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.