It’s The Inequality, Stupid

by Stuart Shapiro

As we enter the fiscal cliff season (known to the less wonky among us as the holiday season) there will be much talk about the need to reform entitlements.  Some of this, as it pertains to Medicare and the rising cost of medical care is legitimate.  Most of it rests on a false premise, that we can’t afford the increasing number of retirees.  James Kwak presents the above chart of per capita GDP projections:

In other words, in the future, we will be able to afford all the health care we consume today, plus all the other stuff we consume today, and then some. That means that, for example, seniors can enjoy the same level of health benefits that they enjoy today, and the rest of us can still be better off than we are now. And it isn’t even close. Forty years from now we will be, on average, twice as well-off as we are today.

The key words in that sentence are “on average.” As a society, we will produce far more than enough goods and services to preserve Social Security and Medicare in their current form without making younger people worse off. But these programs will consume a growing share of total societal resources, and since they are administered by the federal government, that requires higher taxes.

So the real point isn’t that we can’t afford Social Security and Medicare. It’s that some people don’t want to pay the higher taxes necessary to maintain Social Security and Medicare. This is a question of distribution, pure and simple.

In this holiday/fiscal cliff season, remember that when someone says we can’t afford to help the less fortunate, it means they don’t want to  afford it.

About Stuart Shapiro

Stuart is a professor and the Director of the Public Policy program at the Bloustein School of Planning and Public Policy at Rutgers University. He teaches economics and cost-benefit analysis and studies regulation in the United States at both the federal and state levels. Prior to coming to Rutgers, Stuart worked for five years at the Office of Management and Budget in Washington under Presidents Clinton and George W. Bush.

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