Arnold Kling  

Social Security and Demographics

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Bundling II... Market for Body Organs?...

Zimran ("Winterspeak") Ahmed points to a survey article by The Economist of issues raised by the aging of the population.


This survey will argue that the promises governments have made to people retiring today are too large to be met in full. As a result, people will have to work longer, and retire later, than they do now. And the old will have to insure themselves for more of the cost of health care.

Ahmed opines,

I don't want to hear anyone complaining about the deficit unless they immediately begin to list ways of taking things away from old people and making them work harder and longer. Otherwise you aren't really bothered by the deficit at all.

I would amend Ahmed's statement slightly by saying that the current elderly are not the issue. It is those of us fifty and younger who need to have our expectations lowered for the amount of government support we will receive when we get older.

For Discussion. By Ahmed's standard, are there any major political figures who are serious about the deficit?


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CATEGORIES: Social Security



TRACKBACKS (12 to date)
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The author at The Trimblog in a related article titled When do you plan to retire? writes:
    Read this NYT chilling articlefrom the New York Times about stock options and their connection to our current economic woes. Then read this post by Zimran Ahmed who writes: "The point is I don't want to hear anyone complaining about... [Tracked on April 6, 2004 8:35 PM]
The author at The Trimblog in a related article titled What's in YOUR wallet? writes:
    "The point is I don't want to hear anyone complaining about the deficit unless they immediately begin to list ways of taking things away from old people and making them work harder and longer. Otherwise you aren't really bothered by the deficit at all." [Tracked on April 6, 2004 8:37 PM]
The author at The Beacon in a related article titled Quote of Day writes:
    "I don't want to hear anyone complaining about the deficit unless they immediately begin to list ways of taking things away from old people and making them work harder and longer. Otherwise you aren't really bothered by the deficit at all." This in re... [Tracked on April 6, 2004 9:32 PM]
The author at Kalblog in a related article titled Harshness writes:
    This is a great quote- I don't want to hear anyone complaining about the deficit unless they immediately begin to list ways of taking things away from old people and making them work harder and longer. Otherwise you aren't really... [Tracked on April 7, 2004 7:05 AM]
COMMENTS (47 to date)
rvman writes:

Alan Greenspan. That's about it. It would still be suicidal politically for an elected official to propose that.

I'd say it is Medicare, anyway, not SS, that will bankrupt us. And we are still expanding it.

Eric Krieg writes:

I second Greenspan. He got people talking.

Newt had a plan to radically reform Medicare along market lines. Clinton crucified him with it (remember Mediscare in 1995? Dolegingrich?).

Cap'n Arbyte writes:

For the technological optimist, the financial situation is even more bleak than Ahmen thinks. Rising lifespans will expose the system as utter nonsense. But I'm not sure it'll happen until we're all bankrupt.

Eric Krieg writes:

You know, SS was only indexed to inflation in the early '70s. Before that, increases in SS income were subject to the whim of Congress.

I think that we will one day get to the point where SS is de-linked from the CPI. Benefits will be reduced slowly over time, and people will as a result be forced to work longer.

Medicare will become a catastrophic insurance plan in short order. It simply is unaffordable in its current form.

Lawrance George Lux writes:

No one is serious about the Debt, and no one is serious about Medicare. Greenspan would have the prime pegged at 4%, if he were serious about the Debt. There would be a Medicare max limit of $20,000 per year, or Averaged limit of $80,000 per five years per individual. SS benefits would be uniform, and not paid to anyone with Income higher than single, maximum benefit--so a $12,000 a year Benefits program could not be drawn if benefits and Income exceeded $24,000. lgl

Thorley Winston writes:
By Ahmed's standard, are there any major political figures who are serious about the deficit?

I’ll echo the previous posters comments about Greenspan, however I will point out that given their past actions and stated positions, Bush seems more likely to deal with Social Security (came out for personal retirement accounts, has said he would not rule out raising the retirement age, and his commission endorsed going from wage-indexing to price-indexing) while Kerry has adamantly opposed any such reforms. IIRC Bush has also said after the Greenspan testimony he would not rule out cutting “future benefits” while Kerry and Edwards were blasting Greenspan for his comments.

However, on Medicare the only thing Bush has to his credit is that his prescription drug benefit ($534 Billion over 10 years) was cheaper than the one Kerry wanted ($900 Billion over 10 years) and he has pushed for at least some competition into the system that Kerry says he wants to undo. Bush does deserve credit for the Health Savings Accounts and for pushing to expand risk pools (although this should be for individuals as well as small businesses). I am hoping though that if Bush were to raise the retirement age for Social Security (as he unlike Kerry said he would not rule out) that we could do the same for Medicare.

mcwop writes:

LGL writes: SS benefits would be uniform, and not paid to anyone with Income higher than single, maximum benefit--so a $12,000 a year Benefits program could not be drawn if benefits and Income exceeded $24,000.

Is the payroll tax reduced/eliminated under this scenario? Otherwise many will pay in large amounts of money for no benefits.

Boonton writes:
You know, SS was only indexed to inflation in the early '70s. Before that, increases in SS income were subject to the whim of Congress. I think that we will one day get to the point where SS is de-linked from the CPI. Benefits will be reduced slowly over time, and people will as a result be forced to work longer.

Here's a better idea:

1. Index SSI to lifespan expectations. As lifespan goes up so will retirement ages.

2. Remove the cap on payroll taxes currently around $87K. But do it in a mostest way. Have payroll above that level taxed at 3-4%. This will add more money into the system without raising top marginal rates to super high levels. If necessary, benefits can also be increased slightly for those who are better off since they will be paying more into the system.

3. Get aggressive about the deficit today. Every dollar paid off today will become two or three dollars the gov't can borrow in 30 years.

4. Improve incentives for working past retirement...either part time or full time. If healthy seniors work more then the system will have more cash in it and that's certainly better than forcing all seniors into McDonald's.

5. Rework Medicare/Medicaid into a system of universal coverage thru vouchers. (I've posted this maybe 10,000 times). Let the market determine what works best, catastrophic coverage that is nearly unlimited or limited but cost controlled HMO style coverage.

Eric Krieg writes:

>>3. Get aggressive about the deficit today. Every dollar paid off today will become two or three dollars the gov't can borrow in 30 years.

If you get aggressive about the deficit today, you will hurt the economy and raise the unemployment rate.

Are you familiar with the "Antler Curve"?

http://www.econopundit.com/archive/2004_02_01_econopundit_archive.html#107669236763645111

Boonton writes:

The 'curve' shows that cutting the deficit from 450B to about 200B shows a very underwhelming increase in unemployment by 0.60%. This not on actual data but on a model designed for very short term forecasts.

What you are missing is that while the deficit may create a boost in employment, it creates a long run drag on the economy. If it didn't why not ram the deficit up to $900B and lower unemployment by 1.2% or so? What you are also missing is that the Fed can accomodate a hawkish deficit policy by a looser monetary policy, like they did during the early Clinton years. The 'Antler Curve' is very unimpressive IMO.

Cap'n Arbyte writes:

Boonton,

>> 1. Index SSI to lifespan expectations. As lifespan goes up so will retirement ages.

The point of my earlier link is that lifespan expectations will cease to be meaningful. In short order people will cease to die from aging. People will live until they die from accident or disease, and there won't be much predictability about it, so some people will pay in and never get benefits while others will live hundreds of years on the public dole. Ridiculous. The concept of retirement is due for an overhaul.

Boonton writes:

We are nowhere near the point where death will be eliminated....nor aging. I agree things would change if that happened but it hasn't and we have no idea if it will in our lifetimes or even our childrens.

Eric Krieg writes:

>>The 'Antler Curve' is very unimpressive IMO

Econoically, no, it isn't all that impressive.

Politically, it is pure genius. It drives home the purpose of all that "big spending" that Bush is accused of.

The spending, and the deficits that it causes, is the only thing keeping down the unemployment rate.

I think that everyone would agree that the Fed is constrained and cannot be much more accomodative. Interest rates are just about as low as they can go.

With that said, I hope that as the economy recovers and job growth resumes, spending will be cut and the deficit will go down. But don't act like the current deficit is an economic problem, because it isn't.

Eric Krieg writes:

>>We are nowhere near the point where death will be eliminated....nor aging. I agree things would change if that happened but it hasn't and we have no idea if it will in our lifetimes or even our childrens.

The increase in life expectancy has been pretty linear. We gain a month or two every year. It isn't that crazy to think that the trend will continue, and to project it well into the future.

We are already adjusting the retirement age up to 67 over time (the retirement age goes up by a month every year). Why stop at 67? Just allow it to keep adjusting upward. That would pretty much be a defacto life expectancy indexing.

Boonton writes:

The problem is that the deficit is not heading down, its heading up. Unless we somehow achieve exceptional long term economic growth it is still going to keep going up (and piling up debt will, if anything, drag down long term growth).

I disagree that the public is so dumb they cannot understand the trade off between a short term stimulus and a long term trashing of our finances. If that was the case then every democratic country in the world would have crashed in hyperinflation as the voters demanded that the gov't run the printing presses.

Eric Krieg writes:

Actually, OMB is projecting a declining deficit over the next couple of years. Then the fit hits the shan when the baby boomers hit retirement a little after that.

This doesn't change the fact that the economic obsession of the moment is jobs. Cut the deficit, and you cut the number of jobs. Until the economy starts creating jobs on its own, it would be foolish to go all out in cutting the deficit.

Eric Krieg writes:

Oops, the link didn't post.

Eric Krieg writes:

Click on my name for the link. Sorry.

Cap'n Arbyte writes:

Dr. de Grey thinks aging research will cause life expectencies to hit an inflection point _within our lifetimes_. The increase will be dramatic and nonlinear and I'm quite looking forward to it. But I think the political fallout will be tremendous. Very few people (ahem) are seriously considering the implications of something I see as inevitable, even if de Grey's timeline is shown to be optimistic.

Boonton writes:

Here's a picture of the good doctor: here.

Forgive me for seeming shallow but I'm still skeptical. I think if he turns out to be right there will be plenty of time to reform SSI and Medicare.

Boonton writes:

Even if aging can be halted by a sudden breakthrough, fixing SSI would be simple. Add an upper limit to retirement and make it renewable.

For example, you would work 30 years & then get SSI for 12. Then back to work again for another 30 years and so on. In a world of immortals SSI can become something like an enhanced form of unemployment.

But this is all speculation. If aging were stopped tomorrow the money saved from all the medical care due to aging alone would dwarf SSI's projected shortfalls.

Eric Krieg writes:

>>For example, you would work 30 years & then get SSI for 12. Then back to work again for another 30 years and so on

Come on, man. Get serious. No one re-enters the workforce after he retires. It just doesn't happen, which is why it is so important to keep the boomers working for as long as possible.

Retirement was a product of the 1930s, a scheme to make labor more scarce. There is no cosmic law that it must exist. If people can be perpetually maintained in the physical shape of a 30 years old, the flip side will be an end to retirement and the requirement that we work FOREVER.

Boy, that's a little depressing, huh?

Art Woolf writes:

Here are two politicians, Rep Howard Ford and Sen Lindsay Graham who are not afraid to propose a solution http://centrists.org/pages/2004/03/31_guest_wealth.html

Lawrance George Lux writes:

Mcwop,
You suffer from the delusion affecting all young Republicans, this consisting of the supposition that SS taxes are not taxes. They very much are, and never will be anything else: a Rose is a Rose, and Not is Not. The sheer proposition that Someone might lose his accumulated wealth, and need SS benefits, is sufficient to tax until the end of Time and Income. lgl

Kathianne writes:

Damn, I agree with you and I'm 49.

Petro writes:
It is those of us fifty and younger who need to have our expectations lowered for the amount of government support we will receive when we get older

There are at least some of us in our mid to late 30s who fully expect that, given current trends, we won't get anything from the government when we retire.

We just want out of the whole screwed up system.

Lee writes:

Just kill all the boomers and quit whining. Or do you think your whining will annoy boomers to the point of suicide?

Lindsay writes:

To say that it is not today's elderly who are the problem seems to indicate that you have fallen for the "Trust Account" myth.
Since every dollar spent now is one less (plus interest) that we have to spend later, today's outlays are at least as important as those made later.
Of course, politically, the outlays of today and the near future don't count, and long-term doesn't concern any politicians anyway.

Eric Krieg writes:

>>Just kill all the boomers and quit whining.

I second that motion.

The boomers aren't the WWII generation. Smoking pot at Woodstock just doesn't have the same importance as storming the beach at Normandy. The WWII generation has the record of accomplishment to make the argument that they are OWED Socialist Insecurity and Medicare because of the great things that they did for this country.

Needless to say, the boomers don't even come close to having such a legacy. What's the legacy of the boomers, besides STDs?

It will be very easy to cut Socialist Insecurity and Medicare when the time comes in 2018, or whatever. Once the WWII generation passes, benefits will be cut.

William Modahl writes:

The only way out of the demographics that will destroy the program by forcing some combination of enormous tax hikes sufficient to wreck the economy or deep benefit cuts that also make the implied return on investment to payroll taxes paid into this supposed insurance program is to convert it for future beneficiaries into a pre-funded retirement account, as has been done successfully in other countries. Unfortunately, one major party sees great electoral advantage in demagoguing the issue with the false pretense that they will defend with no change a doomed system.

Mcwop writes:

LGL,
Thanks for the insulting response. SS taxes are a tax and I understand that. But I also understand that this tax is targeted toward a specific purpose. If 100% of the population pays this tax, and at some point in the future only 20% collect benefits then voters will get angry and the system will be scrapped along with the tax. That sheer proposition will be a political reality for in the future. Even delusional liberals understand that.

jlb writes:

I'm with Petro... just let me out of the whole darned shootin' match. I know I'll never see all the money I put in, SS is just another tax.
jlb

Boonton writes:
If 100% of the population pays this tax, and at some point in the future only 20% collect benefits then voters will get angry and the system will be scrapped along with the tax. That sheer proposition will be a political reality for in the future.

This is unnecessary. 100% of the population can still receive SSI benefits (well, except for those unlucky ones who die before retirement age) with modest and sensible policies.

Eric Krieg writes:

>>100% of the population can still receive SSI benefits (well, except for those unlucky ones who die before retirement age) with modest and sensible policies.

100% of the population will not recieve 100% of the benefits now promised to them.

One course of action would be to means test SS benefits. Smart, high income people who dilligently have saved will get screwed, and the people who didn't work and didn't save will be rewarded for their sloth.

Maybe saying that 20% of the people will receive benefits is extreme, but there is a good chance that a sizeable portion of the population will not recieve any benefits, or will receive a small portion benefits much less than they have been promised.

Mcwop writes:

SS benefits would be uniform, and not paid to anyone with Income higher than single, maximum benefit--so a $12,000 a year Benefits program could not be drawn if benefits and Income exceeded $24,000.

Keep in mind I was originally asking my question based on the comment above. Currently, 55-60% of Social Security recipients have a combined income (SS benefits + Income) greater than $24,000 (Source: 2001 Social Security Administration Income Aged Chartbook). That is a lot of people that will receive no benefits. The comment lacks some relevant details (example: single earner v. dual earner), which is why I asked a follow-up question.

Eric Krieg writes:

Why are states like Florida and Arizona so popular with retirees?

Yes, the weather is a factor. But costs in these states are very low as well. It takes less income to get by in these states than it does in northen states, especially the Northeast.

But why should retirees limit themselves to American communities? Mexico is hotter and cheaper than Arizona and Florida.

Just another reason that, if Mexico would JUST gets its act together, there could be huge benefits for the US. Regime change anyone?

In any case, people CAN find ways to survive on less. Retirees in the recent past have been a lot poorer than they are now. A decline in Socialist Insecurity benefits isn't as bad as some make it out to be.

Lawrance George Lux writes:

First, let me say I am one of those Boomers. Second, Mcwop, I did not mean to insult, just reflect that Everyone will continue to pay, simply because the Politicians cannot afford to abandon the system. All comments made about opting out are delusionary; your Government will never let you. Third, the comment about the hard-working and careful being penalized has been used since the origin of the Progressive Tax. It have never been accepted, and never will be. We return to the Issue, and possible alterations of the system for realistic implimentation.

Marriage is fine, though I have never tried it. Making the Tax system recognize its existence, though, is vastly overdone. I would suggest all elements of the Government insist on singular contributions and singular benefits. Contrary to popular belief, this would both raise tax revenues and lower benefits. It's day has come!

Comment to the snide remarks about Boomers: they built the current prosperity in which you live. The WWII generation did its part, but its contributions are long past, and never that great when considered. Boomers have paid much more of the total tax revenues paid in the last fifty years, than have the WWII generation. This is incredibly true when talking about Social Security. Most WWII Generation SS recipients collect more per month, than any yearly contribution they ever made. They also spend about seven times more of the Medicare dollars, than do the Boomers. Most of the criticism here expresses the fear that the Boomers may come to spend as many of the Medicare dollars, as have the WWII generation. That freaks me out as well!

By the way, I am not a liberal as some persist in thinking. I have long been an advocate of less Government, hoping to eventually see Government spending less than 14% of GDP. I can see how White-Shirt Republicans would like to perceive any dissent as liberal. lgl

Mcwop writes:

Ok, LGL we are square - thank you for further clarification.

Boonton writes:
Maybe saying that 20% of the people will receive benefits is extreme, but there is a good chance that a sizeable portion of the population will not recieve any benefits, or will receive a small portion benefits much less than they have been promised.

Promised? What exactly is this promise? If we, say, indexed SSI to increases in lifespan and provided a 15 gap before the brunt of this was implemented who has been denied their 'promised benefits' when they had a lifetime to adjust their savings or plan to work longer? SSI is a social insurance policy. Sometimes insurance pays off in a bounty for the insured and sometimes the insured gets a premium increase and never collects anything. That SSI needs to change in light of the wonderful benefit of improved health and increased longetivity is not an atrocity.

One course of action would be to means test SS benefits. Smart, high income people who dilligently have saved will get screwed, and the people who didn't work and didn't save will be rewarded for their sloth.

Nice use of reverse class warfare here. If we don't cut checks to rich people we are punishing the 'good, hard working savers'. Is there no one over 65 with a high income who is just a hedonist pig who happens to have a high income? How about the guy who wins the lottery on his 65th birthday?

If you save before your old age, you are rewarded no matter what the SSI benefits are since you will, by definition, have more than the person who failed to save.

But why should retirees limit themselves to American communities? Mexico is hotter and cheaper than Arizona and Florida.

This is probably already happening and will happen more as the US's hispanic population ages and begins to retire with both SSI & their 401K savings. There is always a downside to moving to the most remote corner of the world, however. Florida & Arizona have ample medical resources, for example. Markets are powerful, though, so I'm sure at least a few Mexican towns will find it in their interests to become 'little USA's' and make a living off US SSI checks.

Mcwop writes:

Boonton writes: Promised? What exactly is this promise?

The benefits amounts outlined in the social security statements sent to people imply a promise of benefits in specific dollar amounts. While I understand that it is not a "promise" or guarantee, many other do not not make this distinction.

Eric Krieg writes:

I second what Mcwop said. The explanation of benefits sent to everyone by the SSA seems to be an implicit promise. It gives people an idea of what their retirement benefit is going to be.

Eric Krieg writes:

>>Is there no one over 65 with a high income who is just a hedonist pig who happens to have a high income? How about the guy who wins the lottery on his 65th birthday?

Yep, those lottery winners are so numerous, they are going to absolutely bankrupt the system.

Get real.

You are speaking to someone with a mortgage, 2 kids, a non-working spouse, and I STILL max out my 401(k). I make less than the median for the Chicago area. So excuse me if I sound like a class warrior, but cry me a freaking river.

Boonton writes:
I second what Mcwop said. The explanation of benefits sent to everyone by the SSA seems to be an implicit promise. It gives people an idea of what their retirement benefit is going to be.

You mean like those 401K phamphlets that assume a steady 7% per year return on the individual's contributions for 20-30 years?

You are speaking to someone with a mortgage, 2 kids, a non-working spouse, and I STILL max out my 401(k). I make less than the median for the Chicago area. So excuse me if I sound like a class warrior, but cry me a freaking river.

Very good. So if SSI benefits were cut (say by raising the retirement age)...you will be going into old age with a hefty 401K and a decent amount of equity in your home...plus your SSI benefits (reduced they may be). In contrast the person who did none of these things will go into retirement with nothing but his reduced SSI benefits. Along the way, though, he will have paid higher taxes than you in order to subsidize your 401K contributions and home purchase.

So in what way is the hard working saver getting screwed at the expense of the 'lazy' non-saver?

Eric Krieg writes:

>>In contrast the person who did none of these things will go into retirement with nothing but his reduced SSI benefits. Along the way, though, he will have paid higher taxes than you in order to subsidize your 401K contributions and home purchase.

Boonton, those are the rules of the game. No one is being duped. The tax code is relatively transparent, anyone with half a brain knows that there is a tax advantage for homeownership and the 401(k).

What I am doing is suppressing my consumption to be able to afford a home and that 401(k). My consumption could be a lot more if I didn't save. For instance, I don't have cable television. I don't have broadband. I don't have a cellphone. Heck, I don't even have long distance, I use a calling card.

I'm the ant, and everyone else is the grasshopper.

So if you means test SS, you are discriminating against ants in favor of grasshoppers. That could backfire if the ants change their behavior to be more like grasshoppers.

Boonton writes:

Actually Eric I proposed indexing SSI to increases in lifespan, not means testing. Such an action would hit everyone accross the board (it will, of course, hurt more for the person with the shorter lifespan than the longer one). I'm not even sure it would be fair to call such a policy a benefit cut since it would simply stop the growth in SSI benefits due to ever increasing longetivity.

I don't oppose means testing but it should be done in a way that doesn't conflict with the better solution of encouraging able seniors to remain in the workforce. Those policies should get credit not only for improving SSI's cash flow but also for pumping more money into the Fed. gov't thru regular income tax. Working seniors help at both ends of the stick. Their SSI taxes improve the trust fund's balance while their regular taxes make it easier for the gov't to redeem the bonds in the SSI fund...when the time comes.

I do disagree with your characterization of depicting your 'ant' behavior as being punished with means testing. The tax code is far from neutral in regards to your mortgage payments and contributions to your retirement account. Even if some element of means testing were added to SSI I doubt your incentives would be moved even to the neutral point let alone to the point where you are being punished for choosing savings over consumption.

In a neutral world paying $1000 towards rent, beer, your retirement account or mortage would be treated exactly the same by the tax code. Saying that everyone knows 'the rules of the game' doesn't change the fact that the tax code is biased in favor of your choices.

Eric Krieg writes:

I have no problem indexing SS to life expectancy. I think that the current adjustment of retirement age from 65 to 67 should be allowed to continue at the current pace, not stopping at 67 but going to something more like 70.

You can rationalize it all you want, Boonton, but if you means test SS, you will cause more people to take early retirement and save less. Maybe the tax code is biased in my favor, but if so, how come everyone isn't maxing out their 401(k)s?

Boonton writes:
You can rationalize it all you want, Boonton, but if you means test SS, you will cause more people to take early retirement and save less. Maybe the tax code is biased in my favor, but if so, how come everyone isn't maxing out their 401(k)s?

Certain crops receive subsidies and others do not; How come there are farmers who grow those unsubsized crops?

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