Don’t Panic! At least not about that…

In last week’s column by Robert Samuelson set me off a little.  Not because he’s entirely wrong; he does identify some issues we need to work on.   But he seems excessively exercised about issues that really aren’t that threatening, and not nearly exercised enough about those that are.  He’s ridiculously obsessed with Social Security, for example, and continues to confuse Social Security with Medicare.  For the record: Social Security may need some tweaks or supplements, but it’s not our primary economic problem in either the short run or the long run.  Medicare and Medicaid, which he also cites, is a bigger long run problem---but not because they are government programs, or because we pay for them through taxes.   No matter how we pay, with public funds or private, the problem is that the fraction of our national income we use to pay for health care is rising exponentially, and unless we change that fact those costs will eventually overcome our ability to pay them.   

But Samuelson’s panic is not that health care costs are rising, it’s that too high a fraction of the population will be old in the near future, and that it’s not fair to the younger generation to have to support them.  Here are his words:

“The young (and I draw the line at 40 and under) face two threats to their living standards. The first is the adverse effect of the Great Recession on jobs and wages. Even if this fades with time, there’s the second threat: the costs of an aging America. It’s not just Social Security, Medicare and Medicaid — huge transfers from the young to the old — but also deferred maintenance on roads, bridges, water systems and power grids.”  

So right up front we see that Samuelson can’t count: that’s really three threats (the long run impact of our current recession, social support programs for the elderly, and crumbling infrastructure).  On the last and first of these, yes, and I’ll expand a bit below, or tomorrow.  But let’s deal with the middle “threat” first, with Samuelson’s special obsession with the unbearable burden that the elderly will place on the young in the future.   

Frankly, I see his point; it’s true that the ratio of the population that is working age will shrink somewhat in the next few decades.  My difference with him is that I think it’s a waste of time to get all sweaty with fear or depressed about that.  After all, what, exactly, are we supposed to do about it?  Is Samuelson’s column a plea for mass extermination of anyone over forty?  Or does he think we should throw the elderly out of their houses to live in post-apocalyptic tent villages by the sides of the country’s deteriorating freeways, foraging for grubs and weeds to eat?  What is his suggestion here?  Yes, the population is aging, and yes, that means that we who are still working---and even though I’m a baby boomer I expect to be healthy and working for quite some time yet---will have to support them with at least a minimum level of medical care and a minimum level of dignity in their lives. I don’t regard that as a calamity, or as an unendurable burden either.  I regard it as a fairly ordinary and unexciting fact.  We can manage it.  These are the people who worked their whole lives to leave us with the America we have now; people who fought wars for us, built businesses for us, built dams and highways and sewage plants for us.  I have no complaint about paying a little more in taxes to keep them out of poverty at the end of their lives.  And the bargain, for me and for all those youthful under-forty types, is that when at last we are declining into old age, those who are healthy enough to work then will provide us with what we need to stay out of poverty.  There’s nothing new about this.  It’s been the custom of families and tribes since long before history began.  The only difference now is that we do it as a nation. 

And I’d like to remind Samuelson, and all the others who are currently obsessing over this, that the issue of how the nation’s product is distributed is not brand new.  We all live in our own bit of history. The bit I lived through as a young working adult started in the seventies, just as the supply-side anti-tax, anti-regulation view became economic orthodoxy and government policy.   As a result those at the very top of the income scale have absorbed much of the economic expansion over the last thirty years.  Follow the link in the last sentence for more on this, but I’ll reproduce one graph from that link here.  It shows the change in income since the nineteen-fifties for the 20th percentile, the 50th percentile, and the 95^th percentile.  It shows that through the fifties and the sixties, and well into the seventies, incomes at all levels grew with the economy.  Since then incomes at the top have grown much faster than the economy, and incomes below the top have lagged far behind.  And look at what has happened to the top 5% in this century! They too have finally started to stagnate---but the top 1% are still thriving. 

Samuelson fears that the workers of the coming generation will experience less robust income expansion than they might in an ideal world; that their incomes may stagnate a bit because they will have to give up part of the value they create to support the elderly.  And so they may, to some extent.  They may have to share what they produce just as those below the top in my generation have “shared”, and experienced slower income growth than we might have, because we have had to support the wealthy.   But we have not stood still.  Even with the stagnation implied in the graph above most of us are still better off than we were in the fifties, or the sixties, or the seventies.  The incomes of the 50^th percentile rose more slowly than it had in prior years, but it did rise, and so will the average income in the next generation.

But there is this to ponder: we helped support the wealthy for the last few decades, and we will have to help support the elderly in the next few decades.  But is it reasonable to ask us to help support both?   And if not, which would you rather support?