“Never underestimate the difficulty of changing false beliefs by facts.”
— Henry Rosovsky, Harvard economic historian
Two analysts at the Federal Reserve Bank of St. Louis have produced an important study that should (but probably won’t) alter the climate for Washington’s stalemated budget debate. The study demolishes the widespread notion that older Americans need exceptional protection against spending cuts because they’re poorer and more vulnerable than everyone else. Coupled with the elderly’s voting power, this perception has intimidated both parties and put Social Security and Medicare, which dominate federal spending, off-limits to any serious discussion or change.
It has long been obvious that the 65-and-over population doesn’t fit the Depression-era stereotype of being uniformly poor, sickly and helpless. Like under-65 Americans, those 65 and over are diverse. Some are poor, sickly and dependent. Many more are financially comfortable (or rich), in reasonably good health and more self-reliant than not. With life expectancy of 19 years at age 65, most face many years of government-subsidized retirement. The stereotype survives because it’s politically useful. It protects those subsidies. It discourages us from asking: Are they all desirable or deserved? For whom? At what age?
No one wants to be against Grandma, who — as portrayed in the media — is kindly, often suffering from some condition, usually financially precarious and somehow needy. But projecting this sympathetic portrait onto the entire 65-plus population is an exercise in make-believe and, frequently, political propaganda. The St. Louis Fed study refutes the stereotype. Examining different age groups, it found that since the financial crisis, incomes have risen for the elderly while they’ve dropped for the young and middle-aged.
The numbers are instructive. From 2007, the year before the financial crisis, to 2010, median income for the families under 40 dropped 12.4 percent to $39,644. For the middle-aged from 40 to 61, the comparable decline was 11.9 percent to $56,924. Meanwhile, those aged 62 to 69 gained 12.3 percent to $50,825. For Americans 70-plus, the increase was 15.6 percent to $31,512. (All figures adjust for inflation and are in 2010 “constant” dollars. The “median income” is the midpoint of incomes and is often considered “typical.”)
There has been a historic shift in favor of today’s elderly. To put this in perspective, recall that many family expenses drop with age. Mortgages are paid off; work costs vanish; children leave. Recall also that incomes typically follow a “life cycle”: They start low in workers’ 20s, peak in their 50s, and then decline in retirement, as wages give way to government transfers and savings. Against these realities, the long-term gains of the elderly and losses of the young are astonishing. From 1989 to 2010, median income increased 60 percent for those aged 62 to 69 while falling 6 percent for those under 40 and 2 percent for those 40 to 61.
Just why this happened is less clear. Economist William Emmons, a study co-author, suggests some possible factors: more college graduates among retirees; more stable and generous Social Security benefits; pensions. Whatever the causes, similar patterns affect families’ net worth. The young and middle-aged, with high debts and wealth concentrated in housing, suffered huge losses from the financial crisis. With less debt and more diversified investments, older Americans fared better. From 1989 to 2010, the median inflation-adjusted net worth of those 70 and over rose 48 percent to $209,290. During the same years, the net worth of those under 40 fell 31 percent.
The political implications of these trends are clear, though Emmons and co-author Bryan Noeth avoid policy. We need to stop coddling the elderly. Our system of aid to the elderly — mostly, Social Security and Medicare — has a split personality. On the one hand, it serves as a safety net for the elderly by providing crucial income support for the poor and near-poor as well as health insurance. On the other hand, it provides payments to millions of already-comfortable older Americans who could get along with less or, for some, don’t need subsidies. We ought to preserve the system’s safety-net features while gradually curbing the outright subsidies.
The idea that Social Security and Medicare spending should be defended to the last dollar — as advocated by many liberals — is politically expedient and intellectually lazy. Rather than promote progressive ends, as it claims, it prevents government from adapting to new social and economic circumstances. It’s a growing transfer from the young, who are increasingly disadvantaged, to the elderly, who are increasingly advantaged.
But political change needs honest debate, and honest debate needs a willingness to accept unpopular facts over friendly fictions. It requires that people who candidly pose difficult choices not be stigmatized. As long as Grandma is the poster child for the elderly, that won’t happen.
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