USAGE

The Entitlement Problem

Media Co-optation

Next time you fill up your car with gasoline, ask the young attendant if he or she expects to receive Social Security benefits in the distant future, perhaps 30 or 40 years from now. Typically the answer will be no. Anti-entitlement critics have already done their job. They’ve co-opted media reporting so successfully for the last two decades that most young people today believe critics' prognostications of imminent entitlement funding collapse.

News media have joined the entitlement critics’ propaganda machine, sometimes forsaking journalistic balance while printing shocking, unsubstantiated and misleading articles designed to provoke fear and anger among readers.

So the critics warn us: in 2007 Medicare began paying more in benefits than the program receives in income through payroll deductions. Social Security will take in less than it pays in 2017.

The nation’s “unfunded liabilities” — the money needed by the federal government to pay for all its promises to retirees, federal employees, military families and disadvantaged groups — will reach a mind-boggling $52 trillion by mid-century. Keep in mind that the nation’s gross domestic product (GDP) in 2007 was $13.8 trillion. Thus, assuming no growth or contraction in the GDP a few decades from now, it would take 3.8 years of income derived from all the goods and services produced and sold by all the companies and individuals in this country simply to pay for the promises made to retirees and other dependents over the course of the next 40 years.

Those who are preaching economic hell and damnation are perhaps at heart well-meaning citizens, committed to their beliefs. But their beliefs are just that: improvable predictions about the future. The depth of their commitment and all the implied values that swirl around their numbers — the zealotry embedded in their messages — makes their anti-entitlement crusade an ideology – an ism. Call it anti-entitlementism.

They are asking Americans to suspend disbelief that any mortals can truly predict the future with accuracy, especially 40 years into the future... and especially predictions made by economists with an agenda.

Steven Mihm, an assistant professor of economic history at the University of Georgia, proposes an interesting observation about predictions made by economists:

“Recessions are signal events in any modern economy. And yet remarkably, the profession of economics is quite bad at predicting them. A recent study looked at 'consensus forecasts' (the predictions of large groups of economists) that were made in advance of 60 different national recessions that hit around the world in the '90s: in 97 percent of the cases, the study found, the economists failed to predict the coming contraction a year in advance. On those rare occasions when economists did successfully predict recessions, they significantly underestimated the severity of the downturns. Worse, many of the economists failed to anticipate recessions that occurred as soon as two months later.”

If economists have been woefully inadequate at predicting recessions just a few months before they strike, how much credence should the American public place in their predictions for 30, 40 or 50 years from now?

Yet, those who feel they have the clearest view of an economically disastrous future have been gaining traction in recent years. The list of entitlement doomsayers is growing as the Baby Boomer Generation teeters perilously into the years when their leading members are becoming eligible for these benefits. The short list includes the Cato Institute, the Concord Coalition, the Peter G. Peterson Foundation, and Americans for Generational Equity.

Media Goals of Entitlement Critics

   

Propaganda in Action

Entitlement critics have been disseminating their propaganda forewarning catastrophe since the 1980’s.

Peter G. Peterson, former chairman of the Blackstone Group and founder of a foundation under his own name, wrote a provocative book entitled Gray Dawn. Even the title reveals his sentiments. An aging population is, indeed, a gray prospect, literally and metaphorically. He writes, “If we do not reform tax and spending policies, the benefit outlays for just five programs — Social Security, Medicare, Medicaid and federal civilian and military pensions — will exceed total federal revenues by the year 2030. This would leave zero tax revenue for any other purpose — not even for interest payments, nor for national defense, nor for education, nor for child health, nor for the federal payroll.”

One way Peterson and his allies have been successful in shaping pubic opinion over two decades is to amalgamate Social Security and Medicare into one unified concept.

Although these two programs are very different and have different financial models, unifying them under the banner word of “entitlements” makes both programs equally objectionable. And, of course, to be entitled to anything challenges cherished American values such as meritocracy, individualism and restrained governmental power. Entitlements are anathema to truly free markets and harbor hints of socialism.

With the force and reach of substantial marketing resources, as well as media too easily lured by gloom and doom stories about “greedy geezers,” the critics continue their agenda of co-opting media attention and reporting. They spin horrific tales of future crises; media lap it up, relishing these headline-winning ominous tones of future calamity and intergenerational inequity.

Charles Schwab, the securities brokerage and financial services company, recently conducted a nationwide survey of all major generations: Generation Y (ages 13 to 31), Generation X (ages 32 to 43), Baby Boomers (ages 44 to 62), and the Silent Generation (ages 63 to 83). The most disconcerting finding in this survey of 3,866 Americans is that only 15% of Americans are optimistic about the future of Social Security; 60% are fearful of the program's long-term viability. More than 2/3 of the survey group believes that the Social Security program needs a “significant overhaul.” Only about 1/3 of the survey group believes the program can be “fixed with some relatively minor changes.”

Now a reality check: Few, if any, of those surveyed have hands-on experience with the nuances and machinations of the Social Security program. The program is too complex and inaccessible for scrutiny. Perceptions about the inevitable insolvency of this program have been shaped by media reports; often these news articles reflect manipulation of public perceptions by foundations, think tanks, associations and private companies interested in overhauling Social Security, with privatization being the nearly universal goal.

As I have written, Social Security critics have done their job, and the onslaught is moving into Round Two with the release of I.O.U.S.A.

Recent Developments Among Those Denouncing Entitlement Spending

Public Policy War Unfolding

Peter G. Peterson, former Commerce Secretary under Richard Nixon and co-founder of the Blackstone Group, has been a substantial beneficiary of the free-enterprise system. In June 2007, Blackstone became a pubic company while attracting over $4.13 billion in its initial stock sale and ballooning the company market value to $33 billion. The company also enjoyed a lucrative tax break, being taxed at 15% (the partnership rate) rather than at 35% (the corporate rate). Peterson allocated $1 billion of his wealth to form the Peter G. Peterson Foundation, with Peterson, his wife and his son as sole directors.

The foundation’s agenda covers many issues confronting contemporary America, including nuclear arms proliferation, but the issue of greatest emphasis is the nation’s impending entitlement funding crisis.

To fight this public policy battle, Peterson hired David Walker, the then-acting Comptroller General of the United States, to become the new CEO. Walker has a history of speaking out against federal deficits. As the nation’s chief accountant, Walker has earned a respected reputation with some bipartisan, both-sides-of-the- aisle overtones. Appointed by President Bill Clinton, Walker began the 15-year job after successful ratification by both houses of Congress, and continued through most of George W. Bush’s terms of office until February 2008.

The first priority of the new foundation is to release an independent film and publish a book entitled I.O.U.S.A. Inspired by the enormous success of former Vice President Al Gore’s environmental movie, An Inconvenient Truth, Peterson and Walker hope to stir the public debate about entitlements in the same manner that Gore successfully positioned environmental degradation and irreparable climate change as one of today’s most discussed public policy issues.

In 2006, another pubic policy group formed. Americans for Generational Equity advances “public understanding of the stakes of younger and future generations in pending changes to the social contract, which will occur as America accommodates the baby boom generation’s retirement.” Its board president is Richard Lamm, former three-time Governor of Colorado and a vocal critic of entitlement programs as “fiscal child abuse.” In mid-June 2008, AGE held a forum in Washington D.C, entitled YES — Youth Entitlement Summit. The Summit created a context to develop youth leadership around entitlement issues, driven by the underlying ideological framework that entitlements represent enormous fiscal threats to future generations.

The Concord Coalition is another public policy institution sharing goals similar to AGE: a nationwide, grass roots organization advocating generationally responsible fiscal policy. The Coalition has been sponsoring the Fiscal Wake-Up Tour, “a series of public forums around the country designed to focus attention on our nation's daunting long-term fiscal challenges.” These allegedly bipartisan forums, starring David Walker and Bill Bixby, Coalition executive director, have provided rich visual fodder for I.O.U.S.A. camera crews to capture raw video for their movie. Pete Peterson helped start the organization in 1992, along with the late former senator Paul Tsongas and Senator Warren Rudman.

Another major contributor in the anti-entitlement fraternity is Laurence Kotlikoff, Boston University economics professor and author of The Coming Generational Storm — What You Need to Know about America’s Economic Future. Kotlikoff provides the intellectual underpinning and academically grounded theories upon which acolytes often draw their proof of fiscal disasters besetting the nation.

In this book, Kotlikoff offers a number of recommendations for addressing his perceptions of the fiscal challenges of Social Security. His most dramatic proposal is to eliminate the Old Age Insurance component of Social Security and replace it with equivalent compulsory contributions to PSS (Personal Security System) accounts. How would these accounts be managed? By investing them “in a single market-weighted global index fund of stocks, bonds, and real estate.” In other words, everyone gets to play in the financial markets.

Do you want to be wealthy? Make sure Kotlikoff's proposals become law, and then be sure you're leading for one of the private-sector investment companies who will service and oversee these investments, handing taxpayers their transaction costs.

Arguments of Entitlement Critics

Entitlements are fiscally untenable.

In four words, this is the essential argument of anti-entitlementism. The nation is currently experiencing unprecedented deficits, contributing to an existing U.S. public debt of nearly $9 trillion. Looking ahead about 40 years, anti-entitlement critics predict that the unfunded entitlement promises, plus the nation’s other debts through annual deficit spending, could place this nation over $52 trillion in the red. Some of their predictions reach the stratosphere with $75 trillion unfunded liabilities.

Social Security surpluses end in 2017 when the cost of the program exceeds payroll deductions for FICA. Medicare is already costing more than payroll deductions can counterbalance. Pete Peterson and Dave Walker estimate that your share of the federal debt burden is $175,000, the same as for every other U.S. citizen.

Generational Inequity

Further, critics see the larger issue to be one of intergenerational inequity. In other words, when today’s entitlement qualifying generations, particularly Baby Boomers, create so much future debt with their entitlement spending, this is simply unconscionable. This generation of spenders will leave the nation’s youth with unmanageable and unprecedented debts, in effect requiring our children and grandchildren to pay for our fiscal abuses. Ultimately, this will lead to a much diminished standard of living for today’s youth later in their adult lives with lesser chances to enjoy rich and rewarding American dreams. They’ll be spending their earnings to pay our bills.

One message not being directly communicated through anti-entitlementism is their perceptions of aging and the elderly. To them, old age appears to mean dependency, taking rather than producing.

Their targeted messages to the nation’s youth can have the effect of fomenting generational divisiveness and antipathy. Critics are hardly subtle about communicating this as part of their overt agenda, believing that children and grandchildren, duly informed and inspired, can strike with psychic vengeance and lay upon their elders the mother of all guilt trips.

Major Concerns Raised by Entitlement Critics

Generational Equity

A consistent message foisted by entitlement critics is the intergenerational injustice of the Boomer generation creating huge debts that their children and grandchildren must repay. They refer to this as “fiscal child abuse.”

I read blogs and news articles nearly every day that are highly critical of Boomers. Follow-up comments by readers tend to be equally vindictive. Many who comment are younger and have come to believe that their future has been preordained, compromised, and the horizon looks stormy. They need a scapegoat, and their choice is a large generation with a notorious mythology of civil disobedience and self-centered greed.

Generational critics are fanning these flames of discord between generations, even though rational people believe that solving myriad problems confronting the nation will require unprecedented intergenerational cooperation.

Disrupting the implied social contract between generations could lead to further fragmentation within our society. It could further marginalize older adults, diminishing rather than growing opportunities for substantial contributions throughout the lifespan. The social carcinoma of ageism could continue growing to such an extent that criminal elements increase their violence against older Americans, with theft and abuse in all its ugly forms becoming routine.

Privatizing entitlement programs may serve some constructive purposes for all generations but this initiative will make a small minority of entrepreneurs and mega-corporations exceedingly wealthy. We can surely expect the ranks of billionaires to grow as private retirement accounts swell mutual funds and the bank accounts of their managers.

Wealth creation is a great tradition of this nation, but recent years have demonstrated a growing disparity between the haves and the have-nots. Americans have been learning the hard lessons of deregulation and impotent regulatory oversight through the savings & loan crisis in the late 1980's, the wave of corporate corruption in the early years of this decade, and the mortgage lending crisis that's rocking the nation's economic stability today.

If private retirement accounts, and mandatory payroll deductions to fund them, become the law of the land, then the U.S. government will experience a shortfall of funds to pay for the promises already obligated to today’s retirees. This shortfall, estimated to be in the area of $1 trillion in the first few years after privatization, will need to be covered by other taxes such as greater income taxes.

If Entitlement Critics Are Successful

Who's Dependent?

One of the greatest accomplishments of the nation’s entitlement programs is the extent to which social insurance has lifted elderly out of poverty. Before Social Security, more than 60% of our poorest citizens were over age 60. If we remove this safety net — this socially mature foundation of aging and retirement — we can surely expect a larger number of older citizens to fall between the cracks and spend their final years in a hand-to-mouth existence. Even though some of the critics propose offering disproportionate public benefits for the poor, those on the fringes of poverty are still likely to experience the penalties of reduced and privatized entitlements. The old will get poorer.

The most vulnerable group will be women who live longer than men and spend more of their later years alone. Women have traditionally been penalized economically from a combination of glass ceilings and time away from careers to raise children. They often have less lifetime earnings upon which Social Security benefits are calculated. They are more likely to live to extreme old age when savings have been exhausted.

Entitlement critics often point out that during the early 1950s, 16 workers supported the entitlement benefits for a single retiree. By around 2050, they predict that just slightly over two workers will support one retiree, which of course appears financially unrealistic and implausible. However, without entitlements the typical young person might still need to support two dependent people in retirement. They are called Mom and Dad.

One of the other important benefits of Social Security is how this program has successfully freed young people from the financial burdens of eldercare. Few young people in the prime of their careers would hope for a return to the customs of earlier centuries when Mom and Dad spent their final years with their kids, dependent and dominating.

Privatization presupposes that the financial markets perform positively without debilitating recessions and market plunges. Once private retirement accounts lose substantial value, the only recourse would then be governmental bailouts, and of course this burden would then fall on taxpayers.

Governmental guarantees (to facilitate public policies supporting transformation from public entitlements to private accounts) may serve the investment community well (who would make their fees and commissions in good times and bad) but guarantees offer scant solace to taxpayers who may one day face colossal tax increases to cover shortfalls in private accounts.