Sunday, November 6, 2011
Attack of the Killer Seniors
They are gathering in coffee shops, gyms and multiplexes, conspiring to wreak havoc on the US economy. You know who they are: the boomers and near-boomers, the demographic bulge that will rip a giant hole in fiscal budgets and push working-age taxpayers into martyrdom or worse.
Don’t take it from me. David Leonhardt, in today’s New York Times, talks about the impending collision of slow economic growth with “sharply increasing claims” that “come from the aging of the population”. He quotes Benjamin Friedman of Harvard: “These are very difficult moral issues. We are really talking about the level at which we support the elderly retired population.”
This is common wisdom, one I’ve heard more times than I care to remember. Does it matter that it’s wrong?
1. Aging, and increases in the proportion of the population no longer active in the labor force, is nothing new. The US and other industrialized countries have been adapting to this trend for generations. In fact, the increase in retirees we face in the future is not nearly as dramatic as those we’ve dealt with in the past.
2. The secret weapon against the attack of the seniors is not growth per se but productivity growth, output per worker. As long as this increases faster than the ratio of retirees to active workers—and it has ever since we started gathering statistics on it—we can afford to take of our elders and improve living standards for the young and spry simultaneously.
Demographics is a false issue. I’ll trust the motives of those who pound that drum when I start seeing articles about how the economic burden of the defense (i.e. war) budget poses a moral issue that demands courage and sacrifice, etc. The demographic bulge I worry about is predator drones.
I've been retired for 3 years and go on medicare next month, so I guess that makes me a killer senior.
ReplyDeleteI do have to take exception with a couple of your points, though.
Th post WWII baby boom was real. That's the entire reason for the SS trust fund, for an otherwise pay-as-you-go program. I'd like to see stats on an earlier more dramatic increase in retirees, 'cuz I don't think that's possible.
Productivity growth has done nothing - NOTHING - to improve living standards for anyone below the 90th percentile, where most retirees land. The recent OMB report on inequality makes that crystal clear. But it was already obvious to anyone who's been paying attention.
http://jazzbumpa.blogspot.com/2010/07/productivity-its-wunnaful.html
Demographics is not the only issue, and maybe not even the most important issue, but to say it is a false issue is simply sticking your head in the sand.
Cheers!
JzB
The argument is crap. I put up a post linking to the very first Social Security Report in 1941 at Angry Bear at mirabile dictu had it picked up by Krugman who used it to check demographic assumptions then and now.
ReplyDeleteAnd Prof K found to his non-surprise that the actuaries nailed the percentages of people who would be covered by Social Security Old Age/Survivors at the end of their projection period, or basically now. In fact they actually had a grayer population while underestimating immigration.
The idea that increased life expectancies were not expected, or that the data wasn't continually adjusted is nonsense.
In 1934 the Committee on Economic Security, the body which designed Social Security, hired a brand new actuary named Robert Myers. Bob only stuck it out at SSA for four decades including a couple of post war decades as Chief Actuary and had al almost last gig as Executive Director of the Greenspan Commission in 1982' sandwiched around consulting gigs to every possible governmental group touchinng on Social Security. And only semi-retired in the 90s, staying active in the field until he died a year or so go.
To cut it short Bob called the demographics astonishing close in the 30s and was right there helping refine the numbers right to and after the 1983 fix. NONE of this caught the Office of the Actuary by surprise although obviously they tweaked models each Report Year as new data came in.
Myers has an interesting Oral history at SSA.gov/history
I'm not quite sure what all the argument is about, but the productivity part has been clear to me for a long time. If there is a problem with retirements it is caused by the blood sucking rich taking too much of the increased productivity and short changing the worker bees who's FICA taxes fund the system. When wages take it in the shorts while the banks are rolling in dough the culprit is pretty obvious. It seems to me that if wages received a decent share of productivity gains then there would be a major surplus in the SS system and FICA tax rates could be reduced. So take that!!
ReplyDelete