Accounting for What Matters: Are More Elders the Problem?

Article excerpt

By now everyone has heard the bad news: More people are living longerand staying healthier. For the free-market establishment that rules the roost in Washington these days, nothing could be worse than a future filled with smaller, more mature societies dominated by retired, long-lived elders who, instead of consuming more, producing more and competing more, spend more time enjoying family and friends, pondering the health and welfare of the next generation, and saving their souls. Although some might think that's a pretty good standard of social progress, most politicians and economists today see the longevity revolution as a fiscal disaster.

Two recent books show how mainstream economists are scrambling to cope with the fact that this troubled industrial society is aging beyond the values that created it. In The Coming Generational Storm: What You Need to Know About America's Economic Future (Cambridge, Mass.: MIT Press, 2004), Laurence J. Kotlikoff and Scott Burns calculate that the costs of longevity's benefits are unsustainable. What is special about their work is their ethically dramatic reference to what they say America owes "our kids." That's because Kotlikoff is one of the founders of generational accounting, a recent strain of economics that focuses on the so-called financial malpractice of the older generation, which is presumed not to have saved enough for its healthcare or retirement.

'FISCAL CHILD ABUSE'

Kotlikoff and Burns believe Social Security is unsustainable in its present form, and, even more so, Medicare. Scolding the American public for "fiscal child abuse" lends a certain Dickensian note to The Coming Generational Storm. Economics is rarely so sentimental or pejorative. "This is not just a moral crisis of the first order," the authors insist. "This is the moral crisis of our age. We are collectively endangering our children's economic futures without giving them the slightest say in the matter. We are doing this systematically and with malice aforethought," they declare.

Most of Kotlikoff and Burns' guilttripping falls on the boomers, whose main sin is simply that there are too many of them. I'm not clear why that isn't even more the fault of boomers' recklessly fertile parents, who should have known that they were leaving the country more kids than Social security could afford. Back when the boomers were babies, I seem to recall that economists identified them as the basis of the postwar economic surge.

For all the fiscal flaws Kotlikoff and Burns see in Social Security and Medicare, they aren't out to slash and burn. Rather, they offer prescriptions for keeping both programs solvent. They would prefer to see the government provide matching funds for private retirement accounts. These funds would be invested in a single, market-weighted global index fund of stocks, bonds and real estate, which would be managed by the Social Security Administration. The government contribution would come from a sales tax that would replace the Social Security payroll tax; it would start at 12% and then diminish. (See "Social Security Reform: How About a National Sales Tax?" in Aging Today, JanuaryFebruary 2005.) Each account would be insured to guarantee capital preservation and would be sold off to buy an inflationprotected annuity for the retirement years. This approach resembles the sort of big, tax-based, public program conservatives hate, but it has some good points.

What Kotlikoff and Burns suggest for Medicare-government-provided, participant-specific vouchers of varying amounts to be spent on private insurance policies-is less appealing. The healthy get less, the sick get more. Medicare would review everyone's medical record annually and decide how much each voucher must cover-a marvelous opportunity for errors and appeals. The proposed vouchers would be paid for by taxes, but beyond competition between private insurance plans (hardly a reliable device), I fail to see where the cost control is. …