Tuesday, March 3, 2009

Is This the Start of the Gen X Revolt?

Just like the weather, everybody talks about the unfunded liabilities of the Social Security, Medicare, and Medicaid entitlements but no one does anything about them. That may be changing. Last summer, the Americans for Generational Equity (AGE) held its first Youth Entitlement Summit (YES) in Washington, D.C. Another will be held sometime again in June of this year. It brought together a bipartisan group of mostly young people who KNOW that the current entitlement system will impose unbearable costs on them. They also KNOW that they had no say in creating these entitlements. Isn’t that called taxation without representation? It looks like they are determined to right this injustice that is about to descend upon them. For there is one thing that is certain — it does not matter whether you wish these entitlements to continue or not, the giant Baby Boom Generation’s claim upon the production of the following generations is too great for them to endure.

Last fall, I met a young vice president of this organization and have been in intermittent contact with him ever since. I have been amazed and thrilled to meet someone of his young age who sees so clearly the financial disaster to which we are headed and is determined to do something about it. Thierry Dongala is a name to remember. You will hear from him in the future.

The Web site of the YES organization is interesting in many ways. (www.age-usa.org) On the one hand, it reaches out in a friendly way for all to join in this discussion. Surprisingly, many older politicos from both sides of the aisle have joined. I do not claim to know the purpose for which many have joined, but the mere fact that they feel it is important to have their voices heard offers a glimmer of hope. Perhaps sober minds have noticed that the youth of America are getting politically organized in order to defend themselves. But underlying this friendly offer for all to join the chorus is a clear and forceful statement that something must be done to remove the cloud of massive tax increases from the future of our children and grandchildren.

Even if the YES movement fails to gain traction, as they say in Washington, D.C., I am convinced that other like organizations will spring up in its place. The reason is that the train wreck of multi-trillion dollar unfunded liabilities cannot be ignored when the government starts writing the checks. Then the issue will be front and center and our options will be both limited and unpleasant. Better to face them now and build a coalition that can head off disaster. That is the message of YES and that is the truly statesmen-like approach. Work first to educate and then build a coalition to take action.

If entitlement reform fails, the consequences are bleak indeed. Our prosperity will be swamped by the cost of entitlements that the Baby Boom generation insists the following generations must pay. They will toil for less and less; capital accumulation will stop; our standard of living will decline. But that is not the worst of the many disastrous consequences. Read on.

Social Security — A Transfer Program Disguised As An Investment

Social Security is bad enough. A giant, coercive, government run Ponzi scheme, it absorbs 12 percent of our pre-tax income and transfers this spending to seniors, the disabled, widows and orphans. But at least it doesn’t regulate how the money will be spent. Medicare is a different story.

Medicare — A Transfer AND Regulatory Program

Medicare is slowly destroying the American health-care system, and should President Obama succeed in passing universal health care, that process will accelerate. The lesson from Medicare, plus the experience of our neighbor to the north and the European countries gives us a glimpse into the future. Health care will cease to be a service like any other, based upon capitalist principles. Instead it will become a command and control service in which the government makes all the decisions, even whether we will live or die. The reason is that state run health care systems, far from being "free," cost much more for the service actually delivered than the private systems they replaced. Higher costs lead first to deterioration in service quality and then, inexorably, to a reduction in health- care access. This will be the case even for those who are supposed to be the primary beneficiaries of a state run system — those currently without health insurance — who are characterized as lacking access to health care now.

Because costs accelerate following the demise of the private system, governments with universal health care systems are forced to ration care. In America, due to exploding cost, Medicare arbitrarily reimburses health care providers — doctors, hospitals, clinics, etc. — only a fraction of the cost of the care they provide. As a result, emergency rooms, trauma centers and even hospitals have been forced out of business when the percentage of Medicare patients reaches the point that revenue from other payers can no longer subsidize them. So our experience with Medicare plus the experience of the countries currently offering universal health care leads us to the obvious conclusion that less, not more, health care service will be available under a universal health care system. Even if America does not adopt such a system, the Medicare system will cause close to the same result but at a somewhat slower pace. Of course, before this happens, Medicare taxes will be raised in a futile effort to balance the books, leading to more generational injustice that is the concern of Mr. Dongala’s group.

I do not know whether it is possible to "save" either Social Security or Medicare. It is possible that the nation would accept a continuation of the current tax level and a decline in Social Security and Medicare benefits. (The Social Security Administration itself says that benefits will have to be reduced to approximately three-fourths of the amounts currently provided unless taxes are raised.) Medicare probably is beyond saving as currently structured. It is possible to conceive of scenarios in which health care providers would be allowed to refuse treatment to Medicare recipients who did not have supplemental insurance, for example, but accept Medicare recipients who did. Or both programs could become pure welfare programs, denying benefits of any kind to retirees with private incomes and some means. My prediction is that, even if this came to pass, fraudulent claims would swamp both systems as retirees who paid these taxes all their working lives saw services going primarily to the irresponsible. They would hide income and wealth in order to qualify. Such a system would make nominal criminals out of thousands, perhaps millions, of honest people.

Before this happens, let us try to do something about it. The first step is to determine what is politically possible. Forums such as Mr. Dongala’s Youth Entitlement Summit are a good first step and, according to an old Chinese proverb, a journey of a thousand miles begins with a single step.

1 comment:

  1. Pat,

    Welcome to the blogosphere!

    As you are the man who introduced me to the vast joys of Austrian economics, I am especially delighted to see that now even more people will have the benefit of keeping track of your writings; as you push on with your inimitably lucid style, in the cause of explaining liberty to the net generation.

    I wish you every success with your blog.