Trying to sound the alarm - The "other" financial crisis

One of the biggest challenges faced by the US in modern times is the budget crisis created by overcommitment of funds towards entitlement programs -

Medicare, Medicade and Social Security

The challenge is a challege of conflict between generations - a case in which the current working generation is paying the costs for the previous generation. The size of the problem is mind boggling, a debt problem unilke any the US has faced in its entire history. No politician or government authority has been brave enough to propose any real solution because the public has not been willing to make any sacrifices for another age group.

Until now

One brave Economist - Isabel Sawhill - speaks up on behalf of the senior generation to say that seniors will be willing to do their part in solving the crisis.

Photo courtesy of SOS Children's Villiage
http://www.soschildrensvillages.org.uk/contact.htm

Photo courtesy of ABC News
http://a.abcnews.com/Health/ActiveAging/Story?id=3487260&page=1

From Money Magazine - November 2008 article by George Mannes "Why We Have to Cut Benefits for Seniors"

Whether or not Congress or the Federal Reseve manages to solve the financial crisis, there will be an equally scary situation that has not yet made newspaper headlines:

The big three of entitlement programs - Medicare, Social Security, and Medicade - will wreak havoc on the country's finances (and yours) unless we scale them back, says Isabel Sawhill, an economist at the Brookings Institute and member of a bipartisain think tank trying to sound the alarm.

Q: You talk about fixing the unwritten agreement between younger and older generations - the "intergenerational contract." What's broken ?

A: The existing contract assumes that the working age population is going to be able to support the older population - the retired population - out into the future and should do so. And that's not a sustainable assumption.

Q: And why not ?

A: 42 % of federal spending now goes to three programs, with the majority share to the elderly.

Two or three decades from now, those three programs will be as large as the federal government is today. Lets say someone is now paying 25% of their income in taxes. To maintain the commitments we've made to the elderly, they would have to pay 50%.

Q: What's the solution ?

A: We need those who can afford it to contribute more to their own retirement costs.

Take Social Security:
Right now the benefit formula provides a pretty good retirement income to those who make more than $100,000 a year. I don't think that the working age population should contribute to fund benefits for seniors who are so well off.

Q: And you want to spend this money instead on the younger generation ?

A: Yes

We would reap enormous enconomic benefits from spending more on early childhood education. It's like any investment that has a rate of return. If you do it when people are young, its going to help make them more productive and able to earn a reasonable living.

Q: Wouldn't the AARP crowd scream bloody murder about benefits reductions?

A: I don't think all older Americans are opposed to investing in their children and grandchildren.

Q: So how do you sell this idea of spending less on the elderly and more on the young?

A: We have to change the debate, which has been focused on the idea that there's going to be a generational warfare. I'm trying to get away from that concept by talking about the fact that

Every individual, every generation, should expect more from their government when they're young and less from the government when they're old.

That's not warfare.

That's common sense. 

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