Thursday, September 11, 2008

Intergenerational Equity, Unfunded Liability and Selfish Boomers

The newest buzzphrase in the Social Security world is 'Intergenerational Equity'. It is indeed the theme of the new movie IOUSA (to whose webpage I link) which itself is pretty much a documentary of the Concord Coaltion's Fiscal Wake Up Tour. (The fact that Concord was founded by Pete Peterson and rights to distribute the IOUSA film are in the hands of the PGPF: Peter G. Peterson Foundation not being a coincidence at all.)

One of EconomistMom's (who is a/the chief economist at Concord) first posts was entitled The Young People Get It which in turn was plugging the Youth Entitlement Summit 2008 in turn sponsored by Americans for Generational Equity an organization first founded in 2006 and funded by the usual group of conservative foundations.

The idea isn't new exactly, in Googling around today I found this lengthy article from Sept 2003 that probably explains it better than I can (I have only read the first page so far) Generational equity, generational interdependence, and the framing of the debate over social security reform. But before I turn this one over to a discussion of that let me highlight one thing.

If you go to the IOUSA webpage and look for the first part of the description of the overall issue you find it framed as follows (bolding mine) :
I.O.U.S.A. boldly examines the rapidly growing national debt and its consequences for the United States and its citizens. As the Baby Boomer generation prepares to retire, will there even be any Social Security benefits left to collect? Burdened with an ever-expanding government and military, increased international competition, overextended entitlement programs, and debts to foreign countries that are becoming impossible to honor, America must mend its spendthrift ways or face an economic disaster of epic proportions.
Sure they go on to talk about military spending and foreign debt but the discussion ALWAYS starts and mostly ends with Social Security and equally ALWAYS with a dig at Baby Boomers.

Having run into this particular article I want to post this now as Part 1 and get some discussion going on the overall topic and then return to the theme of 'Social Security Crisis = Selfish Boomers' in a latter post.


Aaron said...
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Anonymous said...

I'm just trying to understand a basic economic concept and have been downloading Mark Thoma's stuff on money creation... but still have a basic economics theory question. If you know of any summary papers that break this particular question down into layman's language (that won't make my eyes glaze over with economic terms I can't quite understand yet) I'd love you to link to it.

My problem:

Fact 1: money is loaned into existence with interest
Fact 2: the total supply of today's money is inadequate to pay back the loans of today

Won't it just keep growing higher as there's never enough money to pay the debt because the money being loaned into existence is greater than the total current money supply, and so of course to pay this generations debt we have to borrow more money (which attracts interest)... all of which requires exponential growth in the money supply, which requires exponential growth of the economy to justify that money supply and stop inflation?

For some great online short movies about these issues check out this smart cookie's movies, Chapters 7 onwards in particular.

Thanks for your time. I hope my questions were clear.

splashy said...

Seems like it's always left out that Boomers have been paying EXTRA into SS since the early 80's, so they have actually paid in advance for THEIR SS. Why everyone thinks they shouldn't get that back, and that the trust fund shouldn't be drained by them because THEY built it up is beyond me.

The Boomers have been paying for their parents and grandparents, AND for themselves, most of their working lives. It's been a double taxation for them for almost 30 years. It was done during the Reagan years, when everyone (translate, the Repubs) "panicked" about it.

Actually, it now appears it was about getting them to pay more so the politicians could raid the trust fund to make their budgets look better while they stole everything they could to put into war making and other things that would further enrich the wealthy.

Anonymous said...

Yet absent from this discussion is the fact that we are approaching peak oil, peak gas, peak coal (mid century), peak rare earths, peak farmland (100 thousand km's of topsoil blows or washes away or is paved over each year)... indeed, some are calling this century "peak everything".

Just imagine the impact of most commercial airlines going bankrupt when the oil inevitably starts being rationed!

Eventually, as in decades down the track, I imagine the 'green jobs' sector providing more financial security as local renewable electricity becomes the backbone of the world economy and transport. (There's no liquid fuel that can be scaled up any time soon).

So social security? I'm imagining that might take the form of soup kitchens and a warm bed somewhere.

Peak oil is an international emergency — yet some pensioners, who by the way designed this entire civilisation to run on oil and set up this crisis — still want their Las Vegas holidays and gambling financed? What a joke.

Bruce Webb said...

Thanks for the comments.

I am not a finance guy, indeed I am not any kind of economist. I am instead just a Social Security hobbyist who has actually studied the numbers. Which is to say maybe the last person you want to try to be answering eclipse now's 10:47 questions.

As to Splashy. Totally agree in principle but depart somewhat as to detail. Until about 1998 the actual cash surpluses in Social Security were not in context very large and the masking effects on the overall budget from SS surpluses really didn't exist.

The story is somewhat different after 1998 and much different after 2000 but taken as a whole the concept that Boomers have been 'prepaying' their retirement since 1985 doesn't actually pass the numeric test. In fact you can make the case that legally there was no 'surplus' in the Trust Fund until 1993. I discuss this some in Social Security: the Basics Revisted & Three Myths where prefunding is Myth 3.

eclipse now @ 3:44 AM. Once again agree completely as to principle but would shade the detail a bit. Personally I am a little more optimistic on the resource end but ultimately it doesn't matter to Social Security as it relates in privatization. Social Security is set up in such a way that it tracks the economy both on the upside and the downside. What you never get is enough divergence to make worker funded Personal Retirement Accounts work for people earning at or under the median. Unless of course we strung together a couple of decades of economic performance at late 90's levels. In which case Social Security as currently configured would be vastly overfunded.

Which is to say we might be on the verge of Peak Everything. In which case your stock portfolio won't save you. On the other hand we might listen to Gore and/or Pickens and engage in a Man to the Moon style mass effort to convert the world away from oil for transportation and coal for electricity. In which case we won't need your stock portfolio to ensure retirement security for workers. I summed this up in a ditty back in 1997:

If Privatization is Possible, it Won't be Necessary.
If Privatization is Necessary, it Won't be Possible.

Anonymous said...

If Privatization is Possible, it Won't be Necessary.
If Privatization is Necessary, it Won't be Possible.

I like this expression, and think it applies to a number of government services.

EG: Medicare.
Here in Australia we seem to have better health outcomes for the % of GDP that the health system costs. Your privatised health systems seem to not only cost more, but cause societal insecurity and confusion as well.

My mate "One Salient Oversight" has more information on this — I'll see if I can get him into this thread.

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