Legal Commentary

As Becker explains, advances in medical technology (which are very costly) and (related to those advances) increases in longevity, create the prospect of very great increases in social security and Medicare outlays in future years. The prospect is increasingly worrisome because of the large annual federal deficits that the nation has been running and the resulting increase in the national debt. Although rapid economic growth would (as Becker has emphasized in previous posts) make the debt manageable, we may very well be facing a longish period of below-average economic growth as a result of persistent high unemployment, economic uncertainty, and anti-growth public policies such as encouraging unionism.

Becker sets forth a program for reining in the growth of entitlement expenditures. The question I wish to address is the political realism of that or alternative programs for limiting such growth.

It is extremely difficult to marshal political support to deal at present with future problems. Future problems by definition are not felt in the present, and so it is difficult to mobilize public opinion in support of solutions unless they are costless. And politicians have a short time horizon, which means that they will not benefit politically from measures that impose present costs but yield benefits to the voting public after the politician has left office.

If, however, the costs can be deferred to the future as well, the current public may not object to a measure that confers benefits only in the future. That was the approach of the 1983 social security reform, which raised the age of full entitlement to social security benefits from 65 to 67 gradually for persons born in or after 1938?and they were only 45 when the reform was enacted. And only persons born in 1960 or later would have to wait until they were 67 to be entitled to full benefits; they were only 23 in 1983. Both the costs (in reduced entitlements) and the benefits (in reduced entitlements expense) were pushed into the relatively distant future. The discounted present effects were thus slight, and so the reform was relatively uncontroversial.

The problem with repeating such a measure now is that we probably can?t afford to defer entitlements reform for 30 or 40 years. Suppose Congress increased the age of full entitlement to social security benefits to 70 for persons who are 23 years old today. The reform would not take take full effect until they reached 67, which would be 44 years from now, although there would be some savings earlier if, as with the 1983 reform, a gradual rise in the retirement age began for persons who are 45 years old today; they would first begin to feel the reform in 22 years, when they reached 67.

The same problem of delay would afflict a reform of Medicare designed to raise the eligibility age for Medicare in tandem with increasing the social security retirement age. Moreover, while young people can view with relative equanimity the prospect of having to work a couple of years more for full social security benefits?which are anyway rather meager?I don?t think they?d feel the same way about losing Medicare in their late sixties. A big difference is that there is no ceiling on Medicare benefits, and the expected benefit of receiving them is therefore much greater than the expected benefits of social security?and young people know it.

It seems to me that, in the short run, the only realistic measures for reining in social security and Medicare are a combination of higher payroll taxes and means testing. In the long run, social security and Medicare benefits will be cut to affordable levels when the United States finds itself in the same desperate fiscal situation as Greece, but probably not before. The only hopeful note is that the current widespread public concern with deficits may embolden some legislators and the even the Administration to propose strong measures to head off a fiscal crisis exacerbated by entitlements spending.