The Entitlements Quandary—Posner

As Becker explains, advances in medical technology (which are very costly) and (related to those advances) increases in longevity, create the prospect of very great increases in social security and Medicare outlays in future years. The prospect is increasingly worrisome because of the large annual federal deficits that the nation has been running and the resulting increase in the national debt. Although rapid economic growth would (as Becker has emphasized in previous posts) make the debt manageable, we may very well be facing a longish period of below-average economic growth as a result of persistent high unemployment, economic uncertainty, and anti-growth public policies such as encouraging unionism.

 

Becker sets forth a program for reining in the growth of entitlement expenditures. The question I wish to address is the political realism of that or alternative programs for limiting such growth.

 

It is extremely difficult to marshal political support to deal at present with future problems. Future problems by definition are not felt in the present, and so it is difficult to mobilize public opinion in support of solutions unless they are costless. And politicians have a short time horizon, which means that they will not benefit politically from measures that impose present costs but yield benefits to the voting public after the politician has left office.

 

If, however, the costs can be deferred to the future as well, the current public may not object to a measure that confers benefits only in the future. That was the approach of the 1983 social security reform, which raised the age of full entitlement to social security benefits from 65 to 67 gradually for persons born in or after 1938—and they were only 45 when the reform was enacted. And only persons born in 1960 or later would have to wait until they were 67 to be entitled to full benefits; they were only 23 in 1983. Both the costs (in reduced entitlements) and the benefits (in reduced entitlements expense) were pushed into the relatively distant future. The discounted present effects were thus slight, and so the reform was relatively uncontroversial.

 

The problem with repeating such a measure now is that we probably can’t afford to defer entitlements reform for 30 or 40 years. Suppose Congress increased the age of full entitlement to social security benefits to 70 for persons who are 23 years old today. The reform would not take take full effect until they reached 67, which would be 44 years from now, although there would be some savings earlier if, as with the 1983 reform, a gradual rise in the retirement age began for persons who are 45 years old today; they would first begin to feel the reform in 22 years, when they reached 67.

 

The same problem of delay would afflict a reform of Medicare designed to raise the eligibility age for Medicare in tandem with increasing the social security retirement age. Moreover, while young people can view with relative equanimity the prospect of having to work a couple of years more for full social security benefits—which are anyway rather meager—I don’t think they’d feel the same way about losing Medicare in their late sixties. A big difference is that there is no ceiling on Medicare benefits, and the expected benefit of receiving them is therefore much greater than the expected benefits of social security—and young people know it.

 

It seems to me that, in the short run, the only realistic measures for reining in social security and Medicare are a combination of higher payroll taxes and means testing. In the long run, social security and Medicare benefits will be cut to affordable levels when the United States finds itself in the same desperate fiscal situation as Greece, but probably not before. The only hopeful note is that the current widespread public concern with deficits may embolden some legislators and the even the Administration to propose strong measures to head off a fiscal crisis exacerbated by entitlements spending.

Comments

[Tank Ein.]

I am very happy to read this thesis.I'm a student of China,and my English is not good.So,I may need more time to understand it.

[NEH]

Once again, we're confronted with the paradox of implementing our ideals (in this case, providing general medical care to our fellow citizens) as opposed to the reality of being able to afford it. Perhaps the hardheaded financial solution lies in requireing all citizens to take the "Delta Pill" and pass over the "Great Divide" at say age seventy (that would also solve the Social Security issue). But in order for that to happen, we're going to have to adjust our mindset in regards to "Assisted Suicide". Neat, Clean and fiscally responsible! Too me, at least, there is still something wrong with this approach.

Perhaps, the proper approach, is to drive medical science to develop low tech, more cost effective procedures. Not too mention, modifying the Law (tort reform, etc., etc.)so that the profit oriented private Insurance Industry and various Pharmaceutical, and Medical Devices Industries aren't constantly driving medical rates and costs up. Now what has the "Medical" Inflation Rate been in say, the past twenty years?

[Jim]

As a physician, I can attest to the incredible waste in the medical process, specifically Medicare. The absence of primary care familarity with patints and the poor communication of non MD caregivers, the need for speed in practice management and turnover and patient's desire for instant diagnosis and treatment add tremendous unnecessary costs to Medicare, not to mention the 80 billion spent yearly in the last year of life some of which is probably not rational. Even social security shoud be easy to manage. We will ignore the fact that the fund is bare because of "borrowing" from the general fund (another example of mismanagement and political malfeasance). Why not exempt $25,000 in interest income(about the maximum social security annual income)from income tax and not pay those persons social security. It would encourage saving during the work years, maintain the payroll tax and save the entitlement for those who need it.

[Jason Buberel]

A more cynical solution is to stage a public education campaign with the following themes:

1. Eat a diet high in salt, sugar and saturated fats.
2. Do not, under any circumstances, exercise.
3. Smoke at least one pack of cigarettes a day.

That way much a smaller portion of the population will live long enough to be eligible for Social Security or Medicare/Medicaid.

[Gordon Longhouse]

Perhaps a cut in entitlements may be the political price that liberals will have to pay to get the tax increases that are also needed from the conservatives. Are politician wiling to horse trade in this manner any more or is the ideological divide unbridgeable? If so it will need another crisis worse than the last one, before politics permit sensible solutions.

[Josh Lerner]

It must be stated that in 1998 we were very close to getting something of a compromise on Social Security passed, one that would trade private accounts and some (minimal) means testing for higher taxes and keeping the status quo retirement age. This planned compromise was scuttled when the fortunes of the two men negotiating it, former Speaker of the House Newt Gingrich and President Clinton, both became embroiled in personal scandals. This does suggest that this type of compromise is certainly doable in out given political environment, but it is certainly unlikely. The alliance between fiscal conservatives and the DLC liberals (or as they're sometimes called neoliberals) is the only future I can see for this type of entitlement reform.

[Chris Graves]

The underlying philosophical justification for the expanding welfare state lies at the heart of these problems. An egalitarian-democratic-humanitarianism has displaced the classically liberal and socially conservative foundation that our political/legal/social/economic system is built upon.

The flaw with empowering government to take active measures to move people toward a more equal standing in the eyes of one another as well as equalizing their wealth is that such measures violate the right to private property that our liberty is structured by. As government takes actions to achieve and maintain actual equality rather than a purely formal equality before the law, then it must necessarily interfere with the private spheres set aside for individuals to make their autonomous decisions within. Egalitarianism also seeks to refashion the social structures that provide a stable background against which rights and free decisions are exercised responsibly and sympathetically.

The flaw with a thoroughgoing democracy tears along similar lines. If people are the source of law as opposed to God or rationality, then we become subject to the whims and tastes of the majority rather than the reasonable demarcations of the natural law. Liberty understood as the right of the individual to pursue his own conception of the good within the bounds of an objective sense of right is lost on the democratic view of the state.

The flaw with an unbalanced humanitarianism is that it seeks to ameliorate all human suffering so that it seeks to facilitate any and all human impulses no matter how self-destructive or socially destructive they might be. It fails to take account of the traditional difference between the "deserving" and "undeserving" poor resulting in an indiscriminate subsidization of any and all no matter how dissolute each individual's decisions might be.

So, naturally the egalitarian-democratic-humanitarian state will overspend and under-tax its citizens as people vote themselves largess at the expense of others including their own progeny. Majorities become a law unto themselves as they reject the bounds of natural law until the constraints of reality reign it in as we are beginning to witness.

[Jim]

Chris, well said. What is even more worrying is the liberal tendency not to have all of the elements in hand on any issue to allow for a rational rather than an emotional analysis. On that basis they consrtuct policies which are destructive to the very persons whom they aver to help. They simply do not think things through from a long term prospective and they tend to support their arguments with statistics which are laughable. I am not hopeful about the future of the United States and worry even more about what might happen if societal fabric begins to come undone.

[NEH]

Chris & Jim, "Private Property" is not an excuse for theft or the beating down and enslavement of others simply too solve incredibly complex fiscal issues and problems. This is not simply a Liberal/Conservative dichotomy. Although, the Conservatives would use it as such in their bare knuckled grap for power and wealth.

As a great American once said, "As I would not be a master, so I would not be a slave".

[Marc Freed]

I am surprised that neither Posner nor Becker has proposed that the Social Security system introduce some additional choices immediately for people approaching retirement now. Instead of moving the goal post from 67 to 70 at some date far enough into the future to pass political muster, why not introduce incentives for people willing to work into their 70's that would increase the average age of retirees entering the system from now on. Such incentives need not be within the Social Security program itself. For example, lowering income taxes on older workers working in "extra time", i.e. past 70, might induce them to postpone taking SS.

[Jim]

NEH,

Precisely why I am not a politician and am a libertarian.

[Chris Graves]

NEH, perhaps, I am missing something, but I certainly share your disdain for slavery. Slavery violates individuals' right to property in their own person.

I do not see limiting the growth of government as instituting slavery. In fact, I see limiting or abolishing the welfare state as increasing liberty. Are you saying that unless the government engages in egalitarian redistributionist policies, people will be enslaved to those who have more wealth and social status?

If so, I would respond by saying that as long as people are not being coerced, i.e., the use of physical violence or the threat of violence, then there is no violation of a person's rights, and no justification for remedial action by the state. An unequal distribution of wealth or social power is not unjust if these advantages were acquired without coercion or fraud.

[NEH]

Chris, "An unequal distribution of wealth or social power is not unjust if these advantages were acquired without coercion or fraud"? Dream on! We live in a world of REALPOLITIK! Hobbes was correct as well as the ideas expressed by the authors of "The "Federalist" papers.

Jim, "Libertarianism" is but a euphemism for Anarcho-capitalism. Which is primarily responsible for our economic and fiscal problems of today.

God help us!

[Jim]

Sorry, NEH, but what got us into this mess is intellectual laziness, cultural decay and moral eqivalence and politicians who have taken advantage of all of that. Anyone who has been critical of all of that has been marginalized and attacked. There is some happy median level of free market and restraint but that point has to reside in an individual conscience and then demanded by the public as a general standard. When I say that I am a libertarian, I mean that I am perfectly capable of making honest and ethical decisions about my life and it's effect on those around me. I certainly do not need a government to guide me in those matters as our government has a poor track record in that regard at any rate. I agree with you, "God help us", but for different reasons.

[Chris Graves]

NEH, I will put up the actual track record of nations built on classically liberal principles against those of any other political orientation, especially those of the left.

[NEH]

Chris & Jim, Did I hit a nerve when I called to the forefront and exposed the underlying ideological presuppositions of an archaic and an inoperative economic world view? ;) Ahh - the joys of Realpolitik!

[Jim]

NEH,

Ah yes, the "NEW APPROACH" to economic salvation. I see it working now. In Chicago, we call it smoking hopium.

[NEH]

Jim, Without "Hope" there is no future and one might as well "pop a cap" into the ole brain pan. Welcome to Chicago, the former City of Broad Shoulders and the City that once worked! Should I also mention a Country that also once worked?

Happy Fourth of July! I wonder how many of these are left to celebrate? Due to Partisan Politics in the Senate I hear tell that they have abondoned the Nation and it's Economic problems not too mention a war that is not going well for Fried chicken, Barbecue, Potato Salad, Watermelon, Parades, and Fireworks (as for the last two that's a maybe, depending on where you are and the condition of the local budget). If eliminating Parades and Fireworks can help bring local budgets into line why not, Health Care, Jobs Programs, Unemployment Comp., Education, Etc., Etc.. Better a Wasteland than Budget Deficits. Remember, we have a greater political/economic obligation to Iraq, Afghanistan, the Taliban, Al Qaeda and the rest of the World than we have to ourselves and fellow citizens.

[Jim]

NEH,

You and I agree on all of that more than you know and I certainly agree with your last post. But we need more than hope. We need some altruistic action on behalf of our country's inhabitants but not at the risk of running the economy into the ground with poorly conceived theories suggesting that government management is the solution to everything.

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[sesli chat]

It must be stated that in 1998 we were very close to getting something of a compromise on Social Security passed, one that would trade private accounts and some (minimal) means testing for higher taxes and keeping the status quo retirement age. This planned compromise was scuttled when the fortunes of the two men negotiating it, former Speaker of the House Newt Gingrich and President Clinton, both became embroiled in personal scandals. This does suggest that this type of compromise is certainly doable in out given political environment, but it is certainly unlikely. The alliance between fiscal conservatives and the DLC liberals (or as they're sometimes called neoliberals) is the only future I can see for this type of entitlement reform

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