The U.S. Has Been on a Six Decade Spending Spree
Larry Kotlikoff takes to task the 500 economists who have endorsed Mitt Romney, including yours truly. He is particularly irritated that we are ignoring this:
In the 1950s, the U.S. saved 15 percent of national income. The net domestic investment rate was equally high. Today, America saves 1 percent of national income and invests only 5 percent of national income, with the four percentage-point difference being made up by the current account deficit — by Chinese and other foreign investment…
Every administration starting with Dwight Eisenhower’s has expanded America’s Ponzi scheme, which takes resources from young savers (including those not yet born whose current spending is zero) and gives them to old spenders. This huge intergenerational redistribution has produced an enormous increase in the absolute and relative consumption of the elderly…
This is just what the life-cycle model of saving predicts. If you take money from the young and tell them they will get it back in spades when old, and then give this money to retirees, the following will, as a matter of theory and practice, happen: The elderly will go shopping, the young won’t bother saving, national consumption will rise, and domestic investment will fall.
Expanding Social Security, Medicare and Medicaid benefits, shifting the structure of the tax system to lower the burden on retirees relative to workers, and cutting taxes have all saddled the U.S. with unsupportable obligations. Running two futile and incredibly expensive wars over the past decade have further contributed to the bills that America’s children face.
After hacking through the strawmen that clog the column one looks in vain for any recommendation that we stop spending on the biggest consumption expense of all–government.
I must have missed the memo on how ObamaCare, which makes young people pay a whole lot more for insurance so that their elders can pay less, increases taxes on flow through business investment capital, and makes everyone pay for more unnecessary regulation of medical services, classifies as more savings and investment.
That is something that our Founding Fathers could not anticipate and prohibit in the constitution; that the day would come when politicians would mortgage America’s future (and rob future Americans) to buy votes in the present.
Rick Perry got outcast for calling social security a “ponzi scheme”. When in fact, a ponzi scheme by definition is taking from a later group of investors to repay another ealier goup, while trying to appear solvent…
I am confused as to why Social Security does not match that definition.
I agree with you the young would not save for retirement and the retired will have a larger spending budget. Now the retired might need the extra cash flow due to the cost of living in certain areas.
If you take money from the young and tell them they will get it back in spades when old, and then give this money to retirees, the following will… happen: The elderly will go shopping, the young won’t bother saving…
Prof. Kotlikoff makes a good point. A better way would be to take from the young and use the money to pre-fund Medicare. Then, provide young people with an annuity when they get old rather than give the money to retirees.
As a recent college graduate I am quite concerned with this idea of placing such a burden upon young people. While I am in no way “pro-Obama” I have felt strong reservations (along with a large portion of Americans: http://www.csmonitor.com/USA/Politics/2012/0827/Americans-see-Mitt-Romney-as-candidate-for-the-rich-poll-finds) regarding Mitt Romney.
However, I would be doing myself a disservice to ignore such overwhelming evidence (which many oblivious voters seem to do) as presented here in this lengthy list of noted experts that support his position. This has given me something to think about.
The younger generation will feel the effects of Mitt Romney’s health plan.
@Robert
The burden of finacial responsibility is already upon you. The funding crisis is upon us because there are not enough working young to support the older population.
@ Nichole,
Money is being provided to the elderly to meet their basic needs, and in some cases more than that. The way the elderly spends this money should be monitored, if not already, so that they don’t need “extra cash” and at the same time allow them to enjoy a good lifestyle.
If certain groups are allowed to get “extra cash”, what’s going to keep others from demanding the same?
“This huge intergenerational redistribution has produced an enormous increase in the absolute and relative consumption of the elderly”
They shouldn’t be taking money from the young in the first place…especially when they need it to build their “future”…which seems not to matter to anyone anymore…
Also, in the last decade the US has been involved with two wars funded by debt. That is taking from the young and giving to nobody!