Misdirection: The stupidity of increasing the retirement age.

Thursday, February 17, 2011

Hi. Increasing the retirement age by a couple of years is a meaningless gesture that will have little or no sustained impact on the affordability of Social Security. It’s sort of like asking a Cheetah that hasn’t eaten a few days, at least nothing really tasty – Can you tell I’m on a diet? – to give your 90 year old grandmother an extra few seconds for her and her walker to get a head start. Dollars to donuts – Hmmm, donuts. – she’s had it.

Suggestions like these, increasing the retirement age for example, are what the President and Congress discuss to make us think they’re doing something, like cutting $100 billion from the budget, and then telling that’s a $1 trillion savings over the next 10 years. Hell, why not a $2 trillion savings over the next 20 years? Sure. I don’t know what offends me most, the fact that they have no idea what the next 10 years will look like, budget or otherwise, or that they think I’ll be impressed by simple multiplication.

The problem with social security has nothing to do with the retirement age. It has to do with its underlying premise, which is the same for corporate plans, that we need to subsidize everyone’s retirement. Let’s talk about corporate retirement plans first.

Everybody knows how much trouble the labor unions created by demanding retirement benefits which help make the costs of labor so much higher for US manufacturers than for their foreign competitors. It’s a complicated issue, to be sure, but one thing is clear. It’s fundamental to the efficiency of a free market that people be paid for their current productivity, nothing more.

When a company pays its employees, that compensation should be related to the profits that labor helps generate – while they’re on the job. Why would you pay your employees money, after they retire, when they’re no longer on the job, at a time when they’re current productivity and contribution to your profits is zero? Well, maybe that was the only way you could get them to work for you? Nah, that’s no excuse. You could always just pay them more and tell them to save their money and invest with them in a retirement fund. At least the co-investment, the matching funds you contribute to a retirement fund are “now dollars.” They’re the equivalent of extra salary or wages you’re paying while the employee is still on the job.

No. There just no real good reason, it’s just not sound economics when you think about it, to promise to pay someone money in a future when they’re no longer contributing to profitability. You’re just racking up future expenses with no income to pay them. Time goes on. Retirement obligations build without offsetting income. More and more of your current costs of production are these corporate entitlements. Profitability falls or you raise prices to protect profitability to the point of your no longer being competitive. It’s stupid economics.

Social Security, as it’s now configured is no different. We’re paying people money – regardless of whether or not they need it, by the way – at a time they’re no longer paying taxes. There is, in other words, no income to offset the expense of the program. I’m not saying that every individual government program has to be profitable, or at least breakeven. Over time, the totality of government expense has to be covered by government income. What I’m saying is that Social Security is a huge expense, a subsidy for people who, for the most part, are no longer contributing to our government’s income and that it is inherently flawed for that reason. Smaller subsidy programs may be affordable if you have surplus government revenues, but 51 million Americans, roughly one sixth of the population, receiving $650 billion in annual benefits in an era of massive, institutionalized deficit spending?

Raise the retirement age if you like, but what we need to do is re-define Social Security as a mechanism for supporting people who, for good, acceptable reasons, have been unable to save enough of their income to provide for their welfare at a time when they can no longer work. We need, in other words, desperately, to dramatically reduce, from here on out, the range of people covered by Social Security.

Needless to say, reducing our costs of medical care would be a big help, too. Did you know, for example, according to President Obama and the Congress, that if we reduce that costs of medical care by just $1 per year, that over the next 1,000 years we’ll save $1,000? Impressive, isn’t it?

-wf

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s