2007 April 02 Monday
America In Fiscal Calm Before The Storm

Federal old age entitlements are going to become mind bogglingly expensive over the next decade.

The coming collision of 77 million retiring baby boomers with Social Security, Medicare, and Medicaid represents the greatest economic challenge of our era. What Federal Reserve Chairman Ben Bernanke has recently called the "calm before the storm" will end abruptly on January 1, 2008—less than one year from now—when the first baby boomers become eligible for early Social Security benefits.[5] Three years later, they will become eligible for Medicare. Over the following decades, the cost of these programs will leap from 8.7 percent of GDP to 19.0 percent. Without reform, this 10.3 percent of GDP cost increase would require either raising taxes by the current equivalent of $11,651 per household or eliminating every other government program. Even these changes would not solve the problem over the long term as Social Security, Medicare, and Medicaid spending continues to grow.[6]

How much of the gap between taxes collected and promises made will be closed by raising taxes versus cutting back on the promises? Any guesses?

I went looking for Ben Bernankey's speech. The "calm before the storm" phrase seems to capture so well the moment in time we are at right now. Bernanke sees serious financial problems on the horizon.

Official projections suggest that the unified budget deficit may stabilize or moderate further over the next few years. Unfortunately, we are experiencing what seems likely to be the calm before the storm. In particular, spending on entitlement programs will begin to climb quickly during the next decade. In fiscal 2006, federal spending for Social Security, Medicare, and Medicaid together totaled about 40 percent of federal expenditures, or roughly 8-1/2 percent of GDP.2 In the most recent long-term projections prepared by the Congressional Budget Office (CBO), these outlays are projected to increase to 10-1/2 percent of GDP by 2015, an increase of about 2 percentage points of GDP in less than a decade. By 2030, according to the CBO, they will reach about 15 percent of GDP.3 As I will discuss, these rising entitlement obligations will put enormous pressure on the federal budget in coming years.

George W. Bush wants to charge higher income people more in premiums for Medicare coverage.

WASHINGTON, Feb. 3 — More and more Medicare beneficiaries would have to pay higher premiums for coverage of prescription drugs and doctors’ services under President Bush’s 2008 budget, to be unveiled on Monday.

Single people with annual incomes over $80,000 and married couples with incomes over $160,000 already have to pay higher premiums for the part of Medicare that covers doctors’ services. The income thresholds rise with inflation.

At least these tax increases would be on the actual benefits recipients rather than on the younger people who are getting the shaft for the benefit of older people.

Did you know that in percentage term Medicaid spending is growing more rapidly than old age spending?

“Our budget reduces Medicare’s average annual growth rate over five years to 5.6 percent, from 6.5 percent,” Mr. Bush said, while Medicaid would grow 7.1 percent a year, instead of 7.3 percent.

This is partially a result of the rise of Hispanics as a percentage of the US population. Hispanics are medically uninsured at two and half time the rate of whites. You see, we do not have enough of a financial problem already from an aging population. We need to add to the ranks of the welfare state recipients by importing lots of low skilled workers who, in turn, have lots of children who grow up to be low skilled workers. I'm thinking our elites are sort of like the Manchurian Candidate but on a massive scale. They are doing more damage by supporting mass immigration than all the convicted traitors in US history.

We need to stop the immigration of all lower IQ people. The threshold should be set at 120 IQ or even higher. Also, we should raise retirement ages. One problem with a higher age of retirement: We do not all age at the same rate. Maybe age of eligibility for government retirement benefits should be set according to a test that measures your biological age. Tests for telomere length might serve as part of a test for estimating longevity to determine benefits eligibility.

Share |      By Randall Parker at 2007 April 02 10:13 PM  Economics Demographic

Ned said at April 3, 2007 10:30 AM:

This delightful scenario was brought to you through decades of fiscal mismanagement by your friends in Washington, the Democrats and Republicans. Most people have not appreciated the magnitude of the catastrophe awaiting us. And our current Presidente, GWB, just helped matters along by passing, with the support of both parties in Congress, the Medicare drug benefit, which will accelerate the coming crash of that program. All of these guys know that they won't be in office when the wheels start coming off and hard choices will have to be made to salvage these programs. Some combination of tax increases, benefit cuts and means tests will be necessary. Medicare may become just another form of Medicaid, for indigents only, and Social Security may become sort of like welfare. The current Medicare thresholds, $80,000 for and individual and $160,000 for a married couple, sound rather lofty now, but watch what happens in a few years when the demographics really begin to bite. The irresponsibility that has produced this mess is just breathtaking. And it should be little comfort that the demographics for Western Europe, Japan and Russia are even worse than for the US.

Purenoiz said at April 3, 2007 11:25 AM:

this is the time when my generation will be put to the test to make "tough decisions". I can't wait!

Kurt9 said at April 3, 2007 1:05 PM:

This is not a dire as it may seem. The federal government has trillions in dollars of assets (example, the feds own 87% of Arizona and 83% of Nevada) that they can sell off over the next 30-40 years. The federal government is not like Enron, which had no assets at all.

The impending retirement of the boomers is only a liquidity problem, not a bankruptcy problem.

D Flinchum said at April 5, 2007 2:20 AM:

"add to the ranks of the welfare state recipients by importing lots of low skilled workers who, in turn, have lots of children who grow up to be low skilled workers."

And who, if made legal, can bring in their aged parents and place them on SSI and other welfare benefits even if they haven't worked a day in the US. It's called family reunification and it is the largest source of LEGAL immigration in the US today.

"I'm thinking our elites are sort of like the Manchurian Candidate but on a massive scale. They are doing more damage by supporting mass immigration than all the convicted traitors in US history."

Correct. We can change tax laws, get into and out of wars, fund and defund numerous programs, but we can't repeal people once they are here legally.

Randall Parker said at April 5, 2007 7:20 PM:


Our already high taxes will go up. I wonder if I'll get to keep even half my income in 10 years time.

As for selling off land: That'll just make more land developable. Less wilderness.

Kurt9 said at April 6, 2007 1:46 PM:

I actually do not think that the taxes will go up that much. The problem with tax increases is that it kills economic growth. Killing economic growth kills jobs and opportunity, which results in people pissing and moaning, like they did in the early 90's. This, in turn, is bad for politicians seeking re-election (as the Papa Bush found out in '92).

Everytime they raised taxes in Japan (they tried this twice in the 90's), it choked off a hesitant recovery. The government finally figured out the score on this one and stopped trying to raise taxes. I think our government will figure out this out as well.

As for government assets, the land in Arizona and Nevada was an example. The federal government has something like $40 trillion in assets (at current market rates). Some sell off has already begun under Bush. I think this will accelerate even under the democrats because, like deficit spending, it is an easy short-term method of finance that is politically convenient.

Yes, selling off all of that land will make more available for development. But the green groups can also buy that land and fence it off from development to keep it as wilderness areas.

Also, I disagree with you about genetic technology resulting in increased birthrates in the future. People who have money (and live in cities) are more into enjoying their lives and less into having kids. This is largely social and cultural, not genetic. So, biotechnology that makes it easier to have kids will be used, but it will not increase the birthrate by much. It will just make people more choosy about the kind of kids that they have (designer babies).

RueHaxo said at April 6, 2007 4:55 PM:

So the feds don't have to sell of all 87% they hold in Arizona or the 83% they own of Nevada, but couldn't they sell half their land holdings in each?
For prosperity, you need private dispersal of wealth. It's disgraceful the feds own that much land.

Kurt9 said at April 9, 2007 3:04 PM:


Your suggestion that the insurers utilize aging biomarkers to risk rate individuals applying for medical and life insurance is indeed novel and very useful. The widespread adoption of such biomarkers would surely accelerate public awareness and support of the development of effective anti-aging therapies.

Randall Parker said at April 9, 2007 11:29 PM:


We need a longitudinal study where a bunch of people in their 50s, 60s, and 70s get their longevity compared to their assorted aging biomarkers. This might be doable with NHANES blood samples. Combine the already measured lipids and cholesterol types with a large assortment of oxidative stress markers.

Also: telomere length. It is a great aging biomarker. Objective.

Also: hair color? Degree of facial wrinkling? Bone scans to detect osteoporosis?

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