Friday, July 08, 2011

Factor in the Aging of Society

The next time I hear people making reference to the Federal budget and the National debt in historical terms (Eugene Robinson does so today in his column, looking mainly at tax revenues as a share of GDP) I will reply, "In historical terms, most people over 75 would be dead. My mom is 90. Give me something to work with the reality of the aging society we live in."

We tend to think of the problems associated with aging and don't give enough credit to the fact that society aging represents success in a fundamental way. People with promise have a much better chance to fulfill it. Mozart died when he was 35, Chopin when he was 39. Leonard Bernstein was 72 when he passed away.

Of course, the promise to contribute and the joy people give one another, old and young, does not preclude in any way the burdens they place on others, particularly the burdens arising because they can no longer fend for themselves.

Philosophically, there are two distinct approaches to address those burdens that differ in regards to who holds the responsibility. In the first the responsibility lies with the individual, who must therefore manage the issue in advance, presumably by accumulating sufficient savings. Then, if those savings prove inadequate, the responsibility falls on the individual's family. With the second the burdens are shared across society. Medicare and Social Security are programs that represent the second approach.

I don't know if the age distribution of society will ever stabilize, but if it did, one might ask what application of the two different philosophies would produce regarding the Federal budget were it to balance over the business cycle. But that answer is far from sufficient. One would also have to ask what it would mean for private budgets that also were in balance over the life cycle. Rarely, if ever, do we put the two together and look at the whole.

One would like social decision making to be data driven. It is hard to argue for the alternative. Yet the available data often don't discriminate well between competing hypotheses, which is unfortunate especially when we feel a need to use the right hypothesis to formulate good policy. A highly relevant issue here is the relationship between income and life expectancy and the relative importance of average income as the fundamental determinant (the Preston Hypothesis) compared to the importance of income distribution. Personally, it is hard to envision that for people who have decent nutrition and access to good medical care why further income increases should matter at all, while for people living in poverty it seems reasonable that increases in income should matter a lot.

Listening to the political rhetoric on these matters one feels trapped in a kind of Orwellian farce. The Republicans are hopeless on this, sounding like Big Brother, particularly on why tax increases aren't good now given the weakness of the economy (while to them spending cuts are fine). The Democrats are also bad in this way, talking about preserving Medicare and Social Security as is, when the pay ins and pay outs are so out of balance, the increase in life expectancy one of the big culprits for why.

If philosophy one is to win, we should be asking how personal saving rates might increase dramatically, as a long term proposition. Who is asking that? If philosophy two is to win, we should be expecting a much higher share of federal spending as a percentage of GDP than it has been historically. Who is arguing for that?

We've painted ourselves into a corner rhetorically where neither philosophy can win.

The best things in life are free
and Only The Good Die Young. So we are talking about things that are not the best and people who are not so good - the circumstances the vast majority of us find ourselves in. There. Now can we get on with it and figure out something sensible?

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