Public policy and aging: “Houston, we’ve got a problem here”

by Phil Burgess, Unabridged from the Life section of the Annapolis Capital, Sunday August 3, 2014

Unabridged from my Bonus Years column in the Lifestyle section of The Sunday Capital, Annapolis, Maryland

In 1967, Israeli politician and diplomat, Abba Eban, said, “You can always count on the Americans to do the right thing — after they have tried everything else” — an observation frequently but incorrectly attributed to Winston Churchill.

Regardless of who said it, the conclusion that American policy making at every level is a messy business is clearly spot on — including policies and programs to meet the income security, health and well-being needs of an aging society.

In fact, messiness is the way the Founders planned it. The proof is in the Constitution, which sets up the separation of powers among the branches of government, the division of powers between the federal and state governments, checks and balances and the like.

And the rationale for all these checks and balances — first and foremost, the Founder’s abject fear of tyranny — can be found in the Federalist Papers, America’s first, and perhaps, to this day, most important contribution to political theory.

The Founders took the view that it was important for the new American government to be representative and democratic, not efficient. The experience of the past two centuries — both in the US and abroad — shows the wisdom of their choice. “Efficient” governments — both on the right and the left — where decision-making is not “hindered” by the messiness of politics tend to make big, costly and often bloody mistakes.

We have what the Founders planned, more or less. At least no sane person would argue that our government is efficient. In fact, while most Americans lament the current gridlock in Washington, polls show that quarrels, spats and barneys among leaders in Washington actually reflect real divisions and discord in the wider body politic. Welcome to the world’s oldest democratic republic!

I thought of this during the past week, stimulated by a press conference and memories of things past.

The press conference featured Treasury Secretary Jack Lew where he announced Social Security Disability funds would be exhausted in 2016,

Lew’s solution: Borrow from what we think of as Social Security “retirement” by diverting a portion of the payroll tax earmarked for retirement to cover unfunded disability claims.

Here’s an Abba Eban example of “trying everything else” before getting it right: The administration’s rob-Peter-to-pay-Paul “solution” only creates more problems. Reason: Entitlement funding, including Social Security, is already a mess.

For example, Social Security has been cash-flow negative since 2010 — meaning that Social Security is already paying out more than it is taking in. Quoting the Trustees report, this deficit “will average about $77 billion between 2014 and 2018 before rising steeply as the number of beneficiaries continues to grow faster than the number of workers.”

And it doesn’t stop there: Medicare will be the next to face depletion — in 2030, according to the Trustees’ report.

Altogether the federal government is facing more than $100 trillion in unfunded liabilities — including Social Security, Medicare, federal employee retirement, and other obligations.

To put $100 trillion in perspective, think of the following:

  • According to the Federal Reserve the total net worth of all US households is just north of $80 trillion.
  • The total market value of the 500 large companies listed on the New York Stock Exchange and the NASDAQ — commonly referred to as the Standard & Poor 500 — is $17.5 trillion.
  • Total tax revenues of the federal government this year should be around $3.5 trillion. That’s more than was collected in our nation’s first 180 years. Indeed, the revenues of the federal government are more than the entire economic output of Germany — or any other country in the world except China, India and Japan.
  • Total government spending this year — federal, state and local — is about $6.5 trillion.

As Apollo 13 astronaut Jack Swigert said, “Houston, we’ve got a problem here.” Houston gathered a team and solved the problem. We must do the same. Tax reform and entitlement reform are long overdue. Still, the current cast of characters in Congress and the White House has done next to nothing to advance needed change.

Secretary’s Lew’s alert sparked memories of the first G8 Summit held 17 years ago this past week in Denver, Colorado, where I worked in 1997.

The G8 — a forum that brings together the heads of the richest industrialized countries — includes France, Germany, Italy, Japan, the United Kingdom, the United States and Canada. These informal meetings began in 1976 but the Denver summit was memorable because it was the first to include Russia — as the G7 morphed into the G8.

The first G8 was memorable for another reason: Its final communique recognized the new realities that would accompany rapidly-aging societies, noting, “We examined the implications of population aging for our nations’ pension, health and long- term care systems in the next century.”

The heads-of-state then emphasized that “our countries face major challenges in sustaining public pension systems and would benefit from early action to restore balance.”

Different ways were suggested to address this issue, including …” That was 17 years ago. It’s not like the implications of aging population are a surprise, lurking out of view, off the radar.

The fact is people are living longer and, for most, healthier lives — worldwide, and not just in the developed nations. And the changes are huge. As noted in a recent report by the National Institutes of Health, “Since the beginning of recorded history, young children have outnumbered older people. Very soon (about 2017) this will change. For the first time in history people age 65 and over will outnumber children under age 5.”

Moreover, the number of super-seniors (age 85 and over) will increase four times between now and 2030.

However, with the ascending idea of “positive aging” — the desire and ability of many later-life Americans to continue to work or engage in other socially productive activities well into their later years — it’s time to discard old stereotypes of seniors as dependents. Instead, it’s time to invent new ways for later-life Americans to participate as active and productive members of society — now that we’ve “tried everything else.”

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