2007 March 01 Thursday
David Walker: America Faces Fiscal Cancer

U.S. Comptroller General David Walker says the retirement of the baby boomers combined with the huge entitlements promised to them are a demographic tsunami and fiscal cancer that could lead to economic disaster for the United States.

WASHINGTON — The comptroller general of the United States is explaining over eggs how the nation's finances are going to hell.

"We face a demographic tsunami" that "will never recede," David Walker tells a group of reporters. He runs through a long list of fiscal challenges, led by the imminent retirement of the baby boomers, whose promised Medicare and Social Security benefits will swamp the federal budget in coming decades.

Walker is right of course. I expect this problem to go unaddressed until the boomers start retiring and the budget deficit becomes huge.

Walker is touring the United States with a bipartisan group of economists policy specialists in a "Fiscal Wake-Up Tour" to try to alert the American public to the scale of the problem. One of the members of this tour, Alison Fraser, director of economic policy studies at the Heritage Foundation, points out that eliminating the Department of Defense would not save enough money to pay for the entitlements.

Project out 75 years, and the magnitude of the problem is stunning. In those projections, "we have gone from $20 trillion to $50 trillion in total liabilities and unfunded commitments in six years, primarily because of unfunded entitlements," says Walker, the nation's chief public accountant. That translates to $440,000 per current US household.

"If we eliminated the entire Department of Defense, it would not solve this problem," notes Fraser.

The relative power of the United States has peaked and will decline for years to come. The demographic trends due to aging and immigration both will cut into per capita GDP and economic growth.

Walker says the Medicare prescription drug bill which George W. Bush signed into law is fiscally irresponsible.

Walker talks to 60 Minutes correspondent Steve Kroft this Sunday, March 4, at 7 p.m. ET/PT.

"The prescription drug bill is probably the most fiscally irresponsible piece of legislation since the 1960s," says Walker, "because we promise way more than we can afford to keep."

Expect slower economic growth as the older skilled workers retire and taxes rise to pay for their retirements.

A wave of retiring workers will weigh down economic growth in the coming years unless Americans save more and employers take steps to hang on to more of their older employees, experts said.

How the nation responds is a "critical question," said Donald L. Kohn, vice chairman of the Federal Reserve, warning that the costs could "fall entirely on future generations."

A study by Fed economists projected that economic growth would slip toward the 2% range after 2010, about a point lower than the rate of the last decade, largely the result of meager growth in the future labor force, Kohn testified.

The slower economic growth could feed a vicious cycle. Increases in taxes could slow growth. That would reduce tax revenue which could lead to higher taxes to make up for the lost revenue.

Among the experts there's bipartisan agreement that the problem is huge.

Touring with Mr. Walker are: Alice Rivlin, budget director under President Clinton and now a fellow at the moderate-to-liberal Brookings Institution; Alison Fraser, an economic policy specialist at the conservative Heritage Foundation; and Harry Zeeve, a director of the bipartisan Concord Coalition that advocates fiscal reform and balanced budgets. While the foursome, which spans the political spectrum, doesn't agree on solutions, its members acknowledge that nothing can be done politically if Americans remain ignorant of the problem.

The Clinton and Bush Administrations have been years of tremendous wasted opportunity to deal with America's demographic problems. The dumbing down and the aging problems are obvious to anyone who doesn't mind thinking taboo thoughts (i.e. most of the upper half of the IQ Bell Curve when they choose schools and places to live).

What should we do about the demographic problems? I have several suggestions:

  • Provide smarter kids with filmed lectures and online tests so they can learn more quickly, start accumulating college credits sooner, and enter the workforce at younger ages. The sooner smart people start working the more total years they'll work and pay taxes and create goods and services.
  • Start raising retirement ages. Get people to work more years and pay taxes for more years.
  • Put limits on medical spending for those who have few months left to live. Heroic and expensive treatments for people who gain few days of extra life cost the rest of us huge sums of money.
  • End all lower IQ immigration. Set a very high IQ requirement for prospective immigrants. We need workers who have higher productivity and less tendency to commit crimes or cause other problems.
  • Accelerate research into rejuvenation therapies. If we can keep people younger longer they can work more years before they have to retire.
  • Provide big cash prizes for the development of cheaper ways to treat diseases.

We need practical solutions to our huge demographic problems. Do you have any suggestions?

Share |      By Randall Parker at 2007 March 01 10:59 PM  Economics Demographic

John S Bolton said at March 2, 2007 12:22 AM:

Enact a low ceiling for damages relative to medical treatments, get the unspeakable shyster-gorilla off the back of medicine and its suppliers.
The dishonest profession of shystering should be made more and more difficult to use for plundering on the amazingly rich scale which is tolerated today, and before long will have to be.
Government schools teach students to hate America and its society, especially the bourgeoisie,
some of these become lawyers, others officials, and such that there is usually no one to stop the vicious plunderers from running wild where they have a chance to do so.

John S Bolton said at March 2, 2007 12:53 AM:

There's also no promise not to restrict eligibility for retirement and disability programs; the future beneficiaries are not bondholders.
Tax state and local retirement payouts which are above national norms.
Tax medical subsidies to individuals, from their estates upon death.
If 4 million died a year, leaving an average of $200,000 apiece, taxing this for less than half of what they got from medicare could raise hundreds of billions a year, and would be unfair to whom?
Who could reasonably say aggression was inflicted on him from such a levy?

Mensarefugee said at March 2, 2007 1:06 AM:

"Put limits on medical spending for those who have few months left to live. Heroic and expensive treatments for people who gain few days of extra life cost the rest of us huge sums of money."

Oh randall, you unspeakably evil man you!
( MensaRefugee slaps Randall Parker with a large trout >(((*> )

More seriously though, it should be pointed out that they arent simply stealing from others, but stealing from themselves at earlier parts of their own life cycle :)

Rich Paul said at March 2, 2007 3:08 AM:

Actually, Mensarefugee, you're wrong on that last bit.

The way a Ponzie Scheme like Social Security works is that the first beneficiaries rob their contemporaries, and justify it with the promise that their victims will be able to victimize the next generation. Basically, it is fair for any generation (except the first, which was never victimized by it) to say of the generation before them that "They cut themselves a nice, juicy, bleeding slice of US to feed on in their age.".

Redistribution from young to old carries also the added irony that older people tend to be richer than younger people, so it is the rich robbing the poor.

If liberals could think critically, these programs would not exist.

D Flinchum said at March 2, 2007 4:42 AM:

"Start raising retirement ages. Get people to work more years and pay taxes for more years."

Many people, especially people with white collar jobs, would gladly work longer but they are "encouraged" to retire early by what amounts to age discrimination. This is especially true in the IT profession. These "cast-off" workers are generally healthy, have their years of heavy family responsibility behind them, are frequently well educated, and are not worn down by their jobs the way many workers who do hard physical labor are. These early retirees are capable of many more years of productivity. It's stupid to push them out.

Irish Savant said at March 2, 2007 8:58 AM:

This is a problem for almost all Western society. Cyprus is now paying huge sums to women to have more children. One glaringly obvious way, as has been mentioned, is to extend, or eliminate altogether, the mandatory retirment age. My father was forced to retire from an executive position at 65 and it quite literally killed him. He had no other life. You can say he was silly not to have, but it seems equally silly to have a high-performer, anxious to keep productive, forced into comfortable but unrewarding demi-life. Of course the public sector workers will fight this tooth and nail. any why shouldnt they? We're paying for their guaranteed index-linked packages.

Wolf-Dog said at March 2, 2007 10:34 PM:

Our foreign trade deficit (over 6 % of the GDP, and not decreasing) is part of the cancer.

clayton said at March 3, 2007 5:21 AM:

"In 1983 that was accomplished by sharply increasing the payroll tax paid by workers that funds Social Security. Greenspan’s 1983 recommendations were quickly adopted by Congress. And over the past 20 years, both payroll tax rates and taxable income levels have continued to rise, to the present 12.4 % rate today on earnings up to $87,900 a year. The direct result of this 20 year rise has been to generate a surplus of $1.46 Trillion dollars in the Social Security trust fund.

Who Stole the $1.46 Trillion Surplus?...The $1.46 trillion Surplus, paid for by workers to guarantee a minimum retirement, promised to them in 1983 in exchange for the record payroll tax hikes, has been sucked out of the Social Security Fund by administrations from Reagan to George W. Bush with the agreement of Congress! Not a penny of the $1.46 trillion remains in the Social Security trust fund. Only paper IOUs from Congress indicating the money is ‘owed’ to the fund."

If rich paul could think critically he would see that blaming liberals for this is called scapegoating.It's not a ponzie scheme it was/is actually a guarantee on an investment. A guarantee that EVERY ADMINISTRATION from Reagan through our current administration, has stolen from. This has nothing to do with liberals/conservatives and more to do with people refusing to keep up their end of an agreement. Especially if it is an agreement with the working poor. It's just another example of people making promises at a bargaining table, and being the liars that they are, saying what they will to get elected. Don't be fooled people who claim to love America, while stabbing Americans in the back. They only love their comfort.
Very unhonarble people they have become. Nothing like my grandfathers generation.

Mark said at March 3, 2007 5:46 AM:

You left off the possibility of skills shortages due to the retirement of the baby boomers.

Raising productivity would go a long way to fixing the fiscal problems.

I would add:

Quadruple the tuition of nearly useless college majors, like psychology and English.

Lower the tuition of useful, employable majors, like engineering.

Not very bright students need to be trained in employable skills that don't really require a ton of intelligence, like mining, truck driving, working on an oil rig, etc. The smarter ones of this group need to be trained in trades to be electricians, welders, carpenters, mechanics, etc.

Gary Glaucon said at March 3, 2007 7:32 AM:

The reason why older white-collar workers may be "pushed" out of the workforce (reference to IT business) is that many cost too much for their productivity. The problem is with the assumption: You've been with the company a long time, therefore, you deserve higher pay. is without merit except when looked through the lense of unionism or entitlement. Some deserve higher pay and some are as productive as a newer employee costing less.

I see this in the school system on a daily basis with teachers who have over 20 years experience and cost twice as much as teachers within the 3-5 year experience range. Research has shown that teachers become less effective after 12 years and are most effective between 5-11 years.

clayton said at March 3, 2007 7:37 AM:

I agree with Mark
Freedom isn't important, infrastructure and stuff is.

What if we are perfectly on track, but for a future that is great, but doesn't look like the world we currently live in.

I worked in manufacturing for a while, more and more machine shops are running lights out. High speed Computer numerical control cut manufacturing times down from 6 months to 2 weeks for parts on the f-16. Skilled labor and unskilled labor are all currently needed. But future of thinkers not laborers would be ideal.

RP said at March 3, 2007 8:56 AM:

The Social Security problem could be solved without raising the retirement age or even much of a tax increase. It's simple. Implement means testing. There is no reason someone with a six figure retirement income outside of SS should also receive SS. This would change SS from a universal entitlement to a form of welfare. But it would also work.

Randall Parker said at March 3, 2007 9:45 AM:

Irish Savant,

I am hoping that at least a few Western countries will pioneer in ways to keep people working longer. That'll provide policies for other countries to emulate. For example:

1) Allow employers to test old employees to determine their physical and cognitive abilities. Some age more rapidly. Others less rapidly. Why force all to retire at the same time?

2) Provide financial incentives for working longer. For example, in the United States the monthly benefit for Social Security (our government program for monthly payments to old folks) is higher if you retire at 65 than at 62. But why not be more aggressive and make 65 the minimum and with aggressive financial incentives of higher pay-outs if you do not start collecting to 70 or 75?

I'd like to see comparative data on labor market participation by age for all the Western countries and Japan, South Korea, Taiwan, Hong Kong, and Singapore. Which countries have the highest labor market participation rates at 65, 70, 75?

anonymous said at March 3, 2007 11:16 AM:

"End all lower IQ immigration.
Set a very high IQ requirement for prospective immigrants."
This is not going to happen. Both parties are committed to a "browning" of America.
99% of all movers and shakers are committed to it. The Left wants it because they
hate whites. The rich want it because they want a new color bar. The rich want
to be able to tell someones job in a society just by looking at their skin color.

Whites = police and military (the later mostly deployed overseas).
Blacks = Entertainers or convicts.
Mexicans = Laborers, yard men, maids.
Chinese = Technical class and Merchants.
Indians (from India) = same as Chinese.

The whole demographics of the USA is being transformed to achieve this goal.
This requires great reductions in the number of whites (achieved mostly by
tax policy and cultural angst), as well as massive immigration.

So forget the whole "high IQ" thing. Everyone in power has other intentions,
and they run the whole thing.

Mensarefugee said at March 3, 2007 12:21 PM:

Quadruple the tuition of nearly useless college majors, like psychology and English.

Lower the tuition of useful, employable majors, like engineering.


To set limits, to have a body enforce rules not set by the market - is great... until its taken over by people who have other ideas. And its something that happens EVERY time. The road should be towards less regulation - not more, however more well intentioned it may be.

AKA Repeal Griggs Vs Duke Power, repeal rob from the rich to give to the poor laws like college grants (not loans, though those too should be left to the market).

Your ideas on reform are dangerous, and have been tried hundreds of times - always leading to disaster. Its a bitter pill to swallow, but to control something implies setting up a system where, sooner or later, people with your point of view will be the ones in control.

Mensarefugee said at March 3, 2007 2:29 PM:



birch barlow said at March 3, 2007 2:40 PM:

End all lower IQ immigration. Set a very high IQ requirement for prospective immigrants. We need workers who have higher productivity and less tendency to commit crimes or cause other problems.

I don't think we need a "very high" IQ requirement. If we can just get a pool of immigrants who are young, energetic, hard-working, pro-American, and relatively free of mental disorders (schizophrenic spectrum* , dysphoric spectrum**, etc), with a moderately high IQ (say 105+, with a good helping at 130+, maybe an average of ~110-115) I think we would be far better off than with virtually no immigration or no nonwhite immigration, and certainly FAR, FAR better off than with a pool of immigrants with a distribution barely better than a random Latino distribution (mean ~90, SD 15).

*I would consider the stereotypical behavior of limousine liberals/country club neocons, religious fundamentalists [especially the hyprocritical ones...ooh wait, that's almost all of them], soccer moms to all be symptomatic of schizotypal thinking, even though such people would not be considered mentally ill in the clinical sense. I would say that they are schizophrenic in the literal sense--that is, they can, in practical terms, think two things almost simultaneously (eg, keep their kids from underclass minorities (and underclass whites too) while harshly criticizing Bell Curve-type thinking). I would also put autism at something like the opposite end of schizophrenia, and I even consider *mildly* autistic thinking (eg, minimal seperation between concious and unconcious thought) to be superior.

**Depression, anxiety, ADD, Parkinson's-like disorders, chronic fatigue, and the like. I would consider myself to suffer from severe dysphoric spectrum disorders, which may be why I can barely hold down a low-end job in spite of stratospheric IQ and IQ-related scores (125-150+, depending on the test, weighting of the test, or inference method used, in the case of non-IQ but heavily g-loaded tests). It's also why I can't stop using so-called drugs of abuse no matter how much zero tolerance/zero intelligence assholes try to force me to--complete abstinence from dextromethorphan, nicotine, alcohol, RX painkillers, RX ADD meds, marijuana, and all other substances in this vein is just too f***ing painful...I just become a useless, resentful, antisocial, angry lump of s***.

John Smith said at March 3, 2007 3:18 PM:

Sure, importing high IQ immigrants will help. But, what about dysgenic trends with regard to birthrates of hispanics and african americans?

Also, life expectancies are skyrocketing and will increase more with enhanced bioengineering of humans. Increasing the retirement age every 5 years could solve this problem.

birch barlow said at March 3, 2007 3:56 PM:

Sure, importing high IQ immigrants will help. But, what about dysgenic trends with regard to birthrates of hispanics and african americans?

Reduce subsidies for those who can't afford to have kids to have kids, and make it less expensive for upper-middle class people of all races to have kids. I have no problem with a social safety net, but it's stupid to have perverse incentives. If we want to make the lives of poor people better, I think we're better off incentivizing useful behaviors, and with the very most helpless, pushing them towards less harmful behaviors (e.g., instead of heroin, meth, and PCP, (respectively) Vicodin/methadone/etc, Ritalin, and dextromethorphan or ketamine).

As an example of incentivizing useful behavior, I think the earned income tax credit would be a good idea, except for that it incentivizes bringing in and hiring more low-skill immigrants (yet another reason to tightly regulate the border).

Randall Parker said at March 3, 2007 7:26 PM:

birch barlow,

If the goal is to import only net-positive (from a tax and costs incurred perspective) immigrants then the bar has to be set higher than 105 IQ. Look at who pays most of the taxes. The upper income pay most of the money that funds the government. Look at the huge unfunded retirement liabiltiies. The average worker is paying in less than they are scheduled to get back Social Security and Medicare.

In order for someone to be net positive taxpayer they have to pay more in taxes than they receive in benefits. My guess is that in order to be net positive one's income has to be north of $75k per year and perhaps higher.

Also, consider the extreme cost generators at a given IQ level. A 105 IQ criminal can generate costs that exceed the taxes paid by 5 honest 105 IQ workers. Incarceration for 1 person per year is, what, $20,000 or $25,000? Somewhere in that neighborhood. How many $35,000 income people does it take to pay one person's costs of crime damage, heightened security measures, police investigations, arrests, jury trials, incarceration, parole boards, etc?

As for people who need drugs due to mental problems: We need a scientific way to identify people like yourself who need drugs to stay sane. I think exceptions in drug laws should exist for those who live in pain (physical or mental) without powerful drugs.

John Smith,

I suspect we ought to increase retirement age based on a life expectancy formula. Each cohort should get a retirement age calculated for them in their 50s (gradually rising) tell them when they'll have worked 5 or 6 or 7 years for every year they are expected to live post-retirement. The idea is to figure out how many years to work per year of benefits paid and make them work that long.

Mensarefugee said at March 4, 2007 4:31 AM:

If you want to look at it brutally honestly. Anyone with an IQ below (say) 115 is leeching off of those above that level.
Or at least will be soon. We have 90% automated Car Assembly, we have robot Vacuum Cleaners (Roomba), we have robots that can walk down stairs, soon we could have a all purpose household Robot that will automate most of cooking and cleaning.

The Japanese have invented a "suit" that gives seniors a bath more or less automatically. The list goes on and on...and its only going to get longer.

imneuromancer said at March 4, 2007 10:38 AM:

I agree that the retirement age should be increased. However, increasing retirement age will decrease the rate of technological change in the U.S. By technological, I don't mean just computers. I also mean the technologies of newer techniques in managing, marketing, or creative thinking. Older people are much less likely to try new techniques. Anecdotally, the sooner we get people out of the work force that rely on the FAX machine instead of email, the better.

However, what I think would solve the problem is to take anyone over the age of 55 and put them in roles of teachers or societal aids. Instead of having a permanent class of teachers and civil servants, those over the age of 50 would have to work for government to get their social security. Send them to classes for a year on how to teach or do an administrative job, and then have them work for five or ten years in that field. This is the same idea, but opposite implemention, as what many countries already do with their youth.

Instead of getting use out of a person when they are 20, though, we are instead getting them when they have more life experience and wisdom. It would also create a huge pool of people available for creating smaller class sizes, more personal attention for government services, etc.

birch barlow said at March 4, 2007 12:40 PM:

I think a lot of resources could be saved by not putting so much effort into demanding that non-violent drug offenders quit completely. This is a problem not only at the government level (wasting justice system resources), but with families, and most alarmingly, a good chunk of the medical community (though it seems to be the biggest problem is with HMOs and those who try to direct people to moralizing rehab centers rather doctors and psychiatrists who are familiar with the biology and chemistry of so-called 'narcotics.') The bottom line is that 'narcotics' (broad sense here, not referring to just opiates) mimic endogenous chemicals--endorphins/enkephalins (opiates), endopsychosins (dissociatives like dextromethrophan, ketamine, and PCP), endogenous stimulants like phenethylamine (ADD meds, amphetamines), endocanniboids (marijuana), nicotinic receptors (nicotine), and GABA (alcohol and benzodiazepines, though alcohol is somewhat more complicated). Drug use is largely self medication. While drug and alcohol abuse has real and often severe consequences (much like abuse of sex, food, and other pleasures), abstinence is folly and should be left to moralizing soccer moms, food nazis, monks, and fundie Catholic priests (oh wait, it doesn't work so well for the priests).

birch_barlow said at March 4, 2007 1:58 PM:

**oh wait, it doesn't work so well for the priests

This isn't intended to be an anti-Catholic swat here; I have no problem with Christianity or Cathlolocism--only with the legalism, moralism, zero tolerance/zero intelligence, and hypocrisy that is all to common amongst both mainline religions, the secular religion of political correctness, and "family values conservatism" that amounts to little more than the human equivalent of mother bear mauling hikers to death for stepping within 100 meters of her cubs.

birch barlow said at March 4, 2007 2:45 PM:

I'd also add that a think the group Al-Anon (and its relatives) are really no better than the KKK (and its "Asian Empowerment" "Chicano" and "African American" relatives). It's just a group so people can get together and justify their prejudices and treat people in unspeakable ways because of those prejudices. In 30 years, with increasing understanding of biology, biochemistry, biophysics, and biopsychiatry, I think that groups like Al-Anon may have the reputation of the Klan--a group that promotes genetic discrimination in the worst kind of way.

birch barlow said at March 4, 2007 3:12 PM:

If the goal is to import only net-positive (from a tax and costs incurred perspective) immigrants then the bar has to be set higher than 105 IQ. Look at who pays most of the taxes. The upper income pay most of the money that funds the government. Look at the huge unfunded retirement liabiltiies. The average worker is paying in less than they are scheduled to get back Social Security and Medicare.

You could be right. Some of the problem here may be confusing the *marginal* benefit of an additional 105 IQ worker with the *average* benefit of 105 IQ workers already here. My guess is that the latter is almost certainly positive, but the former is admittedly more questionable. In any case right now the IQ distribution of immigrants is approximately N*(.75 * Hispanic_Dist (mean 90, SD 15#) + .20 * East_Asian_Dist (mean 105, SD 15) + .05 * Brahmin_South_Asian_Dist (mean ~105, SD ~15)) with a large N. If we could get a distribution more like N * (pre-cutoff mean 120, SD 15, CUTOFF at -1 SD) we would almost certainly be far better off, regardless of N (assuming N is no more than 1-2 million max).

# (normal distrubution or modified normal distribution (e.g. instead of 1/700 +/- 3SD, 1/250 +/- 3 SD)

Randall Parker said at March 4, 2007 4:12 PM:


If the old folks retire then the rest of us pay more in taxes and high taxes are a discincentive to innovation. Also, money in the federal budget gets shifted away from research toward old age medical care. In each of the last 5 years the US National Institutes of Health have experienced inflation-adjusted decreases in budgets. That's probably mostly due to the costs of Iraq. But in the future NIH spending will be kept down by growth in Medicare costs.

I want more people working and less spent on social programs. Then more could be spent on research. Research will produce cures and eventually rejuvenation therapies that'll literally make us young again.

Randall Parker said at March 4, 2007 4:23 PM:

birch barlow,

Yes, the average person of middle and lower IQ levels delivers more benefit and imposes less costs when there are fewer of them.

Also, as medical costs rise the IQ level at which a person becomes a net benefit rises. The higher the monthly premiums for medical insurance the more a person has to earn in order to afford their own medical care.

Also, as technology advances the IQ threshold at which a person becomes a net benefit rises. The value of physical labor goes down. We are going to hit points where various activities still done with physical labor will get done by machines. For example, at building sites machines will cut lumber, position it in frames, hammer in nails, and basically build houses. Machines are taking over more of floor cleaning. Spinning brushes powered by electric motors already speed floor polishing. Humans still clean floors since they operate the machines. But eventually those machines will become as autonomous as the Roomba vacuum cleaner and other automated floor cleaners.

Also, when it comes to immigrants consider regression toward the mean: If we set IQ thresholds the progeny of immigrants won't turn out as smart as the first generation immigrants. We need to set IQ thresholds high in order to ensure the second generation will also become net positive taxpayers.

unaha-closp said at March 6, 2007 2:17 PM:


The current mostly closed system selects for those with least assets and most likely to behave in a criminal manner. A variant of this which cherry picks for IQ is still going to feature a large illegal stream that is willing to act illegally. What is needed is open immigration.

John S Bolton said at March 8, 2007 12:23 AM:

It is not known that open immigration would be good for citizens, much less the net taxpayer.
If it were good, how did 9-11 happen, by having too few Islamic terrorist immigrants?
If there were more of them, would we be justified in assuming that they would bomb each other, as in Iraq, and forget that they came to bomb us?

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