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Home Publications Blogs Beat the Press Robert Samuelson's Generation Squeezed is Victimized by the One Percent, Not their Parents

Robert Samuelson's Generation Squeezed is Victimized by the One Percent, Not their Parents

Monday, 06 August 2012 06:22

Ding, ding, ding! Robert Samuelson has just written the 1 millionth piece to appear in the Washington Post claiming that an aging population will undermine our children's prosperity. He gets awarded a miniature golden baseball bat to symbolize his and the newspapers decades of bashing the elderly and trying to take away their Social Security and Medicare.

Arithmetic fans know that if our children and grandchildren live worse than we do it will be because the folks at the top grabbed away all the money. In any plausible scenario the gains from productivity growth will swamp any additional burdens placed on workers from a larger population of retirees.

The projections that Samuelson cites to make his point in fact demonstrate the opposite. He told readers:

"The ratio of workers to retirees, 5-to-1 in 1960 and 3-to-1 in 2010, is projected at nearly 2-to-1 by 2025."

Yep, we have had a sharp decline in the ratio of workers to retirees from 1960 to 2010 (most of it by 1990) and yet average living standards rose substantially. This means that there is no reason that average living standards won't continue to rise in the next several decades as the ratio of workers to retirees falls further.

The simple chart below compares the impact of the projected change in the ratio of workers to retirees on the living standards of workers assuming that an average retiree has 75 percent of the living standard of an average worker. It compares scenarios of 1.0 percent, 1.5 percent and 2.0 percent productivity growth.


Source: Author's calculation, see text.

As can be seen, the impact of higher productivity growth in raising living standards swamps the impact of demographic change in lowering living standards. It is also important to note that the negative demographic shift ends in 2035. After that point the demographics stabilize or even improve slightly, which means that all future gains in productivity will go into the pockets of our children and grandchildren.

Of course BTP fans everywhere are jumping and down yelling that ordinary workers have not been seeing the gains of productivity growth. Real wages have been nearly stagnant for the last three decades. This is of course right, but that is exactly the point.

If our children and grandchildren do not enjoy substantially higher living standards than we do today, it will not be because they are paying for their parents or grandparents' Social Security. It will be because the one percent have rigged the economic system so that most of the gains from growth go to the top.

The answer here is not cutting Social Security and Medicare, it is ending too big to fail insurance for huge banks and otherwise cutting a bloated financial system down to size. It is about ending trade and monetary policies that are decided to benefit the rich at the expense of the rest of us. It is about curtailing patent monopolies that has us spending $300 billion a year on drugs that would sell for $30 billion in a competitive market. And it is about fixing a corporate governance system where boards of directors are given 6-figure payoffs to look the other way as top management pillages the company. (See The End of Loser Liberalism: Making Markets Progressive.)

In other words, the real story is not about inter-generational equality, no matter how many times the Post repeats this line. The real story is about intra-generational inequality.

Comments (21)Add Comment
This is complete nonsense, Low-rated comment [Show]
written by Marty Brentwood, August 06, 2012 7:49
JC, it's not about taxing back the wealth shift to the 1%, it's about cutting their salaries. Reducing the drug profits with radical patent reform, opening up immigration for foreign-trained doctors happy to work for lower salaries than protected American doctors, learning from the efficiencies of the VA and European health care agencies how to cut our health care bills far more than merely "bending the curve", etc. would contribute to remedying our being looted by our healthcare system. Along with reforming the financial system, we would thus be aiming to raise the living standards of ordinary Americans while reducing the wealth of the 1%.
written by liberal, August 06, 2012 7:52
The answer here is not cutting Social Security and Medicare, it is ending too big to fail insurance for huge banks and otherwise cutting a bloated financial system down to size. It is about ending trade and monetary policies that are decided to benefit the rich at the expense of the rest of us. It is about curtailing patent monopolies that has spending $300 billion a year on drugs that would sell for $30 billion in a competitive market. And it is about fixing a corporate governance system where boards of directors are given 6-figure payoffs to look the other way as top management pillages the company.

All excellent, but you forgot the biggest source of economic rent: land.
written by JSeydl, August 06, 2012 7:55
Marty has it. JC, did Dean say anything about after-tax income? No, he's talking about before-tax income. Worrying about how to tax the wealth away from the 1% is a loser-liberalism argument. The real issue is that the 1% has rigged the market, which now redistributes all of the income their way. If we unrig the market, then so many people wouldn't be dependent on entitlement programs to survive.
reply to jc
written by coberly, August 06, 2012 9:19

your comment is an example of the confused thinking people like samuelson are paid to create.

you don't have to tax the rich to provide for Social Security or Medicare. The workers can pay for their own Social Security as they always have, and they can pay for their own Medicare as originally intended. Even with the gloomy predictions of the Trustees workers can pay for a SS benefit that doubles in real value as the economy grows, and pays for their longer retirement with an increase in their tax rate of between 2 and 4 percent over the next century, because they are going to live longer and still want to retire at a reasonable age they would need to pay slightly more as a percent of earnings, but those earnings will be large enough so they will end up twice as rich both before and after retirement.

Medicare is the same story... even without fixing medical care... which needs to be done... with a rising standard of living the workers can pay for their own Medicare and still have more money after paying the "tax" than they have today. since someone has to pay for it, it is better for the workers to pay for it directly. of course if medical costs go up enormously faster than real wages that will become impossible. but it's not about "taxing the rich". it's about seeing to it that ordinary workers share in the growth of the economy, which they have not been doing. and to the extent that they continue not to share in it, the economy itself will fail to grow. something the New Deal proved, but which the very short sighted "winner take all" politicians fail to understand.
written by coberly, August 06, 2012 9:32
i would take exception to Dean's chart which shows a decline in standard of living due to aging.

living longer is not a decline in standard of living. it is living. of course you have to shift some of your earnings from "spend it today" to "spend it tomorrow." that is only a decline in standard of living if you are insane.

and "the young" are not paying for "the old." the young will become the old sooner than they think. the SS they pay into now will pay them back plus interest when they need it more than they need it today. it's no different from putting the money in the bank or buying stocks. someone else spends your money today, but your money is still there waiting for you to take it back. except of corse with SS the guarantee that you will get it back is better. not that there is any hope the SS bashers will understand this.
social security
written by Jerry, August 06, 2012 9:35
It must be that time of year. My local, conservative leaning paper here up in Massachusetts has apparently begun a 4-part hit-job type piece on social security. The foundation for their analysis appears to be an Urban Institue study done in 2011. Today's piece is centered around the fact that for the first time, recent retirees will be collecting less in benefits than they put in for taxes, and that this trend will continue in decades to come. I hadn't realized this was the case, has anyone done any research on this study.. is it legitimate? For lower-income workers they'll still be collecting more, but not your average earner.
Hey, Dean, Any thoughts on the AP Article: 'Social Security not deal it once was for workers'?
written by leo from chicago, August 06, 2012 10:09
The article 'Social Security not deal it once was for workers' by Stephen Ohlemacher has been making the rounds. I heard it mentioned on WBBM in Chicago.

Any thoughts?

Social Security not deal it once was for workers
written by Luke Lea, August 06, 2012 11:59

Off topic, but you should like this if you haven't already seen it:

Samuelson Vindicated by Count Dracula
written by Last Mover, August 06, 2012 12:47
Samuelsons observations and conclusions have been independently confirmed by an outside expert on addition and subtraction, Count Dracula of Sesame Street.

The worker to non-worker ratio 5/1 is indeed larger than the corresponding ratio 2/1. If other journalists had avanced counting skills like Samuelson it would reduce much unnecessary confusion on this urgent economic issue.
Jerry, leo, re AP article
written by coberly, August 06, 2012 12:54
the AP article is a misdirection.

everyone will get more than they paid in. the "get less" that paid liars like Andy Biggs are talking about is "less in present value.." that means less than you MIGHT get in the Andrew Biggs Magic Present Value Bank which always pays 3% higher than inflation, had zero risks, an does not pay for any of the insurance that Social Security provides.

One also needs to remember that SS IS insurance. Saying that the "average worker" will get less than he pays in is like saying the average driver will get back less than he pays for car insurance. That's what you hope for. But 50% of workers will get back more than they pay in to SS (even by Bigg's Magic Bank standards). That will be the difference between life and death for them. That's what you buy insurance for.

AP article
written by coberly, August 06, 2012 1:09
This is the article: http://news.yahoo.com/social-s...nance.html

read it carefully. especially the last half where you learn that SS provides benefits you cant get from the Biggs Magic Bank.

then note how carefully AP cites "a couple both of whom earn the average wage."

that's because other examples they might have picked show people getting a better deal.

but even that couple will not be getting "less." they will be getting about three times what they paid in.... about 3% compounded for forty years. you might be able to do that on the private markets. then again, you might not.

SS provides you a way to guarantee at least something close to that rate on 12% of your earnings (half of which is paid by your boss). you can make whatever investments you want with the rest of it. if you are going to be the big-earner type, you won't miss the difference between what your SS earns and what you "might have" gotten from your other investments.

but if you are going to be a low-earner (it can happen even to a smart feller like you) there is NO WAY you can get returns from the private markets equal to what SS will provide you.
written by coberly, August 06, 2012 1:38
should have said 5%... that's nominal, not "real." but it's what you'd have to earn in the real world to equal SS. and remember that SS always beats inflation. you can't count on that even with "inflation indexed" bonds.
written by jerry, August 06, 2012 1:48
Trying to research SS is such a pain in the ass. It seems that anyone who does a study can present the info in whichever way they want and basically prove whatever argument they want to make. But this is a phony crisis and it really should be addressed on its own, not as part of a broad deficit deal. If the Fed can print out trillions of dollars and hand it to the banks, why can't we throw a trillion into the SS fund and be done with this whole debacle once and for all? Then we can move onto the business of creating growth.
written by bmz, August 06, 2012 1:49
. The CBO projected that the surpluses Clinton left for Bush were enough to pay off the entire US debt by the time that the Social Security/Medicare trust funds would have to be amortized for beneficiary payments, all without having to raise taxes to pay for the amortization of those trust funds. These “surpluses” were made up entirely of excess payroll taxes building up the trust funds. Bush took those excess payroll tax receipts and gave them “back” as income tax reductions, heavily weighted to the wealthy–who didn’t create those surpluses in the first place. By doing this, Bush guaranteed that taxes would have to be raised in order to amortize the trust funds. The failure to do so simply permits the Republicons to steal the money contributed by workers for their retirement. Everything about not raising taxes or limiting expenses, is about stealing our money.
to bmz on stealing the trust fund
written by coberly, August 06, 2012 3:46

it's not about stealing the MONEY. that will be paid back. it's about stealing the PROGRAM.

they want to kill SS for a number of reasons. the deficit just helps them fool the people into blaming it on SS... which has nothing to do with it.

but if they can break the program, they break a big part of the government's power and they reduce the people to a condition of complete dependence on them... the bosses and financial elite. they like the power even more than the money.
written by Calgacus, August 06, 2012 8:04
Yup, Jerry, you are right. Almost all the commentary on SS is very confusing, because it is based on crazy economics & assumptions.

why can't we throw a trillion into the SS fund and be done with this whole debacle once and for all
Yup, that's Robert Eisner's idea, basically. The giant trust fund "coming from" workers' taxes is an integral part of the 1% 's scam. Throw a trillion in is a way to defeat this. Eisner suggested just making the bonds "in" the fund pay a high interest rate; it's the same thing. Another way is to not have a Trust Fund at all, (and lower or no SS taxes) just make payments by printing money, which is how it really happens any ways.
Give yourself a cigar, great minds think alike!

FDR knew the taxes and the trust fund had nothing to do with Social Security, but the taxes were a political protection against the bad guys trying to destroy it. The old pay-as-you-go effectively just took $ from workers & gave the same pile of $ to retirees. Macroeconomically basically neutral; maybe slightly stimulatory if the retirees would spend more than workers, maybe not. FDR's Pay-as-you-go is the highest conceivable stable, reasonable tax rate for SS, not the lowest, as the quackonomists essentially argue.

Took the bad guys 50 years to figure out how to destroy SS: Ridiculously high, pay much more than you go SS taxation, to rob working people & effectively give the dough to the rich. Thing is, the SS taxes are so high, SS is so big, that if they hadn't been spent on somebody immediately, they would have instantly wrecked the economy. Could have been immediately given back to the workers. What happened is that it "went" for welfare-for-the-rich military trash expenditure.

The Trust Fund buildup is the measure of the theft. So people have been grossly overpaying for SS for 30 years, this has made them and the whole economy poorer, and now the bad guys want to double the theft, by acting like giving back effectively only a portion of what was stolen, much later, is a catastrophe.
written by Jerry, August 06, 2012 9:01
Lot of interesting thoughts there Calgacus, thanks! The accounting of all this is what is so confusing to me, and to many others I would assume. We tend to think of the fund as being some big pile of cash stored away somewhere, one dollar comes in, one dollar goes out, etc.

I've only recently become acquainted with modern money theory, fiat currencies, etc., and the idea of printing money is still so scary to me.. It's a complete upside-down approach to the way we generally think about things. How could we send out benefits and *gasp* not collect taxes for it! Any suggestions you have for reading/research on your commentary would be welcome.
Calgacus is correct
written by Don Levit, August 07, 2012 2:59
The trust fund is not a store of wealth, for if it was, it would simply be liquidated, like all other pre-funded stores of wealth.
The excess FICA dollars were loaned to the Treasury to pay for current expenses.
What is left in the trust fund are simply numbers denoting the amount the Treasury must pay back what it has borrowed.
When the trust fund interest was redeemed the last 2 years, debt held by the public increased, due to our deficits.
The same will hold true when the principal is redeemed; it will take cash to do so or added debt, just as all other pay-as-you-go expenses are paid.
How can the trust fund be a store of wealth?
Its balance is part of our total debt.
Does debt= cash?
Don Levit
store of wealth
written by coberly, August 07, 2012 4:08

the TF is a store of wealth the same way your Christmas Fund.... or any other bank account or even stock portfolio... is a store of wealth.

You lend your money to someone who lends it to someone else who uses it to create wealth. When the time comes the lender pays back the "bank" and the bank pays you back plus interest.

I realize this is hard for you to understand because you think the SSTF is uncle sam lending to himself. That is legally and "reality" incorrect. It is the worker lending to the government, which spends the money to create wealth and then repays the worker (through the Trust Fund) with interest. The money comes from taxes which come from the wages of people who are richer because of the money the government borrowed from you and spent on them. And no, in general the taxpayers who borrow and repay the money are not the same as the people who lent it.

What IS frustrating about talking about Social Securit is that everyone has his own private fantasy based on free association from the lies and crackpot ideas he has heard, and he holds on to that fantasy with the grip of death.
store of wealth
written by Don Levit, August 07, 2012 5:29
You can spin it any way that suits your fancy.
The point is that on a cash flow basis, the trust fund is paying out more than it is taking in.
The financial dynamics of that is the government must pay for that shortfall either through general revenues or increased debt.
Every dollar of that trust fund is redeemed that way.
If you want to discuss this, talk about the financial dynamics I have described, not the general concepts you use to complicate this important discussion.
I can provide reputable government references (excerpts and links) to back my points.
What do you have other than your opinion?
Don Levit
Don Levit

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About Beat the Press

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.