The Impending Entitlement Mess

My father has taught me many lessons, but two jump to mind today: “the hardest choices in life aren’t between good and bad, but good and better—or bad and worse.” Second, “it’s better to think critically then to be critical.”

America is going to face a problem soon, that will put her between a rock and a hard place: the impending entitlement crisis. It is a choice between hard and harder, and it’s an easy one to whine about. Instead, today, I’d like to talk about solutions.

In order to do so, of course, we need to accurately assess the problem—so that’s where we begin.

Dr. N Gregory Mankiw, a Harvard Economist has put it better than I possibly can:

“The federal budget is on an unsustainable path…. When the baby-boom generation retires and becomes eligible for Social Security and Medicare, all hell is going to break loose…. The choices aren't pretty -- either large cuts in promised benefits or taxes vastly higher than anything ever experienced in U.S. history.”

He and others have described the roots of this problem. They include a demographic problem (too many elderly and not enough children to provide for them) a technology problem (too many good (but expensive) ways to save a life) a political problem (it’s easy to be elected by promising either lowered taxes or increased benefits) and a sociological problem (it is the government’s job to take care of me when I’m older, not my own.)

We are left with roughly five obvious solutions: raise taxes (by 22%) borrow (205% of GDP by 2050) cut some benefits to the elderly (small things, like their medical benefits and pensions) pray (that there is a great increase in productivity, for example) or find a new solution. I’ll start with a bit from column D.

#1. Immigration and Technology Investment

Praying for an increase in productivity is like the poor man that prays for the winning lotto ticket. We all know the joke—let’s buy the lottery ticket. Here’s how:

Increases in productivity come by innovation—Inventions, technology, science—and there are two easy ways to do it. First, incentivizing research (funding the National Science foundation, for example.) Second, and more controversial, is change our immigration laws.

If someone is a PhD from Mexico, I want them here. If they’re a brilliant sociologist from Jamaica, I want them in America. If they’re a Russian biologist, I hope that they would always be welcome in America. If we want innovation, then let’s create a critical mass of intelligent people.

#2. Tax Reform

We spend more money collecting taxes then I’ll be able to comprehend in my lifetime. The first step in solving this crisis is deep reform: a flat tax, for instance. Secondly, we need to tax things that hurt us, and relieve taxes on things that help us. For example, taxing cigarettes means there’s less smoking, so taxing investment means…

#3. Good taxes for all

While taxing the poor seems distasteful, there’s an exciting solution here: what if tax breaks were given to those seeking to further their education? For those who have no criminal record? For those who give 6 hours of community service a month?

As healthcare costs are on the rise, let’s apply a similar idea to that arena: what if Medicare and Medicaid benefits came with a special tax break for those who don’t smoke, don’t drink, or whose weight is in the healthy range? Encouraging healthful living would pay long-term dividends.

#4. Raise the retirement age

When Social Security started, the life expectancy of the usual person was much lower, but the retirement age was about the same. Many economists agree—raising the retirement age is one of the most effective (and least convenient) ways to solve this mess.

#5. Control spending

I remember being at the store with my mother from time to time, while I was younger, and asking for a treat. She would sometimes say, “we can’t afford it” but would also sometimes reply “you don’t need it.” Both proved to be good lessons for me.

We need to recognize that “Good, Better, and Best” applies to what we spend as a government. I like the idea of universal healthcare, I just don’t like the price tag.

#6. Have kids

I’m serious. (http://www.economics.harvard.edu/faculty/mankiw/files/sept98.html)

#7. Band-aids vs. preventative medicine

Liposuction works. If eating habits don’t change, however, then liposuction will be forced to work again and again. We need to make sure that we aren’t merely fixing the façade, but eliminating the root problems. Political promises that can’t be kept, spending more than we earn as a country, welfare-state mentalities; these are all good places to start.

If you don’t like my solutions, then thrill me: write about your own.