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Economists on Social Security

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The latest issue of Economists' Voice is devoted to Social Security. Note the dates on the articles--some of them are not new. Barbara Bergmann writes,


What raising Social Security taxes in advance of higher spending on benefits does is to increase the share of Federal spending financed by the regressive payroll tax. A big premature raise in the Social Security tax took place during the Reagan administration, at the behest of Alan Greenspan (who is now telling us we have to reduce benefits). As a result, 20 percent of regular government spending which used to be financed by income taxes is now being financed by money from the regressive Social Security tax. Raising the Social Security tax again would be just a sneaky way of making the tax system less progressive.

Bergmann argues that there is plenty of time to decide whether to raise taxes or trim future benefits.

I am not a politician. But speaking as an economist, I do not believe that the best argument for Social Security reform is the financial state of the system. As I wrote here, I think that the issue of whether Social Security is going "broke" ought not to be central to the debate. Instead, the issue ought to be what benefits the program provides relative to its costs.

For Discussion. Bergmann warns that if young people do not support Social Security, then their elderly parents may wind up moving in with them. Is this a valid concern?


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CATEGORIES: Social Security



COMMENTS (16 to date)
Timothy writes:

Sort of, I suppose. However, with Medicare and such elderly parents can probably be put in a home. It also fails to note that the elderly are far-and-away the wealthiest demographic, and in 30 to 40 years or so when my parents are old I'll be more than willing to sell off their assets to put them in a home if Medicare won't cover it. One, it avoids the estate tax. Two, I won't have crazy old people living with me.

Lawrance George Lux writes:

Care for the Elderly is a major issue, which will impact if Benefits are cut drastically. The real Question, as contratemps the moral issue, is "Do We want to stake statutory benefits for a hoped Profit of 4% Profit on Equities, remembering that the Bush Plan would take 75% of those Profits in reducing Benefits? lgl

Rob Sperry writes:

"Bergmann warns that if young people do not support Social Security, then their elderly parents may wind up moving in with them. Is this a valid concern?"

Doesn't this translate into "if given the option of spending thier own money on elder care and having thier parents move in with them, people might choose to have thier parents move in with them." Gasp! oh the horror of choice!

Randy writes:

What we have now is a growing number of young people who can't afford to move out of their parent's home. What's the difference?

Jason Ligon writes:

It doesn't matter if young people don't support social security. There are now and will be for the forseeable future enough voting old people to take from young people whatever they want.

Bob Knaus writes:

I've read more than once that the expansion of Social Security benefits in the past 3 decades resulted in many more seniors living on their own instead of with their children. This led to a one-time increase in the required housing stock. To put it another way, Social Security reduced the average number of people per household.

Some say that this one-time bump is what has made residential real estate such an attractive investment.

Will the prospect of seniors moving in with their children be the pin that pops the housing market bubble?

Randy writes:

Lawrance,

If the current system actually offered "statutory benefits", then I could see your point. But it doesn't. The contribution/benefit rules have been changed frequently in the past, and will be changed again. Changing the rules is exactly what the Democrats have in mind when they talk about "minor modifications".

Indeed, the primary reason for private accounts is to create true "statutory benefits". Or as President Bush says, "...something the government can't take away from you".

Randy writes:

Bob,

That's an interesting thought. Whether the coming changes in the Social Security system result in less money for the young or less money for the old, the end result will be the same - lower demand for homes.

Lancelot Finn writes:

I see parents moving in with children as one of the major advantages of Social Security reform. Click here to read an argument I just wrote about how welfare (AFDC) and Social Security may harm their recipients (economically) by interfering with the formation of social capital. Click here to comment on the argument at my blog. I'll also respond to a couple of the points above.

Randy points out:

What we have now is a growing number of young people who can't afford to move out of their parent's home. What's the difference?

The difference is that if Mom and Dad move into my house, I have some power over them; if I move into their house, they have power over me. Social Security empowers the old and disempowers the young. Or to put it differently: "Shall We Eat Our Young?" (link and scroll to p. 26)

Jason Lignon writes:

It doesn't matter if young people don't support social security. There are now and will be for the forseeable future enough voting old people to take from young people whatever they want.

That would be true only if the Self-Interested Voter Hypothesis were true, but it isn't. If old people rally behind Social Security, it's not just because it's in their interest to do so, but also because they feel they're entitled to it and it would be wrong to take it away. If you can undermine the sense of entitlement and show that Social Security is just robbing Peter to pay Paul, embracing reform will become the conscientious thing for old people to do, a way to show love for your kids and grandkids. When people haul themselves off the sofa to do their civic duty in a voting booth, they tend to be in a conscientious mood.

Bob Knaus writes:

Will the prospect of seniors moving in with their children be the pin that pops the housing market bubble?

Fascinating suggestion. I'd never thought of that.

If so, there's a simple solution: expand immigration. Immigrants are already likely to fuel most of the growth in homebuying. If housing prices start falling, it might create a political dynamic in favor of immigration, as people realize that they need immigrants to come take up the slack in the housing market.

(On the subject of home-buying, by the way, one of my co-bloggers at Citizen-Journal has a great post critiquing the "irrational subsidy" constituted by the mortgage-interest deduction, by the way, which is worthy of EconLog; check it out.)

Lawrance George Lux writes:

Randy and All,
There will always be real Benefits from the SS program. Everyone, including yourselves, have paid into the system. The entirety of the Bush Camp(Administration and Supporters) would contain the SS system because of ideological grounds, thinking you will never personally need it. I have buried Four long-lived Grandparents, and Two long-lived Parents. They need Care which cannot be provided in the Household of great Expense, and you can stand them only so many hours per day--I know.

Estimate of average Cost for the Six personal Family members lost: $41,000 apiece. Cost out of my pocket without Medicare and SS: a probable triple that amount. lgl

Randy writes:

The thing is Lawrance, somebody did have to pay that triple amount. If it wasn't them, and it wasn't you, who paid it? Or perhaps more precisely, who will pay it?

Mcwop writes:
Will the prospect of seniors moving in with their children be the pin that pops the housing market bubble?

Nah, it will create a whole new market of bigger houses that have a second "carriage house" located at least 100 yards from the main house.

Bill writes:

Mcwop,

I'm with you. My wife and I enjoy the company of my father and he enjoys ours, but all of us enjoy our privacy as well. So, in the not too distant future, I plan to buy a home with a "carriage house".

Edge writes:

I suspect the trend of kids moving off the farm predated Social Security, and Social Security was in part a response to the trend, rather than the cause of the trend.

Would we have suburbs if there had been no Social Security? Would kids move across the country for careers? Etc.

Back in the day, the parents didn't move back in with the kids, as much as that the kids never left, or if they left, it was just down the street.

Randy writes:

Edge,

Agreed. Social Security (and for that matter Socialism in general), is a response to the transition from the extended family, to the nuclear family, and now to the divided family, brought about by industrialization and increased mobility. It is good that we have social sytems to fall back on when the family system fails. Perhaps not so good that social systems have hastened the decline of the family system.

aaron writes:

As a person in my late 20s from a lower-middle class family and who graduated when the job market bubble popped, I'm not very concerned about my parents ability to care for themselves financially; they have decent, secure income and have accumulated some wealth. I'm more concerned about getting myself out of their house and making myself capable of helping them if the need should arise. Currently I just get by. I realize that will change, I am lucky enough to have a job which will provide me significant raises over the next two years, but not everyone has that kind of security. I also realize I will be able to pay down debt and accumulate wealth in the future, but right now things seem bleak and if expenses go up, I'll be right back where I am now. Right now I wouldn't consider having children. Lawrence, is having everyone chip in to care for your grandparents really smart or fair?

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