My Main Page with Links to My Other Book Reviews

Will America Grow Up Before It Grows Old: How the Coming Social Security Crises Threatens You, Your Family, and Your Country by Peter G. Peterson

When asked how much of the economy is devoted to various activities, Americans are rarely off by a handful of percentage points. They are off by factors of ten. Peter G. Peterson delivers one of these statistics. Roughly 70 percent of American adults think NASA’s budget is larger than the Social Security budget. In 1996 the Social Security budget, not including Medicare, was 26 times the size of NASA’s budget.

Peterson argues that Social Security should be reformed. There never was a Social Security trust fund and there almost certainly never will be a Social Security trust fund, except in some imaginations. Zip. Zilch. Nada. I am surprised some one has not come up with the bright idea of declaring all federal tax revenue a Social Security “trust fund.” There is a distrust anti-fund called the federal debt and numerous other debts.

We should, argues Peterson, face some facts. By the year 2030, Medicare and Social Security will be running $1.7 trillion annual deficits, barring changes in policy. There is little doubt there will be changes. The federal government, he claims has $17 trillion in "unfunded mandates," meaning promises to pay retirement benefits for which no money has been set aside. Peterson makes many important points that have been ignored by pundits, politicians and citizens, especially in their straw person attacks on his work.

He claims that America is investing too much in well-off older Americans at the expense of younger Americans and that these expenses are not older Americans simply getting back what they paid into the system. Retirees get back several times what they paid into the system. Nearly half of all government entitlements go to households with incomes over $40,000 despite the fact that most of these individuals are not working. Because lower income individuals die younger, Peterson argues that Social Security is regressive.

According to the Senate Special Committee on Aging, labor force participation by all age groups of men decreased between 1960 and the projections for the year 2000. The largest percentage drop is for men in the 55 to 64 age group from 87 percent participation to 68 percent participation. For all men it dropped from 83 percent to 76 percent. The median age of retirement has decreased from 67 in 1955 to 62 in 1998. That won't go much lower. The median income of men in the 65+ age bracket increased $3806 from 1973 to 1997. The median income of women in the 65+ age bracket increased $7547 in constant dollars over this period. The mean for both increased even more. Meanwhile, the median income of families with children declined between 1973 and 1997 despite increases in two-working families, while costs in transportation, health care, childcare and other family expenses exceeded the inflation rate. Regressive taxes on families also increased during the past generation. Americans over 65 have twice as much disposable income as those between 25 and 34 despite the fact that the overwhelming majority of the 65 plus crowd are not working. Why should people earning six dollars an hour pay 15.3 percent of their incomes to a program where much of the money devoted to healthy, wealthy and idle 63-year-olds? Without changes there will be an 11:10 child to elderly ratio in 2030, a ratio that could easily become worse. In 1970 the ratio was 35:10.

Peterson argues that the claim that individuals in their 60s need to retire because they are washed up in nonsense. He offers research that suggests older Americans can be just as productive as any other age group. (Interesting, irrelevant factoid: In pre-modern cultures retiring was considered a tragedy.)

Peterson’s extrapolations are scary, albeit not particularly accurate, extrapolations. If Medicare continues the growth rate it has enjoyed for the past three decades it alone will consume 40 percent of payrolls a generation from now. Of course, that won't happen. The question is what types of changes will keep it from happening. While Americans debate million dollar programs, few talk about the 17 trillion in unfunded liabilities and trillions more in state local and private pensions.

Productivity increases, claims Peterson, will not do enough. Productivity increases over the past generation are well below what they were from 1945 to 1973. Ever-greater percentages of the economy shift to the service sector. The manufacturing sector has had great productivity increases in recent years, but manufacturing is only 15 percent of the workforce. Service workers are 80 percent of the workforce. How much can productivity in service sector jobs increase? How much more efficient can pizza delivery get? People who think some hypothesized productivity boom in the future will get us out of this mess are probably mistaken. Care taking is not like farming. The elderly are not corn stalks that a handful of humans and high tech machinery can care for. Instead of reducing costs, new technologies are among the factors increasing costs for older individuals.

The view that immigration will help fix retirement problems is a myth. Whatever the moral, social, economic and environmental benefits and harms of immigration, immigration is a unhelpful for the public and private pension messes. According to the Government Accounting Office, the mean number of years spent working before collecting Social Security by native-born citizens is nearly twice as great as the mean for immigrants--20.5 years compared with 10.5 years. The mean age of immigrants is only five years younger than the nation as a whole. Increasing legal immigration from eight hundred thousand a year to 1.4 million a year results in 19 percent of the population being 65 and over in 2050. Keeping legal immigration at current levels results in 20 percent of the population being 65 and over in 2050. Immigrants collect less in Social Security benefits but their Medicare costs are similar and, most important, they pay far less in lifetime taxes because their incomes are lower and they spend fewer years in the labor force. The only way immigration could help is if it were restricted to individuals in their teens and twenties.

Peterson's tone is apocalyptic and that makes him an easy target for critics, but the consequences of our retirement system need not be apocalyptic to be unjust. In addition to the social and economic costs of early retirements we lose the moral and social productivity of healthy retirees. We lose tax revenues from them, revenues that could be used to change the moral complexion of this planet. The United States can afford the costs. The question is should it pay the costs.

Critics of Peterson will instantly distort this work and say Peterson intends to throw poor 80-year-olds into the street, and try ad hominem attacks by appealing to the circumstances of our parents. The problem of the public and private pension disasters isn't the size of the social security check for poor eighty-year-olds. The problem is wealthy retirees and the huge numbers of healthy retirees in their 40s, 50s and 60s. The biggest issue is not whether we can afford the costs, but whether we should choose the costs and opportunity losses. Because Americans can afford to spend money on something does not mean that they should. The Soviets could afford to spend an astonishing 76 percent of national income on defense in 1944.

That European countries already live with higher levels of retirees, and ergo, we should not be concerned what will happen when our numbers jump in a couple decades is nonsense. American retirees in 20 years will expect much more expensive medical care than current Europeans. Current retirees in Europe create enormous costs for their societies. America also has large military, law enforcement and other costs that other nations do not have.

Some other points:

· If Social Security kept pace with increases in life expectancy, the retirement age would have increased from its original 65 to 74.

· In 2040 the population of the "old old" will at least triple. These individuals require much more in federal expenditures.

· Tax evasion will become widespread if median income workers start paying over 40 percent of their incomes in taxes.

· Almost all public and private retirement benefits--including labor provided--are binding contracts young people never agreed to enter or would not have entered had better alternatives been available. Younger folks should be called generation s for servile rather than generations x and y. They are willing to butt heads over trivial matters, yet kowtow to pop icons and powerful boneheads.

· Retirees enjoy other advantages. Much retirement income is tax-free. Retired couples with incomes of $30,000 in 1994 paid about $790 in all federal taxes. Working families with a similar income paid about $7,035 in all federal taxes.

· Couples who retired in 1995 will receive 200 to 300 thousand more in Medicare and Social Security than they paid in retirement taxes plus interest.

Peterson proposes an affluence test and a quicker phasing in of the 67-retirement age. He also recommends are partial privatization of Social Security.

Jonathan Chait offers some good arguments against privatized Social Security. First, few people are expert investors. Statistics trumpeting the number of people who own stocks fail to mention that most people own only token amounts. Second, It is difficult to predict how long you will live and what your health will be. Dying one year after retirement and dying 20 years after retirement are both highly probable. Third, some individuals will lose big, and taxpayers will end up subsidizing risky investments. Fourth, it would not help overall GDP. It would merely shift income to expert investors and the financial services industry. Fifth, young people would be double billed.

They would still have to pay for current retirees and they would have to pay for their own retirements.

Peterson's extrapolations are already dated. They may not be in the right ballpark, but they are close to the ballpark.

His recommendations as a whole are not as good as those in True Security, but they are much better than doing nothing. Then again, if he delivered sober arguments like True

Security, he would be almost completely ignored rather than merely ignored.

Recommended. 213p (H) 1996

—Book review article by J.T. Fournier.

My Main Page with Links to My Other Book Reviews