SYNOPSIS: America's narrow problem is Social Security; the big problem is an aging society
Demographers describe the baby-boom generation as "the pig in the python": a huge bulge in an otherwise skinny age distribution, gradually moving down the distribution as the boomers age. As the pig's snout approaches the python's nether regions, it poses two distinct policy problems: a narrow "financial" problem and a broader "real" problem. But the debate in the presidential campaign doesn't seem to be about either.
The "financial" problem is how to pay for Social Security. This problem is a legacy of Social Security's pay-as-you-go past: because the baby boomers' contributions were used to provide generous benefits to earlier generations, there isn't enough money in the system to pay the benefits promised to the boomers themselves. The good news is that solving this financial problem isn't all that difficult. Despite the apocalyptic rhetoric you sometimes hear, affordable injections of money would allow the system to run untroubled for at least 50 more years. It's just a matter of facing up to facts.
The "real" problem is that in a few decades the age distribution of the U.S. as a whole will look like that of Florida today. How will a relatively small number of workers be able to produce enough both to live well themselves and to provide the huge population of retirees with the standard of living it expects?
This problem is much harder to solve. The only answer -- other than allowing large-scale immigration -- is to make tomorrow's workers as productive as possible. We can hope for a technological fix; with smart enough machines, who needs workers? But a responsible government would meanwhile try to ensure that national savings -- public plus private -- are high, so that future workers are well equipped with capital and not burdened with large foreign debts.
Alas, the campaign seems to be revolving around a quite different issue: the perception that Americans get too low a return on their contributions to Social Security. As I've explained in earlier columns, the implicit return on Social Security contributions is low only because today's workers are in effect being taxed to pay the system's debts from the past. You may not like that, just as you may not like the fact that 15 percent of your federal tax dollar goes to pay interest on a debt mainly run up in the 80's and early 90's. But in both cases the debts are a fact of life.
Yet the salesmanship surrounding George W. Bush's Social Security plan is all about the meaningless contrast between the returns that an unburdened individual can get on investments and the implicit return that a very-much-burdened Social Security system can offer. And Al Gore's new plan for subsidized retirement accounts also isn't about the real problems; it's a response to that salesmanship.
That said, Mr. Gore's plan could have been worse. It won't break the budget; it probably will encourage somewhat more private saving. And, like Social Security itself, it will be progressive -- that is, it will tend to narrow disparities in wealth.
You also have to give Mr. Gore some points for honesty. The details of his plan are fully spelled out; he has also come clean about how he will extend the life of the Social Security system -- namely, by transferring money over from the general budget. By contrast, Mr. Bush has said nothing about how much he plans to reduce benefits in return for allowing workers to invest their contributions elsewhere, let alone how he will deal with the overhang of obligations from the past. All he offers are magic asterisks: "*details to be provided later." My guess is that if and when Mr. Bush finally does provide the details, the size of the proposed benefit cuts will start a political firestorm, forcing him to use general revenue to rescue Social Security after all. But that won't happen until after the election.
And where will the money come from? Remember that Mr. Bush is also proposing huge tax cuts. Aside from eliminating a surplus that might have been used to help Social Security, those cuts will encourage the nation as a whole to consume more and save less, exactly the opposite of what an aging society should be doing.
Meanwhile the pig is still in the python, inching inexorably toward its destiny. Is anyone paying attention?
Originally published in The New York Times, 6.21.00