Voting Yourself Out of the Paying Checks Group and Into the Receiving Checks Group

In class on Wednesday, KT questioned what I meant by (some) social programs having sustainability problems because people vote themselves out of paying and into receiving.

The direct way to do that is to propose an increase in benefits to those receiving checks. It is a moral hazard for society that most people won't "take one for the team" and vote against their self-interest on this.

The indirect way is to do nothing when demographics shifts the relative numbers in the paying and receiving groups. This is a particular problem for programs that benefit senior citizens, who are living longer just about everywhere.

In class, as a partial answer to KT's question, I noted that Medicare Part D was added in 2005. It covers most prescription drugs for senior citizens. That's not a small group, and it's the most likely demographic group to vote and/or apply pressure to members of Congress. 

It's not that providing prescription benefits to seniors is a bad thing. The problem is that it is a gross benefit to those who receive, but a gross cost to those who pay into the system. The important question to society is what are the net benefits, and these are rarely addressed.

More generally, the issue with social security and Medicare is that due to increasing lifespans, the ratio of workers to receivers keeps dropping. When the Social Security Act was passed in 1935, it was about 15 to 1. Not it's less than 3 to 1. That change requires that taxes be 5 times higher to make up the difference.

For illustration, at the time social security checks started going out, the life expectancy of someone who had reached 65 was 2 more years. Not it's 15. To get back to receiving checks for 2 years on average, we'd have to raise the retirement age to 80 (for those of you who remember Professor Evans, that gives you some idea of the age).

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So I wasn't going to riff of KT's question from class, and had more or less forgotten about it. But then a news item came up, and it rang a bell. KT was kind enough to remind me of the question.

The news item is the riots taking place in France over the last week. These are in response to a proposal to raise the retirement age from 62 to 64. But, of course, if their ages are lower, they have an even bigger sustainability problems than we do.

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A few questions in the Quodlibet have asked about similar issues. This is a big problem around the world. Lucky countries (like the U.S.) "get rich before they get old" and have some chance of dealing with the issue. But other countries get old before they get rich (like China) and have more serious issues.

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And one more thing: a way to address this demographic affordability problem is to ... encourage immigration. This is yet another case where the macroeconomically helpful thing is actually the politically unpopular one.