Townhall...
The Costs of
Success
By Michael Barone
8/29/2011
Some
of society’s most intractable
problems come not from its failures but from its successes. Often you
can’t get
a good thing without paying a bad price.
A
prime example is our public old-age
pension system, Social Security. It has been completely successful in
wiping
out poverty among the elderly. Old ladies no longer have to eat cat
food to
survive.
But
we pay some prices for this. One
is a lower savings rate. China has a humungous savings rate in part
because it
has no reliable old-age pension system. People have to save if they
don’t want
to starve.
In
the United States, we got out of
the habit of saving. In the decade up to the financial crash of 2008,
the U.S.
savings rate fell below zero.
We
felt comfortable borrowing on the
supposedly ever-increasing values of our houses to support current and
sometimes lavish consumption. Now we’re paying the price.
But
even if our savings rate rises
back to the level of, say, the 1980s, it still may be lower than
optimal.
The
longer-term price any society pays
for a public old-age pension system is lower birth rates. Farmers had
large
families in order to provide additional labor for their working years
and
sources of income for their dotage. So did factory workers a century
ago.
In
Western Europe, birth rates have
fallen below the rate necessary to replace population -- in some
countries, far
below. The American birth rate has remained, barely, above replacement
rate largely
because of immigration. But immigration has slumped during the
recession and
may never return to the 1990-2008 level.
Unfortunately,
under Social Security,
like most public pension systems, current pensions are paid for by
current
workers. As lifespans increase and birth rates fall, the ratio of
pensioners to
active workers falls toward one-to-one.
That’s
not enough to support the
elderly in anything like the style to which they have been accustomed,
unless
tax rates are sharply increased. And sharply higher tax rates, as
Western
Europe has shown over the last three decades, reduce long-term economic
growth.
That’s
the problem, often abbreviated
as “entitlements,” facing our political system.
Some
politicians have tried to address
it. Fresh from his re-election victory, George W. Bush sought changes
in Social
Security in 2005. The obvious reform, then as now, was to reduce high
earners’
pensions by adjusting them upward by inflation rather than wage growth.
But
Democrats would have none of it.
As Bush’s job approval plummeted in the wake of Hurricane Katrina and
lack of
success in Iraq, the issue was quietly dropped.
This
year, Republicans addressed
entitlements again, in the budget prepared by House Budget Chairman
Paul Ryan
and approved in the House.
His
proposal was to shift Medicare
from the current plan to “premium support,” in which seniors would get
subsidies to pay for their choice of competing insurance plans. This is
similar
to the Part D Medicare prescription drug program that has won wide
acceptance
and has cost far less than projections.
Once
again, Democrats have responded
negatively. They credit their “Mediscare” tactics for a special
election
victory in a Republican House district in upstate New York.
What’s
interesting is that, in
contrast to 2005, we have had nothing in the way of presidential
leadership on
this issue. Barack Obama, hailed by some conservatives and most
liberals as a
pragmatic problem-solver, has been happy to play politics on
entitlements as
well as on the budget.
He
blithely ignored the
recommendations of his own commission headed by Erskine Bowles and Alan
Simpson. He has said since he would take a look at raising the Medicare
eligibility age -- it’s now lower than the Social Security age.
But
anyone can take a look at a
proposal. We pay presidents a good salary to lead, not just to look.
So
far, the Republican presidential
candidates have not done much leading on entitlements, either. They
have tended
to take a gingerly approach to Paul Ryan’s Medicare proposal, and Newt
Gingrich
even trashed it.
The
conventional wisdom is that this
is simple political prudence. Don’t give the other side a juicy target.
But
we are faced not only with a huge
short-term budget problem but with the prospect of a Western European
future of
an enlarged government, ever higher taxes and lower growth. Is that
really what
American voters want?
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