Realist, not conformist analysis of the latest financial, business and political news

We Already Can’t Afford What We’ve Promised Ourselves

This specific example is from the United States but it stands as one of a more basic problem facing welfare states. We already can;t afford what we’ve already promised ourselves. This does – or perhaps should – rather limit what we go on to insist that we should have:

Debates about the future of Social Security tend to confuse two issues—its solvency and its adequacy. Social Security is funded by payroll taxes. Current projections show that the system will be able to pay all of its pension obligations only through the mid-2030s, depending on your assumptions about GDP growth, workforce participation, and wages.

At that point, unless Congress acts soon to raise taxes or cut benefits, or devises some other strategy such as investing the system’s current reserves to earn higher returns, Social Security runs out of reserves sometime between 2033 and 2037. After that, it would be able to pay only about 79 percent of promised pensions from current payroll tax receipts.

So, we all promised ourselves some lovely income in those golden years. We also rather balked at paying the taxes to fund them. That is, we promised ourselves more than we were willing to pay in – this isn’t as unusual human failing as you might think.

This is true of much of that structure of the welfare state too. Here in the UK we insist that caring for the old folks be done – righteously, obviously. But we’ve not been and are unlikely to be willing to pay the taxes to do so. Or the NHS thing, every year we’re told it needs more money because ageing population and so on. But there’s always that scramble to find the money to pay for it.

Sure, there are solutions here, more competition leading to greater productivity would sure help the NHS. So would firing everyone with the word “diversity” in their job title. But we still come up against that base problem – we have already promised ourselves more than we’re currently willing to pay for or have paid for so far.

It is this which is behind all those cries that the tax bill simply must rise. Not, as might even be something we’re willing to do, to pay for new goodies that we’re about to get. But instead to just pay for what the political system has already promised us.

This does rather close down the room for promising ourselves new things of course.

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Spike
Spike
2 months ago

No, what we did was submit to the snow job of sending our retirement savings to Washington “for safe keeping,” to be returned to us decades later by different politicians. What we got were programs like Permanent Disability, rewarding claims to be inherently unable to make any contribution to society for the rest of one’s life—claims increasingly made due to substance abuse and language barriers. This is not a problem of statecraft but of grift—enabled by commentators who concede that “we” are merely “taking care of” classes of pitiable people and do so “righteously.” Using gunpoint transfers to state “who… Read more »

John B
John B
2 months ago

Social Security… including medical expenses and pensions was predicated on most people being dead by age 70, so not drawing pension or requiring medical attention for more than 5 – 10 years. Additionally most serious medical conditions were untreatable and fatal, so many died before reaching pension age.

There was also the quite fantastical imaginings in the UK, that the NHS would result in a healthier population which progressively would require less medical care and thus the cost of the NHS would not rise in real terms.

Boganboy
Boganboy
2 months ago
Reply to  John B

True. I had a quadruple by-pass just before I retired. The pension system was naturally calculated on types like me kicking the bucket before they had to pay out.

David
David
2 months ago
Reply to  John B

The great thing about medicine as a career, is that every successful job can create a new job in the future. Every cancer patient healed in their 40s can create work for your geriatric doctors etc in the future.

Whilst if you build someone a really good house – they probably won’t want a new one.

Paul, Somerset
Paul, Somerset
2 months ago
Reply to  David

That would be the case in private medicine. But in the NHS the incentive is to have lots of patients who are either ill or dead. A long-lived and healthy population would see your funding reduced.

Addolff
Addolff
2 months ago
Reply to  John B

A few years ago, Ros Altman, UK pensions type person in the Lords, was interviewed by Kay Burley on Sky News, where Ms Altman advocated lowering the pension age for men who had carried out hard physical labour during their lifetime based on the fact they would, on average, retire at 66 and claim the state pension they had paid in all their lives for, for just two years. Kay Burley said” well, you do know a pension is a luxury don’t you”.

TD
TD
2 months ago

About 50 years ago there were perhaps half a dozen people paying into social security for each person drawing payments. Now the ratio is less than three to one. In fact, now that I’m receiving payments I’ll see if I can find out who the young couple is paying mine and try to send them a Christmas card. As for those young millennials who so enthusiastically voted for the Democrats and who advocate taxing like mad, well, they’ll be the ones being taxed heavily. Me, no so much any more. All this may eventually lead to a greater reliance on… Read more »

jgh
jgh
2 months ago
Reply to  TD

That’s why there’s such a movement amongs the millennials to Tax The Old, they’ve got all the money, what, tax me???? UNFAIR!!!!

TD
TD
2 months ago
Reply to  jgh

They should be more considerate of their parents

Boganboy
Boganboy
2 months ago
Reply to  TD

‘I said to the Kalif, thou art old, thou hast no need of so much gold.’ These sentiments are obviously pretty old since Longfellow wrote this one about 1860.

TD
TD
2 months ago
Reply to  Boganboy

Well then, to be a little more cynical, they should think more about how much they want their inheritances reduced.

Spike
Spike
2 months ago

To return to the theme of overpromising, it seems Biden disclosed in Pittsburgh today that his next multi-trillion-dollar “rescue” package contains an HS2!

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