By Michael McCarthy, The Globalist
In mid-June, the American Association of Retired Persons (AARP), one of the most powerful lobbies inWashington, signaled it would drop its opposition to cutting Social Security benefits for future retirees.
Although the AARP has since backpedaled somewhat, the move would represent nothing less than a seismic shift in the U.S. fiscal debate. The Wall Street Journal’s news pages deemed it “a move that could rock Washington's debate over how to revamp the nation's entitlement programs.”Third Way, a moderately liberalWashington think tank, called it a “watershed moment.”
The reaction to the move provides a striking reminder of how the U.S.government’s priorities are oriented heavily toward older Americans. In Paul Krugman’s memorable formulation, theU.S. government is essentially “a giant insurance company, mainly serving older people, that also has an army.”
Indeed, roughly half of federal spending goes to seniors. Outlays on major mandatory healthcare programs and Social Security, which overwhelmingly benefit the elderly, currently account for about 10% of the U.S. economy. The nonpartisan Congressional Budget Office (CBO) projects that rising healthcare costs and an aging population will cause this share to rise to 16% of GDP by 2035 (under current policies). To put this figure in perspective, total government spending (excluding interest payments on the debt) has averaged 18.5% of GDP over the past 40 years.
In other words, government spending on seniors will soon crowd out investment in everything else the government does — including education, infrastructure, national security, foreign aid, energy, the environment, law enforcement and research and development.
The reason why older Americans receive a disproportionate share ofU.S.government spending is not hard to grasp: They are reliable voters. Consider that the voter turnout rate in 2008 for citizens 55 and older was 71%, compared with just 53% for citizens aged 18-34 (and 0% for those under 18, who of course are ineligible to vote). As such, the voices of seniors are heard loudly and clearly on Capitol Hill — and their demands are amplified by powerful lobbying groups like the AARP.
The American Association of Young Persons
Now imagine there were an American Association of Young Persons with as much influence as the American Association of Retired Persons — and the government took the needs ofAmerica’s youth as seriously as it takes the needs of seniors.
It is certain there would be a much greater emphasis on forward-looking investments in education and job opportunities for the young — investments that would increase the human capital of America’s youth, thereby enhancing the productivity of the U.S. economy and boosting the country’s global competitiveness.
For example, it is likely that the unemployment rate for Americans aged 16 to 24 would be far lower than the historically high 19.1% reached in July 2010. Perhaps there would be a program similar to the New Deal-era Works Progress Administration (WPA) that would provide jobs for young Americans repairing infrastructure, retrofitting public buildings to be more environmentally friendly and constructing new roads, bridges and public buildings. Not only would this immediately reduce the overall unemployment rate, it would pay economic dividends for decades, much as the WPA did in the decades following the Great Depression.
In addition, the federal government would devote more than a paltry 2.9% of its budget to education. In particular, there would be a much greater emphasis on ensuring that students are equipped for the global job market. As it currently stands, the United States’ 15-year-olds rank only 25th among their peers in 34 developed countries in math, and 17th in science. If the U.S. political system valued the country’s youth as much as it does seniors, preparing students for college and for the math- and science-intensive jobs of the future would be among the government’s foremost priorities.
It is also likely that the current crisis in higher education, which stems from tuition increases that vastly outpace overall inflation, wouldn’t exist. Today, the average graduate with a bachelor’s degree holds student debt of over $27,000 — compared to about $9,000 in 1993. Increasingly, the prospect of taking on tens of thousands of dollars of student loan debt in an uncertain economy is preventing many young Americans from attending college and receiving the skills and knowledge they need to compete in the global economy. If the young had more political clout, this problem would likely be alleviated by increased government spending on financial aid and assistance to state universities.
Toward a more equal society
In addition to enhancing the United States’ long-term economic prospects by making the country more globally competitive, such forward-looking investments in education would help resolve one of the country’s most intractable challenges: income inequality.
As it stands today, income disparities in the United States are greater than at any time since the Great Depression, with the top 1% of earners taking in more than 20% of personal income. Compounding the problem is that the United States has less social mobility than most other wealthy countries.
However, it is widely acknowledged that education is among the best ways to reduce income inequality. In particular, the OECD has found that higher enrollment in early childhood education, increasing the social mix of students within schools and increased investment in government-supported loan and grant systems can all help promote social mobility — thereby decreasing income inequality.
Looking to the future
In short, if an American Association of Young Persons had as much clout as the American Association of Retired Persons, government spending would be focused on smart, youth-oriented objectives that in the end would benefit all Americans.
However, this is not to say that the United States should forsake its retirees. Rather, it highlights the fact that healthcare costs, the main driver of future deficits, must be gradually reigned in through smart and humane reforms. Toward this end, the cost-control mechanisms in President Obama’s healthcare overhaul, which the CBO projects will reduce deficits by over $1 trillion between 2020 and 2030, are a solid first step. It also makes clear the need for additional tax revenues through raising taxes (particularly on the wealthy), closing tax loopholes and reducing tax expenditures.
In addition to helping to reduce the country’s debt, such reforms would allow the nation to pursue a youth-centered agenda that would help solve two of the country’s most intractable problems: a stagnant, increasingly uncompetitive economy and worsening income inequality.
The views expressed in this article are solely those of Michael McCarthy. Read more at The Globalist.