OpinionMeister

Wednesday, April 06, 2005

Economic Death Spiral - Only if Dems Win

Washington Post columnist Robert Samuelson has a column titled "Economic Death Spiral." Link.
The great danger of an aging society is that the rising costs of government retirement programs -- mainly Social Security and Medicare -- increase taxes or budget deficits so much that they reduce economic growth. This could trigger an economic and political death spiral. Our commitments to pay retirement benefits grow while our capacity to meet them shrinks. Workers and retirees battle over a relatively fixed economic pie. The debate we're not having is how to avoid this dismal future. President Bush's vague Social Security proposal, including "personal accounts," sidesteps the critical issues. His noisiest critics are equally silent.

He is dead wrong. Not only do personal accounts not sidestep the issue, they are the only long-term solution that has been presented. The figures demonstrate that the current pay-as-you-go system is not sustainable. In the not-too-distant future, the government will be forced to default on the promises it had made with respect to the size of the retirement benefits. That will happen no matter what is done. It is the nature of the system. It was designed as a Ponzi scheme, and like all Ponzi schemes, the early participants do well, while the later ones lose big time.

If we do nothing, future recipients will lose big time. The only thing that can be done is to have some replacement in place to support them. That is what the personal accounts will be. It may be unfair that current workers will have to pay double, once to pay the current retirees on pay-as-you-go and again to put savings away for their own retirement. Unfortunately, past elected officials left this mess, and current workers have to bear the cost of cleaning it up. The longer we wait to start, the greater will be the burden on current workers. I have seen estimates that the cost of the fix goes up by $600 billion for each year that we wait to begin.

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