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David Brooks Is Lost in Time

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Tuesday, 12 February 2013 05:34

David Brooks told us again today that he doesn't like Social Security and Medicare. He does this frequently in his columns although usually while he ostensible makes some other point.

Today's other point is that the country is less forward thinking in the past. A main piece of evidence in this regard is the money that we are spending on Medicare and Social Security.

"The federal government is a machine that takes money from future earners and spends it on health care for retirees. Entitlement spending hurts the young in two ways. It squeezes government investment programs that boost future growth. Second, the young will have to pay the money back."

Both parts of this are of course wrong. Brooks assumes that the federal government would be able to collect the same tax revenue if it didn't have Medicare as if it did. That is implausible. Medicare is an enormously popular program for which people are willing to tax themselves. It is not likely that if we nixed Medicare that we could raise the same tax revenue and simply use the money for something else. (We would at least have to change the name for the designated Medicare tax.)

It is also important to note that the excessive spending for Medicare is not due to the fact that seniors in the United States are getting such good care, but rather that we pay more than twice as much per person as people in other wealthy countries. If we paid the same as people in other wealthy countries then we would be looking at long-term budget surpluses, not deficits. In this sense it is not a question of transferring money from future earners to give to retirees, it is a question of taking money from future retirees to pay drug companies, doctors, and others in the health care industry.

It is also inaccurate to say "the young will have to pay the money back." Of course the debt never literally has to be paid back, the government debt has grown in nominal terms almost every year in the last century. Even the interest will be paid from some future earners to other future earners so government debt ends up being a transfer within generations, not between generations.

The piece also includes a couple of other items about a lack of future orientation that are between bizarre and wrong. Brooks tells readers:

"Banks can lend money in two ways. They can lend to fund investments or they can lend to fund real estate purchases and other consumption. In 1982, banks were lending out 80 cents for investments for every $1 they were lending for consumption. By 2011, they lent only 30 cents to fund investments for every $1 of consumption."

No data source is cited for this statistic, however if Brooks is just referring to bank lending (as opposed to all credit) then the obvious explanation would be the development of the junk bond market. Many mid-sized and even large firms that would have been dependent on bank loans for investment in 1982 (the middle of the recession -- a year when housing was hugely depressed) can now borrow directly in capital markets without going to banks. It is not clear what this tells us about the country's future orientation.

He then adds:

"Increasingly, companies have to spend their money on retirees, not future growth. Last week, for example, Ford announced that it was spending $5 billion to shore up its pension program. That’s an amount nearly equal to Ford’s investments in factories, equipment and innovation."

This one is a real head-scratcher. Has Brooks missed the plunge in defined benefit pensions over the last three decades? How about the rapid disappearance of employee health care coverage? The trend here seems to be going rapidly in the other direction. Pensions are of course are part of workers' compensation, just like pay. Companies are supposed to put aside money at the time pension liabilities are accrued, so a properly managed pension fund does not imply a drain on the future.

Of course the country does seem to have shortage of people with proper skills in finance, so many companies do have underfunded pensions. However this has little to do with preferring the present over the future, as opposed to a simple lack of skills in an important sector of the economy.

 

Comments (9)Add Comment
...
written by Chris Engel, February 12, 2013 6:25
As a young person, I can say I'm not upset about entitlements to the older generation.

What I am upset about is austerity, and this refusal to accept modest inflation because they're worried about it destroying the savings of the elderly...even though their benefits are indexed to core CPI.

So the benefits levels are fine (if not maybe a little low in the non-healthcare arena), but this refusal in general to support stimulus and higher inflation to help bring down employment and promote growth...that's something I have a legitimate beef with old people about (the ones who take the pro-austerity position, at least).
David Brooks Lost in Fable of Unstoppable Force Paradox: Bad Guys or Good Guys
written by Last Mover, February 12, 2013 8:18
When an unstoppable force meets an immovable object something must give. This paradox serves as the basis for a major economic folk tale of the day because it fits the zero sum framework. Them or us.

It's easy to tell because it's easy to frame between "good guy makers" and "bad guy takers", in this case the good guy younger generation versus the bad guy older generation.

Never mind how "bad guys" abrogated economic contracts once considered sacred by Brooks in the past. Never mind how "bad guys" undermined competition once considered to drive economic resources to their highest valued use by Brooks. Never mind how concentrated wealth of "bad guys" has come to own the political system that dictates economic outcomes from the top down.

All you have to know is these so called "bad guys" were the "good guys" all along, simply by virtue of "winning". Specifically, winners who take all. They deserve it because they won it. Because they won it, they the "good guys".

In other words, the economic fable of the day a la Brooks has become, the only way to stop a bad guy is to give the good guy enough economic power to crush the bad guy.
only 99% stupid
written by Jennifer, February 12, 2013 8:49
The magical thinking starts at the beginning, when he states that people originally settled in the US, and moved westward in the country, "so their descendants could live well for centuries". Most sources I have read on the topic indicate those people were primarily concerned with the present, and trying to improve their own lives. I do think he is right about business focusing on the present, which is why most of them either spent the money accrued in their employee's pension system or simply never funded them adequately at all, just like many of the states. But the best is at the end, where he pushes for the Keystone XL pipeline to be approved. So I guess when we are talking about saving for future generations that does not include the environment.
...
written by skeptonomist, February 12, 2013 9:48
I am guessing that the increase in the ratio of bank lending for consumption as opposed to investment is at least partly due to credit cards, which are much more important now than in 1980 (FRED:REVOLSL). As I have said before, it is hard to believe that this increase in consumer credit had no effect on savings rate.

Regarding retirement funding the increasing ratio of retired/workers does mean that more money in the nation overall has to be devoted to retirement, but this does not affect individual companies - they only support their own employees and if their plans are funded there is no effect. If the plan is not funded and the business shrinks there are big problems - this is the problem facing the Post Office. And again, the increased national spending on retirees is at least partly balanced by decreased spending on children (or could be).
...
written by G Burtless, February 12, 2013 9:59
In addition to Dean's excellent critique, it's also worth noting an implicit but completely mistaken assumption behind Brooks's reasoning. He tells us:

"Increasingly, companies have to spend their money on retirees, not future growth. Last week, for example, Ford announced that it was spending $5 billion to shore up its pension program. That’s an amount nearly equal to Ford’s investments in factories, equipment and innovation."

Brooks seems to believe the added $5 billion will be set aside solely for retirees or workers near the end of their careers. He seems to forget that employers must set aside contributions to fund their accruing pension obligations for young workers. The last time I checked, Ford's 22-year-old workers need new pension contributions every year, assuming Ford wants to have enough money to pay their pensions 60 or 70 years from now.

Thus, the notion that Ford is scrimping on investment today in order to find resources to pay for today's retirees completely misses the fact that the extra contributions are needed to pay for benefits promised to today's active workers – young and middle-aged.

And, oh, by the way, a lot of the money set aside in the company pension fund will be used to finance investment. Because guess what? The money is not placed in a sacred vault where it is left untouched for 60 years. It is being invested in stocks, bonds, and real estate projects where presumably the folks borrowing or using the funds will be making those investments that Brooks cares so much about.
...
written by watermelonpunch, February 12, 2013 10:12
The federal government is a machine that takes money from future earners and spends it on health care for retirees.


Isn't that what a responsible society does? Take care of its elders??
What about those future earners in the future? Won't most of them be elders someday?

It is also important to note that the excessive spending for Medicare is not due to the fact that seniors in the United States are getting such good care, but rather that we pay more than twice as much per person as people in other wealthy countries.


Yes, please, note it, again and again. It needs to be noted continually. We need billboards.

Of course the country does seem to have shortage of people with proper skills in finance, so many companies do have underfunded pensions. However this has little to do with preferring the present over the future, as opposed to a simple lack of skills in an important sector of the economy.


THANK YOU.
I see this simple fact ignored on MANY topics. Where a law or a tax or a responsibility is blamed when the fault lies completely with poor business management.

@ Chris Engel
As a young person, I can say I'm not upset about entitlements to the older generation.

What I am upset about is austerity, and this refusal to accept modest inflation because they're worried about it destroying the savings of the elderly


I agree with you. (Though maybe I'm not as young.)

But I think it's important to distinguish elderly who actually have savings & assets, from those who don't, but seem to think they do, and those who don't, and know they aren't part of the club that's going to benefit from austerity.

@ Last Mover : well said.

@ Jennifer - Yes, and we need more people pointing out these ridiculous romantic ideas about past peoples.

And if people were forward looking... they'd want to make sure that we have a plan in place for those young people who will become old people someday. DUH.
Babbling Brooks
written by Roger Bloyce, February 12, 2013 11:59
You’re much too kind to David Brooks. His contention that pioneer Americas somehow looked to the future more than other people is obviously absurd. He has been trying to put people into categories for years – bobos, creedals, dispositionals, Burkeans, etc. – often citing some obscure book of sociology and claiming that Republican politicians have been dealing with its revelations all along.

His most famous category, of course, the Applebee guy, appeared in a somewhat incoherent June, 2008, NYT column:

“Obama‘s problem is he doesn‘t seem like a guy who can go into an Applebee‘s salad bar and people think he fits in naturally there. He has to change to be more like that Applebee‘s guy and as he‘s done that he‘s become much more transactional. Much more, I‘m going to deliver this and this and this to you on policy.”

The notion that men at Applebee’s salad bars represent a certain type of person is impossible to grasp, particularly in view of the easily verifiable fact that Applebee’s restaurants never have had salad bars.

How Brooks gets paid for such blather beats me, but if you’re a publish-or-perish academic with a new book on human behavior, be sure to send a copy to America’s foremost socio-craptologist.
Paying back the National Debt
written by H-Bob, February 13, 2013 2:28
'It is also inaccurate to say "the young will have to pay the money back." Of course the debt never literally has to be paid back,....' So true, Andrew Jackson was the President the last time there was no national debt !
...
written by Bill Van, February 14, 2013 3:13
"David Brooks Is Lost in Time"

Not sure the "in Time" is needed.

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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