime consumption. Older, asset-rich indi- viduals, on the other hand, tend to lose because of the decline in interest rates on capital. However, if demographic changes necessitate reforms in Social Security, then reduced benefits or increased taxes will moderate the welfare gains to the younger generation. Mortality Projections The financial footing of the Social Security system depends importantly on the longevity of program participants. In the past several decades, longevity in the United States has increased substantially, adding to the fi- nancial burden on the Social Security program. What the future holds is less clear and requires the consideration of multiple factors. In chapter 12, “Is the U.S. Population Behaving Healthier?,” David M. Cutler, Edward L. Glaeser, and Allison B. Rosen compare the risk factor profile of the popu- lation in the early 1970s with that of the population in the early 2000s and consider the implications of recent trends for future reductions in mor- tality. The first part of the chapter estimates the impact of demographics, smoking, drinking, obesity, blood pressure, and cholesterol on ten-year mortality rates, comparing the predicted ten-year mortality in the two time 16 Jeffrey R. Brown, Jeffrey Liebman, and David A. Wise
- 34. periods. For the population aged twenty- to seventy-four, the ten-year probability of death fell from 9.8 percent in 1971 to 1975 to 8.4 percent in 1999 to 2002. For the population aged fifty-five to seventy-four, the ten- year risk of death falls from 25.7 percent to 21.7 percent. The largest con- tributors to these changes are reductions in smoking and better control of blood pressure. While overall health has improved, not all risk factor trends have been in a positive direction. Smoking rates have fallen by more than a third since 1960, and alcohol consumption has declined by 20 percent since 1980, both leading to better health. Demographically, the population is bet- ter educated, and better-educated people live longer than less-educated people. On the other hand, obesity rates have doubled in the past two decades, and diabetes has increased as a result. The second part of the analysis considers the impact on mortality if cur- rent trends continue. The mortality forecast integrates together several of the most important risk factors associated with mortality. Smoking and obesity are found to be the most important and offsetting components of the forecast. Based on reduced smoking, the mortality risk for the entire population aged twenty-five and older would be expected to decline by 8 percent. Increasing obesity, however, with current treatment rates—leads to increased hypertension and high cholesterol—and a 13 percent increase in mortality risk. While suggestive, the authors emphasize that there is considerable un- certainty in making health projections for the future. For example, two- thirds of the U.S. population is overweight or obese. As a result, continued increases in weight from current levels have a bigger impact on health than did increases in weight from lower levels of body mass index (BMI). At the same time, however, the detrimental impact of BMI on health can be mod- erated dramatically by controlling hypertension and high cholesterol. So the question is not just whether weight will continue to increase. Also crit- ical is the extent to which those who are overweight or obese take medica- tions to control the health risks associated with high BMI. That, too, is highly uncertain. Understanding how to improve utilization of and adher- ence to recommended medications are key issues. Introduction 17
- 36. 21 1.1 Introduction When Social Security was instituted in 1935, the period life expectancy at age twenty for males was sixty-six and for females sixty-nine. Today, twenty-year-old males have a period life expectancy of seventy-six and fe- males eighty. This increase in life expectancy has been accompanied by a corresponding improvement in health at all ages. Cutler, Liebman, and Smyth (2007) find that, in terms of mortality, men at age sixty-eight in 2000 have roughly the same mortality risk as men at age sixty-two in 1960. Thus, at a same age, men in the year 2000 are roughly six years younger. In terms of self-assessed health status, they find that the difference is even larger, ap- proximately ten years. Their bottom line is, “Our best guess is that people aged 62 in the 1960s are in equivalent health to people aged 70 or more to- day” (p. 14). In related work, Shoven (2004) suggests that the age of elderly people is more appropriately measured by remaining life expectancy than by years since birth. These improvements in life expectancy and health status enable individ- uals to prolong their careers and delay retirement. However, the length of retirement has actually grown by more than the increase in life expectancy 1 Removing the Disincentives in Social Security for Long Careers Gopi Shah Goda, John B. Shoven, and Sita Nataraj Slavov Gopi Shah Goda is a Robert Wood Johnson Scholar in Health Policy Research at Harvard University. John B. Shoven is the Charles R. Schwab Professor of Economics at Stanford Uni- versity, and a research associate of the National Bureau of Economic Research. Sita Nataraj Slavov is an assistant professor of economics at Occidental College. This research was supported by the U.S. Social Security Administration (SSA) through grant #10-P-98363-1-01 to the National Bureau of Economic Research (NBER) as part of the SSA Retirement Research Consortium. The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA or any agency of the Federal Government.
- 37. at retirement. Figure 1.1 shows labor force participation rates by age in 1965 and 2003. Both early retirees and median retirees are retiring earlier in 2003 than they were in 1965. Figure 1.2 displays labor force participa- tion rates by remaining life expectancy rather than age and shows that the average length of retirement for men has increased almost 50 percent since 1965. In 1965, the average length of retirement for the median male retiree was thirteen years. By 2003, it was nineteen years. Roughly half of the ad- ditional years were due to improvements in life expectancy, and half were due to earlier retirement. Individuals may choose to use increases in their life expectancy for ad- ditional leisure or additional consumption, and it is possible that the shift toward longer retirements is optimal. However, there are a number of fea- tures of Social Security that distort incentives toward increased retirement length by imposing high implicit tax rates on longer careers and working at older ages. For example, Social Security benefits are computed based on the average of an individual’s highest thirty-five years of earnings. An in- dividual with fewer than thirty-five years of earnings has a relatively strong incentive to work for an additional year as the additional earnings clearly raise the average upon which the benefit is based. On the other hand, an individual who has already worked for thirty-five years has a diminished incentive to work an additional year—the earnings from that year will, at best, replace one of the previous highest thirty-five in the benefit computa- 22 Gopi Shah Goda, John B. Shoven, and Sita Nataraj Slavov Fig. 1.1 Labor force participation of men by age, 1965 and 2003
- 38. tion. Thus, the benefit formula encourages careers of thirty-five years or less. Several other features of the benefit computation—which we will dis- cuss in detail in the following—contribute to the disincentives for long ca- reers. In this chapter, we examine the disincentives for long careers created by Social Security. Our main finding is that the structure of these programs imposes high implicit tax rates on workers late in their careers. As a result of this distortion, we believe retirements are suboptimally long. The con- sequences of this distortion are significant: a lot of the stress on public and private pension systems is caused by the increased length of retirement. We also outline ways to reduce or eliminate the implicit taxes on long careers and working at older ages. The potential benefits of a larger work force for Social Security and Medicare (and gross domestic product [GDP]) are large. 1.2 Work Incentives in U.S. Social Security In this section, we investigate the impact of Old Age and Survivors In- surance (OASI) on the career-length incentives of both stylized and actual workers. In each year of their working life, we compute the workers’ pres- ent value of Social Security taxes minus benefits under the assumption that Removing the Disincentives in Social Security for Long Careers 23 Fig. 1.2 Labor force participation of men by remaining life expectancy, 1965 and 2003
- 39. they stop working after the current year (i.e., they accumulate no further earnings). The implicit Social Security tax rate is defined as the increase in the net tax burden from working an additional year as a percentage of the current year’s earnings. In other words, this is the additional net tax the worker incurs by prolonging his or her career by one year. This variable captures the worker’s incentive to continue working for an additional year as opposed to retiring. Throughout our analysis, OASI benefits are com- puted under 2005 law. That is, we sum each worker’s highest thirty-five years of wage-indexed earnings that fall below the earnings cap and divide this amount by 420 months to get the worker’s average indexed monthly earnings (AIME). We then compute the worker’s primary insurance amount (PIA): the PIA is equal to 90 percent of the first $x of AIME, plus 32 percent of the amount between $x and $y, plus 15 percent of the re- mainder of AIME, where x and y are the constructed bend points for the appropriate retirement year.1 The worker receives the PIA—indexed for in- flation—every month from retirement until death. A minimum of ten years of work is required to qualify for any benefits. In computing taxes and ben- efits, we assume an aggregate wage growth rate of 3.5 percent, an inflation rate of 2.5 percent, and a discount rate of 4.5 percent. The OASI tax rate is assumed to be 10.6 percent applied to capped earnings using the historical earnings caps. Benefit streams are discounted for mortality using the So- cial Security Administration’s intermediate scenario mortality rates. Our analysis is similar to that of Feldstein and Samwick (1992). Feld- stein and Samwick compute marginal net tax rates for stylized workers who vary by gender, income, and marital status. They show that the addi- tional tax paid on an additional dollar of income varies significantly across workers and over a worker’s lifetime—in particular, marginal tax rates are significantly higher for single workers and for younger workers. Their find- ing that marginal tax rates decline with age comes from the fact that as a worker approaches retirement, the present value of the additional benefit received increases. However, they only compute marginal tax rates for workers between ages twenty-five and sixty, and each year of earnings over this thirty-five-year period is assumed to count in the benefit computation. This assumption overlooks a major disincentive for long careers: after a worker has accumulated thirty-five years of earnings, additional years are likely to have little, if any, impact on benefits. As we will show in the fol- lowing, taking account of this fact implies that older workers face signifi- cantly higher implicit tax rates than younger workers. 1.2.1 A Stylized Computation To illustrate our argument, we compute implicit tax rates for a set of four male stylized workers under current law. Three of our stylized workers re- 24 Gopi Shah Goda, John B. Shoven, and Sita Nataraj Slavov 1. The 2005 bendpoints ($627 and $3,779) were multiplied by the appropriate wage adjust- ment factor to be in line with the year in which the worker retires.
- 40. ceive simulated earnings profiles equal to either the average, 10th per- centile, or 90th percentile earnings for their age group. In order to simulate wage histories, we use Outgoing Rotation Groups from the 2001 and 2002 Current Population Survey to compute the wage for each of the three earn- ings levels within each age group. We then divide this by the aggregate av- erage wage across all age groups. This ratio is multiplied by the historical average wage in each year of the worker’s life to arrive at a wage for the worker. For example, consider an average male thirty-year-old worker in 1950. The national average annual wage in 1950 was $2,763. According to our computations, a thirty-year-old male earns 1.13 times the national av- erage; therefore, his simulated wage would be $2,763 1.13 $3,122. A fourth stylized worker earns the historical earnings cap in each year. We assume that all stylized workers start work at age twenty and retire at the normal retirement age. The implicit Social Security tax rate for a given career length is calculated as described previously. The results of this exercise are shown in figure 1.3. Note that for less than ten years of work, the worker is not yet vested in the system and, therefore, faces an implicit tax rate of the full 10.6 percent. (These years are not shown in figure 1.3.) Two points should be clear from the graph. First, all workers experience a sharp increase in their implicit tax rate at thirty-five years of work. The reason for this increase is that Social Security benefits are calculated based Removing the Disincentives in Social Security for Long Careers 25 Fig. 1.3 Implicit tax rates by career length
- 41. on the highest thirty-five years of indexed annual earnings. This means that the thirty-third, thirty-fourth, and thirty-fifth year of work noticeably im- prove retirement benefits because the earnings of that year replace a zero in the calculation of average indexed monthly earnings (AIME). On the other hand, the thirty-sixth year of work may or may not enter the calcu- lation, and if it does, it will replace a lower year of earnings and not a zero in the calculation. The marginal incentive to work for the thirty-sixth year and beyond is much lower than for the first thirty-five years. Part-time work after a career of thirty-five years or more will, in particular, usually have no impact on subsequent benefits, and, therefore, the 10.6 percent OASI payroll tax is simply a tax and has no component of deferred bene- fits. For people who enter the workforce immediately after high school and who do not leave the labor force for an extended period, thirty-five years of earnings will be accumulated by the age of fifty-three. Second, the median and low earners each experience a sharp increase in their implicit tax rate earlier in their careers—for the middle-income earner, after twelve years of work, and for the low-income earner, after twenty-two years of work. This increase results from the fact that the PIA formula is sharply progressive, combined with the fact that the AIME cal- culation does not distinguish between workers with lower earnings and those with higher earnings but shorter covered careers. At the beginning of their careers, workers tend to have a low AIME because they have signifi- cantly fewer than thirty-five years of positive earnings. The benefit com- putation replaces the missing years of earnings with zeros, and these work- ers appear to be in a lower income group than their true lifetime earnings would imply. The progressivity of the PIA formula translates this low AIME into a disproportionately high monthly benefit. As workers accu- mulate positive earnings years, the benefit computation begins to treat them as if they have higher lifetime incomes. A sharp increase in the im- plicit tax rate occurs when a worker accumulates enough positive earnings years to cross a PIA bend point. Thus, the current formula favors workers with short careers by treating them as if they were low earners. In some cases, for instance, where the short career was necessitated by poor health, that may be appropriate. In most cases, however, the current treatment seems inappropriate and blunts the incentive to work long careers. This effect is most pronounced for low-income workers, who face the sharpest increase in their implicit tax rate. These distortions lead us to evaluate the following three reforms: 1. Use forty years, rather than thirty-five, in the AIME computation. If forty years were used instead of thirty-five, this would remove some of the discouragement currently built into the system for staying in the work- force. An extra five years of work would count toward the calculation of re- tirement benefits. 26 Gopi Shah Goda, John B. Shoven, and Sita Nataraj Slavov
- 42. 2. Disentangle career length and progressivity. Average indexed monthly earnings could be calculated only for the months with covered earnings (eliminating the zeros from the computation and dividing by the number of months of nonzero earnings rather than 420). The PIA would be calculated using this modified AIME formula. However, a single person would only get the full PIA at the Normal Re- tirement Age (NRA) if they worked a full career (currently thirty-five years, proposed to be forty years under the first reform). If they worked fewer years, their benefits would be reduced proportionately. For example, consider how we currently treat someone with a ten-year high-income ca- reer. Their benefits are determined as if they were a relative low earner with the twenty-five years of zeros in the earnings calculation. The alternative would be to give them 10/35ths of the PIA of a high earner. This would re- sult in a reduction of benefits for short career workers. This reform is illus- trated in figure 1.4. 3. Establish a “paid-up” category of workers who have more than forty years of contributions. Under the first proposed reform, the number of years in the benefit cal- culation is forty. A complementary policy is to only collect forty years of payroll taxes from workers. After forty years of covered employment, the worker would be declared “paid-up” for Social Security. This should be rel- atively easy to administer—conceivably an indicator would be added to the individual’s Social Security number reflecting the fact that paid-up Removing the Disincentives in Social Security for Long Careers 27 Fig. 1.4 PIA under current and proposed law
- 43. status had been achieved. A related idea was mentioned in Burtless and Quinn (2002), namely allowing workers who reach the NRA to opt out of additional Social Security contributions. There is a theoretical justification for these policies. The intuition of op- timal tax theory would be to place heavier taxes on more inelastic supply (and demand) and lighter taxes or no taxes on highly elastic behavior. Our hypothesis is that the forty-first and forty-second years of work, for in- stance, are far more sensitive to incentives than the twenty-first and twenty-second years of work. The practical significance of these three re- forms is to make employment of veteran workers more attractive for both the employee and the employer. Taken together, these three proposals result in a benefit cut. In order to compensate for this and keep the reforms benefit-neutral in aggregate, we increase retirement benefits proportionately in order to keep aggregate benefits constant before and after the reforms.2 Assuming no behavioral changes, the adjustment needed is a 19.4 percent increase in benefits. The proposals also result in redistribution from those with shorter careers to those with longer ones. Figure 1.5 illustrates this by depicting our stylized average earner’s PIA, as a function of career length, under both the current and the proposed law. Under the proposed law, a worker’s PIA would rise more sharply as he or she accumulated years of work—that is, benefits are more responsive to a decision to delay retirement. Workers with fewer than thirty-one years of covered earnings would receive a smaller PIA than un- der the current system; however, as their career length extends beyond thirty-one years, their PIA rises above the current level. A similar result holds for the low and high earners. On the revenue side, introducing the “paid-up” category of workers who have worked forty years constitutes a reduction in the amount of tax rev- enues the system receives. We estimate that at most 4.35 percent of OASI revenue comes from income that was earned after an individual worked forty years.3 Thus, instituting the “paid-up” reform would require a payroll tax increase of 0.5 percent, changing the current OASI tax from 10.6 per- cent to 11.1 percent. All future calculations of the impact of the three pro- posed reforms account for the tax and benefit adjustments to ensure bene- fit- and revenue-neutrality. 28 Gopi Shah Goda, John B. Shoven, and Sita Nataraj Slavov 2. The revenue effects are estimated using the Social Security Benefits and Earnings Public- Use File described in the following section. 3. The estimate of the fraction of OASI revenue earned in years 41 comes from the Social Security Benefits and Earnings Public-Use File, 2004, described in more detail in the follow- ing section. The beneficiaries’ earnings were indexed to 2003 using the historical Social Secu- rity average wage index. This estimate is biased upward because the data set only includes earnings below the taxable maximum, which has increased significantly over the period 1951 to 2003. This implies the program has expanded over this time period, and earnings in the ear- lier part of this period are underrepresented.
- 44. We repeat our implicit tax rate computations for the four stylized work- ers under the proposed reforms. The results are shown in figure 1.6 and la- beled “Proposed Law.” Current Law results are also shown for comparison purposes. Note that implicit tax rates remain roughly constant over each worker’s life, resulting in less distortion of career length choices. Moreover, implicit tax rates for all income groups are closer to zero. The decreasing trend arises from the present value of future benefits increasing as a worker gets closer to the NRA. At forty years of work, all workers enter the “paid- up” category and no longer participate in the system. The proposed reforms do not affect the overall progressivity of the So- cial Security system as is shown in table 1.1. At the thirty-five-year career length, the average income earner’s internal rates of return (IRRs) are con- stant before and after the reforms at 1.17 percent. The three policies do not change the relative position of the low- and high-income earners. After an individual has worked thirty-five years, he or she is always better off under the proposed reforms. 1.2.2 Data and Results The drawback of using stylized workers is, of course, that they do not re- flect the diversity of actual workers’ labor market experiences. In particu- lar, the stylized workers’ ages and career lengths are perfectly correlated. This makes it difficult to capture the experience of, for example, a woman who takes time out of the labor force to raise children. Thus, we repeat our computations using the Social Security Benefits and Earnings Public-Use Removing the Disincentives in Social Security for Long Careers 29 Fig. 1.5 Monthly primary insurance amount under current and proposed law: Av- erage income earner
- 45. Fig. 1.6 Implicit tax rates by career length under current and proposed laws Table 1.1 Internal rates of return for workers with 35-year career (%) Current law Proposed law Low-income earner 2.47 2.46 Average-income earner 1.17 1.17 High-income earner 0.66 0.66
- 46. File, 2004, which contains benefit and earnings data on a 1 percent ran- dom, representative sample entitled to receive a Social Security benefit in December 2004. The full sample contains data on 473,366 beneficiaries. Unfortunately, this data set provides no way to link couples; therefore, we include only workers who are receiving benefits based on their own earn- ings records. We limit our attention to beneficiaries receiving retirement benefits who started working in 1951 or later, which leaves 123,552 indi- viduals born between 1910 and 1942.4 We continue to use Social Security intermediate scenario assumptions for mortality. For the actual worker computations under the proposed law, we intro- duce an earnings threshold: years in which earnings are less than 5 percent of the earnings cap are not counted toward the years of work calculation, but are subject to payroll taxes.5 The rationale for the earnings threshold is that many individuals—particularly as they get older—have years in which they work a small number of hours. Without an earnings threshold, these individuals’ benefits would increase disproportionately (given the modified AIME computation and the progressivity of the PIA formula), and they would accumulate years of credit toward the paid-up status. The result is that many older individuals in the sample would face large nega- tive implicit tax rates. The earnings threshold reduces this distortion. Of course, this means that years where earnings were under the threshold face the full tax, unless the individual had attained paid-up status by working more than forty years. On balance, however, we find that distortions are significantly less with the earnings threshold. (This issue did not arise with the stylized workers as our simulated earnings profiles never fell below the 5 percent threshold.) In order to illustrate the complexity of patterns that actual individuals face, we plot histograms of the ages at which individuals attain ten years of covered earnings (vesting age at which individuals become eligible for ben- efits), thirty-five years of covered earnings (the current number used in the benefit computation), and forty years of covered earnings (the proposed number to be used in the benefit computation). The results are broken down by gender and appear as figures 1.7 to 1.9. While workers tend to reach ten years of work at age thirty, thirty-five years at age fifty-five, and forty years at age sixty (like our stylized work- ers), there is considerable individual variation, particularly for females. A sizeable number of females reach these experience levels considerably later than assumed in our stylized example. These figures illustrate the impor- Removing the Disincentives in Social Security for Long Careers 31 4. Only aggregate earnings are recorded for years 1937 to 1950. 5. This is not unlike the earnings needed to obtain a quarter of coverage in the current sys- tem, $920 in 2005. To receive four quarters of coverage, an individual would need $3,680 in earnings, approximately 4 percent of the 2005 earnings cap of $90,000. Earnings below this level are subject to the payroll tax even though benefits are not increased.
- 47. tance of using actual workers to study the career length incentives created by the system, particularly if we are interested in the impact on women. Figures 1.10 and 1.11 show our calculations of the average implicit tax rate broken down by career length (figure 1.10), age (figure 1.11), and gen- der. The current law computations exhibit the same features as did those for stylized workers. Workers face increases in their implicit tax rates un- der current law as they age and increase their career length. This is a result of moving from one PIA bend point to the next and from accumulating thirty-five years of earnings. This result occurs for both male and female 32 Gopi Shah Goda, John B. Shoven, and Sita Nataraj Slavov Fig. 1.7 Distribution of vesting age: Graphs by gender Fig. 1.8 Distribution of thirty-five-year career age: Graphs by gender
- 48. workers, and it is present whether we look at means or medians (not shown). Under the proposed law, male workers’ implicit tax rates move closer to zero for all age and experience groups. There is also a much smaller asso- ciation between implicit tax rate and age. Most of the large, positive im- plicit tax rates—which occur late in their careers—are eliminated. Those that remain are faced by individuals who earn less than the earnings threshold and, therefore, are being subject to the full OASI tax rate of 10.6 percent. Individuals with earnings below the threshold drive up the aver- Removing the Disincentives in Social Security for Long Careers 33 Fig. 1.9 Distribution of forty-year career age: Graphs by gender Fig. 1.10 Average implicit Social Security tax rates, by career length: Graphs by gender
- 49. age implicit tax rates faced under the proposed reforms at older ages; how- ever, the average annual income earned by people who face the full OASI tax rate is only $1,115. One of the main differences between the treatment under the current law and the proposed law is the sharp decrease in the number of people and the amount of income facing the full tax rate under the three reforms. The changes redistribute from short-careered workers to long-careered workers as shown in figure 1.12. Individuals who work more than forty years and are thus subject to the paid-up policy reform no longer see ear- lier earnings years being replaced by later, potentially higher earning years. While this could lead to a decrease in their calculated PIA, the IRR would be higher under the proposed reforms because the added benefit from re- placing a year of earnings in the current calculation is small relative to the amount of taxes paid. Females tend to experience a larger subsidy under both current law and the proposed policies due to the fact that the system is progressive and fe- males in the sample have lower earnings, and also because their mortality probabilities are more favorable, making the expected future additional benefits larger. We define the Gender Gap to be the difference between av- erage male and female implicit Social Security tax rates. Table 1.2 summa- rizes calculations of the Gender Gap under different mortality assump- tions and shows that approximately 40 percent of the difference between male and female implicit tax rates is due to more favorable female mortal- ity; the remaining is attributed to differences in underlying earnings levels. The reforms may disproportionately penalize women, who are more likely to take time out of the labor force for child or elderly care and expe- 34 Gopi Shah Goda, John B. Shoven, and Sita Nataraj Slavov Fig. 1.11 Average implicit Social Security tax rates, by age: Graphs by gender
- 50. rience shorter careers. Benefit levels are 0.89 percent higher for males but 1.45 percent lower for females under the three reforms. One possible pol- icy to alleviate this effect would be to give women an across-the-board credit for working of one, two, or three years. This policy is similar to the treatment of individuals who take time out of the labor force to raise chil- dren in countries such as Germany. In the German system, a child-raising parent is treated as though he or she earned the average wage until the child’s third birthday. The differences between the PIA in the current sys- Removing the Disincentives in Social Security for Long Careers 35 Fig. 1.12 Percentage change in PIA by career length Table 1.2 Average implicit Social Security tax (ISST) rates under different mortality assumptions (%) Average ISST Gender gap Current law Males 0.90 Females using female mortality 3.99 4.89 Females using male mortality 2.18 3.08 Portion of gender gap explained by mortality differences 37 Proposed law Males 0.93 Females using female mortality 5.33 4.40 Females using male mortality 3.34 2.41 Portion of gender gap explained by mortality differences 45
- 51. tem and the PIA under the proposed reforms along with a credit for women are given in table 1.3. Note that offering a credit to women of even one year has a substantial effect on the level of benefits. Our calculations of mean implicit tax rates mask a considerable amount of variation across workers. To illustrate this variation, we plot individual implicit tax rates as a function of age for a small subsample of individuals under both current law and the proposed reforms. These are shown in fig- ures 1.13 (current law) and 1.14 (proposed law). Most individuals experi- ence features similar to the stylized workers: under current law, there are sharp increases in implicit tax rate as they cross PIA bend points and an- other sharp increase when they accumulate thirty-five years of work. There is considerable variation across workers in the timing of these increases. The proposed law eliminates most of the large positive tax rates for older workers. It also reduces the association between age and tax rate and moves tax rates closer to zero for most workers in most years of their lives. However, many of the workers experience single years with large negative implicit tax rates. These are years in which earnings are low—these years 36 Gopi Shah Goda, John B. Shoven, and Sita Nataraj Slavov Table 1.3 Percentage change in primary insurance amount by gender and years of credit given for women (%) No credit 1-year credit 2-year credit 3-year credit Male benefits 0.89 0.89 0.89 0.89 Female benefits 1.45 1.69 4.73 7.67 Total 0.02 1.20 2.39 3.53 Fig. 1.13 Current law: Graphs by gender
- 52. disproportionately increase PIA (due to the progressivity of the formula) and contribute toward paid up status. 1.3 Conclusion The U.S. labor market has proved to be very flexible in absorbing new workers as evidenced by its ability to accommodate large numbers of work- ers as women entered the labor force in the past several decades, and the economy has benefited greatly as a result of the larger workforce. By elim- inating the disincentives against working longer careers, we can capitalize on the good fortunes of increasing life expectancy and favorable health sta- tus by paving the way for more capable individuals to stay in the labor force. References Burtless, Gary, and Joseph Quinn. 2002. Is working longer the answer for an aging workforce? Center for Retirement Research. Issue in Brief no. 11. Center for Re- tirement Research at Boston College. Butrica, Barbara A., Richard W. Johnson, Karen E. Smith, and Eugene Steuerle. 2006. The implicit tax on work at older ages. National Tax Journal 59:211–34. Cutler, David M., Jeffrey B. Liebman, and Seamus Smyth. 2007. How fast should the Social Security eligibility age rise? NBER Retirement Research Center Working Paper no. NB04-05. Cambridge, MA: National Bureau of Economic Research. Removing the Disincentives in Social Security for Long Careers 37 Fig. 1.14 Proposed law: Graphs by gender
- 53. Feldstein, Martin, and Andrew Samwick. 1992. Social Security rules and marginal tax rates. National Tax Journal 45 (1): 1–22. Fenge, Robert, Silke Uebelmesser, and Martin Werding. 2002. Second-best prop- erties of implicit Social Security taxes: Theory and evidence. CESifo Working Paper no. 743. Gruber, Jonathan, and David A. Wise. 1997. Social Security and retirement around the world. NBER Working Paper no. 6134. Cambridge, MA: National Bureau of Economic Research, August. Shoven, John B. 2004. The impact of major improvement in life expectancy on the financing of Social Security, Medicare, and Medicaid. In Coping with Methuse- lah: The impact of molecular biology on medicine and society, ed. Henry J. Aaron and William B. Schwartz, 166–97. Washington DC: Brookings Institution. Comment Erzo F. P. Luttmer This chapter tackles the important question of how the Social Security benefit formula can be adjusted so that it generates fewer incentives for in- dividuals to retire early. Social Security provides retirement incentives when the additional Social Security taxes paid by postponing retirement for a year exceed the increase in the present value of future Social Security benefits from working this additional year. Goda, Shoven, and Slavov re- fer to this difference, when expressed as a fraction of earnings, as the im- plicit Social Security tax. Two features in the current Social Security law cause this implicit Social Security tax to be high for individuals with long careers. First, the current Social Security law bases benefits on the average of the thirty-five highest years of indexed earnings. Thus, current earnings will increase this average less for individuals who already have worked for thirty-five years than for individuals who have not yet worked thirty-five years because for the former group the current year’s earnings crowd out a prior year’s earnings in the benefit formula. Second, the progressivity of Social Security benefits depends on the average indexed earnings of the highest thirty-five years of earnings (including years with zero earnings) rather than basing this average only on those years with positive earnings. As a result, Social Security redistributes from workers with long careers to those with short careers even if these two groups have the same earnings per year worked. This redistribution further raises the implicit Social Se- curity tax on those with longer careers. Goda, Shoven, and Slavov analyze a reform proposal that would reduce the implicit early retirement incentives in the Social Security benefit rules. This reform would base benefits on the average of the forty highest years of 38 Gopi Shah Goda, John B. Shoven, and Sita Nataraj Slavov Erzo F. P. Luttmer is an associate professor at the John F. Kennedy School of Government, Harvard University, and a faculty research fellow of the National Bureau of Economic Re- search.
- 54. positive indexed earnings (i.e., excluding years with zero earnings) and re- duce benefits pro rata based on the number of years with positive earnings for people who have fewer than forty years of positive earnings. For ex- ample, a person with twenty years of positive earnings would receive half the benefits of someone who has the same average earnings based on forty years of positive earnings. Finally, after forty years of positive earnings, one would become “paid-up,” that is, exempt from paying any further So- cial Security taxes. Under this proposal, Social Security benefits and the Social Security tax rate are adjusted such that average benefits and average Social Security tax revenue are the same as under the current law. Using data on a 1 percent random sample of Social Security beneficiar- ies in 2004 who started working after or during 1951 and claim benefits based on their own earnings record, Goda, Shoven, and Slavov carefully evaluate the reform proposal’s impact on the Social Security incentive to retire as well as its distributional impact. They find that this reform would lead to a sharp reduction in retirement incentives: the implicit Social Se- curity tax rate would fall substantially, typically by 4 to 7 percentage points, for men and women between the ages of fifty and seventy. As a re- sult, Social Security would no longer provide this group of workers with an incentive to retire early. By design, this proposal would increase benefits for those with longer careers at the expense of those with shorter careers. However, the reform does not substantially affect the overall progressivity of the Social Security system. The proposed reform would reduce the av- erage benefits of women relative to those of men, but this can be fixed with a minor adjustment. Goda, Shoven, and Slavov analyze one of three implicit marginal Social Security taxes, namely the implicit Social Security tax “on postponing re- tirement by one year.” In other words, it is the implicit tax on working this year when the counterfactual is retiring in the following year. This is prob- ably the most plausible counterfactual for older workers. The second im- plicit Social Security tax is the tax on the extensive margin of working this year holding labor supply constant in the future years. In other words, it is the incentive to take one year off from working, for example, for child care or schooling reasons. This margin is probably the more relevant one for younger workers. Finally, there is the implicit Social Security tax on the in- tensive margin: the effect of earning one extra dollar on expected Social Se- curity benefits net of taxes holding earnings in all other years constant. Feldstein and Samwick (1992) also calculate implicit Social Security taxes and find, in apparent contradiction to Goda, Shoven, and Slavov’s findings, that these tax rates fall with age. Goda, Shoven, and Slavov attri- bute this difference to the fact that Feldstein and Samwick only calculate implicit marginal Social Security tax rates for workers with at most thirty- five years of earnings. This, however, is not the reason why Feldstein and Samwick obtain different results. The difference in findings arises because Removing the Disincentives in Social Security for Long Careers 39
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- 56. the hierophants came and led him away to be of their company till his death: the ceremony was ended. My attendants, arrayed as the goddesses Hathor and Nut, conducted me from the shrine. I was unrobed of my sacred panoplies and once more from a goddess became a woman, and as a woman I sought my couch and wept and wept. For had I not at the first temptation in my heart broken the law and betrayed the trust of her who, as then I believed, is and was and shall be; her whose veil no mortal man had lifted, the Mother of the sun and all its stars?
- 57. CHAPTER V The Summons None knew my fault. Yet I knew, and what is known to one soul is known to all souls, since one is all and all are one. Moreover, it was known to That which begets souls, That from which they come and to which they return again, again to come, as Plato, the great philosopher, who died before my day, has taught us in his writings. Also it was known to that accursed priest who was the cause and partner of my crime. I was overcome; I was eaten up with shame, I who thought myself purer than the mountain snows, as indeed I was and, in the flesh, to this hour have remained. Soon I could no longer bear my torment. To Noot I went, Noot the high-priest, my counsellor and master, and in a secret place kneeling on my knees, there I told him all. He hearkened with a little smile upon his withered face, then answered, “Daughter, in your honesty you do but reveal that which I knew —how I knew it matters not. And now take comfort, since the blame is not altogether yours, or even that of this new-made priest, whose foot was caught in the same snare. You worship Isis, as I do, but what is Isis whom we portray on earth as a woman glorious above all women? Is she not Nature’s self, the universal Mother, the Supreme in whom all gods and goddesses have a part? She wars on Aphrodite, it is true, yet does not that mean that in verity she wars upon herself? And are we not as Isis is, not one but many poured into a single mould, for do we not all war upon ourselves? Believe me, Daughter, the human heart is a great battleground where the higher and the lower parts of us fight with spiritual spears and arrows, till one side or the other wins victory and hoists the banner of good or evil, of Isis or of Set. Only out of struggle comes perfectness; that which has never struggled is a dead creature from whom little may be hoped. The ore must be melted in the fire and
- 58. lo! the most of it is dross, refuse to be thrown away. Had it never known the fire, there could be no pure gold to adorn the brows of Heaven, nor even copper and iron to shape the swords of men. Rejoice, then, that you have felt the hurt of fire.” “Master,” I answered, “Lord of Wisdom to whom alone Ayesha bows the knee, your words are true and comfortable, yet bethink you, and if it is permitted, interpret me this riddle. I dreamed a dream of the time before my earthly days—you know it well for I have told it to you. I dreamed of a place in Heaven and of two goddesses matched against each other and of a command that was laid upon me to bring woe upon those who had deserted the one and turned to the other. Now if they were parts of a single whole, why should this command be laid upon me?” “Daughter, in your dream you were ordained to be a Sword of Vengeance, not because the Egyptians turned from one part of the holy Unity to another part of that Unity, but because they have become corrupt and faithless, worshipping no gods save themselves and following after that which is low, not that which is high. Such is my answer, yet of the truth or the falsehood of that dream I say nothing. Perchance it was but a dream.” “Perchance, Master. Yet in that dream, true or false, I saw a face, and lo! a few nights gone I, draped as Isis in the shrine, I saw that face again and knew it; knew also that with it my fate is intertwined. What of this?” “Daughter, who are we that we should read the mysteries of Fate, we who know not whence we come nor whither we go, nor what we have been, nor why we are? It may be that you have some mission toward the spirit that is clothed in the flesh of yonder man. It may be that you are destined to uplift that spirit, and in so doing yourself to be trodden down. If so, I say that in the end you shall rise again and bear him upward with you.” He paused, and I knelt silent, pondering the prophecy, for such I knew it well to be. Then again he spoke, “You heard a laughter in the shrine, yet there was no laughter save that of the evil in your own heart, mocking and triumphant. Such laughter mayhap you will often hear, but while you can hear it
- 59. and repent, be not dismayed. When the ears of the soul grow deaf then utter loss is near; while they are open, hope remains. Those who still strive can never wholly fall. Fate rules us every one, yet within the circle of that Fate power is given to us to work out our redemption. I have finished. Ask me no more.” “What punishment, Master?” I asked. “Daughter, this. For a while look no more upon that man. I say for a while, since with you I hold that his destiny and yours are intertwined. I have a command for you: that presently you accompany me hence to lands beyond the seas. Now, go rest, and in rest find forgetfulness.” So I went, wondering yet comforted, though I knew well that Noot the Holy had not told me all, no, nor yet the half of what he knew. For often those to whom the gods give vision are forbid to speak it, lest, as in the old Hebrew parable, men should eat of the tree of knowledge and grow like to them. Or perchance they cannot speak it, since it comes to them in a tongue which may not be rendered in the words that the passer-by would understand. So indeed it is with me to-day. Thus it came about that soon I and my master, Noot, left Philæ and as before travelled the Nile disguised. Never since then have my eyes looked upon that island and its holy fane which Holly, who has visited it, tells me is now a ruin with stark, Hathor-headed columns standing here and there amongst the tumbled stones. He says, moreover, that his people who rule the land to-day purpose to sink it beneath the Nile that the lands below may be enriched and multiplied. Herein I see an allegory; the temples of Isis are drowned and the learning they held is lost in order that more food may grow to feed the common and the ignorant. Yet to what end, seeing that if there is more food, more men will come to eat it, all of them common and ignorant, while Isis and her wisdom are swallowed in the slime. Thus has it ever been in Egypt, and doubtless elsewhere, for such is Nature’s law. Food breeds multitudes and where carrion is, there are flies, while in the deserts both are lacking. Yet I think
- 60. that the deserts and the few that wander on them beneath the sun and stars are nearer far to God. Once more disguised as merchants, I and Noot, my master, took ship and visited far lands to see their state and gather wisdom. We visited Rome, then breaking her shackles and rising to her greatness. They were a great people, those Romans that Noot out of his foresight told me would one day rule the world. Or perhaps it was I who told Noot, judging them by their qualities; I am not sure. At least I loved them not, because of their rude natures, their lack of arts and their love of power and gain. Therefore when I had studied their language and their politics I passed on. We came to Greece and tarried there awhile, studying philosophies and other things. The Greeks I did love, because they were beautiful and called forth beauty from all they touched. Also they were brave who defied the Persian might and had they but stood together, might have queened it on the earth. But they would not, for ever State tore out the throat of State, so that in the end all were undone and overwhelmed by a multitude of commoner folk who held Greece before them, for such was their destiny. Moreover, they worshipped gods made like themselves, with all the faults of men grown greater and more vile, and told fables concerning them fit to please children, which I thought strange in a people that could produce such philosophers and poets. Yet those gods had come down to them from their fathers, and it is hard to shake off the yoke of gods until some greater god appears and breaks it with the hammer of war. Here in Greece it was that I posed to its most famous sculptor for a statue of Aphrodite, or rather it was as a mould of perfect Womanhood that I posed, desiring that this sculptor, who pleased me, should have one flawless model to copy in his future work, for which he blessed me, naming that statue “Beauty’s Self.” Yet when I visited him a while afterward I found that he had changed this name to Aphrodite. I was angered who did not desire that my loveliness should be accredited to mine enemy and that of Isis whom I served, and asked him why this had been done.
- 61. He answered, humbly enough, because of a dream in which the Paphian had appeared to him and threatened him with blindness unless he gave her own name to so divine a face and form. Moreover, being in the thrall of superstition he prayed me, even with tears, that thus it might remain, since otherwise he must break that statue and as he thought, be blinded as well. So out of pity I let him have his way and even gave him my hand to kiss in token of forgiveness. Thus it comes about that Aphrodite unashamed throughout the ages has taken the tribute of a million eyes, clothed in a borrowed loveliness. So be it, since what she has stolen is but a fraction of the truth. No sculptor, however great, can mould the perfect out of frozen stone. From Greece, still disguised as a merchant and his daughter, we wandered to Jerusalem, feigning to trade in pearls and gems, since there I would study the religion of the Jews whereof I had heard so much. The “City of Peace” it was called among the Egyptians of old times, or so they interpreted its name, but never found I one in which there was less of peace. Fierce-faced were those Jews and quarrelsome; revengeful too and ever waging war, public and private, upon one another. A peculiar people, as they name themselves, full of hate, particularly of the stranger within their gates. To trade with them was scarcely possible, because he who sold them wares was always left the loser, though for this I who sought their philosophy, not their gold, cared nothing. So I turned myself to the study of their faith, and found that God, as they interpreted Him, was well-nigh as fierce as were his worshippers. Yet this I will say, that He was one God, not many, and a true God also, since otherwise how could his prophets have written so gloriously concerning Him? Moreover, it was their belief that He would come to earth and lead them to the conquest of the world. This, Holly tells me, has chanced though not in the shape they hoped, since the King who came would have led them but to the conquest of the evil that is in the hearts of men and to the knowledge of a life to be, in which they had small faith. Therefore they persecuted and slew Him as a malefactor after their cruel
- 62. fashion, and what is now accepted by millions, so says Holly, they still reject. I preached to them, for my heart burned in me at the sight of their sacrifices. Yes, I preached to them against the shedding of blood, telling them of a higher philosophy of gentleness and mercy. For a while they listened, then took up stones and stoned me, so that had I and Noot not been protected by Heaven, we should have been slain. After this affront I turned my back upon Jerusalem and its hook-nosed, fierce-eyed people, and went to Cyprus where I debated with the lewd priests of Aphrodite at Paphos. Thence I got me back to Egypt whence I had been absent many years. At Naukratis priests of Isis who knew of our coming, how I cannot tell, perchance Noot had told them by messenger, or in a dream as he could do, met us and conducted us up the Nile to the temple of Isis at Memphis. Here we were received in state in the great hall of the temple and lo! at the head of those who welcomed us was the Greek Kallikrates, now by his holiness and zeal risen high in the service of the goddess. When I saw him, beauteous as of old, my heart stood still and the blood rushed to my brow. Yet I gave no sign, treating him as a stranger on whom my eyes had never fallen until that hour. He for his part stared at me with a puzzled air, then shook his head as one does who sees a face that he believes he has met in dream and yet is doubtful. For be it remembered, this man had looked on me but once, when robed as Isis I received him into the company of her priests at Philæ, and then but for a moment in the light of the moon. Perchance he still thought that it was the goddess herself whom he saw thus and not a mortal. At the least he did not know that I, the beauteous prophetess who came to Memphis after wandering through the world, was the same as she who had sat upon the throne of Isis at Philæ and whom by chance he had kissed upon the lips. Mayhap even he did not remember the kiss, or if he remembered, set it down as part of the ceremonial. Thus, if I knew him but too well, to him I was a stranger.
- 63. I bethought me of flight, knowing in my heart that to me this man was as the fabled sword that hung above the head of Damocles, though what harm I had to fear from him, I did not know. Again I sought the counsel of Noot who smiled and answered, “Have I not told you, Daughter, that perils must be faced since those from which we flee will be swift to overtake us? If Destiny has brought you and this man together, be certain that it is for its own purposes. Surely you have learned your lesson and steeled your soul against all fleshly vanities.” “Yes, my Father,” I answered proudly, “I have learned my lesson and steeled my soul. Moreover, your thought is my thought, nor will I turn my back on any man. Here I bide, defying woman’s weakness and all the wiles of evil gods.” “Well spoken,” answered Noot, and blessed me in the ancient words. Yet as he did so I noted that he sighed and shook his head. For many a moon, I know not how many who, having all time at my command, seem to have lost its petty count, I remained there in the temple at Memphis of which soon I became the prophetess and the head of the priestesses. Ere long the fame of my divinations spread far and wide, so that from all the land those who sought wisdom or knowledge of the future would come to consult me, bringing great gifts to the goddess, though not one gem or piece of gold did Noot or I keep for ourselves, who indeed had no need of such common dross. So I sat in a carven chair in the sanctuary, my diviner’s bowl at my side, and uttered dark sayings like to those of the famous oracles of the Greeks at Delphi, many of which fulfilled themselves. For in truth, I think that there was a spirit in me—whether it came from the Heavens or elsewhere I do not know—which enabled me to read much that was passing upon the earth and even sometimes that which had not yet happened upon the earth. So the renown of the Lady Isis spread till I became a power in the land. Moreover, thus I learned many things, for those who consult an oracle, like those who seek the help of a physician, lay bare their souls, keeping no secret back.
- 64. Now at this time Egypt and all the countries round seethed with war like a pot boiling on the flames. For years Egypt had beaten off the attacks of the Persians, but now the Pharaoh Nectanebes, the second of that name who then sat upon the throne, the last native king who reigned upon the Nile, was threatened by Artaxerxes, that one of this accursed race who was named Ochus. This Persian Ochus had gathered a mighty force to subdue Egypt, hundreds of thousands of men, tens of thousands of horsemen, hundreds of triremes and of transport ships. The last act of the tragedy had begun of which the end was to be the crushing of Egypt who never more should know a Pharaoh of her own blood and choosing. Of all these things I learned through those who came to consult the oracle of Isis, and much did I talk of them with Noot. Now of myself during these long years of quiet and preparation for great events, I will say that ever my spirit grew in purity and strength. I put the things of earth behind me, I grew nearer to the Divine, and in the night time I communed with my soul which seemed to have become a part of that which is above the world. The Greek, Kallikrates, I saw continually, but no word passed between us save such as had to do with matters of our faith and of the worship of Isis in whose service he now stood high. Never did we interchange a touch or a look of love. He was apart from me and I from him. And yet always in my heart I feared this man, this beautiful man, the warrior who had become a priest, for some prescience told me that he would bring disaster on my head, or I should bring it upon his, I knew not which. So there we sat in the sanctuary, Noot the wise and aged, who yet never seemed to change, Kallikrates the priest, and I, and alone or together gave counsel to kings and captains, or uttered oracles. Clear seemed our sky and free from trouble, yet on the far horizon in my spirit I discerned the tempest clouds arising, the terrible clouds in which the lightnings played like the swords of Destiny that in a day to come were doomed to overwhelm and pierce us through. Nectanebes the second, the Pharaoh, came to his palace at Memphis to gather troops from Upper Egypt and made great
- 65. offerings to the gods, seeking their favour in the coming war. Now I saw him for the first time, a gray-haired, fat, heavy-jowled man, bald-headed, large-nosed, with great eyes like to those of an ox. Such was Nectanebes, the magician, the consorter with familiar spirits, named the Destroyer, a title which the gods who hated him must have given him in irony since himself he was doomed to be destroyed. But one good thing can I say of this Nectanebes, that he was a lover of the arts and raised glorious buildings to the gods. Learning that I, the high-priestess, had dwelt at Philæ, he came to consult me as to the beautiful temple with the Hathor-headed columns which he built there and through my counsel it was made perfect, for I drew its plans, or at least those of its adornments. Holly tells me that even as a ruin, although so small, there is no lovelier building in all Egypt. Now this Pharaoh thought me a Greek and did not know that I was Arab and the daughter of him of Ozal in Yaman, whom his father, the first Nectanebes, had brought to his death because once long ago I had been refused as a wife to himself or to this son of his who now had succeeded him. Of these things doubtless he remembered little or nothing, since that was one of the smallest of Egypt’s wars. But I, I remembered and swore that in payment for my father’s blood I would bring his accursed House to ruin. Always also I received him veiled since I did not desire that he should look upon my beauty and inquire concerning my history; therefore, as a prophetess had a right to do, I received the Pharaoh veiled. Often he came to visit me because he had learned that I was a mistress of Magic and he who practised magic much hoped that I would teach him secrets he did not know, and show him how to lay spells upon his enemies. This indeed I did, but the secrets that I taught him were evil and the spells were spears that when he threw them would fall back upon his head. So the scene was set, and at length came the summons to begin the play with the watching world for audience. A writing sealed with Pharaoh’s seal was brought to the temple of Isis, commanding Noot the high-priest, and me, Ayesha, who now was named Oracle-of-Isis, and the Greek Kallikrates, Chief of the
- 66. Ceremonies, whose office it was to assist me in my divinations, to attend the court of Pharaoh and there declare to him the future of the war as it should be revealed to us by the great goddess whom we served. At first we refused to go, whereon there came another message which said that if we continued to refuse, we should be brought. The Pharaoh wished to offer no affront to Isis, the messenger declared, but the matter was urgent, as great things hung upon the revelations which we alone could make, and some of the kings and generals who were gathered in the temple as allies of Nectanebes, being the worshippers of other gods, could not set foot in the holy shrine of Isis. Then, there being no help for it, we answered that we would come that very night at the rising of the moon. Hastily consulting together we planned the words of an oracle, double-edged words that yet prophesied good to Nectanebes and encouraged him to war; for thus we believed we should most quickly bring about his downfall. Yet as those words were never spoken I will not write them down.
- 67. CHAPTER VI The Divination Accompanied by the priests and priestesses of Isis clad in their robes and chanting the holy songs, I was borne veiled to the palace of the Pharaoh in a litter, with its curtains drawn. On my right hand walked Noot the high-priest, white-bearded, venerable; and on my left the Greek Kallikrates, Master of the Rites. Thus we came to the palace of which the outer courts were filled with Grecian soldiers of the guard, some of whom in past years Kallikrates had once commanded, although as a shaven priest of Isis, disguised in his white robes, they knew him no more. These men stared at us, ready to mock and yet afraid, as did Phœnicians, Sidonians, men of Cyprus, and others who were gathered in the courts as though awaiting some great event. In an outer hall a captain of the guard bade our escort of priests and priestesses to await our return, but we three, that is I, Ayesha, Noot, and Kallikrates, were summoned to the small banqueting chamber where Nectanebes with a few of the most highly placed of his guests sat at their feast. Among these were the King of Sidon, two more kings from Cyprus, three Grecian generals, some great nobles of Egypt, and others. Also certain royal ladies were present, and among them one who instantly drew my eyes to her. She was younger than I—perchance there may have been ten years between us, tall, slender, and lovely in her dark fashion, with a strong, quiet face and large brooding eyes, soft as a deer’s and rather blue than black in colour. Suddenly as we entered I, who note all, saw these eyes grow frightened like to those of one who sees some spirit returned from the halls of Death; saw also the rich-hued face turn pale, then grow red again as the blood flowed back; saw the breast heave beneath the jewelled robes, so sharply that a flower fell from them, and the lips of coral part as though to utter some remembered name.
- 68. Wondering what had thus disturbed this beauteous royalty since I, being veiled, it could not have been the vision of myself, I glanced round and perceived that Kallikrates, who was on my left, but a little behind me, had become pale as a dead man and stood like one frozen into stone. “Who is that royal woman?” I whispered to Noot through my veil, for royal I knew her to be by the Uræus circlet she wore upon her raven hair. “Pharaoh’s daughter, Amenartas,” he whispered back, “whom the Greeks call The Maiden because she will take no man in marriage.” Then I remembered a certain confession that once I had heard sitting on the throne of the goddess Isis at Philæ, of how the penitent had loved a girl of the royal House of Egypt, and for her sake killed his own dear brother; remembered also that this penitent was none other than the priest Kallikrates. Now I understood all, and though Kallikrates was naught to me save a fellow servant of the goddess, I hated that Amenartas and became aware that between her and me there was war unending, though how and why I knew not. Next I looked at a man clad in kingly robes who sat on Pharaoh’s right. He was a large man of about five and forty years of age with dark, handsome face and shifting eyes; one with a jovial aspect which yet I felt to be but a mask covering a heart full of evil schemes. From his purple robe sewn with pearls and the style of his attire and headdress I guessed that this must be Tenes the Phœnician, King of the city of Sidon that was reported the wealthiest in the world, which city, having revolted, had joined Egypt in its war against the Persians. Instantly I weighed that man in the balance of my mind and wrote him down as an ambitious rogue who was also a coward and, as I judged from the many charms he wore, full of superstition. The others I had no time to study for at once the Pharaoh began to speak. “Greeting, Prophetess,” he said, rising from his chair and bowing to us, or rather to me, “Greeting, High-priest of Isis, Queen of
- 69. Heaven, Mistress of the World; greeting also, Priest, Master of the Rites of Isis. Pharaoh thanks you all for thus promptly answering to his summons, since this night Egypt needs your wisdom more perchance than ever before in all the ages of its history.” “Be pleased, O Pharaoh, to set out what you desire of us, the servants of the eternal goddess,” said Noot. “This, High-priest: that you should declare the future to us. Hearken! As you know, the great war has begun. The mighty Tenes here, King of Sidon, my ally, by the help of the Greeks I sent him, has defeated the Persians and against these Cyprus also is in revolt. But now Artaxerxes Ochus has seized the throne of Persia, having murdered all who stood between it and him, with the help of Bagoas the eunuch, his counsellor and general. He has raised a countless host and is pouring down upon Sidon and upon Egypt. Therefore we would learn how the war shall go and to what gods we must sacrifice to secure the victory.” “O Pharaoh,” answered Noot, “in bygone years when your father sat upon the throne and I was the Kherheb, yes, the first magician of Egypt, he asked me such questions as these, and having prayed to my goddess, I answered him in the words that she commanded. None heard those words save your father himself, for he and I were alone together. Yet there was that in them which made him wroth so that he sought to kill me, and to save my life I fled out of Egypt, going whither the goddess led me. Afterward I was called back to Egypt where once more I am high-priest of Isis though the office of Kherheb is filled by another. How know I, Pharaoh, if I obey you as I obeyed your father, and again the goddess should utter prophecies which are not pleasing to the ears of kings, that once more my life may not be sought in payment?” “I swear, High-priest,” answered Nectanebes eagerly, “that whatever may be revealed by the goddess, you shall take no harm. I swear it by the name and throne of the holy Isis, to whom I will make great gifts, and all this company are witnesses of the oath. If it be broken, may the curse of Isis and of all the gods of Egypt fall upon the head of me and mine. Draw nigh now that I may touch you with my sceptre, thereby forgiving all that you have said or shall say
- 70. against me or my House, and restoring to you your office of Kherheb of Egypt, whereof my father, who to-day is gathered in Osiris, robbed you.” So Noot drew near and Pharaoh touched him with his sceptre, a cedar wand surmounted with a little golden image of Horus, which he always carried because of his throne-name which signified “Horus-of-Gold.” Moreover, he re-created him Kherheb and in token of it set upon his shoulders the gold chain from his own neck, and swore to him his place and power for life and the gift of an alabaster coffin wherein to lie after life was done. This sarcophagus, however, Noot refused, saying darkly that it was fated that he should sleep his last sleep far away from Egypt. Then he, Noot, drew back and as he went I saw Pharaoh’s daughter rise and whisper awhile in her father’s ear. He listened and nodded. Then he said, “Come hither, priest who is named ‘Lover-of-Isis’ and Master of her rites, the royal Lady of Egypt says to me that in bygone days when she was scarce a woman, she thinks that before you were a priest, you held some command amongst the Greeks of my guard, as from your stature and bearing I can well believe. She says also that if her memory serves her, you slew some man in a quarrel and for this reason fled away and sought refuge with Isis. If such things happened I have forgotten them, nor do I ask concerning them. Let them lie. Yet, lest you should be afraid that old tales may be told against you or vengeance wrought upon you, come hither also and receive pardon for the past, and protection and advancement for the future and with these a gift from Pharaoh.” Now I marvelled at this lady’s foresight and cunning which showed her how to take advantage of Pharaoh’s mood and safeguard one who once had loved her, all of which told me that she must be a wise woman as well as beauteous. Also it told me that the worship of this man had been pleasing to her. Then Kallikrates drew near and was touched with the sceptre. Moreover, Pharaoh spoke to him in like words that he had spoken to Noot, pardoning him all and promising him much. Moreover, in token of his favour he gave him a gold cup of Grecian workmanship having two handles, that was chased about with the story of the loves of Aphrodite and Adonis,
- 71. and bordered with a wreath of those anemones which were fabled to have sprung from his blood. This glorious, flower-like cup from which the guests, when we entered, were pledging themselves in wine of Cyprus, Pharaoh lifted from the board and sent to Kallikrates, a great gift which made it clear to me how deeply he desired to propitiate the goddess in the persons of her servants. Lastly the private scribe was commanded to write down these decrees that he had spoken, which he did forthwith, sealing them with Pharaoh’s seal and giving one copy to Noot whilst keeping the other to be filed among the records. Thus Noot and Kallikrates were protected from all things, but to me, the Prophetess, nothing was said, as I thought for two reasons, first because I was known to Pharaoh, who as I have told, had often consulted me upon matters of magic, and secondly because as the “voice of the goddess” I was holy and above reward or punishment at the hands of man. Thus I thought, with how much truth shall be seen. The gifts were received, the papyrus had been hidden away in the robe of Noot, and there was silence in the chamber. To me, Ayesha, this heavy silence was full of omen. My soul, made keen and fine with ceaseless contemplation of things that are above the earth, in that silence seemed to hear the breath of the watching gods of Egypt. To me it was as though they had gathered there to listen to the fate of this their ancient home on earth. Yes, I felt them about me; or at the least I felt a spirit stirring. The company at the table drank no more wine and ceased from speech. They sat still staring in front of them and notwithstanding the glitter of the ornaments that proclaimed their royalty or rule, to me they were as dead men in a tomb. Only the Princess of Egypt, Amenartas, seemed to be alive and outside the circle of this doom, for I noted that her splendid eyes sought the face, the perfect, carven face of the priest Kallikrates and that though he stood with folded arms and gaze fixed upon the ground, he knew it, for now and again covertly he glanced back at her. At length one of those guests could bear no more, and spoke. He was a close-lipped, war-worn Grecian general who afterward I
- 72. learned was named Kleinios of Cos, the commander of Pharaoh’s mercenary forces. “By Zeus!” he cried, “are we men or are we stones, or are we shades in Hades? Let these diviners divine and have done, for I would get me to my wine again.” “Aye,” broke in Tenes, King of Sidon. “Bid them divine, Pharaoh, since we have much to agree upon ere I sail at dawn.” Then all the company cried, “Divine! Divine!” save Amenartas only, who searched the face of Kallikrates with her eyes, as though she would learn what lay behind its cold and priestly mask. “So be it,” said Noot, “but first I pray Pharaoh to bid all mean men depart.” Pharaoh waved his sceptre and the butlers and attendants bowed and went. Then Noot motioned to Kallikrates, who thereon shook the sistrum that he bore and, in his rich, low voice, uttered a chant to the goddess, that which was used to summon her presence. He ended his chant and Noot began to pray. “Hear me, thy prophet, O thou who wast and art and shalt be, thou in whose bosom is locked all the wisdom of heaven and earth,” he prayed. “These kings and great ones desire knowledge, declare it unto them according to thy will. They desire truth—let them learn the truth in such fashion as thou shalt decree.” Then he was silent. None spoke, yet it seemed that a command came to the three of us, for suddenly Noot looked at the priest Kallikrates, a very strange look. Next the priest Kallikrates, rising from his knees, laid down the sistrum and taking the beautiful cup that Pharaoh had given him, went to the table and washed it with pure water from a silver ewer, then filled it to the brim from the ewer and brought it to me, Ayesha. Now I knew that I was commanded to gaze into that cup and to say what things I saw. So I set it on the ground in front of me and kneeling, threw my veil over it and gazed into the water in the shallow golden cup. For a little while I saw nothing, till presently a face formed in the water, the face of the royal lady, Amenartas, which stared up at me out of the cup. Yes, it stared hard and seemed to threaten me,
- 73. for in its eyes were hate and vengeance. Then another face came and covered it, the face of Kallikrates the priest, and in its eyes were trouble and desire. Now I knew that the goddess Isis, or perchance another, she of the Greeks, spoke to me of matters that had to do with myself and not with the fate of Egypt. In my heart I prayed to the Queen of Heaven to rid me of these visions, though to give me others I did not pray her, since it was my design to speak certain politic words which we had prepared. Yet other visions came unsought, for some spirit possessed me, a spirit of truth and destiny. They were many and all of them terrible. I saw battlefields; I saw men fall in thousands, I saw cities in flames. I saw that false-eyed king, Tenes, dead. I saw the General, Kleinios of Cos, also dead, lying on a heap of Grecian slain. I saw the Pharaoh Nectanebes flying up Nile upon a boat—I knew it was up Nile because the current rippled against the prow of his ship, I saw him seized by black savages and throttled with a rope till his tongue hung out and the great round eyes started from his head. I saw the temples of Egypt burning and a fierce-faced, drunken king hacking at the statues of the gods with a Persian sword and butchering the priests upon the altar. Then I saw no more but a voice called in my ears, “Death to Egypt! Death and desolation! Death to her king, death to her priests, death to her gods! Finished, finished, all is finished!” I cast the bowl from me. It overset but lo! there flowed from it not water but blood, or dark-hued wine, staining the white marble of the pavement. I stared at it! All stared at this god-sent horror! “A trick!” cried the Princess Amenartas. “She has coloured the water behind the shelter of her veil.” The others too, especially the Greeks, took up the cry, echoing, “A trick, a brazen trick!” Only I noted that Pharaoh was silent, Pharaoh who knew that Ayesha, named Isis-come-to-Earth, did not deal in tricks; Pharaoh who himself practised magic and had seen such omens sent by Set. Lo! Pharaoh looked afraid and spoke no word, only glared with his great eyes at the stain upon the marble.
- 74. “What answer did the goddess give to your prayer, Prophetess,” asked Amenartas, sneering at me. “This answer, royal Lady of Egypt,” and I pointed to the marble, “the answer of blood.” “Blood! Whose blood? That of the Persians?” “Nay, Lady, that of many who sit at this feast and who ere long shall sit at the table of Osiris, and of thousands who cling to them. Yet be comforted, Lady, not your blood. I think that you have much mischief to work ere you sit also at the table of Osiris, or mayhap at that of Set,” I added, giving thrust for thrust. “Declare then their names, Seeress.” “Nay, I declare them not. Go, seek them for yourself, Lady, or let Pharaoh your father seek, for is he not a magician? though what god gives him vision I do not know. You name me cheat, or rather you name the goddess cheat. Therefore the goddess is dumb and her prophetess is dumb.” “Aye, I name you cheat,” she cried, who in her heart was mad with fear, “and cheat you are. Now let this temple hag who hides her hideousness behind a silken screen unveil that we may see her as she is, and let her be searched and the vase of dye be taken from her bosom or her robes.” “Aye, let her be searched,” shouted the guests who were also afraid. “No need to search, high lords,” I said in a quavering voice, as though I too were overcome with fear. “I will obey the Princess. I will unveil, yet I beseech you all, make not a mock of me when you see me as I am. Once I was perchance as fair as that royal Lady who commands, but years of abstinence and the sleepless search for wisdom mar the features and wither the frame. Moreover, time touches the locks, such of them as remain to me, since these too grow thin with age. Yet I will unveil and the vase of precious dye shall be the prize of him who first can snatch it from my bosom or my robe.” “Aye,” said one of them, it was the king Tenes, “and in payment for her trick we will make her drink what remains of it to give colour to her poor old carcase.”
- 75. “Aye,” I answered, “and I will drink what remains of it for I think the stuff is harmless. Oh! be not angry because a poor conjurer plays her tricks.” Now Noot stared at me as though he were about to speak. Then his face changed like to that of a man who of a sudden receives a command that others cannot hear. He let fall his eyes, remaining silent, and I, watching, knew that it was the will of the goddess, or at least Noot’s will, that I should unveil. I glanced at the priest Kallikrates but he stood still, looking like Apollo’s self frozen into stone. During this play I had loosened the fastenings of my veil and hood and now of a sudden I cast them from me, revealing myself clad as Isis, that is in little save a transparent, clinging robe fastened about my middle. On my breast, hanging from a chain of pearls, were her holy symbols carved in gems and gold, and on my head her vulture cap beneath which my tresses hung almost to my feet, having the golden feathers of the cap adorned with sapphires and with rubies and the uræus rising from it fashioned of glittering diamonds. Aye, I unveiled and stood before them, my arms folded upon the jewelled girdle beneath my breast. “Behold! Kings and Lords,” I said, “the temple hag stands before you in such poor shape as it has pleased the gods to fashion her. Now let him who can see it, come, take the vase that hides this unveiled trickster’s dye.” For a moment there was silence while those brutal men devoured my white loveliness with their eyes, taking count of every beauty of my perfect face and form. Amenartas stared at me and her ruddy cheeks went pale; yes, even the coral faded from her rich lips. Then from between those lips there burst these words: “This is not a woman! This is the very goddess. Beware of her, ye men, for she is terrible.” “Nay, nay,” I answered humbly, “I am but a poor mortal, not even royal like to yourself, Lady—but a poor mortal with some wits and wisdom, though perchance Isis for a while to your sight has
- 76. touched me with her splendour. Come, take the vase ere I veil myself again.” Then those men went mad, all save Pharaoh, who sat brooding. “Goddess or woman,” they cried, “give her to us who henceforward can never look upon the beauty of another.” King Tenes rose, his coarse face afire and his shifting eyes fixed upon me greedily. “By Baal and by Ashtoreth!” he cried, “goddess or woman, never have I seen such an one as this prophetess of Isis. Hearken, Pharaoh, before the feast we disputed together concerning a great sum of gold and in the end it was confessed by you that it was due to me in aid of my costs of war although, so you said, it could not be found in Egypt save by raiding the rich treasury of Isis. Perchance the goddess learned of this design of yours and by way of answer sent us an evil oracle. I know not, but this I do know, that she sent you also a means to pay the debt without cost to yourself or the robbing of her sacred treasury. Give me this fair priestess to comfort me with her wisdom and otherwise”—here the company laughed coarsely—“and I will talk no more of the matter of that gold.” Pharaoh listened without raising his head, then looked on me with rolling eyes and answered: “Which would anger the goddess most, King Tenes—to lose her gold or her prophetess?” “The former as I think, Pharaoh, seeing that gold is scarce, and prophetesses—true or false—are many. Give her to me, I say.” “I cannot for my oath’s sake, King Tenes.” “You swore an oath to yonder high-priest and to yonder man, who looks like a Grecian god clad in a priest’s robe and is called Master-of-the-Rites, but to this lady you swore none.” “I swore the oath to Isis, King Tenes, and if I break it doubtless she will be avenged upon me. Go your way; the gold shall follow you to the last ounce, but the prophetess is not mine to give.” Now Tenes stared at me again and I, who hated him with all my soul, gave him back his stare with interest, though this did but seem to inflame him the more. Then he turned on Pharaoh furiously and answered in a cold voice,
- 77. “Hear me, Pharaoh. It is but a small matter, yet my mind is set upon this woman who knows the heart of the gods and can pour their wisdom into my ears. Therefore make your choice: “In Sidon there are two factions of almost equal strength. One of them says ‘Make an alliance with Egypt and fight the Persian Ochus whom already you have defeated once.’ The other says ‘Make an alliance with Ochus and as reward in a day to come sit on Pharaoh’s throne!’ I have taken the first counsel as you know. Yet it is not too late to change that counsel for a second which perchance would prove the wiser, if there be aught in yonder divination,” and he pointed to the blood-stain upon the marble floor. Then he went on: “Moreover, I have my captains about me at this board and those that serve me wait without with all my fleet, and therefore should it be changed I need not fear to tell you so and to your face. So I say to you that if you will not please me in this small matter, presently my ambassadors go forth to Susa with a message for the ear of Ochus to which it would rejoice you to listen, seeing that without the strong aid of Sidon and her fleets Egypt cannot conquer in this war.” Thus Tenes spoke and laid his hand upon the pommel of his short Phœnician sword. Now the face of Pharaoh, bearded thus in his own city and at his own board, grew red with rage and I saw that he was about to answer this outland king, defying him as many of the great monarchs who filled his throne before him would have done. But ere he could speak his royal daughter Amenartas whispered in his ear and although I could not hear her words, I read their purport in her face. They were—“Tenes speaks truth. Without Sidon you cannot stand against the Persians and Egypt is lost. Let the woman go. Isis, understanding, will forgive, who otherwise must see the Persian Holy Fire burning on her altars.” Pharaoh heard and the anger written in his eyes was changed to trouble. Rolling them in his fashion he looked on Noot and said to him as one who asks a question, “I swore an oath to you, Kherheb, and to yonder priest, but to the prophetess I swore no oath and perchance Egypt’s fate hangs
- 78. upon this business.” The old high-priest paused awhile like a man who awaits a message. If so, it seemed to come, for presently he answered in a quiet voice, “Pharaoh is right; Egypt’s fate hangs upon this business; also Pharaoh’s fate; also that of King Tenes and many others. The only fate which is not touched, whether it be finished in this way or in that, is the fate of yonder seeress who is named Isis-come-to-Earth, since the goddess will protect her own. Settle the matter as you will, Pharaoh. Only settle it swiftly, because under our rule it is time that I and my company who wait without should return to the temple to make our nightly prayer and offerings to the goddess, the Queen of all the earth, the Queen of Pharaoh and of Egypt; the Queen of the King of Sidon, and in the end the Queen also of Artaxerxes Ochus, the Persian, as one day surely he shall learn.” Thus spoke Noot unconcernedly and hearing him, I laughed, for now I was sure that I had nothing to fear from Tenes or from any other man upon the earth. Therefore I laughed, which that company thought strange in one who was about to be borne away a slave, and bade Kallikrates give me my veil and hood, also the cloak that I had thrown off when I entered the banqueting hall. He obeyed, and while he was assisting me to cover up my beauty in the folds of that veil, I noted that alone among all the men here present, this beauty did not seem to stir him at all. Had he been clothing a marble or an ivory image of the goddess, as every day it was his duty to do at sunrise, anointing it with perfumes and garlanding it with flowers, he could not have been less moved. Or perhaps so truly had the priest in him overcome the man that he had learned to cloak all the feelings of a man. Or perhaps it was because that royal Amenartas watched his every movement with her eyes. I know not, but this I do know, that his calm angered me and it came into my mind that were I not the head-priestess of Isis and sworn to her, there should be a different tale to tell. Yes, even in that moment of destiny this came into my mind, which shows that in my soul I had not forgotten the meeting of our lips in yonder shrine
- 79. at Philæ. At least I have often thought so since, I, who have had much time for thought. “Priestess, you are mine,” cried King Tenes in triumph. “Make ready to sail with me for Sidon within an hour.” “Do you think that I am yours, King Tenes?” I asked in a musing voice as I fastened the folds of my veil and arranged the hood. “If so, I hold otherwise. I hold that I, Ayesha, a free-born lady of the ancient Arab blood, am not the slave of any Phœnician who for a little while chances to be a king, but of her who is the Queen of kings, Isis the Mother. Nay, Tenes, I am more, I am Isis herself, Isis- come-to-Earth. It seems that go with you I must, since such is the will of the goddess, but, Phœnician, take heed. Should you dare to befoul me even with a touch, I tell you that I have strength at my command and that ere long Sidon shall lack a king and Set shall gain a subject. For your own sake therefore and for that of Sidon, think again and let me be!” Now the great jaws of Tenes fell and he stared at me open- mouthed. “Yet you shall go with me,” he muttered thickly, “and for the rest Ashtoreth rules in Sidon, not Isis, for know that there are two Queens of Heaven.” “Aye, Tenes, a false queen and a true, and let the false beware of the true.” Then I turned to Nectanebes and said, “Is it still your command, O Pharaoh, that I accompany this ally of yours to Sidon? Bethink you ere you answer, since much hangs upon your words.” “Yea, Priestess, it must be so. I have spoken and my decree is recorded. The fate of Egypt is more than that of any priestess and doubtless King Tenes will treat you well. If not, you say that you have strength to defend yourself against him.” Now as I answered, I laughed lightly and the sound of my laughter was like the tinkle of falling silver. “So be it, Pharaoh. To me it is nothing; indeed I would see Sidon, the glorious city, while she still is Sidon, home of merchants, mistress of the seas. Still ere I go, shall I tell you something,
- 80. Pharaoh, of what was shewn to me in yonder bowl before its water was turned to blood—by dye from that vase which none of you has found? If I remember right, for as you who practise magic, know, Pharaoh, such visions fade quickly like dreams at dawn—I say that if I remember right, it had to do with the fate of a great king. Have you ever seen a king, O Pharaoh, when in place of the chain of royalty a collar of rope is set about his throat and drawn hard till the tongue is thrust from the royal mouth and the royal eyes start from their sockets? Nay? Then shall I draw his picture? Perchance in days to come you would know it again?” “Witch, accursed witch!” shouted Pharaoh. “Take her, Tenes, and begone, though sooner would I nurture a viper in my bosom,” and rising from the board, he turned and fled away. Again I laughed as I answered, “I must go, but it seems that Pharaoh has gone first. Royal Amenartas, watch the good god, your father, for I think that he is too superstitious and that which men believe fulfils itself upon them.” Then I went to Noot and spoke with him—few words for already the guards were advancing upon me. “Fear nothing, Daughter,” he said, “you are safe.” “I know that I am safe, Master, yet be ready to come to my aid when I call, as my spirit tells me that call I shall.” He bent his head and the guards came up. As I went I glanced at the priest Kallikrates, who taking no note of me or of my fate, still stood staring at the royal Amenartas like a statue cut in stone, while she stared back at him.
- 81. CHAPTER VII The Quelling of the Storm They set me on board a great ship, on the prow of which were images of certain gods of the Phœnicians, called by the Greeks Pataeci, not unlike to that which the Egyptians worshipped by the name of Bes, before which images burned fire. There was a royal cabin in that ship which was given to me, and with it splendid robes and furnishings of gold for my table. At dawn we cast off from the quay of the white-walled city while thousands of the worshippers of Isis who learned that I was being taken from them, stood upon the quay and wailed, crying that the Mouth-of-Isis was sent away to slavery and that where her “Mouth” went, there the goddess would follow, leaving vengeance to fall upon their heads. For that the head-priestess of Isis should be given into the hands of barbarians and their foreign gods was such a crime as had not been known in Egypt. Therefore they wailed, prophesying evil, and I stood upon the stern alone in my white robes, veiled, and hearkened to them, for none dared to come near to me. Yes, I hearkened and blessed them with my hands, whereat they knelt and wailed the more. When at last we had passed down the Nile and were out upon the great sea, sailing swiftly for Sidon over quiet waters, I, Ayesha, having taken counsel of the goddess and of my woman’s craft, sent for King Tenes, who was also on board the ship, and received him in his own cabin that had been given up to me. For my heart was black with rage against him, and against Nectanebes, Pharaoh of Egypt, who had betrayed me, and in my heart I swore that I would destroy them both. Yes, there I, the captive, sat and received the captor king in his own cabin, purposing his doom, though how this was to be accomplished as yet I did not know.
- 82. “O King,” I said, “I, your slave who, when not a slave, was high- priestess of Isis in Egypt and her seeress, into whose breast the goddess poured her wisdom and her secrets, as indeed still she does, would speak with you, and since I could not come to you among so many men, have prayed your Majesty to come to me. What would you do with me, King Tenes, since it has pleased you to force Pharaoh to give me into your keeping? Is it an oracle that you desire concerning your fate or that of your country in the war? If so, I will——” “Nay, Priestess,” he broke in hurriedly, “of your oracles I and others have had enough. They are bitter bread for daily food. Keep them, I pray you, to nurture your own soul.” “What would you of me then, King Tenes, that you have been at such pains to steal me away from Egypt, even threatening Pharaoh to break your solemn pact with him if he did not give me into your hands, me, the snared bird, who by chance was left out of his oath to the high-priest and Isis’s officer, the Greek.” “Lady Ayesha,” blurted out Tenes, “that I have learned to be by birth, daughter of Yarab, once ruler of Ozal, upon whom, with the Egyptians, I made war in the past and brought to his death, because of you, Lady, tell me, you who are wise, what would any man of you who had beheld your beauty as I saw it some nights gone?” “Man, being man, that is, a ravening beast fashioned like a god in shape but not in soul, would make me his prey, Tenes. Such at least was the desire of the first Nectanebes whom you aided with the ships of Sidon to destroy my father, and of many since his time.” “Good. Well, I who am a man and something more, being not a god indeed, but a great king, would make you my prey, as you say, for to tell truth, having once looked on you I seek no other woman in the whole world.” Now I threw back my veil and studied him with my eyes. “So you would take me for your queen, Tenes? Indeed I guessed as much. But what would your other queen, for doubtless you have one, say to this, O King?” “My queen!” he said in an astonished voice, “my queen?”
- 83. “Surely, Tenes, you would scarcely dare to proffer less than queenship to such a one as I?” “May be not. Well, let us say that I would make you my queen, since in Sidon it is not difficult to be rid of others of whom one may be weary; that is, it is not difficult to a king who also is high-priest of Baal and of Ashtoreth. Yes, yes, I am sure that I would make you my queen. I will offer it to you in writing if you desire.” “Aye, I do desire it, King, and that there may be no faults or traps in it, I myself will draw up the writing for you to sign. Only I doubt much whether I shall accept the offer if it is made.” “Why not, Lady? Is it a small thing to be Queen of Sidon?” “For Ayesha, daughter of Yarab, high-priestess and prophetess of Isis, the wisest and most beauteous woman in the world, one who has never turned to look on man, it is a very small thing indeed, King Tenes. It is so small a thing that I will not deign to accept that proffered crown of yours, unless——” “Unless what, Lady?” “Unless it is made larger, King, so large and wide that she who wears it holds rule over all the earth.” “By Baal, Ashtoreth, and Moloch, all three of them, what mean you, Woman?” “What I say, Man. I mean that when you are monarch, not of Sidon only, but of Egypt, Cyprus, Persia, and all the East, then perchance I will marry you, unless my fancy changes, as it may do, but certainly not before.” “Surely you are mad,” he gasped. “How can I gather all these diadems upon a single brow? It is impossible.” “Aye, for you it is impossible, King Tenes, but for me it is possible. I can gather them and set them on your brow and on my own, I who have within me all the wisdom of the earth and much of the strength of Heaven. Understand that if I desire it and you follow my counsel, I can crown you emperor of the world, no less, but the question is, do I desire it and will you follow my counsel?” “Lady, I swear that you are mad, unless in truth you are a goddess as they say in Egypt.”
- 84. “Perchance I am somewhat of a goddess, and being so, marvel whether for any reward that can be given I shall debase myself by taking such a one as you to husband, King Tenes. Now, first, look on me well and answer whether you do indeed desire me and are ready to win me through toil and danger, or whether you will let me be. For know, Tenes, that though I seem to be your captive, you cannot snare me or do me violence. Lay but a finger on me against my will, and it shall be your death, since I have those to aid me whom you cannot see. Now look—and answer.” He looked, devouring me with his greedy eyes, then said, “Of a truth I desire you more than anything on the earth, and since I may not do so otherwise, for I perceive that you are too strong for me, will take you at your own price. Yea, even if I must wait for years, still I will take you. Now tell me, most beauteous and most wise, what I must do, and swear to me that when I am king of all things you will wed me.” “Aye, Tenes, I swear that when you are king of all things I will wed you,” I answered gently, laughing in my heart as I remembered that the first and last of all things, the greatest of all things, is— Death. “Hearken. You shall bring me to Sidon, not as a captive but as a strange goddess who has come to aid you and your people, and with honour shall you receive me in Sidon, causing your priests and priestesses to offer me worship and incense.” “And if so, what then?” “Then, when I have studied your people and your preparations for war, we will take counsel together and I will show you how you may prevail. Tell me, Tenes, do you love Pharaoh Nectanebes?” “Nay, Lady, I hate him who asks too much and gives too little, as I hated his father before him. Still we sleep in the same bed and prop up the same wall, and if one of us ceases to support the wall, the Persians will push it down on both.” “I understand. Yet even so it comes into my mind that perchance you would have been safer had you been pushing at the wall with the Persian Ochus and not holding it up with the Egyptian Nectanebes.” He glanced at me with his shifting eyes and answered,
- 85. “I have had that thought, as you know well, but having rebelled against Ochus, defeated his satraps, and slain thousands of his soldiers, or rather those of his father, if I climb the wall I might find spears waiting for me on the farther side. Lady, it is too late.” “Yes, King Tenes, perhaps it is too late; I will consider of the matter in your interest and my own. But first send me papyrus and writing tools that I may set down our pact. When you have approved and signed it, then I will consider of this and other matters and not before. For the while, farewell.” He rose and went unwillingly enough and when I was alone in the cabin I laughed in my heart. This fish had been easy to hook, but he was a large fish and strong, and I must beware lest he pull me into the deep sea where both might drown together. Moreover, the man was hateful to me, more so even than that ox-eyed, heavy- jowled Pharaoh, and his presence seemed to poison the air I breathed. Yet if I entered into this pact with him doubtless I must breathe it often, which vexed me who shrank from men and their desires, and above all from this man. Yet he had done me wrong and insult; he had helped the Egyptians to make war upon my people and he had taken me as a slave, me, Ayesha, thinking to make of me his woman, and cost what it might, I would pay him back as I would pay back Nectanebes who sold me. The papyrus was brought to me by a slave and on it I wrote such a contract as I think was never signed by a king before. It was brief and ran thus:— “Ayesha, daughter of Yarab, high-priestess of Isis, prophetess of Isis, known in Heaven and among her servants as Isis-come-to- Earth, and Child of Wisdom, to Tenes, King of Sidon. “When you, Tenes, are king not only of Sidon but of Egypt, Cyprus, Persia, and the East, as I can make you, if you obey me in all things, then I, Ayesha, vow myself to you as your sole wife and queen. But if, ere this dignity is mine and yours, you dare even to touch my robe, then in the name of Isis and speaking with the voice of Isis, I, Ayesha, vow to you shame and death in the world and after it all the torments of hell and the jaws of the Devourer that await the judgment of Thoth on perjured souls beyond the Sun.
- 86. “Accepted and sealed by Ayesha, daughter of Yarab and by Tenes, King of Sidon.” Having copied this writing, I sent it to Tenes by the slave that he might study it. Awhile later he asked audience of me, and entering, said in a thick voice that only a madman would set his seal to such words. I looked at him and answered that it was nothing to me whether he sealed or did not seal them; indeed that considering all, I should be better pleased if he let the bargain be. He stared at me and rage took hold of him who was inflamed with wine. “Who are you,” he said, “that dare to talk thus to Tenes the King? You are but a woman clad in the robes of a priestess who pretend to powers you have not. Why should I not take you and have done?” Now I mocked him, answering, “Because I think you love to sit upon a throne better than to lie in a grave, Tenes, even in a king’s coffin. Still, as you desire to know more particularly, I will put your question to the goddess, who is not far from me even on this ship, and to-morrow when the sun is up I will pass on her words to you—that is, if you live to look upon to- morrow’s sun, King Tenes,” I added, staring him in the eyes. These words seemed to sober him, for he turned pale and left the cabin, making a sign to avert the evil eye, but as I noted, taking the writing with him. Yet me he left perplexed and afraid, for my heart was not so bold as my mouth! Now that night, whether by chance or by the will of Heaven, a great tempest sprang up suddenly. The captain of the trireme, a Greek or a half-Greek of Naukratis, Philo by name, whom now upon this ship I met for the first time, came himself to warn me, and to make sure that all was fast in my cabin. He was a quick-brained man, very active in his body and pleasant-faced, with a brown, pointed beard, who had seen some five and thirty years upon the earth. I had made inquiries concerning him from a certain slave who attended me, and was told that although he pretended to timidity,
- 87. this Philo was in truth a great warrior and one of the best handlers of a bow upon the mouths of Nile, since that which he aimed at he always hit, even if it were a fowl in flight. Moreover, he was a very good seaman and, it was said, faithful to those he served and a worshipper of the gods. “If so,” I answered to that old slave, “how comes it that this Philo, instead of a humble captain, is not the first general or admiral among the Greeks, as a man of such quality should be?” “Because, divine Lady, of certain faults,” answered the slave, “such faults as have made of me what I am instead of the Count of a Nome upon the Nile as I should have been. This Philo has always thought more of the welfare of others than of his own, which is a very evil weakness; also he has loved women too much, which is a worse.” “Vile sins indeed,” I said, “more particularly the second. The wise always think of themselves first, and the holy never love more than one woman, and her not too much, which perhaps is why the wise and the holy are so hateful and so dull. Bring this Philo to me; he is one whom I should wish to know.” In the end Philo came, though whether because my message had reached him, or because of the advancing storm, I am not certain. At least he came, and as he bowed before me, made a certain secret sign whereby I knew that he was a worshipper of Isis and one of high degree, though not of the highest, since when I tried him with that sign he could not answer. Still his rank in our great company was enough, and thenceforward we spoke to each other under the seal of the goddess, or as our phrase went in those days “within the shadow of her wings,” as brother and sister might, or rather as mother and son. That is, we did this after I had proved him further and brought to his mind the fate of those who betray the goddess and her ministers upon earth. This Philo told me in few words, that although the trireme was Egyptian and named Hapi after the god of Nile, for this voyage she was under charter to Tenes and for the most part manned with Sidonians, also with low fellows from Cyprus and the coast-ports.
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