Generations and Governance

Oct 04, 2012 | 

William H. Young

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Generations and Governance

Oct 04, 2012 | 

William H. Young



In the mid-1960s, Medicare was added to Social Security to complete the progressive promise of entitlement to a government-supported retirement. Simultaneously, the first college graduates of the baby boom generation completed an education being turned upside down by what became postmodern multiculturalism. Progressivism and postmodern multiculturalism have together engendered an unforeseen clash between the baby boom generation now beginning to retire and their children and grandchildren.

Progressivism still seeks to retain rather than reform the entitlement obligations that now cannot be satisfied. Postmodern multicultural higher and public education has produced younger generations with limited capabilities and prospects for taxable income to sustain such obligations. Moreover, younger generations will not be able to enjoy such entitlements when they retire, having had to support their wealthier parents and grandparents.

In “Generational Warfare,” Reason, August/September 2012, Nick Gillespie and Veronique de Rugy explain why this is the case.

Between 1975 and 2000, spending on all entitlements grew at an average rate of 3.96 percent, while annual growth was 3.37 percent. Then the ratio really started to deteriorate: Between 2000 and 2010, entitlement spending grew 5.3 percent a year while the economy managed just 1.81 percent….The aging of the population and the expansion of Medicare…are the major reasons entitlements grow faster than the economy. And given that the oldest baby boomers are just 66 this year, we haven’t seen anything yet….

The Social Security Trustees’ Report projects that at current tax rates and benefits levels, the trust funds will be completely exhausted by 2033…seven years earlier than projections from 2006. The day of financial reckoning is approaching with accelerating speed….

Medicare’s finances are in even worse shape. Costs are rising more quickly, and, unlike the Social Security levy, the Medicare payroll tax was never designed to fully cover benefits….According to the most recent trustees’ report, the Medicare hospital insurance…trust fund will run out of assets in 2024. Everybody is getting out of the Medicare program more than they are paying in. A single woman…turning 65 in 2010 will have paid in $58,000 in taxes to receive $185,000 in benefits.

While relatively simple changes (retirement age, cost of living adjustment) can rectify the Social Security financial problem, Medicare costs have proven resistant to control. Medicare will either consume a disproportionate share of federal spending at the expense of the safety net, go bust, or require large tax levies on today’s younger workers—not just the rich.

In July 2011, President Obama said that “if you look at the numbers, then Medicare in particular will run out of money and we will not be able to sustain that program no matter how much taxes go up.” (The White House, Press Conference by the President, July 11, 2011)

“Even though he acknowledges this fact, the president has chosen to do nothing, and indeed to stand in the way of doing anything meaningful to solve the problem….The president and his party have…denied the need to reform it.” (Yuval Levin, “Grasping the Medicare Distortion,” National Review Online, August 12, 2012) And to maintain partisan political advantage, they quickly demonize anyone who tries.

Unfortunately, their postmodern politics work. Baby boomers that split their presidential vote evenly in 2008, now favor Mr. Obama by up to 9 points in recent polls because of Medicare. A New York Times/CBS News poll found that 54 percent of baby boomers believe that President Obama “is doing a better job of handling Medicare, compared to 42 percent for Mr. Romney.” (Michael Winerip, “More and More, in Obama’s Corner,” The New York Times, September 24, 2012)

A recent Pew poll (“Medicare Voucher Plan Remains Unpopular,” Pew Research Center, August 21, 2012) asked “whether it is more important to reduce the budget deficit or to keep Social Security and Medicare benefits as they are.” Baby boomers (and the overall public) chose maintaining benefits by 51 percent to 33 percent. Postmodern progressivism prevails.

There has been an even more adverse effect of postmodern multiculturalism. Harvard economists Claudia Goldin and Lawrence F. Katz showed in The Race Between Education and Technology (2008) that since the 1970s, American educational attainment no longer produces enough workers with the skills needed to keep up with technological advance. In several articles, including Competency, Jobs, Education, and Community Colleges, I have elucidated how postmodern multicultural education is falling even farther behind in producing graduates with the skills sought by businesses. Without high-skill workers to fill high-wage jobs, economic growth and individual incomes will continue to languish.

Today, the share of those of working age in the labor force is at a 31-year low; the real unemployment rate (those looking for work, stopped looking, and underemployed) is about 19 percent; and those on Social Security disability is at a record high of 11 million, half of whom signed on over the past three and one-half years. Record numbers of youth have returned home to live, deferring marriage and family. The birth rate is at a 25-year low of 1.87 percent. (Mortimer Zuckerman, “Those Jobless Numbers Are Even Worse Than They Look,” The Wall Street Journal, September 7, 2012) And new young workers are often being paid less and provided fewer benefits in two-tier agreements to maintain older workers’ gains.

In a Manhattan Institute issues paper (“The Unemployment Crisis for Younger Workers,” No. 14, May 2012), Diana Furchtgott-Roth argues that even if the effects of the Great Recession fade,

there’s the second threat: the costs of an aging America….Gains in productivity—from new technologies or better skills—that would normally flow into paychecks will be siphoned off to pay for retiree benefits, underfunded state and local government pensions, and infrastructure repair….As president, Obama has done nothing to improve generational fairness…There are real conflicts between the young and old; so far, the young are losing.

The wealth of baby boomers took a major hit in the financial crisis. Many baby boomers have not saved nearly enough for retirement and face zero interest rates. But a Pew poll (Richard Fry et al, “The Rising Gap in Economic Well-Being,” Pew Research Center, November 7, 2011) found that the wealth gap between Americans 65 and older and those under 35 has stretched to the widest on record. “In 2009, the typical household headed by someone in the older age group had 47 times as much net wealth as the typical household headed by someone in the younger age group.” While lifetime earnings and savings always produce wealthier elders, the ratio between old and young was only 10 in 1984. Nevertheless, wealthier older Americans seek to be supported by their ever fewer and poorer progeny.

Adverse demographics, fiscal realities, low educational achievement, declining wages, and economic stagnation lead to an inexorable conclusion: our younger workers are unlikely to be able to produce sufficient taxable income to subsidize the entitlements anticipated by their elders. Higher taxes will only precipitate a death spiral.

Should our people continue to choose the progressive chimera: no reform of Medicare but redistribution of income from poorer younger families to wealthier older ones? Or should they acknowledge the mathematical realities that underlie the generational choice? We would seem to be at the point where reform of Medicare is essential and should look to seniors and soon-to-be-senior baby boomers to share in the sacrifice needed.

Contemporary America is steeped in presentism: satisfying current needs at the expense of future generations, just the contrary of the pervasive attitude of the Founders, who “displayed a deep and passionate sense of fiduciary obligation to posterity.” (Henry Steele Commager, Jefferson, Nationalism, and the Enlightenment (1974)) NAS has long sought restoration of the knowledge of American history, including such wisdom.  Our senior citizens and baby boomers need to rediscover their fiduciary obligations to posterity—to their children and grandchildren.

Next week’s article will examine the worsening plight of the middle class.

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This is one of a series of occasional articles applying the lessons of Western civilization to contemporary issues relevant to the academy.

The Honorable William H. Young was appointed by President George H. W. Bush to be Assistant Secretary for Nuclear Energy and served in that position from November 1989 to January 1993. He is the author of Ordering America: Fulfilling the Ideals of Western Civilization (2010) and Centering America: Resurrecting the Local Progressive Ideal (2002).

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