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Avatar of GI KoreaBy on August 12th, 2011 at 3:23 am

US Has A Generational Balance Crisis Not A Debt Crisis

Here is an interesting article about the debt crisis via the Korea Economic Reader that makes a good point that the US doesn’t need a balanced budget, it needs generational balance:

Debt crises make great drama. The big shots attend meetings, look terribly worried, then stomp out, accusing each other of bad faith. Finally, at the witching hour, they reach agreement and tell us all is fine, for now.

The tough thing is sorting out what’s really going on. In the U.S. case, the answer is: not much. We need tax increases and spending reductions far beyond what’s being negotiated. Cutting the deficit by $1 trillion to $2 trillion over 10 years sounds like a big deal, but not when our unfunded Medicare and Social Security liabilities, by my calculations, are growing by more than $4 trillion a year.

Whatever you think of the House Republicans, they understand that our country is broke. But they have no idea how broke. They are pushing hard for a balanced-budget amendment. What we need is not budget balance, but generational balance.

If we are going to amend the Constitution, let’s prohibit today’s adults from leaving tomorrow’s generations with higher lifetime net tax rates. A Generational Balance Amendment would specify that, absent prolonged states of emergency, each generation would pay the same share of its lifetime labor earnings in taxes, net of benefits received.

Stabilizing lifetime net tax rates isn’t just a matter of fairness. It’s critical to our country’s long-term economic survival.  [Bloomberg]

You can read more at the link.

For those that don’t subscribe to the Korea Economic Reader, let me share a point Tom Coyner made with this article:

must confess, reading this makes me totally ashamed to be part of the spoiled Baby-boomer generation.  I clearly remember reading a TIME magazine article in 1975 that forecasted how the Baby-boomers would be resented by subsequent generations.  I suspect that the author of that piece had no idea how incredibly correct he was in his future view.

I couldn’t find that article in the TIME archive but I did find this article from 1976 that clearly shows how long our government knew that Social Security was unsustainable once the Baby Boom Generation reached their retirement age starting in 2005 and here we are now with a debt crisis.  Here is an excerpt from the 1976 TIME article that is worth reading in full:

The payments are determined strictly by the size of the premiums paid. The original Social Security Act of 1935 set up the system in much the same way:

workers would pay taxes that would be a kind of premium and “earn” the right to receive benefits when they retired.

But in 1939, before the first benefits were paid,* Congress amended the act to base payments partly on need—a concept foreign to true insurance. Low-income workers get retirement benefits that replace a larger proportion of their former earnings than the benefits of high-income workers do. A retired worker with dependents collects more than one without, even if both have paid exactly the same amount of taxes into the system, and there is a minimum level of benefits available to someone who has paid very, very little.

As a result, Social Security has become not insurance, but what economists call an “intergenerational transfer program.” Today’s workers pay taxes to support yesterday’s workers who are retired or disabled. In turn, today’s workers must rely on the willingness of their children’s and grandchildren’s generations to continue to make this sort of transfer. Thus the trust fund is not, never has been, and never can be large enough to meet all potential claims on the system: that would require several trillion dollars.  [TIME Magazine]

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  • usinkorea
    4:31 am on August 12th, 2011 1

    A thing that intest me about all of this is how key health care is to our financial problems – which will be our downfall eventually.

    I’m no economist, but the cost of health care seems to far exceed the demand. If you consider demand to include the ability of consumers to pay for it.

    Insurance forces a large pool of consumers to pay for each other, and still individuals find they have a hard time paying. The government also has to kick in money for it. We’re running the country into the ground in large part due to an industry that seems to defy capitalist theory.

  • kangaji
    5:04 am on August 12th, 2011 2

    Lucky them, Gen X are cyncial people who expected to be shafted, and Gen Y is going to owe them from having to move back in because it’s so hard to find a job.

  • kangaji
    5:07 am on August 12th, 2011 3

    Don’t worry baby boomers! Mommy and Daddy already spoiled you and the kids will keep your retirement going as soon as we find jobs!

  • Retired GI
    8:50 am on August 12th, 2011 4

    I always thought I was a ‘baby boomer”, but after Kangaji #3 said that we were “spoiled”, I’m not sure. I worked in the field bailing hay as a teen, then college, than jobs, than Military. Spoiled? I think not. But i never went hungry, so perhaps I’m spoiled.

  • kangaji
    10:07 am on August 12th, 2011 5

    So you disagree with Tom Coyner and think your generation wasn’t spoiled?

  • Jeff Fisher
    11:04 am on August 12th, 2011 6

    KANGAJI, of what generation are you?

  • setnaffa
    5:18 pm on August 12th, 2011 7

    There never was a “Trust Fund.”… SS is a Ponzi scheme that makes Madoff look like a Sunday School teacher…

    And when they added all sorts of folks who never paid into the system, it just guaranteed it would go broke faster.

    But the Democrats are not satisfied with killing off the old folks by destroying SS. They want all of us to go after each other, punish anyone who is successful, and tear down everything in the private sector until the only thing left is the Government…

    They want us to be like the USSR… http://en.wikipedia.org/wiki/Kulak

  • kangaji
    7:03 pm on August 12th, 2011 8

    Jeff: I’m from the spoiled millenial generation. We have MAJOR entitlement issues.

  • kangaji
    7:08 pm on August 12th, 2011 9

    Yes, a millenial agreeing with a baby boomer that their generation was spoiled is the pot calling the kettle black. I make no apologies.

  • Retired GI
    9:02 pm on August 12th, 2011 10

    Kangaji, I have *payed* into SS since I was 18. Should I not expect what I agreed (had no option) to with the Feds?

    You would make it sound like a freebee. It isn’t my fault that President Johnson (Democrat)-(like Obama) took it out of the “lock-box” and placed it into the general fund.
    So sorry you have to pay for my old age later. If the Dems would have kept their hands off it, perhaps it would work as portrayed. But the Dems didn’t and they want more taxes (revenue) from you.

    But that’s OK. Keep voting for the Democrats!

  • kangaji
    11:05 pm on August 12th, 2011 11

    Whoa there. They keep us in the dark about Johnson breaking the lock box and putting social security in the “General Fund”. This is the first I’ve heard of it. Basically we got a big narrative about how Johnson’s Great Society could have been really awesome if he was bombing the crap out of the dirty commies. That dirty little secret isn’t in the history books I got.

    Here’s what I’ve found on it so far:

    http://www.patriotactionnetwork.com/profiles/blogs/obama-geithner-to-raid-federal

  • kangaji
    11:13 pm on August 12th, 2011 12

    Ah, better sourced, includes the part that is Clinton’s fault, and also points out that you need congress to pass this kind of crap as well as the President. http://romanticpoet.wordpress.com/2011/07/29/liberal-nightmare-lyndon-johnson-started-the-raid-on-social-security-for-other-government-programs-jimmy-carter-expanded-big-government-obamas-got-the-shovel/

  • kangaji
    11:20 pm on August 12th, 2011 13

    And here’s the BS sorted out of those claims:
    Misinformation About Social Security
    http://www.snopes.com/politics/socialsecurity/changes.asp

  • JoeC
    4:52 am on August 13th, 2011 14

    Tom Brokaw called the World War II folks the Greatest Generation because when war was declared, the entire nation pitched in. From the top to the bottom.

    Top athletes and celebrities did the Pat Tillman thing in droves. People who had little since the Depression uncomplainingly did their parts in rationing, and collecting and donating scrap metals and rubber. The general attitude wasn’t so much sacrifice but obligation.

    Yet when the country was attacked in 2001, it was told to go about business as usual. “We”, less than one percent of the population in uniform and a few federal bureaucrats, would handle it. And by the way, here are some tax cuts and an additional Medicare benefits to soothe you. What about realistic budgets for the wars? Not a big deal. We’ll adjust with some supplemental requests, but they would be handled in short order.

    If the entitlements business started in the 30s and we declare the World War II generation the greatest, then we have definitely been moving in the wrong direction with the entitlement mindset since then. When we are accustomed to receiving but almost none are willing to give for national causes, we just may be screwed.

  • ChickenHead
    5:34 am on August 13th, 2011 15

    The teens are going to make the 60s look like the 50s.

    All the easy “entitlements” did was make everybody feel entitled.

    And then it made them dependent on entitlements.

    They aren’t going to like it when the entitlements are forced to come to an end… and there is nothing to replace them… except for hunger and squalor.

    And those who are most reliant on entitlements also have drugs, guns, long-term anger, and a glamorous desensitization to violence.

    As long as they keep it in their own neighborhoods and a few of the leftist cities that encouraged this situation, it’s going to be lots of fun to watch… from a distance.

  • Retired GI
    5:43 am on August 13th, 2011 16

    JoeC, not to take away from the “Greatest Generation”, but there WAS a draft. In 2001 it was a Volunteer Force. You SHOULD know that! Yes, it does make a difference. Liberals tend to forget this.
    A good example of the difference was D-day. That was a do it or die mission. With a volunteer force, we try to avoid the “die” part as much as possible. Preventing the death of the SM will be of greater expense. Bodies are cheap. Tech is not.

  • Retired GI
    5:45 am on August 13th, 2011 17

    15 agreed ChickenHead.

  • Retired GI
    6:12 am on August 13th, 2011 18

    Kangaji, Snopes? You must be kidding.

    “What is referred to as “raiding the social security trust fund” has no effect on the social security trust fund. It’s real effect is to raise the national debt.”

    Try this one: http://www.justfacts.com/news.impactSS.asp

    I know I learned a thing or two. ;-)

  • someotherguy
    4:53 am on August 15th, 2011 19

    “I’m no economist, but the cost of health care seems to far exceed the demand. If you consider demand to include the ability of consumers to pay for it.”

    This because healthcare doesn’t obey the laws of capitalism. How much is your health and life worth to you? How much would you be willing to pay to live? There are people inside the health insurance companies who go through numbers and decide how much they can hold your health ransom for. To compound the problem they’ve been able to convince the states to prevent insurance companies from competing across state lines and thus they maintain a new monopoly as the sole provider of your health and life.

  • Sonagi
    6:59 am on August 15th, 2011 20

    This because healthcare doesn’t obey the laws of capitalism. How much is your health and life worth to you? How much would you be willing to pay to live? There are people inside the health insurance companies who go through numbers and decide how much they can hold your health ransom for. To compound the problem they’ve been able to convince the states to prevent insurance companies from competing across state lines and thus they maintain a new monopoly as the sole provider of your health and life.

    Health care does and doesn’t obey the laws of capitalism. State-assigned monopolies oppose capitalism, but health care companies charging whatever people will pay is pure capitalism. In the absence of state interference, companies can and do collude among themselves to form oligopolies that control supply and prices. Public utilities exist to prevent oligopolies and companies taking advantage of need and limited resources to sell their services to the highest bidders. There is no country on earth with pure capitalism because life would be nasty, brutish, and short for many people. A free market for private health care with no Medicare or Medicaid would mean that only young, healthy people would be able to get health care coverage.

  • ChickenHead
    8:35 am on August 15th, 2011 21

    Capitalism was tried for fire departments.
    Anybody really want to go back to that?

    Perhaps essential services and necessary monopolies are best left to compassionate sociialism under the direction of accountable managers.

    Dogmatically-driven pure capitalism doesn’t work any better than too much sociialism…

    …and there is no shame in admitting this for a sincere capitalist who wants to live in a socity where the productive are rewarded in accordance to their production…

    …but also in a society that allows one to concentrate on success instead of worrying about the lack of a social safety net.

    The real question nobody asks is…

    How can the State run reasonably efficient and very professional ultra-effective police and fire departments, an excellent public education system (in places where education is valued), a network of roadway and libraries and national parks and etc… but are completely untrustable when it comes to healthcare?

    Is it because Amtrack and the post office come to mind instead of a swat team?

    Anybody have an idea here?

  • setnaffa
    9:42 am on August 15th, 2011 22

    Looking at the state of the public school system (that Obama praises but won’t send his kids to) — and fire departments in most major American cities, I think some posters are being satirical again…

    Either that or they don’t actually understand the difference between capitalism vs mercantilism…

    They all do seem to have their dialectical materialism down pat…

  • JoeC
    1:04 pm on August 15th, 2011 23

    #22

    Huh? I’ll admit that I didn’t “actually understand the difference between capitalism vs mercantilism.” As a matter of fact I had to just look up the term “mercantilism.” It seems to have mostly been used in regard to the control of foreign trade so I am still not sure what it has to do with school systems and fire departments.

    #21

    A couple of months ago, there was a discussion on Real Time with Bill Maher which touched on how Europeans understand sociialism unlike how it is referred to commonly in America.

    Bill Maher said:

    Or maybe all of America – who don’t understand that [sociialism] doesn’t mean we’re going to come to your house and make you work on a collective farm. You know, in Europe, [sociialism] is just another political party and it doesn’t mean that we’re against making a profit. It just means that government takes over certain things like hospitals and prisons, and the military, schools – and things that should not be run for profit.

    Then, Gillian Tett, the U.S. managing editor for the Financial Times, which is very conservative by European standards said:

    As the European on the panel, I was going to say it’s simpler than that, [sociialism] is really about recognizing that there are limits to what the market can do. The market is very useful, at times it works very well, but it doesn’t always work.

 

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