SS, Medicare not the cause of U.S. financial problems

As the government reopened following the shutdown, President Barack Obama called for cooler heads to prevail and warned elected leaders to ignore the bloggers and paid activists who have been distracting lawmakers from the real task of growing our economy.

The president’s warning should also apply to so-called moderates who continue to create a fable to convince rational people to agree to make sacrifices of family sustaining programs, rather than ask the rich to pay their fair share of taxes.

The plotline of the fable is that the growing share of elderly in our population creates a growing share of “non-workers” the rest of us must “support” through Social Security and Medicare.

In this warped tale, as the elderly become a bigger share of the population, they will take away from resources the rest of us need – in particular, that the rapid increases in medical costs mean the elderly will consume a disproportionate share of resources, because they tend to have more expensive health care needs than the rest of us. 

According to current Congressional Budget Office projections, in 2038, when about 21 percent of our population will be older than 65, we would spend 14 percent of Gross Domestic Product (the GDP, or all the goods and services produced in the economy) on Social Security and Medicare. But using the argument that Social Security and Medicare will become a rising percent of GDP is irrelevant. 

If the government gets totally out of the business of Social Security and Medicare and the elderly pays out of pocket for everything on their own, as 21 percent of the population they would still consume the same 14 percent of the nation’s income.

The solution from Republicans and those like Pete Peterson – an 87 year old billionaire who has invested his fortune in perpetuating this fable – is that the government needs to get out of assuring the elderly that the benefits they paid for will be honored to support Social Security and Medicare.

The “smart” people in the Washington elite think we should compromise by lowering the lifestyle of the elderly or, as they euphemistically say, “slow the growth of their lifestyle” as the president has proposed by letting the cost of living outstrip the benefit levels by reinventing the formula for adjusting for inflation.

Why do I call this a fable? Because it creates the evil grandma to scare rational people to sacrifice the elderly while ignoring the real culprit behind our economic issues.

Since 1997, the richest five percent got 284.7 percent of the nation’s income growth so they now eat up 22.3 percent of the nation’s income.  The bottom 95 percent lost income and income share, leaving us with less money for our retirement and children’s education and a lower share of the nation’s resources.

Meanwhile, the Peterson publicity machine has frightened us into believing that we will all be working to pay taxes to keep the elderly alive.  But their fascination with the growing financial burden of seniors doesn’t extend to the

bigger problem of growing income inequality.  Inequality worsened by continued lowering of real wages and less retirement security for the 95 percent of us, higher CEO pay for corporate executives, bigger profits for multinational corporations and more money to Wall Street speculators. 

Let’s also be clear that future seniors Peterson wants us to fear are currently around 40 years old and living through a nightmare of an economy. Today’s 40-year-old saw one of the lowest median income growths in more than a decade.  They also have inadequate retirement savings, so, except for Social Security, they face a very uncertain future.

Rather than sacrifice current 30- and 40-year-olds to save the rich, we need to move away from fables to solving real economic problems.  The real governing challenge is how to govern in an age of rapidly growing inequality.  Rather than fear the elderly eating up too much resources, we need to fear accepting story lines that reinforce the current path of growing inequality.

We need to look at policies from the perspective of what our nation needs first and the best policy designs to achieve those goals, rather than what the rich will accept.  The tea party and the shutdown of the government and the threatening of the United States’ standing tell us the rich are too greedy to accept anything less than more sacrifice from the rest of us.

William E. Spriggs is chief economist with the AFL-CIO and is a professor in, and former chairman of, the Department of Economics at Howard University.  He is also former assistant secretary in the Office of Policy at the U.S. Department of Labor. You may follow him on Twitter: @WSpriggs