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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. Roughly 70 percent of American adults, writes Peter G. Peterson, 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.)


We should, claims 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 asserts, has $17 trillion in "unfunded mandates," meaning promises to pay retirement benefits for which no money has been set aside.


He claims America invests too much in well-off older Americans at the expense of younger Americans. These expenses are not older Americans simply getting back what they paid in. Retirees get back several times what they paid. 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.


Labor force participation, writes the Senate Special Committee on Aging, by all age groups of men decreased between 1960 and projections for 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. Median age of retirement decreased from 67 in 1955 to 62 in 1998. (That won't go much lower if at all.) 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 with much 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 is nonsense. He offers research that suggests older Americans can be as productive as other age groups. (Interesting, irrelevant factoid: In pre-modern cultures retiring was considered a tragedy.)


Peterson’s extrapolations are scary, albeit probably inaccurate. If Medicare continues the growth rate it enjoyed the past three decades, it will consume 40 percent of payrolls a generation from now. That, of course, will not happen.


Productivity increases, claims Peterson, will not do enough. Productivity increases over the past generation were well below what they were from 1945 to 1973. Increasing percentages of the economy shifted to the service sector. The manufacturing sector had great productivity increases in recent years, but manufacturing is only 15 percent of the workforce. Service workers are 80 percent. How much can productivity in service sector jobs increase? How much more efficient can pizza delivery get? A hypothesized productivity boom in the future is 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. Older Americans require much individual attention. 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 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.


Peterson's tone is excessively apocalyptic and that makes him an easy target, 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, revenues that could be used to change the moral complexion of this planet. The United States can afford the costs of early retirements. The question is should it pay the costs.


Peterson's critics say he intends to throw poor 80-year-olds into the street. The problem of the public and private pension disasters is not the size of the social security check for poor eighty-year-olds. A problem is wealthy retirees and the huge numbers of healthy retirees in their 40s, 50s, and early 60s. Soaring medicare costs may be the biggest pension problem. 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.)


Some claim that European countries already live with higher levels of retirees, and ergo, so should we. But American retirees expect much more expensive medical care than Europeans. America also has far larger military, law enforcement, trade deficit, and other costs that many other nations.


Some other points:

·        If Medicare and 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" could more than triple. These individuals require much more in federal expenditures.

·        Tax evasion could become more widespread if lower income workers pay over 40 percent of their incomes in taxes. The wealthy have long been successful in tax avoidance and tax evasion.

·        Many public and private retirement benefits (including labor) are binding contracts young people never agreed to enter.

·        Wealthier 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. Peterson also recommends 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 stock owners own only small amounts. Second, It is difficult to predict how long you 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 and crooked financial activities. Fourth, it would not help overall GDP. It would merely shift income to expert investors and the financial services industry.


Peterson's extrapolations are already dated. They are not even in the right ballpark.


Peterson's retirement recommendations are not as good as those in True Security. More important, Peterson fails to offer adequate prescriptions to deal with exploding Medicare costs. Medicare costs are a much more of a problem than Social Security costs.


213p (H) 1996


Book review article by JT Fournier, last updated July 24, 2009


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