Freezing social security benefits

by on February 9, 2005 at 7:15 am in Economics | Permalink

In previous writings I have argued we should gradually index social security benefits to the rate of price inflation, rather than the rate of wage growth.  Matt Yglesias and Brad DeLong, among others, have objected to this view on several occasions.  Is it not unfair for everyone to grow wealthier but the elderly?  Are we not increasing the relative gap between the young and the elderly over time?  Imagine if today’s elderly had been frozen at the living standard of the elderly in 1930?

We should keep several points in mind, noting that a correct approach will use the rate of price inflation experienced by the elderly:

1. The real standard of living of the elderly still will rise over time.  This will come from private savings and market innovations, rather than from government social security benefits.  We are not freezing the standard of living of the elderly forever.  Furthermore the freeze in real benefits will be done slowly and will be generally expected.

2. The standard of living of the (future) elderly can rise even more, if those individuals choose to save more or earn more.  Just to make it clear, I do not buy the moral theory which says: "They chose not to save, let’m starve."  But if we are judging the relative gap between the elderly and other individuals, surely the (partially) voluntary nature of the standard of living of the (future) elderly has some bearing on this judgment.  Admittedly not all of the elderly have had the life capacity to control their earnings and savings, but most have.   And the richer society becomes, the more will have this capability.

3. It is necessary to freeze social security benefits only because Medicare is in future fiscal trouble.  Social security itself can keep on going at current levels with only marginal adjustments, if we so choose.  But broader fiscal problems loom, as Bush’s critics so correctly and frequently remind us.  Medicare, of course, benefits the elderly.  We would not be freezing social security benefits to throw a giant party for the young.  I will admit that if we can solve the Medicare problem (I don’t know how to), we can drop my social security proposal.  I will also admit that my social security proposal is only one drop in a much bigger bucket; other reforms and spending cuts will be needed also.  Many of these burdens should fall on the young, which will make the relative effects fairer to some degree.

4. The projected growth in Medicare implies a huge shift in relative resources devoted to the elderly.  A gradual freeze of social securty benefits should be viewed in this broader context.  The net flow of resources is still very much toward the elderly.

5. If demographics and productivity growth are more favorable than expected, we can always boost social security benefits again.  Believe me, it won’t take politicians long tocatch on to this idea.

6. Why the big concern about the relative standard of living of the elderly?  I care more about absolute living standards.  If you think that freezing real social security benefits is morally wrong, must you not also think that the current level of benefits is a moral outrage?  Are we not then required to boost social security benefits today?  (Admittedly some of you will accept this attempted reductio.)

To oversimplify just a bit, there are two theories for caring about the poor.  One is prioritarianism, which stipulates that low standards of living are intrinsically bad, whether or not other people are wealthier (NB: there is more to the prioritarian position than this implication).  The greater wealth of others does not make poverty a greater moral problem.  The second is egalitarianism, which objects to the difference in living standards between the rich and the poor.  The presence of wealthy Beverly Hills somehow makes poverty in Mali more obscene, even if Californians had no role in the causal chain of African poverty. 

Now I find prioritarianism more convincing than egalitarianism.  This suggests we worry about the absolute living standards of the elderly, and not their relative conditions vis-a-vis the young.  Now you might argue that the future should pay the elderly more, simply because the future will be richer.  I’ve already recognized this fact in my #1, #2, and #4.  It is not a separate argument in favor of an egalitarian approach to the moral issues.

7. The elderly, by definition, already have had long lives.  If we are judging relative deprivation, as defined over the course of a lifetime, they are not the big losers.  Life itself is the greatest good.  Bigger losers are those who die young; AIDS victims are one example.  I would rather fund more biomedical research, to cite one alternative use of the funds.  And if you have cosmopolitan sympathies, surely we could use the resources to take in more immigrants or otherwise help the very very poor in other locales.

8. Has anyone provided a convincing moral theory as to what the gap between young and old should be?  I believe not.  Until we have a theory of which young-old living standards gap we should be aiming at, we should not object per se to an increase in the relative position of the young.

The bottom line: I still think that a gradual freeze of real benefits is our best current fiscal solution, subject to the caveats offered above.  The biggest problem occurs if the rate of price inflation faced by the
elderly is so high that we don’t save so much money by this reform.  Even if my position is wrong, the opposing view is very much underargued in terms of the underlying moral philosophy. 

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