Wednesday, July 06, 2011

Debt ceiling extension will "kick can down road"; we must start considering gradual privatization of entitlements now

As the debt ceiling “blackmail negotiations” go on, we ought to bear in mind a few points.

First, even if the debt ceiling is extended (as I think it must be), we would effective “kick the can down the road” and face another crisis by New Year’s if we didn’t address entitlement spending.

Several fundamental questions have to be sorted out.

How much of their “entitlements” did seniors (or their legal spouses) “earn” by paying FICA and Medicare taxes over their working years, when these “taxes” are viewed as “annuity” or “insurance” “premiums”?  How much of their care do supplemental premiums cover today?

How will we face the question that medicine can keep people living longer, but likely with much longer periods of disability, requiring family and institutional services? 

A half century ago, aging and end-of-life were normal experiences.  Families dealt with them. We did not go to great lengths with preventive care and screenings to add 10-20 years to life spans.  Families generally took care of their own elderly (often unmarried members were expected to), but usually the periods of end-of-life dependency were not long, because medicine could not prolong life that much.

Today, we have overextended public resources to care for an aging population, and fewer people working to pay for their care and fewer adult children to care for them. But all of this discussion is bound to lead to a new look at filial responsibility (which is already on the books in 28 states), and a new way of looking at what generates “family responsibility”.  It is partly a collective experience, not totally governed by one’s own “personal choices” (to have one’s own children).

If people live longer and have reasonable health, they will have to work longer.  Employers will have to rethink their attitudes toward an aging workforce.  We also have subtle problems in the nature of work we want seniors to do. Sometimes employers want seniors to become their new hucksters, in a world that has become less social and less receptive to personalize selling and marketing.  This could become sensitive for some seniors “in the economic middle” if we start means testing social security as if it really were welfare and not an annuity.

Will we have norms for how long life saving treatment by Medicare is appropriate? Will we treat people “better” if they did raise children themselves?  I can imagine the moral questions that the “natural family” crowd will raise.

That’s why I like the idea of a gradual shift to privatized, but carefully managed (as far as safety of principal is concerned) retirement security savings, to gradually replace social security.  The Cato crowd is right on this one. We want people to wind up with annuities that can't be confiscated. 

Later Wednesday:

On CNN, Senator Rand Paul (R-KY) suggested that the way to make the "rich" pay their fair share of debt reduction is to means test their Social Security and Medicare, even right now (presumably) with current retirees, rather than raise taxes on those who are working. In a way, this makes sense. One can't complain about taking away benefits even right now that aren't actuarially justified by past FICA or Medicare tax "premium contributions".  One of my points is that nobody has told us what those numbers are, and could Congress (or a consulting firm like Lewin) come up with the numbers by Aug. 2?  I doubt it.  That's generates another argument for the Bush gradual privatization proposal a few years ago. You know what you really earned!

But focusing on older people also plays the "generational wars" car and asks the question, should those who have already lived admit that it is another generation's turn?  This also plays into another argument: the intrinsic "value" of the lives of older people is tied to intact extended families and "role modeling" -- a concept of the "natural family" crowd.

Here's a perspective on Rand Paul's ideas from "The Daily Paul", link. "AT LEAST give that person all the money they paid into it and THEN stop the benefits."  Makes sense. Here's another perspective from the "Barefoot and Progressive" (or "Barefoot Contessa") blog, link

Update: Late Wednesday, the Washington Post reported that Obama will offer Social Security cuts to get a debt ceiling deal. It is not clear if or how this latest idea could affect current recipients. 

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