Alright, all you David Brooks haters, he kind of hit it out of the ballpark this weekend. Love this graph:
Ultimately, we should blame the American voters. The average Medicare couple pays $109,000 into the program and gets $343,000 in benefits out, according to the Urban Institute. This is $234,000 in free money. Many voters have decided they like spending a lot on themselves and pushing costs onto their children and grandchildren. They have decided they like borrowing up to $1 trillion a year for tax credits, disability payments, defense contracts and the rest. They have found that the original Keynesian rationale for these deficits provides a perfect cover for permanent deficit-living. They have made it clear that they will destroy any politician who tries to stop them from cost-shifting in this way.
Apt. 11d 
I don’t think that’s right at all. Romney won the majority of the over-65 vote, but the Republicans were the ones proposing to make changes in Social Security, which the Democrats opposed for (what they said were) philosophical reasons. More generally, most studies I have seen suggest that people vote not based on self-interest narrowly conceived, but out of a belief about what is good for the polity. (Our hostess may know more of the relevant literature than I on this topic.) Of course, men are not angels, and their perception of the public good is colored by self-interest, but Brooks is imputing dishonorable motives to people whom he doesn’t even know.
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Excepting the adjustment for inflation, which has advocates on both parties, there hasn’t been a serious proposal to change SS since the Bush administration. And Bush’s proposal would have been a huge disaster during the stock market crash. In this election, the Republicans ran against Obamacare as a threat to Medicare. The changes they proposed to Medicare were all to affect younger people than the current set of retirees.
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“The changes they proposed to Medicare were all to affect younger people than the current set of retirees.”
And, this a key, I think, to the over 65 vote going Republican. I thought some of the comments in the Brook’s article were better than Brooks. I think it’s wrong to say that people vote their narrow self interests but, perceived self interest (sometimes wrongly interpreted) plays a pretty big role. It’s the under 35’s who will be affected by Republican policy changes, not the over 65’s.
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Most of the entitle reforms sound to me like people sitting on the wealth accumulated from their cheating poker game and then, suddenly, saying “let’s play fair” without fixing the results of the ill-gotten gains (or like the folks in a Ponzi scheme who got out their gains saying they should get to keep them). That’s what Brook’s drumbeats sound like to me. Something needs to be fixed to match spending and revenue, but those fixes should involve talking about what we want to spend money on and how much we need to raise to pay for it.
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The average Medicare couple pays $109,000 into the program and gets $343,000 in benefits out, according to the Urban Institute. This is $234,000 in free money. Many voters have decided they like spending a lot on themselves and pushing costs onto their children and grandchildren.
This has never made sense to me, and it makes me wonder if I am missing something, or if everyone else is.
Let’s assume that my Baby Boomer parents are, on average, getting $234K more out of Medicare than they are putting in, and pushing the costs on to me and my children. Aren’t they then also, on average, leaving my an extra $234K in their estates when they die, so that I will have the money to pay those costs?
Or, to look at it the other way, if the Baby Boomers had taxed themselves enough to pay for the Social Security and Medicare they will actually be getting, then my generation wouldn’t have to pay for it, but we also would get smaller inheritances.
The “pushing costs to your grandchildren” argument would work if our parents were like Egyptian pharoahs, and got buried with all of their possessions. But that’s not how it works. It all either goes to the next generation (so we can pay for our parents’ excesses), or else gets paid in estate taxes (so the government can).
I guess in individual cases people may die penniless, leaving their offspring the costs, but not the benefits, but the generational argument is a collective argument, not an individual one. And, overall, money gets left to the next generation.
So why do we care that our parents are borrowing against our futures, if they are also giving us the collateral they used to borrow with?
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So why do we care that our parents are borrowing against our futures, if they are also giving us the collateral they used to borrow with?
It results in a misallocation of the efforts of the current generation (i.e. too many nurses and strippers) and it discourages household formation.
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And, there’s an increasing concentration of wealth, because only some leave the wealth, and thus, in order to continue to pay for everything we have to tax smaller groups of people more progressively (because they are the ones with the estate).
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I’m still not seeing the problem. If the wealth is more concentrated, then we raise the taxes on the rich (like we seem to have done this week.)
The choices appear to be to raise taxes now (or the rich or the middle class or whoever), or raise taxes later on the children of the exact same people, who inherited the money that wasn’t taxed earlier.
If because of “increasing concentration of wealth,” our choices were to tax the rich and middle class 25 years ago, or just the rich today, I guess we made the right choice.
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That would be hugely difficult as it would require a complete reworking of the taxation system in the U.S. Income is taxed when it is earned, wealth isn’t except for the inheritance tax. That only hits at $5 million and there are ways around it.
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But I am not talking about taxing the exactly identifiable individual. I am talking about taxing the “next generation,” like we are burdening them by not taxing ourselves more. I am just saying that the next generation will get the benefits just the same as the burdens, and it will even out.
As a representative of the “next generation” I am indifferent between inheriting a trillion dollars and no debt, and inheriting 3 trillion dollars and 2 trillion dollars of debt.
Deciding which of the collective should pay misses the point. It’s the same question no matter which generation you assign the bill to.
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If you ignore distributional consequences within a collective, it doesn’t matter. That’s completely true and totally useless.
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In my parents’ cases (this is a bit tongue in cheek; they are being really caring about us kids) a lot of it is going to cruises. I think the missing piece in the “but the kids will inherit the wealth” bit is that some of it is just getting spent, period.
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Brooks’s article really made me think we need to scrap medicare and nationalize all healthcare. We spend more per capita on healthcare than other countries, and get a lot less in return. The Feds could save bucketloads if they weren’t wrangling with for-profit insurance companies and layers and layers of administration, basically putting taxpayer money into a completely dysfunctional system.
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“I think the missing piece in the “but the kids will inherit the wealth” bit is that some of it is just getting spent, period.”
Yes. In fact there is a whole Die Broke movement around the notion “you can’t take it with you” (old school YOLO) and “inheritances breed unproductive little ingrates anyway” and “give money to your kids while you’re alive so you get the joy of seeing them use it” – all of which I find persuasive.
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Brooks is of course opposed to nationalized health care. He is really upset that normal people maybe getting free lunches, but thinks that it is perfectly acceptable for so called wealth creators to be parasites. Of course he puts in the stuff about “cutting medicare for rich people” to appear that he is even handed, but really if one is really serious about the costs of medicare, it would make sense to consider expanding medicare to ages below 65 to widen the market and gain pricing power (in the fake capitalist language he professes to love), rather than cut medicare and allow old people to live miserably because they cannot afford health care (which is of course more or less what he suggests).
I have read enough of his stuff to not take any
figures he quotes at face value anymore. It seems to me that more than medicare being expensive, the private health care that most of us try to afford is even more so, for no clear reason,and is the system we should aim at making smaller.
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Brooks is of course opposed to nationalized health care.
So am I. The only alternative that was plausible (assuming you wanted to provide health care to poor people) was proposed by Romney when he was governor and opposed by him when he was running for president.
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If you ignore distributional consequences within a collective, it doesn’t matter. That’s completely true and totally useless.
Back up:
I am arguing only against the common refrain used by Brooks and others, “Many voters have decided they like spending a lot on themselves and pushing costs onto their children and grandchildren.” This is the sentence I have problems with.
Now, I could challenge this by saying, “Some old people don’t have kids, so obviously this is wrong.” Or “Some rich people have poor kids who don’t pay taxes, so this is wrong.” But I am not making this point, because we are not talking about literal children and grandchildren. We are talking about an older generation getting benefits, and a younger generation paying the debts.
As with the debts, so the same with the benefits. Sure, my parents may be spending my inheritance in Aruba, but we are not looking at individual families, but collective generations. And as long as the older generation that is borrowing for health care is leaving more (as a generation) to the next generation than they are borrowing, then it doesn’t actually matter whether MY SPECIFIC PARENTS got too much out of Medicare, or MY SPECIFIC PARENTS left me a large inheritance.
It only matters if the generation that is leaving us the bills is also leaving us the money to pay the bills. And I think that they are.
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I figure I couldn’t be the only person to think this. Paul Krugman agrees with me, with will either make you more or less likely to see my point, depending on your politics.
http://krugman.blogs.nytimes.com/2012/10/12/on-the-non-burden-of-debt/
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Krugman allows that it has distributional effects. He seems to think that politicians are ignoring the fact that the only effects of this are distributional as opposed to being politicians (that is, people who owe their positions to paying close attention to distributional effects). This isn’t so much politically left/right. Every time the White House switches parties, the pundits switch sides on the issue.
Economists are always ignoring distributional effects and obvious institutional factors (like a tax code) so that they can have fun with math.
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JennG said:
“In my parents’ cases (this is a bit tongue in cheek; they are being really caring about us kids) a lot of it is going to cruises. I think the missing piece in the “but the kids will inherit the wealth” bit is that some of it is just getting spent, period.”
Yep. The Boomers are heading to retirement in very poor financial shape when you look at stuff like home equity, retirement savings, credit card debt, student loans (??!!) etc. I’d pull up the cites for this, but baby is calling.
And the previous generation isn’t always doing so hot, either. I heard a caller to the Dave Ramsey show a few days ago who was calling to ask what to do about their parents (age 79 and 80) who had somehow racked up $80k in credit card debt.
Part of the issue is that in the American middle, there’s a lot of strategizing about how to get the feds to pay for your (or your mom’s or your grandpa’s) nursing home. That encourages a lot of spending and a lot of passing on money to descendants in advance of the five-year look-back period.
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I just settled baby into her Jumperoo. Here is a cheery story:
http://usatoday30.usatoday.com/money/perfi/retirement/story/2012-09-09/inheritance-generation-z/57720470/1
“Young Americans who grew up during the Great Recession apparently did not learn much from their parents’ money woes. There is a major disconnect between many of their financial wishes and realities.
“Nearly 40% of Generation Z, those ages 13 to 22, expect to receive an inheritance, according to a recent TD Ameritrade study. As a result, they don’t believe that they will need to save for retirement.”
“Only 16% of parents said that they expect to provide an inheritance, says the TD Ameritrade study. The fact that many parents are scaling back on bequests does not necessarily mean that they can’t afford to provide an inheritance.
“Among adults with at least $100,000 in investable assets, 58% say leaving an inheritance is not a primary concern, according to a PNC survey. Instead, 42% say that saving for retirement is their primary financial goal, while passing on money to a future generation is far down the list. Only 2% say it is a primary financial goal.”
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I was just doing a little fuzzy math, and I’m thinking that my parents have more than increased the intergenerational pot by $234k–they’ve built a house, put in lots of farm infrastructure (fencing, corrals, buildings), built a small store, and they are in the process of building some cabins in partnership. (This is being done on a good, but not amazing income, and a lot of it was done 20 or 30 years ago on a very small income with sweat equity.) If every American family were exactly like my parents, we’d average out very nicely. Unfortunately, that isn’t the case. There are many, many Americans of the same age and similar income history who are heading toward retirement with negative net worth.
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