Henry Blodget passes along this revealing Mary Meeker graph on how bloated entitlement programs now comprise a staggering 58% of federal government expenditures and a corresponding portion of the $1.3 trillion federal deficit.
In his wonderfully lucid style, the Wall Street Journal’s Holman Jenkins follows up with this column in which he explains how this system is intrinsically unsustainable, but also fixable:
Nobody should be surprised that public-sector workers in Wisconsin and elsewhere are fighting to preserve every penny of their promised benefits.[ . . .]
. . . this fight was penciled in long ago, when politicians and union leaders made the strategic decision to negotiate benefits without negotiating for the funding to make good on them. The mock shock and horror is all the more laughable given that events in Wisconsin are a perfect microcosm of the battle that every sentient American knows, and has known for a generation, awaits Medicare and Social Security.
Medicare is the real killer. According to Eugene Steuerle of the Urban Institute, an average couple retiring last year can look forward to consuming Medicare benefits with a present value of $343,000, having paid Medicare taxes with a present value of $109,000. [. . .]
The flip side of this depressing consideration, though, is a happier one. Moving toward a system of real savings, in which payroll taxes would flow into some version of personal accounts controlled by the worker, would bring a big improvement to incentives. We could expect a sizeable growth dividend to help finance the transition.
By "finance the transition," of course, we mean today’s workers having to reach into their own pockets twice, paying for their own retirement while also making up for the saving their parents and grandparents didn’t do. When people talk about generational injustice, this is what they mean. But the pain can be lightened and spread more evenly with borrowing. Here’s where we should not be afraid of debt. The bond market can be trusted to distinguish between good debt and bad debt–between borrowing to fix the system and borrowing to prop it up.
The global bond market demonstrably still has confidence in America even today, in the absence of a clear path of reform. How much more willing would investors be to advance us money if it were being used to put the entitlement state on a sound, pro-growth footing? By the same token, if we don’t at some point justify the market’s current confidence in our future, our comeuppance will be swift and overwhelming.
This is the entire political challenge today, and you cannot shower enough contempt on those politicians who try to stonewall reform by exciting fears in the elderly that they will be left out in the cold. . . .
Recent past generations of Americans survived the challenges of the Great Depression and World War II to help provide a prosperous economy and great wealth for citizens.
Will the current generations of Americans accept the responsibility to take on the challenge of sustaining that prosperity?
tom,
fixable? by the bond market engaging in missionary work? not gonna happen in the 30 years i may have left.
nothing we “did” got us out of the depression, it just “happened” via WWII, a conflict we did not choose and for which we paid a horrific price–the toilet was flushed, the deck re-shuffled and a better day dawned.
the efficiency with which greeks riot for entitlement for which there is no money or wisconsin public employees or “all of us” is a dependable market to guarantee we will NOT “fix” this mess.
it will be fascinating to see just WHAT toilet-flushing awaits us as this unsustainable payout roars on—-“if the bums dare to take away the benefits i have not paid for but have come to expect, i will vote em outta office.”
I don’t know why otherwise reasonable, decent people
would rather make life even harder than it already is for people on SS and Medicare(which is basically
another welfare program for the insurance industry)
…rather than simply cut the outrageously piggish
defense budget and raise individual and corporate
income tax rates to what they were before Reagan and
the booshes.
Simply asking highly paid folks to contribute to SS would also help.
Unfortunately, right-wing propaganda has been so successful that nowdays a big chunk of what’s left of our middle class regularly vote against their own economic interest.
P.S. I disagree with the opinion that WW2 “just happened”. Wars don’t “just happen”. Most
people in Iraq and Afghanistan could tell us that.
“Will the current generations of Americans accept the responsibility to take on the challenge of sustaining that prosperity?”
Not if the Republicans can help it. What’s needed
is a stimulus package to get the economy moving and
get people back to work.
What the Republicans want to do instead, is cut entitlement programs such as military retirement
benefits, federal employees retirement benefits (surely they’ll protect congressmen, federal judges etc., but who knows), unemployment compensation benefits, agricultural subsidies (ADMidland will be happy about that I’m sure), in addition to SS and Medicare.
I vote we spend money to get the economy moving.
@ Bill McWilliams,
“Not if the Republicans can help it. What’s needed
is a stimulus package to get the economy moving and
get people back to work.”
Everybody wants another economic stimulus yet few ask where that money should come from. The US has transitioned from a Nation of productivity to a Nation of people living beyond their means. If you want to get the economy moving and people back to work you don’t have to look at Government for it. What you need to do is reduce regulations and taxations. The same regs and taxes and encouraged companies to take their job to a more business friendly climate to begin with.
“I vote we spend money to get the economy moving.”
What money? Sure, we can continue to inflate but ultimately we’ll reach destination hyperinflation
People that want to throw money at the problem to grow the economy have to understand that that was policy for many decades. It doesn’t work. Sure, it masks the symptoms in the short term but ultimately you’re left with a non-viable economy. There’s a reason why it no longer works as well as it used to. We can re-inflate every bubble but that doesn’t solve the underlying problems, it only masks the symptoms and ultimately we’ll be left with a monster bubble…the currency bubble.