Three Reasons to Reform Old Age Entitlements Now

In my last post, I showed that the younger generation is likely to live longer in a wealthier nation. If the younger generation is likely to be better off, why shouldn’t we transfer resources to the old and forget about reform to Social Security and Medicare? There are three reasons.

First, because of human nature each generation wants the next generation to be better off. It is distinctly odd to redistribute against the preferences of the beneficiaries. Most people have children and others have nieces and nephews. They are committed to these youngsters’ welfare even at the expense of their own. This is clear not only from polling, but from actions. People of any means almost invariably try to leave their children an inheritance rather than party down into old age.

One might ask why nevertheless old people often vote against reform of entitlements. First, most people are rationally ignorant of politics. Polls regularly show that many people do not recognize the amount of money spent on entitlements, thinking instead that foreign aid makes up a greater portion of the budget. Second, Social Security and Medicare are deceptively denominated as trust funds so that many, if not most, think they are only getting back what they paid in. Finally, the old have no confidence, given the weak restraints on government spending, that the money saved on entitlements will not be squandered elsewhere. At least living off Social Security may allow them to pass on more of their own savings to their children.

The second reason to worry is that large old age transfer programs put the government on autopilot, as entitlements become a greater and greater percentage of spending. The Steurle-Roeper Index of fiscal democracy shows that the percentage of the federal budget not already allocated to programs, including entitlements, continues to decline. Entitlements thus represent the real dead hand of the past constraining government choices for the future.

That kind of budgetary mix handcuffs society’s ability to deal with new collective risks. It is hard for democracy to ramp up new spending to address a risk when a large amount is already handed out in transfers. The higher the rate of taxation to pay for preexisting entitlements, the harder it will be to raise taxes to handle a crisis.

And the very technological acceleration that I have described previously is going to lead to more risks as well as more wealth. Abroad the risks include new kinds of weapons of mass destruction created by nanotechnology and biotechnology. And the risks of their use may also become greater because accelerating technology may destabilize traditional societies, giving rise to the kind of terrorism that is hard to deter.

There are also risks at home. Three million people drive for a living. Self-driving cars will be a great boon but a threat to jobs. Machine intelligence will also encroach on a variety of middle class white collar jobs as software does routine accounting, diagnostics, and yes lawyering. Such displacement may well require innovative government programs in education and training to help people transition to new work.

And these are just a few of the possible risks of technological acceleration: others are as varied as climate change and takeovers by machine intelligence. These are known unknowns, but with technological acceleration we face unknown unknowns as well.

My third concern about entitlements is the political climate they create. A government that transfers large resources from one group to another encourages a fiscal and regulatory war of all against all. The rhetoric war, whether the war on the old, the war on the young, the war on women, — fill in the groups of your choice — obscures what we have in common — the need for a government to protect us against invasion and catastrophe and to establish rules that facilitate invention and exchange.

We already have in Europe a warning of the consequences of an entitlement society where all sorts of groups have claim rights on revenues and even on employment by private companies.  This culture of social stagnation deprives nations of the resources to defend themselves without the aid of America, let alone meet new challenges.

As Edmund Burke understood, society is indeed an intergenerational compact, but it does not follow that we should think about creating a society in which each generation has an equal share of wealth. It is in the nature of things that old will want the young to do better than themselves. Today, an unreformed entitlement state is a risk to the young and to us all because it disables the government from addressing serious new challenges. By reforming entitlements and returning to constitutional limits on government we can better empower our nation  to address the unpredictable, collective risks of technological acceleration.  We can also create a better political culture — one where people  jockey less for a bigger share of transfers but focus more on common goods that transcend generations.