In a recent interview in the Wall Street Journal, billionaire Stan Druckenmiller discusses his recent university tour sounding the alarm on intergenerational theft. The article paraphrases his case:
[W]hile today’s 65-year-olds will receive on average net lifetime benefits of $327,400, children born now will suffer net lifetime losses of $420,600 as they struggle to pay the bills of aging Americans.
It goes on:
When the former money manager visited Stanford University, the audience included older folks as well as students. Some of the oldsters questioned why many of his dire forecasts assume that federal tax collections will stay at their traditional 18.5% of GDP. They asked why taxes should not rise to fulfill the promises already made.
Mr. Druckenmiller’s response: “Oh, so you’ve paid 18.5% for your 40 years and now you want the next generation of workers to pay 30% to finance your largess?” He added that if 18.5% was “so immoral, why don’t you give back some of your ill-gotten gains of the last 40 years?”
He has a similar argument for those on the left who say entitlements can be fixed with an eventual increase in payroll taxes. “Oh, I see,” he says. “So I get to pay a 12% payroll tax now until I’m 65 and then I don’t pay. But the next generation—instead of me paying 15% or having my benefits slightly reduced—they’re going to pay 17% in 2033. That’s why we’re waiting—so we can shift even more to the future than to now?”
In my recent commentary, I examined the recent projections of the Congressional Budget Office:
In short, when it comes to the federal budget, the self-discipline we put off today is tomorrow’s hardship. Decreased investment, increased taxes, greater economic vulnerability, and an increased risk of fiscal crisis are what we have to look forward to in the next 25 years on our current course. The result would be increased unemployment and poverty and decreased upward mobility, as well as all the societal ills that go with them. We should not be content with such a future for our children.
Druckenmiller’s tone is a bit harsher than my own, but we both agree about the dire nature of this problem, as well as the need to be careful moving forward. As I wrote last week,
The road of self-discipline is traveled with small steps. If we do not proceed cautiously, we could face other negative, unintended consequences.
Whereas I suggested our problematic disability programs might be a good place to start reforming, he helpfully isolates another area in which we could start on the road to greater financial self-discipline:
“I would go for something simple that is very, very tough for the other side to argue, for example, means-testing Social Security and Medicare,” which would adjust benefits by income. He notes again his impending eligibility for a monthly [$3,500] government check.
“I don’t need it. I don’t want it. I could also make the argument that every health expert will tell you that wealthy people live 4.5 years longer than the middle class or the poor. So I’m going to get paid 4.5 years more than the middle class or the poor,” he says. “It’s not that many dollars, but I think it would be a great symbol in seeing exactly how serious they are.”
Effectively, he is suggesting that we stop giving rich retirees who don’t need it thousands of dollars in Social Security benefits. A small step, to be sure, but certainly one that ought to garner bipartisan support. Enough of these small steps, however, and perhaps financial responsibility could actually become a habit for Congress.
I’d like to think that’s not wishful thinking. We did actually balance the budget in 1998 with a peak surplus in 2000 of $236.2 billion. As difficult to believe as it may be today, our politicians were capable of this kind of self-discipline in the recent past.
But there’s the catch, perhaps: We actually had politicians and voters committed to financial responsibility in the late 1990s. We will need both for it to happen again today. If not, the needs of future generations will continue to be sacrificed for the comforts of the present, and rather than freely embracing a more ascetic path now, austerity will be forced upon us by the heavy hand of hardship, and we will not have the luxury of small steps.
In Becoming Europe, Samuel Gregg examines economic culture - the values and institutions that inform our economic priorities - to explain how European economic life has drifted in the direction of what Alexis de Tocqueville called "soft despotism", and the ways in which similar trends are manifesting themselves in the United States.