USAGE

Arguments Against Entitlement Critics - Part 1

Economic Crisis Revisited

One key argument presented by entitlement critics is the unprecedented nature of the funding crisis. An economic crisis of this magnitude has never happened before. No generation has handed younger generations such a financial disaster.

Richard Lamm, former three-time Governor of Colorado, president of Americans for Generational Equity, and author of The Brave New World of Health Care, frames his moral argument this way:

“I inherited from my parents’ generation a small federal debt and the world’s largest creditor nation. I am leaving our children a staggering federal debt and the world’s largest debtor nation. I inherited a nation that produced more than it consumed, and I’m leaving my kids a nation that consumes more than it produces.”

While it is true that each new chapter in history is different from any that came before, this is not the first time that an elder generation has presented younger generations with enormous economic challenges.

The Lost Generation (b. 1882 – 1900) put the roar in the Roaring Twenties and included iconoclastic notables such as Ernest Hemingway, D. H. Lawrence, Georgia O’Keeffe, T. S. Elliot, Louis Armstrong, Mae West, F. Scott Fitzgerald and William Faulkner.

This generation also handed their children, the GI Generation (b. 1900 – 1925), an economic disaster called The Great Depression. Although the severe economic depression was a loadstone on all citizens, the young men and women of that time (including my parents) suffered the most with rampant unemployment and daily struggles to make ends meet. Then they fought a war and after winning against Axis Powers, they inculcated the most successful economic expansion in the 20th century.

Boomer Generation Penalties

Entitlement critics also fail to look at the impact their proposals may have on today’s Baby Boomers as this generation begins to qualify for these income and healthcare benefits. Due to a history of generational overcrowding, plus two decades of corporate downsizing and corporations exporting well-paying jobs overseas, somewhere between one-third and one-half of this generation is inadequately prepared for retirement. According to articles in TIME magazine and elsewhere, around 25 million Boomers have net assets of $10,000 or less. Yet, many in this economically disadvantaged group have been paying Social Security and Medicare taxes with every paycheck for somewhere between 25 and 40 years.

So, what is the equity in this: the possibility of benefits being severely curtailed just as those who are still working begin to consider retirement, and many of whom will desperately need financial assistance to survive retirement?

Entitlement critics often suggest that those in retirement and near retirement will not experience any penalties upon restructuring of the entitlement programs. So, what is near retirement? One person might have been born in 1949 and his full entitlement benefits grandfather into a new program. Another might have been born in 1954, and she would lose benefits due to elimination of future accruals.

Risks of One-Dimensional Thinking

Generational accounting tends to be one-dimensional: it’s about the numbers. Accountants look at past taxation, productivity, and consumption patterns, coupled with demographics, to develop their scenarios. It’s by no means an exact science, but entitlement critics present their foreboding numbers as if “the gospel.”

For example, on page 97 of his book, The Coming Generational Storm, author Laurence Kotlikoff explains how uncertainty interacts with their economic scenarios:

“So current decisions depend on future outcomes, but future outcomes depend on current decisions. The only way to solve this problem is to solve for both current decisions and future outcomes simultaneously — hence the term simultaneity problem. In practice, the solution begins by simple guessing future outcomes. These guesses are then used to determine current decisions.

“Next, the current decisions are used to update the guesses of future outcomes, which are then used to generate a new set of current decisions, new updates of future outcomes, and on and on until the model has converged. Convergence here means that the procedure has found a set of current decisions that generate the same future outcomes as had been guessed on the previous round and that were used to determine the current decisions.”

In other language, the dire prognostications being proposed in the movie I.O.U.S.A are based, just as Kotlikoff suggests, on guesses. They might be intelligent guesses, they might be guesses based on sophisticated computer modeling, with convergence of current public policy decisions and future anticipated outcomes, but they are nevertheless, guesses.

Period.

Whether they like the connotation or not, generational accountants are soothsayers. Predictions are based on their perceptions of a future that may or may not happen as many as 40 years from now. How much reliance should we place on their assumptions?

Look at this way: Show me a generational accountant that, in writing, successfully predicted two of the most significant business and technological changes in the 20th century just ten years before these transformations. Show me someone predicting economic disaster in the mid-21^st century who in 1975 predicted the way microcomputers would transform everything in business by 1985. Show me a generational accounting expert who in 1985 predicted the advent and adoption of the internet in 1995.

Looking over our shoulders today, we can see many historical precursors harkening forthcoming societal transformations around desktop computers and distributed digital networks, including their concomitant economic transformations. If the entitlement soothsayers could not predict these major changes ten years before they happened, how reliable can they be at predicting our future 30 or 40 years from now? (For example, what possible future transformations in genetics, robotics, information technologies and nanotechnologies have they not considered? (How do you predict the changes introduced by a generation committed to staying engaged in economic activities across the lifespan?)

Soothsayers read crystal balls. They want you to believe they see clearly into a future that nobody can truly see. They substantiate their predictions by analyzing the past and projecting today’s demographics into the future. As Marc Freedman, author of Encore: Finding Work That Matters in the Last Half of Life observes, “This is scenario planning in the rearview mirror.”

Frankly, actuarial predictions do not show much imagination about how Boomers can transform the future.

Arguments Against Entitlement Critics - Part 2

Working Longer vs. Job Descrimination

Several national studies by AARP, MetLife and other organizations corroborate that over 70% of the Boomer generation intends to keep being productive after the traditional time of retirement. Even if half of this percentage actually continues working into their late sixties and early seventies, this will go a long way in addressing deficits.

Another economic and demographic force is the nation’s need for career extension because of an under-trained younger workforce. According to John McMennamin, a former Fortune 500 corporate senior manager and expert on workforce aging, twenty percent of the current workforce is trained for sixty percent of the jobs now demanding highly trained knowledge workers. Yet McMennamin observes that only fifteen percent of corporations are currently taking steps to address an aging workforce. According to Marc Freedman, the nation will soon need about 630,000 senior executives to run the nation’s non-profit organizations. Where is the experience to fill these gaping needs?

Clearly there is a mismatch between a generation’s willingness to continue working and a business community not entirely set on welcoming “wisdom workers” into the human resources fold. Ageist attitudes sometimes run deep in corporations and organizations. Yet, if more citizens work beyond the traditional age of retirement, they continue contributing to entitlement programs longer, thereby reducing future claims.

A recent study by the Urban Institute supports these views.

“If boomers work longer, the economy could produce more goods and services, boosting living standards for workers and generating additional tax revenue to fund promised benefits for retirees and other government programs. Many surveys find that boomers plan to work longer than recent retirees, but their opportunities will be limited if employers are unwilling to hire or retain them.”

Boomers' fairly widespread desire to remain engaged in the workforce do face obstacles:

“Older workers who do lose their jobs, however, experience longer unemployment spells than their younger counterparts. In 2006, 28 percent of unemployed adults ages 55 to 64 were unemployed for at least 27 weeks, compared with just 26 percent of those ages 25 to 34 and 20 percent of those ages 35 to 44 (Bureau of Labor Statistics 2007c).

“They argue that an increase in global labor supply, which U.S. firms can tap through outsourcing or immigration, will more than make up for any slowdown in the domestic labor force (Cappeli 2005; Freeman 2007). The emergence of China, India, and nations from the former Soviet Union in the world economy may have doubled the supply of workers worldwide. If the expected shortage in prime-age workers does not materialize, employers may face fewer incentives to turn to older workers.

“The substantial increase in the share of the workforce over age 55 in the coming years could lead to a glut of older workers despite the overall labor force slowdown (Sapozhnikov and Triest 2007). Too many older workers could result in lower wages and employment rates at older ages.”

Millennials Rising

Although generational accountants hammer home the unprecedented size of the Boomer Generation, at 76 million, they may not be fully factoring the true size and dimensions of the Echo Boom, Boomers’ children. According to various sources, the Millennial Generation has about 80 million members and growing due to immigration. Conversely, the Boomer Generation is shrinking and today consists of less than 70 million, with another Boomer dying about every 48 seconds. It’s entirely possible that those projecting gloomy future scenarios have not fully considered the true weight of these demographic realities.

Sociological Imagination

The Boomer generation has what Bill Thomas, M.D., a geriatrician, author and founder of the Eden Alternative, calls a unique sociological imagination, with engagement, reinvention, charity and self-empowerment as keystone values.

For example, one presage of the future on a more granular level may be today’s growing enthusiasm for “slow medicine,” wherein patients deliberately eschew elaborate medical technologies with high risks and marginal benefits. This generation may more typically choose less evasive care at the end of life, quality over quantity.

A Healthcare Economy?

So what if the primary economic engine of America becomes healthcare focused? The 20th century can be thought of as an automobile economy that created a national highway system, parking garages, suburbs, shopping malls, gasoline companies, car companies, and drive-through Starbuck’s. This economy created millions of jobs in highway construction, real estate development, retailing, oil and gas exploration, and franchising. A healthcare economy can also stimulate millions of jobs for physicians, nurses, biotech engineers, genetic researchers, and home healthcare aides.

Technologies developed to prolong productive life and engineer negligible senescence have extraordinary market value and could be sold as exports to other countries, such as rapidly aging Europe, Japan and China. In other words, the money always comes from somewhere and goes somewhere.

Arguments Against Entitlement Critics - Part 3

Promise to a Generation

In 1983, Alan Greenspan led a commission to address potential trust fund shortfall, leading to a significant increases in entitlement program taxes, assessments that Boomers have been paying. The Commission’s goal was to create surpluses so that when Boomers retired there would be enough money. This was an intergenerational promise: if Boomers pay more throughout the most productive parts of their careers, these programs will be solid and stable when Boomers retire. Three older generations made these promises to better protect and expand their own entitlement benefits, and Boomers responded by accepting without protest the higher taxation levels.

As we analyze the social and economic benefits of Social Security and Medicare, it’s also noteworthy to mention that 4 million U.S. citizens under the age of 18 receive Social Security benefits. These are survivors of parents who died prematurely due to diseases and accidents. So the program also provides a safety net for the youngest of society.

Social Security is the one social program in the United States that is the closest thing possible to a guarantee. It serves a role similar to defined benefits retirement programs; yet participation in these programs by employers has been shrinking since the 1980s, from over 70% of all employers to less than 35% today.

A guarantee eliminates one of the greatest fears of aging: impoverishment in old age. And although Social Security is not a program offering sufficient individual benefits to support a middle-class lifestyle in retirement, around 40% of all beneficiaries rely entirely on Social Security for their post-retirement income. Even though social insurance cannot make up for inadequate savings or resources, it can and does serve as the foundation of a balanced retirement plan for many Americans. They can sleep better at night knowing that if all else fails Social Security checks will arrive on time; Medicare will pay medical bills.

Market Risks

One consistent solution offered by most critics of governmental entitlement programs is the recommendation to privatize retirement accounts, “to give individuals more control of their retirement savings.” Personal empowerment over personal income rings sweetly to most Americans, but history has demonstrated that, given a choice, many workers choose to cash out retirement savings upon exiting a job rather than roll them over. Self-empowered citizens often don’t save but squander savings on things they need now, or they pay down current debts.

Right now the typical recommendation is for an allocation to private savings accounts in the neighborhood of 2% of income. These accounts will be invested in stocks and bonds, and while certainly they may be well-managed funds, the risk falls on the individual. If the market plunges when an individual would normally retire and his or her personal savings account becomes decimated by a collapse in the equity and/or bond markets, the individual will suffer the consequences.

Even though purveyors of entitlement privatization myths offer assurance with the illusion of potential government backing (wherein shortfalls below investments trigger bailouts by the government), these assurances depend on government promises, and taxpayers ultimately holds the bag to make up deficiencies. Investment managers over private accounts will get their fees and commissions nevertheless.

Another Entitlement Future - Part 1

Longevity Revolution

As Dr. Theodore Roszak, author of The Longevity Revolution, has wisely observed, “Modern society has aged beyond the values that created it.” The time has clearly come for a new conception of aging in America.

Collectively, we need to understand that productive aging means unprecedented opportunities for our nation. It means that people can and will contribute longer into later life, bringing to bear their accumulated experiences and wisdom on today’s greatest concerns for the future of the nation.

It means embracing older workers as fundamental to healthy and robust organizations. We need to keep people working longer into late life, and we must provide the jobs, employer incentives, regulatory policies and tax benefits necessary to change the nation’s paradigms from a youth-centric dominance to a multi-generational mélange, wherein we seek and receive contributions from citizens across the totality of the adult lifespan.

Productive aging means changing our values about “guilt medical care” wherein children often feel compelled to order more and more tests and procedures in futile attempts to overcome hopeless situations for terminally ill parents. It means confronting the legal profession and requiring lawyers to establish new restrictions against excessive litigation of medical service providers for malpractice against those caring for the elderly.

Ultimately, the future of entitlements in America must be intrinsically tied to personal responsibility. We need a fitter, healthier nation if we are going to compete successfully in a global economy.

As our demographics continue to mature, we need a more mature social consciousness that values aging and finds new ways to reward long-lived citizens with continuing participation, relevance and engagement.

We need to fulfill the dream of Franklin Delano Roosevelt who envisioned a future where this nation has permanently exorcised the demons of late-life impoverishment and humiliation.

Another Entitlement Future - Part 2

Assessment of the state of social insurance in the United States is an extraordinarily onerous endeavor. It's complex, interconnected, with outcomes dependent on numerous unpredictable variables. Social insurance critics have made analysis of component programs even more difficult by conjoining them as "entitlements."

No single website, blog, book, speech, movie or discourse can fully articulate all the complex issues, and no single issue can be fully elucidated out of context with other impinging issues (e.g. the overall national debt and annual deficit spending, changing predictions about generational longevity, the future of legal and illegal immigration, scientific breakthroughs in GRIN technologies -- genetic, robotic, information and nano, etc.)

However, an intuitive and interactive approach to addressing Social Security's future solvency has been developed by AARP on its "Social Security Debate" micro-website. This flash website allows participants to assess the pros and cons of several major funding-shortfall proposals to help this program become solvent, now and into the foreseeable future.

According to AARP, a strategic combination of three of these proposals would allow Social Security to become 100% solvent without further revisions to the program:

1.  Increase workers' contributions and employers' matching contributions by 0.25 percentage points each, from 6.2% to 6.45%. This step could reduce a funding shortfall by 23%.

2.  Gradually accelerate the age at which workers can qualify for full (unreduced) Social Security benefits from 67 (for those born after 1960) to 70. This proposal reflects improvements in longevity and growing vitality of older workers and could reduce a funding shortfall by 47%.

3.  Lift the cap on the amount of earnings on which workers pay Social Security tax, now limited to the first $102,000 of annual income. This step cuts the shortfall by 47% while affecting only 6% of the nation's highest income earners.

These three structural proposals would not necessarily come with extraordinary pain (except for perhaps taxes on the nation's most wealthy income earners — for the wealthy).

These proposals affirm that the program can be salvaged for future generations while allowing Boomers and post-Boomers to collect benefits throughout their remaining years.