Ross Douthat pens an interesting piece in today’s NYT. Even while it’s about a subject completely unrelated to this post, I recommend reading the whole thing–if for no other reason than Douthat’s column appears in Paul Krugman’s place while he is on vacation–and what an uncomfortable revelation Douthat’s column must have been to loyal Krugmanites.
Nonetheless, it was because of a comment to the column that I pen this.
It is important to note that much of this [repugnant] behavior occurs in countries with little to no social safety net. . . It is also, perhaps, something that Americans should keep in mind as our old age safety net (Social Security, Medicare, pensions) comes under increasing threat.
Julie doesn’t name the actor who is causing the “increasing threat” to America’s safety nets. Not to put words in her mouth, but I would suspect that in Julie’s world, the evildoers threatening harm to American seniors might include the filthy rich and greedy Republicans.
While it is true that America’s social safety net is under dire threat, the threat is far worse than I suspect Julie fears. For the threat is math. And math always wins.
It was 1997 and I had just met with my financial advisor. He mentioned a concern then years away:
“I always ask my clients when they would like to retire,” he said, “and I’m alarmed at how many of them respond, ’2010.’”
Even then, the answer concerned me too–especially because it made so much sense. After all, 2010 was the year that the first Baby Boomers would turn 65. But even for those younger Boomers, it had become fashionable to think that retirement could come early: at 60, or 55, or even 50. ”What,” I wondered, “would become of stock prices and real estate values if a disproportionate number of people attempted to cash out at the same time?” Fast forward a dozen years, and we now know the answer: an economic decline right about 2010 was unavoidable.
Of course, the magnitude of that decline caught by surprise me and many others who thought ourselves prepared. For while demography (itself, just a branch of mathematics) always guaranteed a downturn when the Boomers began their inevitable transition from the period when they were building their investments to the point when they were living off of them, it didn’t predict the harsh calculus that foretells the inevitable fall of the Western social safety network. And “inevitable” that fall surely is.
The problem simply is this: forty years of labor is not enough to pay for 80 years of life. Even if the first 20 or so are at the expense of an earlier generation, 40 can’t even buy 60.
For decades we ignored the costs: a bloated 1 to 12 educational system (that grew to K to 12, and then to Pre-K to 12) whose costs grow faster than local economies; four (or more) years of college, which because of tuition growth that doubles inflation, saddles graduates with debts equal to that of new cars, if not houses; medical costs–especially in the last years of life–that exceed all reason (aside: can you remember when six million dollars was an inconceivably large medical bill, but at least the return was worth the investment?); and a retirement age that stays steady at 65 even as the average life expectancy beyond then grew from 20 months to 20 years.
For decades we ignored the demographic warning signs too: smaller families and reductions in legal immigration meant that the number of payers into the system fell relative to the number of recipients; longer lifespans without an increase in retirement age only exacerbated the trend.
We ignored other glaring mathematical inconsistencies: Was it even remotely conceivable that, Lake Wobegone like, average returns on retirement investments could consistently double the growth of GDP? Or, could we continue to expect that the increase in median household prices could forever far outpace the growth of median household incomes?
No. All of this was mathematically unsustainable. How ironic it is, that during a period when “ecological sustainability” became a rallying cry, the sustainability of our economic environment became extinct.
For years we attempted to fool the gods of math with sheer numbers: the sheer number of Baby Boomers in their peak wage earning years at the turn of the century disguised the fact that those same sheer numbers would soon retire; and the sheer magnitude of the government’s coffers shifted default to later years.
We still continue the mathematical charade: For how long can we expect to hold mortgage rates at 4.5%, half the level of mortgage default rates? And for how long can we expect the government to spend 50% more money than it takes in? We continue to guarantee bankers’ debts and buy up our own collateral against ourselves. No one could argue that these are sustainable processes, yet we are now near the end of our third year of such foolishness. How much worse off are we now than we were before as a result of our nostrums?
Julie W. from Brooklyn laments the enemies of America’s social safety net, and I want to share her lament. But the enemy is math. And math always wins.Comments Off