DawgNotes

This economics professor from Harvard, on celebrating his half-century birthday, wished that his generation would not become their grandchildren's most pressing economic problem. And he lays out the problem very succinctly in a series of linkages between events of his life growing up and the incremental increases in the payroll taxes that support the various programs of the Social Security/Medicare systems. He observes the three-part problem: 1) Americans are living longer than ever before (see advertisement above); 2) The workforce supporting the retired force is shrinking; and 3) the cost of healthcare for those elder years is ever-increasing with no end in sight.

(In another interesting article on the same day, Wal-mart is given praise for advocating things the government doesn't want to take on, like universal health care. How about if Wal-Mart just gives all their employees, full or part time, free health care out of their astronomical profits and stops lobbying for the government to rescue them? Oh, sorry. That's another post.)

Professor Mankiw is hardly the first person to observe the statistics. Back in 1994, UNUM's Chief Economist, Keith Forrest, toured the West Coast giving presentations on current federal economic policy, including GDP growth rates, labor issues, the beginnings of what we now call global warming, and risk shifting - specifically the federal government shifting risk to future generations by toying with Social Security and Medicare rather than actually fixing them. Even back then the problem was clear and simple and took only one graph to demonstrate.

In 1935, when social security came into being, the average life expectancy for a person reaching the normal social security retirement age was less than 5 years. In fact, the average life expectancy at birth didn't even reach 65 until the early 1940s. But once it did, it never went down again. That means every person born after about 1945 had, at birth, an average life expectancy of at least 65. For persons born now, the average life expectancy is over 75 and increasing toward 80. So while the worker-to-beneficiary ratio continues to decline (originally 42-1, then 16-1, now less than 3-1), the payout period gets longer and longer. And this part is not in debate. As Mr. Forrest said even back then: these people have been born. They are here. And barring a global cataclysm, they will live a long long time.

Last time I checked the statistics on it, and it's been a few years, the fastest growing age group in America was the post-85ers. Again, see the advertisement above.

And yet, and here's the big important point that no one wants to talk about, the normal social security retirement age is still 65 for most people, 67 for some and may be as high as 70 for some people. That's not enough!

Look again at the ad above. Plan for a 30 year retirement. What is the assumption underlying that notion? The assumption that regardless of the gains in life expectancy we should still expect that everyone can and will retire, with government support, between ages 62 and 70. That assumption needs to be challenged. Without all the rhetoric about "entitlement" and "promises" and so forth. I don't know anyone my age who has grown up believing, really believing, that social security will be there for them, regardless of the number of payroll tax increases we've been asked to absorb. So it's not that big a stretch to imagine that we could seriously talk about raising the social security threshold to 75 or 80 or even more and still keep the original promise of social security. And if we could do that, then we could seriously talk about upping the saving quotient in this country, and curbing excessive consumerism and so on and so forth. If everyone working now believed their only retirement would be self-provided, many would know they could not retire at all, ever, and others would begin working seriously to provide for themselves.

As a first step, I suggest we start challenging this idea of retirement at 65 as a standard or a given. If you can save enough over your working life to be able to stop working and support yourself, great! By all means, retire. But if you depend on others to do it, then it's time for a different expectation, and a different conversation.

Professor Mankiw has re-opened this conversation. Let's take it up seriously, with some rhetorical astuteness. Let's talk about it, and see if we can do what the politics of party driven government don't seem to be able to. Let's talk about real solutions instead of accounting. Let's talk about it in ordinary conversations, and larger discussions, and seminars about retirement planning and in critiquing the advertisements and the politicians who won't offer alternatives to the 30-year retirement on their own.

Astute readers of this blog will recognize that Professor Mankiw's generation includes me. And I don't want my generation to be anybody's biggest economic problem either. But we will be.

Unless we change our minds and work to change other's minds too.