Arnold Kling

The Problem with Social Security

Arnold Kling, Great Questions of Economics
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Columnist Robert J. Samuelson puts his finger on the crux of the Social Security problem.

In 2001, Social Security and Medicare cost about 6.7 percent of national income, or gross domestic product (GDP). By 2030 the costs are projected to rise to 11.1 percent of GDP. Government spending is now nearly 20 percent of GDP.

In other words, payments to retirees will go from one-third of the government budget to over half of the government budget. This is because the ratio of retirees to workers will rise dramatically.

People live longer and are healthier. They should work longer; eligibility ages should be slowly raised to somewhere between 68 and 70. Similarly, we should gradually trim (though not eliminate) benefits for the well-off.

I would argue for even larger increases in the retirement age, in order to stem the growth in government spending and taxes that otherwise would be inevitable. Unfortunately, liberal politicians are quite sanguine about creating an ever-larger welfare state for the growing elderly population, while conservatives want to believe that the stock market can be used to prop up our demographically doomed retirement system.

Discussion Question. Why is it impossible to discuss raising the retirement age for people now aged 50 and under without politicians talking as if current social security recipients will lose benefits?

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