Monday, October 22, 2012

ninjas (no income/no job/no assets)



portfolioist | I have just finished reading The Clash of Generations: Saving Ourselves, Our Kids, and Our Economy, the new book authored by Boston University Economics professor Laurence Kotlikoff and well-known financial journalist and advisor, Scott Burns. This is a truly important book, and I hope that it will be so widely read as to inspire a meaningful widespread dialog among individuals, families, and policymakers.

The central premise of The Clash of Generations is that we, as Americans, have essentially created a Ponzi scheme in which current and past workers have been promised future financial benefits in the form of Social Security, Medicare and Medicaid that are vastly beyond the accumulated value of what they have contributed. The result is that future generations of workers are now expected to pay the tab. The authors assert that our children and grandchildren are being stuck with a truly monstrous financial burden in order to fulfill the utterly unsustainable promises made to current retirees and near-retirees. Kotlikoff and Burns conclude that the level of unfunded financial commitments being forced onto future generations is quite capable of essentially impoverishing future generations and killing any economic growth. While this argument is not new, Kotlikoff has studied these problems for much of his career and brings a truly authoritative perspective to bear (Kotlikoff and Burns previously published a book devoted to these issues, as well).

 How can this situation have gotten so far out of balance? Kotlikoff and Burns suggest that politicians have simply and shamelessly pandered to older people who, as a group, aggressively promote their interests and vote accordingly. In 1983, the Social Security administration added a plan to gradually raise the age at which people would receive full benefits from age 65 to 67. This one change, accompanied by no reduction in benefits growth for older people, equates to an average 25% reduction in real benefits received by those who would receive full benefits at age 67. The younger workers are expected to pay into the system for two additional years (ages 65-67) and then will have fewer years to draw benefits (because they start later). In aggregate, this is a large effective reduction in benefits for the young. The results, in aggregate, are that older people can expect to receive much more in benefits than they have paid in to Social Security, Medicare, and Medicaid and young people can expect to pay in more than they will receive in benefits. While Kotlikoff and Burns do not go into these numbers, I summarized the research in a blog post titled, “Social Security and Retirement: The Reality“ that I published in 2011. A great deal of this issue comes down to fairness between generations. The authors estimate, for example, that today’s 20-year olds will need to pay 3.3% of their lifetime earnings to cover the under-funding of Social Security, Medicare and Medicaid by previous generations, along with their own contributions, to these programs needed to sustain them.
Is this fair and reasonable by any standard? I should say not.

7 comments:

Michael Varian Daly said...

http://hipcrime.blogspot.com/2012/10/horatio-alger-rip.html

CNu said...

What an absolutely perfect counterpoint! Thanks for that.

Dale Asberry said...

Love the Bill Moyers piece

John Kurman said...

I've the Plutocrats book on hold at the library. And I would note that this is not an entirely distressing trend. As the rich build their castles to hide in, it should be noted 1) castles can be undermined, laid seige to, or infiltrated, or turned into prisons. If one requires feral humans to guard the castle, one must inevitably recruit from trustworthy ferals from the inside, which leads to inbreeding, which leads to mental retardation. (There are already signs of it, if one's monies make more monies than one's own personal skills and labors, natural selection for intelligence no longer occurs. (Viz: Hapsburgs of Europe, which make The Clampetts look like fucking genies) I look forward to fucking with the rich in ways they will never, ever understand.

umbrarchist said...

Does that ECONOMIST say anything about all of the potential wealth that DEPRECIATED from 1960 to 2000 in the form of cars designed to depreciate?

Does "planned obsolescence" come up in the whole book?

CNu said...

No Umbra, yours is the lone voice in the wilderness plaintively crying out about the dual sins of planned physical obsolescence and double-entry depreciation.

umbrarchist said...

Should I go postal on economists? Do a Ted Kaczynski. LOL

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