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Home Publications Blogs Beat the Press Niall Ferguson Tries to Promote Generational Warfare from the Land of the Excel Spreadsheet Error (Harvard)

Niall Ferguson Tries to Promote Generational Warfare from the Land of the Excel Spreadsheet Error (Harvard)

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Thursday, 27 June 2013 13:34

Niall Ferguson, who was last seen predicting soaring interest rates and hyperinflation as a result of the Obama stimulus and Fed's QE policy is now calling for generational warfare as the best route to rescue the country's young. In a piece for the Daily Beast, Ferguson complains about the lack of social mobility in the United States, noting that it now trails many other wealthy countries in the percentage of low income children who move up into higher income quintiles.

Ferguson goes through some of the usual conservative stuff about bad families from Charles Murray, but then he settles on the real problem, Social Security and Medicare. He tells readers that 10 percent of the federal budget goes to children compared to 41 percent for the non-children part of Social Security, Medicare, and Medicaid. He then points out that even adding in state spending, which accounts for most education spending, the government spends twice as much on seniors as it does on kids. He then says to readers:

"Ask yourself: how can social mobility possibly increase in a society that cares twice as much for Grandma as junior?"

There are two big problems with Ferguson's logic. First, most of the payments for Grandma that he describes are part of programs with designated revenue streams. Social Security is essentially a publicly run pension system. We make people pay for their benefits. The same is true with Medicare. (In the case of Medicare people do typically get back more than they pay in but this is because we pay doctors, drug companies, and other providers so much. If our providers received the same sort of compensation as providers in other countries, Medicare taxes would be pretty much adequate to cover benefits.)

Ferguson's outrage over seniors getting the benefit for which they have paid would be like being outraged over farmers getting payments for flood damage when they collect a federally run flood insurance program. In Ferguson's world this would translate to caring more about farmers who are flood victims than kids, but to most other people it looks like paying back money that is owed.

The other major flaw in Ferguson's logic is the implication that our ability to support our kids is limited by the money we spend on seniors. Countries that spend more on their seniors also tend to spend more on their kids. it seems that the question is more of national priorities for ensuring that people get treated decently at both ends of life.

This is consistent with data that show a negative relationship between the share of the economy that goes to the financial sector and spending on kids. It also turns out that a larger share of output going to the richest one percent is associated with lower payments to kids. So if Ferguson wants to see more money going to kids he should probably be looking to target the financial sector and one percent, not the Social Security and Medicare benefits of retirees.

 

Comments (12)Add Comment
Ferguson should also look at the cost side of the medicare benefits
written by John Wright, June 27, 2013 4:10
Per the world bank, in 2011, the USA spent 17.9% of GDP on healthcare.

The GDP for the USA was 14.99 Trillion in 2011

The USA population was 313.9 million in 2012.

So the USA spent 2.6832 Trillion on healthcare in 2011

This is about 8.5K per capita per year.

So for a family of 4, about 34K/year would be their allocated "share" of USA medical GDP expenditure.

And Ferguson has not seemed to notice the youth likely are a part of families with elderly members, so the government money that is currently flowing to grandma for her care, if diverted to the young, might simply flow back to grandma.

Ferguson should look at medical cost containment if he wants to help the young.


Somebody Had to Say It: Thank You Niall Ferguson
written by Last Mover, June 27, 2013 4:50
"Ask yourself: how can social mobility possibly increase in a society that cares twice as much for Grandma as junior?"


Dean Baker should not be so tough on Niall Ferguson, who has finally unearthed the quantitative holy grail of relative value between the young and old.

We now know that the opportunity cost of keeping one elder on a sustainable living standard is crushing the economic life out of two young budding children who never knew what hit them.

Wake up America. Crowding out is a fact of life. You know what you have to do. If you don't, others will make the tough choices for you. And you know what that means. Soon the ratio of young/elder will grow to 3/1 and ... need I go on with the gruesome details?
Put Ferguson on the Ice Flow First!
written by TheAmericanWay, June 27, 2013 5:54
Native Americans from the far Northwest know how to solve this intergenerational problem: put Ferguson on the ice flow first and push him out to sea. A job will be opened at Harvard and the quality of instruction might improve.
Shorter Last Mover...
written by Pauley, June 27, 2013 8:02
"Soylent Green is people!"

C'mon voters - snark is snark...
Zero Sum
written by Jeffrey Stewart, June 27, 2013 8:56
Dr. Fergeson seems to assume the amount of federal spending is fixed. Therefore, spending more on one group means less spending on another. There's nothing preventing more spending on children and seniors but politicians of both parties, in truth a single party, obsessed with deficits and debt while protecting tax cuts for rich people.
...
written by NWsteve, June 28, 2013 12:01
maybe it's just the lateness of the day, but i have serious doubts about who actually wrote the piece referenced by Dr. Baker...
i have read and re-read it: and it only gets more confusing...

i would suggest that Prof. Ferguson was under-deadline and simply grabbed some headline notes from various places without even a mediocre attempt to support his assertions with comparative facts...
or historical reference points that make any sense...

at one point he states that only 1 in 13 *boy* in the US in the bottom quintile can hope to reach the top quintile...
what about a *girl*?
what was the ratio 200 years ago? 100 years ago? yesterday?...is there a magic ratio?..
maybe his access to Excel was limited? new Harvard rules?

what about cause and effect: maybe the top quintile simply refuses to yield their "position" today...why should they?
movements between quintiles also suggests a zero-sum-result --- aren't we-all far better off when the tide lifts all boats?
talk about trying to create turf-wars...

oh, by the way, on-the-other-side: don't bother looking at quintile-to-quintile movements in those darn Scandinavian countries: they don't qualify because the distance from the bottom to the top is so small...
isn't **that** the point? in the end? WOW

remarkably, he blames the Fed for *allowing* the top 1% to recover their lost wealth since 2007 while the 99% are still in a deficit...the Fed?...maybe the 1% could just return this Fed largesse and state that they didn't mean to take it...

he rails on the many failures of k-12 education without any suggestions about repairs...

while he sprinkles the entire piece with references to Europe and Australia, at no point does he compare the US' present inequality-state with any other country...

Yes: as so well spoken above @ *Jeffrey Stewart*, there is nothing preventing the US from spending MORE on children...

what is the point of his rant about minority-student-percentage-mixes at Columbia and Harvard?...

maybe he is frustrated most by the inability of his writing to produce any cogent conclusion...

and, funny really, my "comment" here seems to be constructed almost as poorly as the original, perhaps worse...

sigh...
Harvard Isn't Just the Land of Incompetence
written by Hugh Sansom, June 28, 2013 8:22
The Excel error just shows how clueless a Harvard economics professor is likely to be (that they are using Excel at all tells us a lot). Man's Greatest University is also the home of diehard advocate of social security privatization — Milton Friedman (whose 1989 NBER collection of papers on privatization I ran across just yesterday). And it's the home of eugenics advocate and social Darwinist Gregory Mankiw. It was the home of Caroline Hoxby. And of course, it has been the home of any number of really first class war criminals.
Milton Friedman has little formal connection to Harvard
written by John Wright, June 28, 2013 9:13
Milton Friedman was affiliated with the University of Chicago and Stanford's Hoover Institute.

But not Harvard.

During much of Friedman's influential era, Harvard Economics was identified with the liberal John K. Galbraith.

Ferguson's article is also remarkable because it uses the word "tax" (in "taxes") only once when mentioning a fictional single mother who elects to remain on welfare rather than accepting a 69K job.

As if that is an opportunity presented to many single mothers.

Ferguson makes no mention of having SS or Medicare funded through removing or raising the income cap.

He doesn't mention funding SS/Medicare by taxing all financial income (interest, received rent, capital gains, carried interest) which is excluded from SS/Medicare tax.

There was not one mention of tax policy at all, while remarking on inequality.

This article may be not much more than an attempt to promote Ferguson's new book, which is mentioned in closing.

So deep down, maybe Ferguson is simply a working stiff with a need to push product to the marketplace to put bread on his table.
...
written by Dick Breen , June 28, 2013 5:54
I wonder how Ferguson's figures which measure only the federal budget, would look if we add State and Local funds allocated for education of the young to the totals. I doubt his facile conclusion on resource allocation between young and old would hold up!
...
written by NWsteve, June 28, 2013 7:58
subsequent postscript:

http://economix.blogs.nytimes.com/2013/06/26/bridging-the-income-barrier-at-top-colleges/

perhaps at least a portion of Prof.Ferguson's angst would be mollified by a review of the data presented in the above report.

it appears, for whatever myriad reasons, that the top quintile is working very hard and successfully to make as certain as possible that the bottom quintile does not invade it's hallowed grounds...at least in so far as recent college students are concerned...

oh, and his own school once again shines...

cheers
...
written by NWsteve, June 30, 2013 2:47
upon even further review:

http://www.bbc.co.uk/news/education-23101446

sorry for being such a pest---but the above report from today may shed *some* light on one of the claims by Prof.Ferguson...
seems that *recent* quintile movements in the UK (which are much more pronounced than in the US, per Ferguson) *may* be the result of one's "grandparents"...
yup, gotta love the meritocracy of the Brits...
once *in*, then dratted slippage; followed by a bounce back...
very resourceful...

we will now return this broadcast to the regularly scheduled programming...
...
written by Ken Schulz, June 30, 2013 4:38
It's not the AARP blocking Medicaid expansion.

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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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