2006 March 23 Thursday
William Saletan: Make Old Age Benefits Based On Disability

In an article entitled "Curse of the Young Old: Why Should We Pay For Them" William Saletan argues that the unfunded old age pension liabilities crisis should be solved with tougher benefits eligibility requirements.

To keep the system afloat for the next seven decades, its trustees say the Social Security tax rate will have to reach 19 percent. And if life expectancy keeps rising over that period, academics project a tax rate of 27 to 32 percent.

We are about the enter the age of the battle over tax increases or benefits cuts.

Money for basic living expenses isn't even the biggest problem. Medical care costs are going to cost more than basic expenses like food, utilities, and rent.

Healthy aging is increasing too.

Now for the good news. We're not just living longer; we're staying healthy longer. From 1982 to 1999, the percentage of senior citizens who had chronic disabilities dropped from 26 percent to less than 20. Active-life expectancy at age 65--the average number of additional years a person could expect to live free of chronic functional impairment--rose from fewer than 12 years to nearly 14. That's a five-year gain from what a 65-year-old could expect in 1935, according to Kenneth Manton, a leading scholar of old age. The experience of being 65 to 74 has changed so radically that the Census Bureau now calls this group the "young old."

They could still be working and paying taxes instead of sucking on the teat.

Even as health on old age has improved labor market participation among the elderly has declined. This is clearly not sustainable.

So all these young old folks are working longer, right? Wrong. In 1950, more than 45 percent of men 65 or older were still in the labor force. By 2003, that percentage had plunged below 20. Five years ago, a study showed that men and women were retiring five and six years earlier, respectively, than their predecessors did 45 years earlier. Why? Because they could. Pensions helped, but the bigger factor was Social Security.

By reducing labor market participation Social Security reduces tax revenues needed to pay for the truly old and frail.

Saletan says the most obvious response to the inaffordability of Social Security and the rising number of healthy elderly is to raise the retirement age.

Last year, Manton calculated that if you were designing a system in 1999 for people who could expect as many active years as a 65-year-old could expect in 1935, you'd set the retirement age at 70. And by 2015, you'd raise it to 73.

When the biotech revolution starts to have a large effect on health even these projections will seem too conservative. When will solutions come for how to grow replacement organs? Solutions for cancer and Alzheimer's Disease combined with cheap organ replacements (maybe grown in genetically engineered pigs) will eliminate a lot of causes of death. Crestor will prevent artery plaque build-up. So what's going to kill you? Perhaps infection due to an aged immune system.

Saletan says that since we age at different rates eligibility for Social Security should be based on disability.

The third objection is that people don't age at the same rate. While true, it's not an argument for a low benefits-eligibility age. It's an argument for ending the link between age and benefits. Social Security actually consists of three programs. One pays benefits based on age; another pays if you lose your spouse; a third pays if you become disabled. As of 2002, 70 percent of the money paid out was based on age; only 15 percent was based on disability. That's insane. Inequality of aging means that age is a bad proxy for disability, which is a good proxy for need. If you turn 65 on the same day as your neighbor, but she's disabled and you aren't, we should pay her, not you.

I emphatically agree with Saletan. People could still save their own money if they wanted to retire sooner. But right now Social Security and Medicare are a massive and morally unjustifiable forced wealth transfer from the young to the old.

A larger working population would both reduce the outflow of money to pay for old folks and also increase tax revenues. Plus, this would reduce tax increases. Big tax increases to pay for an old population will reduce labor market participation of younger folks. Faced with higher taxes people will choose leisure time over working and having most of their money go to taxes. Plus, people will do more work for themselves. Rather than hire repairmen or painters they'd do their own repair and painting. This will reduce the efficiency of the economy by causing people to spend less time doing the tasks they are most efficient at doing. A higher tax society means lower living standards for a multitude of reasons.

Share |      By Randall Parker at 2006 March 23 09:19 AM  Economics Demographic


Comments
crush41 said at March 23, 2006 2:51 PM:

Charles Murray has a piece ahead of his new book that tackles the entitlement problem. He basically suggests an equitable wealth transfer of $12,000 a year to all Americans and scrap so-called entitlement spending altogether (including Medicare and Social Security). Ideally, it strikes a compromise between robin hood economics and laissez faire capitalism. Americans will pay income taxes, the wealthy pulling almost all of the weight, but it will be distributed in even amounts to all the citizenry. It's utterly unthinkable that anything of the sort could be implemented in the current political atmosphere, but because it is Murray it might be worth a read.

RueHaxo said at March 23, 2006 7:00 PM:

Interesting link Crush, sounds like a negative income tax for the 21st century.

ziel said at March 23, 2006 8:22 PM:

Disability is already a much abused status - blips in the rate in a given labor cohort is usually a good indicator of a depressed job market in that field. We're just going to be creating a massive bureaucracy trying to evaluate the claims - every 65 year old will claim disability and have some argument (how many 65 year olds have clear arteries?) I agree, Randall, that raising the eligible age for Social Security is fine and should encourage people to save for their own retirement.

Am I wrong, though, in sensing that now that Bush's SS privatization effort is dead in the water suddenly it's ok for liberals to talk about a crisis in Social Security again. Seems like just a few short months ago when everyone was saying "Crisis? What crisis?"

Randall Parker said at March 23, 2006 8:52 PM:

Ziel,

I share your concern about faked disabilities. I think the retirement age has to be raised period. But raising it to, say, 74 with disabilities eligibility starting at, say, 69 would raise the average retirement eligibility age to some point between 69 and 74.

I also suspect that medical instrumentation advances will make faking harder to do in the future.

Yes, the Bush privatization effort failed. I expected it to fail and was disappointed that he chose that approach. Raising the retirement age had a better chance of succeeding. But he invested what political capital he had into the wrong effort.

John S Bolton said at March 24, 2006 12:09 AM:

Another big factor here is that hardly any 65-year olds have jobs which require physical effort more than, say, living in a hotel would require. It is indeed immoral to increase the level of aggression on the net taxpayer by adding to the numbers of these malingerers, through the soc. sec. retirement age of 65. The way to reduce this volume of aggression would best be to keep increasing the retirement age, especially as the physical requirements of older people's jobs diminishes. Soon it will be rare for them even to have to walk more than ten feet to a copier.
Labor force participation could be raised more than ten points in a few years, which would alow for removal of the illegal aliens. Even though older people would mostly not take the illegal aliens jobs, they would block younger citizens from taking the sedentary jobs, pushing the younger into the more physical ones.

Quequeg said at March 24, 2006 2:55 AM:

If Marshall Brain is correct, then 50% of all of today's jobs will be done by robots in 50 years.
http://marshallbrain.com/robotic-nation.htm

In his blog, he had one article (about a year ago) which described a surgery that was completely done by a robot. Though the surgery was supervised by a medical doctor, no doubt there will be remarkable advances in the range and complexity of work that can be done by robots.
http://roboticnation.blogspot.com/

I wonder if the problem we will increasingly have is that there just won't be enough jobs for all the people between 18 and 65. If so, then increasing the retirement age won't help. On the other hand, it's possible that older workers will be more productive, as we depend increasingly on brain, not brawn.

Of course, it's possible we could shift to being a more creative workforce, where more people are doing jobs with descriptions like "inventor", "writer", "entrepreneur", etc. Yet, I'm not sure if enough of us are capable of being creative in a commercially viable way.

I like the idea of the first post, which involves finding a way to rake up some money, which will then be equally distributed to the citizenry. Then, we could do without the entitlement programs and their costly administration. (This idea is sometimes referred to as the Basic Income Guarantee.)

I've read that a study was done, which found it would be cheaper just to give people money to rent an apartment than to provide public housing (due to the cost of administration).

Alaska has a fund called the Alaska Permanent Fund, in which money is invested and then the returns are equally distributed to the citizenry. This results in a check of about $1000/year/citizen. Perhaps, we could find a way to expand this kind of program.

D Flinchum said at March 24, 2006 5:19 AM:

One thing that will need to be addressed before this idea can go far is age discrimination, especially in technology-related fields. Oddly enough most technology-related fields are not physically difficult so age should matter less here than in construction, for example. More "young" retirees are forced out of many white-collar fields than retire voluntarily.

Randall Parker said at March 24, 2006 6:58 AM:

Quequeg,

There's already not enough demand for manual laborers. But lots of higher IQ people in their 60s can still do very productive work.

What to do about low IQ manual laborers in their 60s whose bodies are too worn out to do manual labor?

AMac said at March 24, 2006 7:58 AM:

The issue discussed here unfortunately provides an incentive for a related pernicious trend: expansion of the grey market. As taxes get higher, more and more employers will opt for keeping those workers that they can off the books: nannies, gardeners, cleaners, assitant carpenters, roofers, busboys... This is obviously well underway already. Higher taxes joins with permissiveness/indifference to make a bad situation worse.

Randall Parker said at March 24, 2006 9:03 AM:

AMac,

The illegal immigrants already provide an incentive for employers to pay off the books and the illegals happily accept that under-the-table non-taxed money. Add in higher taxes and, yes, the problem will get worse.

Robert Speirs said at March 24, 2006 10:55 AM:

As a typical baby boomer, I cannot believe that you people want to deny me my God-given and constitutional right to spend my sixties, seventies, and, with luck, my eighties and nineties lounging on beaches drinking booze. Darn it, I've scrimped and saved - well, not really, but I'll take my Social Security and my pension and find a cheap beach with cheap booze. The young should feel privileged to contribute to someone like me.

crush41 said at March 24, 2006 11:37 AM:

I agree with Que. A friend of the family lives with his family in Alaska and puts the $4,000 into investments and does Christmas shopping with it. It's a benefit that is obviously tangible and creates less deadweight loss than any other entitlement program. Relatedly, I wonder why there is not a push to have a similar distribution system instituted in the Mid East.

Randall Parker said at March 24, 2006 12:31 PM:

crush41,

Who would lead such a push in the Middle East? The rulers want none of that. Even the democratically elected rulers in Iraq see the money as for the government.

If everyone gets the money automatically then what leverage would a government have over its populace? How could it dole out favors in exchange for loyalty? How could the leaders enrich themselves?

Dave said at March 24, 2006 1:17 PM:


One thing that doesn't make sense in the UK is how young disabled people are being told they must work, but old fit people not..


Also I think it should be noted that maybe one reason why people are not working as long as they used to is because the collapse of family run businesses compared to many years ago. My Grandad was a farmer and he continued to work on the family farm until he was in his early 80's, he would still like to now but his health has just about had it. He was working almost like a full time worker until his mid 70's and after had to slow down but still did enough to be useful. If he'd been working for someone else as an employee I seriously doubt they would have wanted him full-time after about 55.

crush41 said at March 24, 2006 10:04 PM:

Randall,

I meant from the coalition. If our leaders believe it is as simple as making the Arabs' external environment equivalent to that of the West for them to become Western it seems like an obvious route to take. It would bring tangible benefits to Iraqis, and having more disposable income would probably make the culture more decadent and so might lessen the appeal of hardline Islam. I don't know that it would be a good idea because it could empower without lessening acrimony towards the leaders and therefore destablize regimes. But it's surprising that it hasn't even been talked about.

Quequeg said at March 25, 2006 12:49 PM:

Actually, I dimly recall hearing somewhere that the Bush administration had considered using the oil money to just hand out checks to the Iraqis. With unemployment at 60% to 80% in Iraq, I'm sure they would have appreciated that.

As far as the arab countries, maybe they already do hand out checks:
Book Review - Immigration's Unarmed Invasion: Deadly Consequences - by Frosty Wooldridge - August, 2004

A perfect example of what can happen to the very richest oil producer, Saudis Arabia, whose population growth (2.5 times ours!) has cut its free gift income to each Saudi citizen from $28,000 per year in 1981 to $7000 a year now, despite record high oil prices in both years. Its 19 million population has an average age of under 18 and represents a ticking time bomb of discontent in the near future.

Randall Parker said at March 25, 2006 12:58 PM:

Quequeg,

Giving someone the favor of a monthly check does not make him like you any better. Also, it does not make him less likely to engage in mischief. You've just reduced his need to work and, as Grandma used to like to say, "Idle hands are the devil's workshop".


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