The Entitlement Crisis: An Open Letter to Seniors
We’re all in the same line.
Using the formulation of the artist Thomas Cole in his very evocative series of paintings called “The Voyage of Life,” the stages on that line are childhood, youth, adulthood, and finally, old age. The only difference is where each of us is on this line.
I am middle-aged, and I am writing to those who are a hop, skip, and a jump further down the line from me: America’s senior citizens. Where I am, you once were. Where you are, I will be (I hope). Other than our positions in line, we are the same.
But there is a big difference between you and me: You will probably be able to collect your Social Security and Medicare benefits. There is a good chance I will not.
That you will be able to collect those benefits is as it should be. You paid into the system, and you should get what you were promised.
And there’s that word: promise. How often, in this long journey of life, do we hear someone say, “I promise,” only to have that promise broken later? Yes, sometimes the promise is broken for malice or spite. But often enough, people promise things they want to be true, or things that they believe the listener wants to hear, but in the end, the promiser had no business promising because the promise is literally impossible to keep.
You were made such a promise. So was I.
In the 1930s, we were promised that Social Security would provide for our retirement. In the 196os, we were promised Medicare would take care of all of us in our old age. They had no business making those promises. Over the long term, these programs are doomed. They were doomed from the start.
I am writing this letter because I have spoken to seniors who refuse to believe this. I have been told that I was repeating lies. That I was using data fabricated by the government. That I have been taken in by congressmen whose real goal it is to reduce seniors’ benefits so they can take more money for pork, or wars, or corporate jets, or some other form of corrupt purpose.
We must grant that in the last election, seniors gave more support to Mitt Romney and Paul Ryan—in spite of the fact that they had promised to reform entitlement programs. This defied the classic expectation, which is that if a politician so much as mentions changing entitlement programs, the Democrats will demagogue the issue and then seniors will turn out in massive numbers and destroy that politician in the next available election. That didn’t happen this last time around. Seniors’ support for the Romney-Ryan ticket was not enough to put them over the top, but many seniors gave their support to a team that dared to touch the third rail. This is very much to those seniors’ credit.
To those who overcame decades of third-rail politics and accepted the notion that our entitlement programs must change, or they will bury us all, I thank you. This letter is to whoever is still unaware of this threat, or still resistant to accepting the seriousness of it.
Please understand, I have only one agenda: to help America overcome this existential threat. I am not advocating that your benefits be taken from you. I am not speaking on behalf of anyone who holds that view, and I am not using data produced by entities who have that as their agenda. All I want you to do is hear and acknowledge the absolute truth: America’s entitlement programs are unsustainable. Actuarially, mathematically, they cannot continue in their current form.
Reformers come in many shapes and sizes. Some want minor alterations, such as increases in the retirement age. Others, like Paul Ryan, have more radical reforms in mind. Others still would like to see complete privatization. But the one thing they all have in common . . . . none of them is trying to hurt you. No one wants you to do worse. They want to save the programs for you and for future generations. Even those who advocate for full privatization ardently believe that retirees will do better than in the public system. (And they have evidence from places like Chile to support their claims.) The bottom line: No one is trying to harm you.
In fact, for those who are anywhere even close to retirement age, virtually none of the prevailing concepts for reform involve any impact to you whatsoever. You paid into the system and were promised certain benefits, and no one is suggesting that you should not get them. In almost all cases, reform concepts are designed so that people at or close to retirement age are completely unaffected. For that reason, those seniors (or near-seniors) who stand in the way of reform—either through voting patterns or adherence to erroneous notions of what is actually going on—are only impacting the generations below them—their children and their children’s children.
So let’s talk a bit about what is actually going on.
Social Security was sold as “insurance”—as a kind of trust. Many believe that it is a system in which we pay in, the government holds and protects our money for us, and then we get our money back. But that is not so. What we pay in goes to cover current retirees. What our children and grandchildren pay in goes to cover us. Some people pay in and get back a similar amount. Other people, people who paid in a lot less or nothing at all, also collect benefits. Each year, more money goes out than comes in.
Over time, the demographics began changing. Birth rates started falling, and so with each generation, there were even fewer workers putting in. This made the problem worse. Currently, Baby Boomers are retiring at something like 10,000 people a day, so now, and for the next several decades, there will be a lot less money going in and a lot money going out. We are having to borrow to sustain these payouts. This has created what is called an unfunded liability.
This unfunded liability is not small. To put it into perspective . . .
The U.S. national debt is more than 16 trillion. That is not only more debt than the rest of the world’s debt combined, it is a large fraction—about a quarter—of the GDP of the entire planet. And yet, that 16 trillion is just a drop in the bucket. Depending on how you approach the numbers, the unfunded liability of our entitlement programs is between 40 trillion and 150 trillion!
Those numbers are simply not manageable. It’s not a matter of political will, or political parties, or posturing, or politicking. Those numbers cannot be dealt with by any economy. It is not possible. There is no one to bail us out. There is no one who can loan us enough. All talk to the contrary is whistling past the graveyard.
We cannot borrow enough to cover this debt. Our credit has already been downgraded, for the first time in our history, and it likely will be again. At some point, our creditors will look at us and see us as a bad risk, and then they will tell us to pound sand. We will have obligations, but no way to pay out. Worse still, interest rates will climb and the financing charges on our debt will become astronomical.
We cannot tax our way out if this. Contrary to all the class-warfare rhetoric we’re fed, the rich do not have enough money to cover our debts, nor do the middle class, nor the poor. We could raise taxes to confiscatory, economy- and job-crushing levels and it STILL won’t be enough to cover our liabilities—not even close. Moreover, such taxation would kill the economy, so no tax money would come after a certain point anyways.
We cannot confiscate enough wealth to cover anything close to what we need. We could confiscate the wealth of all the richest people in America and it wouldn’t even cover our budget deficit for one year, let alone our debt, let alone our unfunded liabilities. And, just like the taxation, such wealth confiscation would destroy the economy.
If we inflate the currency to the degree needed to pay our debts, the dollar will cease to be the world’s reserve currency, its value will crater, and we will have economic chaos followed by economic collapse. The kinds of hyperinflation required to pay the debts we’re talking about would take us into Weimar Republic and Zimbabwe territory and beyond.
That leaves default or reform. Default is certainly an option, but it doesn’t have to come to that. There are ways out of this. But the first step out of the cave requires recalling the path we took in.
Politicians in the 1930s and 1960s made promises that simply could not be kept. They have doubled-down on those promises year after year, either in a venal attempt to expand their own power or in a desperate attempt to avoid getting hammered at the ballot box. But the facts are unavoidable. Economics is is a science just like any other, albeit subject to more contention and much harder to test because the laboratory is billions of people in scores of countries over many years. But some things are basic. You cannot create a system that gives out more than it takes in, to an ever-increasing degree, year after year, and expect it to last forever. They were warned at the time; they didn’t listen.
Slowly but surely, mandatory spending (Social Security, Medicare, interest on the debt, Medicaid, welfare) are crowding out everything else. Yes, there is tremendous waste, and some built-in corruption, in our discretionary spending. Yes, we even spend a lot on defense. But discretionary spending is shrinking, year after year, as a percentage of the pie, as the actuarial facts of our mandatory spending catch up with us. In the 1960s, we spent much more on defense than on any such programs. But the percent we are spending on defense, and every other program, continues to go down, while mandatory spending keeps going up.
In 2011, it looked like this:
Everything else—defense, the wars, all government departments, keeping the lights on at the Capitol—is all in the pink area. We’re already borrowing four billion dollars a day to cover what we don’t raise in revenue (about 40 cents of every dollar we spend is borrowed).
And by 2045, estimates are that mandatory spending (just those blue programs) will consume all revenue. No more money for defense. No more Department of Education. No more Secret Service protection for the president or anything else the government does. Just Social Security, Medicare, and Medicaid.
And once again, just to reiterate, we CANNOT tax out way out of this. Whether income tax rates on top earners are 30-something percent or 90-something percent, the same amount of money comes in:
For those who prefer video to static charts, here is a video we made last year on the subject. In most cases, the number projections have gotten even worse over the intervening year.
To those seniors who continue to oppose any sort of reform, I understand your fear and your concern. You have been fed a terrible lie. We all have. But please understand—reformers are not saying that you must take immediate cuts in your benefits, or any cuts whatsoever. What the reformers, and any others who can read the numbers, are saying is that the system as a whole is doomed. I get no joy from saying so—no satisfaction, not even an I-told-you-so kind of satisfaction. The whole thing is deeply tragic, and for our future, profoundly terrifying.
In the end, you will probably get all your benefits. Absent major entitlement reform, however, the odds are very good that I will not. And worse still, the odds are very good that if nothing is done to change this trajectory, our children and grandchildren will be living in a country that is much different from the one we know and love. Different, and not for the better.