Skip to comments.Why your parents are ripping you off
Posted on 03/23/2004 4:04:37 AM PST by gd124
Are we heading for conflict between the older and younger generations? It's the scenario played out in this week's drama documentary If...the Generations Fall Out.
Will the young rebel against paying to support an ageing population? Far-fetched? Not so, says Laurence Kotlikoff, professor of economics at Boston University, who thinks that unless the baby boomers pay up, parents and children could soon be at war.
Whether we want to accept it or not, the entire developed world is getting old, indeed, very old.
Over the next three decades the numbers of oldsters in the EU, Japan, and the US will more than double, while the number of workers expected to pay the elderly their state pension and health care benefits will rise by less than 10%.
The developed world is not just getting old. It's going to get old and then get even older. In 2100, the elderly share of developed world populations will be higher than in any year in this century.
The magnitude of the prospective ageing is hard to wrap one's head around.
In 2030, the entire United States will be older than present-day Florida.
Two decades later, the number of old-old Americans, those 85 and older, will suffice to fill up New York, Los Angeles, Chicago, and several other major US cities.
And the number of American centenarians in 2050 will suffice to populate Washington DC.
Imagine visiting Washington DC and not meeting anyone younger than 100.
If this sounds old, note that America will be the young kid on the block. Both Europe and Japan will be significantly older than the United States.
This demographic phenomenon is unprecedented in human history.
It will generate enormous social, political, economic, and fiscal strains, the prospects of which are being largely ignored by our political leaders.
With respect to fiscal strains, we need to realise that right here and right now the developed world is bankrupt; there is no possibility of raising taxes high enough to cover all the pension and health care benefits promised to current and future retirees.
And trying to drop the entire bill into our children's laps isn't any solution. It's not only immoral, it's also infeasible. Doing so would entail more than doubling their lifetime rates of taxation.
Radically and immediately restructuring and cutting benefit programs is essential, but, it seems, politically unacceptable. But when an unstoppable force meets an immovable barrier, something has to give.
What will give in this case is the printing press.
Governments throughout the developed world will resort to printing money to "pay" what they owe. The result will be extended periods of very high inflation, if not hyperinflation, during which governments renege on what they owe by paying their bills with waterdown currency.
There are meaningful, if very painful, policy reforms that can still save the day.
But they have to be undertaken immediately.
These reforms include asking the current rich and middle class elderly to help pay off existing government pension liabilities and then setting up a rational, efficient, inexpensive, and highly diversified system of individual compulsory saving accounts.
Another key reform is providing government health care to the elderly through a voucher system in which individual vouchers are determined based on the elderly recipient's current health status and the overall expenditure on vouchers is capped at what the country can afford.
Another key reform is to switch from economically meaningless deficit accounting to generational accounting - a new method of long-term fiscal planning that focuses on the fiscal burden to be handed to young and future generations.
These and other reforms could keep the developed world from becoming another Argentina, but their acceptance by the public will require a degree of maturity and concern for the next generation that goes far beyond anything we've seen to date.
This grim assessment suggests that we each need to look out for ourselves and plan for a much rougher retirement ride than we had expected.
This entails saving much more, thinking about how to avoid future taxes, looking out for high future rates of inflation, and realising that when the fiscal system implodes, the economy will do likewise.
Professor Kotlikoff has written a book on the issue called: The Coming Generational Storm: What You Need to Know About America's Economic Future.
He is also taking part in the BBC programme If...the Generations Fall Out which will be broadcast in the UK on BBC Two on Wednesday, 24 March, 2004 at 2100 GMT.
Will the young rebel against paying to support an ageing population?
In the film, the young protest under the slogan: We pay, they play
All highlights are from the original article.
Talk about a rip off.
Sadly, Social Security has created a dependent class across the entire political spectrum.
There is already a shifting in the birth/longevity balance in much of Asia, Latin Americas, Africa and the Arab world. Because of western medicine and vaccines provided primarily by the US a greater number of people in these regions are living longer. Their "productive" life is not generally increasing though. Long term debilitating health problems like diabetes, cardio/vasc and pulminary diseases, that were not of issue in prior generations because more aggressive diseases were unchecked are now creating a new class of citizen in these areas...the older, infirm, non-productive parent/grandparent.
The economic impact of this shift is three-fold and deadly:
The older generation lives longer but as a non-productive societal member needing care.
The younger generation's window in which to accumulate the personal capital needed to build wealth will be narrowed and capital that has been accumulated will be diverted to elder care rather than to wealth building.
These countries do not have an infrastructure devoted to health/elder care. Monies will need to be spent to build one.
Unless the developing nations make near miraculous strides toward long term economic viability in the next two decades the window will close and their own elders will become their greatest economic burden.
They've been "helping" a lot already via taxation.
Why not just give 'em their money back, and call it even?
No more cash payments of SS, starting in say, 25 years. If you are old and need assistance, you can either get help from your family, or you can check in to a nice, government run retirement hell hole. You get a roof over your head (and probably a roommate), 3 squares a day, and a nurse on hand to wipe your chin.
I believe that would provide a decent incentive for people to save for retirement, and would cut costs tremendously. Never mind the details right now, just threaten them with "the home", and see what kind of reform we get.
Unfortunately for him, and for everyone else, your father is, so far, the exception in that - for the majority of people who have already begun collecting Social Security, they get back everything they ever put into the fund within two to three years, and then go on to collect far more than they ever put in. Of course, that's not sustainable, as the boomers are due to find out in a very unpleasant fashion:
My grandparents got a pretty sweet deal from SS, but my arents are kind of up the creek due to the size of their demographic bubble, and at this rate, I'll be in even worse shape. The system is broken, and cannot continue in this fashion.
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