Bryan Caplan  

Yes, Voters Will Sit on Their Hands

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De Rugy on VAT... Sanctions and Game Theory...
David quotes my long-time friend Veronique de Rugy:
Unless we believe that younger voters will sit on their hands while their future payouts are slashed and their taxes are hiked to pay for the benefits of current retirees, then entitlements will have to be reformed and spending will be cut.
This basically is what I believe will happen.  Despite economists' assumptions about voter selfishness, almost everyone - old and young, rich and poor - supports Social Security.  In the General Social Survey, 3.7% of people 60 and older favor Social Security cuts - versus 7.5% for people under 30.  There's a tiny marginal effect, but support for cuts stands in single digits in every age group

If you look closer, even this marginal effect slips through your fingers.  While 49.9% of people 60 and older support Social Security spending increases, so do 57.3% of people under 30!  Overall, age and support for Social Security spending are actually negatively correlated - and this negative correlation is robust to the obvious controls.*

Of course, tax increases aren't popular either.  Neither are deficits, or inflation for that matter.  When public opinion demands the impossible, something has to give.  Here's how I think old-age policy reform will go down in practice:

First Reform: The Medicare tax fade-out is already gone.  The Social Security tax fade-out is next.

Second Reform: Mild means-testing at the top.

Third Reform: Tax hikes.

They won't like it, but American voters, young and old, will indeed sit on their hands as these reforms pass, one by one.  Depressing?  Kind of, but at least the U.S. has relatively good demographics.

* If you want to check my work, regress NATSOC on AGE and any other controls you like.  Don't forget that low answers on NATSOC mean greater support for spending.

Update: The GSS questions on health spending reveal the same pattern: the elderly are, if anything, a little less in favor of health spending.


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COMMENTS (20 to date)
Yancey Ward writes:

The US has relatively good demographics now. However, as the dependency burden rises on the elder end, the ability to carry the costs of raising children decreases. The demographic problems are reinforcing, as you should expect them to be. What you see in Europe and Japan is what you will see in the US unless the trend towards greater support for the elderly isn't arrested. This is why tax hikes won't solve the problem, you just make it even harder for people to have and raise an appropriately sized subsequent generation.

If one of the reforms isn't raising the retirement age to reflect the rising life expectancy, then the system will collapse under the weight of the relentless mathematics, one way or another.

lukas writes:

As the Swiss like to do, they held a referendum just today, not only on whether to provide legal counsel for abused animals (they voted against it), but also on some adjustments to their federal retirement system.

In their system (well, in the employment-based part of their system), each employee has a personal retirement account with their employer's pension fund. Employers above a certain size are required by law to pay into their employee's pension accounts. At retirement age, the pension fund starts paying out a certain percentage of the accumulated capital, year by year.

The minimum percentage is defined by federal law. It used to be 7.2%, now it is 6.8% and Parliament has passed a law to reduce it to 6.4% to account for the increasing life expectancy of their ageing population.

As if to prove your point, the law was overturned by popular vote, with 72.7% of voters refusing to catch up (ever so slightly) with reality.

RL writes:

1. I understand numerous studies show young people don't expect Social Security to be around for them. It boggles the mind to think they readily accept tax hikes to pay for something they think they'll never get when it's their turn.

2. In a sense, there is no future group acting as a special interest here. There are only people now, with money being transferred. If Social Security disappeared today, tomorrow there would be a lot of children in their 30-50s having to pay to keep their parents going. They'd have more money because SS was no longer collected, but it would go to pay to keep their parents alive. So in a sense Social Security is not an intertemporal transfer, it's a transfer from workers without parents to workers with parents. I think this explains why so many young people tolerate the program. Most of them have parents they do not want to have to support on their own. To say government welfare payments help to break down the family is not to say anything new, but this particular wrinkle is not one I've seen stressed.

Adam writes:

Yeah, citing a survey, that's great methodology right there.

Isn't econ methodology 101 not to trust what people say but to observe what they actually do?

lukas writes:

Adam, as long as government policy is set by glorified surveys, surveys are a pretty decent predictor of government policies, don't you think?

Blackadder writes:

Based on anecdotal evidence, people are a lot less opposed to raising the eligibility age for Medicare or Social Security than they are for other forms of benefit cuts (indeed, a lot of people seem to have a hard time understanding that raising the eligibility age is a benefit cut). So I expect raising the age of eligibility for these programs will also be a part of the package.

agnostic writes:

The demographic changes, if they happen, are going to make things worse of course. We're letting in groups that will have greater need than the majority population for healthcare and old-age care. The simple reason is that IQ is the best predictor of current health, age-related changes in health, and finding and keeping a good job, and that we're letting in those mostly with below-average IQs.

The scenario whereby the government becomes even more overburdened is not what most libertarians would think -- i.e., that with more lower-class Hispanics in the voting pool, and given the selfish voter hypothesis, there will be more voters with a personal stake in inflating the welfare state.

The real scenario is just the one you mentioned -- even those who have no personal stake feel some kind of compassion or concern for hard-up groups and vote for transfers to those groups. Well, it's not only old age that makes one hard-up -- so does being a lower-class Hispanic, say.

It's now standard among liberal *and* conservative whites to see race differences in health or economic outcomes as mostly due to a societal failure -- poverty, bad parenting, racial discrimination, etc. More or less every white person of a certain age -- certainly those who will still be alive in 2050 -- has internalized political correctness.

So out of concern for unfortunate or unjustly discriminated-against others, even those with no big stake in the welfare state will increasingly have cause to vote for its expansion. There's simply going to be a lot larger group of people who need its largess to live what will be considered a safe and comfortable life.

Look at how much money we've thrown into "poorly performing" schools -- that is, where the students are going to perform poorly. No effect, but more and more gets sucked into those programs, again even supported by professional whites in good school districts. The fraction of schools that will have poorly performing students is going to go up if predicted demographic changes happen. Imagine that occurring also in health, social security, unemployment insurance, etc.

(We could change that by giving them an IQ test and letting in those with average or above IQs, since that's the best predictor of health, age-related breakdowns, etc.)

Adam writes:

lukas,

No I don't. Because while elections may in some sense be "glorified surveys", the responders may be different. Given the extremely high nonresponse rates that modern surveys face, it's sort of difficult to generalize the results with any scientific integrity.

But my original point was simply that what people say to the pollster may not be the same as what they do in an anonymous voting booth.

jstaples writes:

Agnostic, you make some excellent points. I especially like your insight that political correctness has now become an internalized belief system for many Americans.

We have problems in this country (failing schools, poverty, welfare, crime, etc...) that CAN NOT be discussed rationally due to this internalized political correctness. We willfully ignore essential details and facts for fear of being labeled a social heretic.

Your fairly tame post, if spoken in a public setting, would be enough to have you booed down and labeled a racist xenophobe. It doesn't matter whether you are right or wrong; the point is that we ARE NOT ALLOWED to have the discussion at all in today's America.

lukas writes:

Adam,

But my original point was simply that what people say to the pollster may not be the same as what they do in an anonymous voting booth.

And good pollsters know this and have some pretty good ways of getting around that limitation. The EconTalk episode with Doug Rivers sheds some light on this.

agnostic writes:

Jstaples, I think it's scarier than that. You see the harmful effect of PC as mostly causing fear. If somehow we could remove the stigma, then people would be less afraid and we could have a more cool-headed discussion.

I think it's mostly not out of fear -- well, at least among younger people -- but because they really buy it. Things could change, but just going off of history, it seems like the average person alive in 2050 will have as strong or stronger PC beliefs.

The trend since industrialization has been toward more and more concern from the fortunate toward the less fortunate. For some at first, it may be fear -- you don't want people to think you're an evil person. But farther down the line, most fortunate people really believe that healthcare should be universal and paid for by 3rd parties, etc.

jstaples writes:

That is a much scarier scenario, agnostic. I like to think that logic and reason will prevail, but I certainly can't deny that I already see the trend you describe developing in full force.

The healthcare thing really is a hard one for me to understand. The mantra seems to be "some things shouldn't be for profit."

As a dentist, it boggles my mind how people feel that the decade of intense schooling I went through to develop my skills is not only NOT my own, but somehow my labor should be a possession of "the public" to be dispensed as the government sees fit.

Joe Cushing writes:

Yancey just made me realize something. Our society has shifted from older generations contributing to the our economic lives, by helping with the raising of children and providing wisdom to the tribe, to parasites sucking wealth from the rest of us through entitlements and a lower willingness to contribute to child rearing. No wonder our society places a relatively low value on the oldest generation compared to other societies of the past and present.

eccdogg writes:

I disagree,

I think both the young and old will continue to vote for magical stories of low taxes and no benefits cuts until our creditors will no longer lend to us and interest rates start to become crushing.

At that point action will need to be taken and it only takes a quick look at Greece and California to see how that will shake out.

Everyone who receives a check from the government will be at risk for cuts with minimal tax increases. And like Greece and California the voters will approve of this policy. Federal empolyees will have their wages frozen, supposed sacred cows like the military will be cut (supposed sacred cows like education in California are now being cut), and redistribution programs of all kind will be cut.

http://topics.sacbee.com/Stanford/

Adam writes:

lukas,

I've heard the Rivers podcast and I'm not convinced that good pollsters HAVE found ways to compensate.

It's different when what they're polling for is an election, because there's a feedback loop--if your models are way out of whack, it will become obvious when compared to the election results. For any other kind of poll, there is no such feedback mechanism.

Douglass Holmes writes:

Bryan, of course voters will sit on their hands. They do it all the time. When the issues become too complex, they just throw up their hands and stay home, unless they are motivated by a bad economy, an unpopular war, or rhetoric that appears to offer a clear choice about something that the voters are passionate about.

It is hard work to become informed. It is hard work to think clearly about these issues.

There are benefit reductions that make sense and could be sold to the public, but it would require courage and great communication skills. The current president is a great communicator, and seems to be willing to stick to positions that are increasingly unpopular (the current healthcare bill) but he doesn't seem motivated to do anything that would actually help solve the Social Security/Medicare problem.

Brian writes:

Adam,
I totally agree with you that opinion polls are almost worthless in measuring behavior. I have used this argument before, but stock market games are no indication of how someone will actually perform with real money.

For example, one study showed that Single Woman were the best investors followed by married woman, married men, and then single men. This was based on years of actual brokerage account history. I have yet to come across any opinion poll which would of given strong indication to the above conclusion let alone prove this behavior pattern.
Polls do not indicated behavior, I would say especially when it comes to money (personal experiance since I do not know of any sound studies which even look at this).
I still remember as a teenager in college taking a U.S. government class and reading that two third of blacks are against abortion. I was like there are virtually no Pro-Life Democrat’s yet 90% plus of black vote for Democrats. I was a revaluation, that people could claim one thing per polls yet there actions could totally contradict there stated opinion. I brought it up in class and no one really had anything to say about the observation other than it must be that they voted due to economic reasons not moral issues. This still surprises me years later even though I logically know this is typical human behavior.

Jim Glass writes:

In the General Social Survey, 3.7% of people 60 and older favor Social Security cuts - versus 7.5% for people under 30. There's a tiny marginal effect, but support for cuts stands in single digits in every age group.

Of course, because to them today it is all free.

Nobody's seriously considering any tax increase to pay for it. What tax increase has been proposed to be considered?

Who doesn't like to vote for stuff that is free?

Come circa 2025 when taxes have to go up for real on everybody -- both the young *and* the old, on their pensions, IRAs, and Social Security benefits(!) -- the incentives change, and so will the votes.

Evan writes:

I believe we will always have social security due to the fact that people don’t want to save the money they earn for retirement. Too many people rely on social security for their retirement so a politician want be voted in to office that opposes social security. I believe we will keep social security because people like the program not because there lazy and want vote against it. The tax payers are willing to pay the increase as long as it means the program will be there when they retire.
I also believe the social security program might become modified, but it will always exist. For instance social security might become limited to only those who have under a certain amount in their savings when they retire. The retirement age will also probably be pushed back several years. The program will remain because the tax payers want it to remain even if it is at a higher cost to them.

Allison Bracken writes:

I am currently a student. I do not think that Social Security will still be around when it is my time to retire. It is pretty frustrating knowing that there is money coming out of my paycheck that I will probably never get back.

However, I do not think that they should stop Social Security all at once. I am not sure how it should be done. All I know is that if they stopped it immediately then all of the elderly who retired early in hopes of getting all of their income from their Social Security checks will be left with no way to survive. The only hope would be if they were lucky enough to have family help them out. For those who did not have family they would be out on the streets.

There does need to be reform in this area. However, I think that it needs to take place gradually. I also think that people should be able to keep their money and the government should trust them to save up for retirement on their own.

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