The most striking development in the United States over the last three decades is the massive upward redistribution of income. So, what do we hear about when we go to the Washington Post oped pages? Naturally, we get columns telling us that old people are going to condemn the country's youth to poverty.
The effort to divert class anger into generational resentment is a huge industry in Washington. Just by himself, Wall Street investment banker Peter Peterson has invested $1 billion in this drive and there are many other wealthy people who also consider it a good use of their funds.
This is the context for Matt Miller's column today in which he tells us "young Americans get the shaft." That is of course true, but it takes some really bad logic and/or arithmetic to think that the reason is the $1,100 monthly Social Security checks received by their parents or grandparents.
In fact, if Miller had access to data, like Survey of Consumer Finance released by the Fed this week, he would know that most seniors have little other than their Social Security to live on. The cohorts that are now on the edge of retirement have seen defined benefit pensions largely disappear. They saw weak wage growth during their lifetime and therefore had little to money save.
Insofar as they were able to put money aside, they lost much of their savings when an over-valued stock market corrected to more normal levels and the housing bubble burst. Most people would probably put more blame on the Wall Street crew who managed to get incredibly wealthy through this whole process (e.g. Robert Rubin at Citigroup or Richard Fuld at Lehman), but Miller wants us to focus our wrath on seniors getting their Social Security checks.
Miller does have a better case that Medicare is a costly burden, but the issue here is not that seniors are getting such great care. The issue is that we are paying too much for it. We pay more than twice as much per person for our health care as people in other wealthy countries. If we paid the same amount per capita as Germany, Canada, or anyone else, we would be looking at long-term budget surpluses, not deficits. Again, normal people would be upset at the drug companies, the hospitals, the highly-paid medical specialists, not retired workers who paid into Medicare their whole lives.
Just to mention one other point that Miller gets badly wrong, he complains that:
"For years, states have let public pension managers assume their investments would grow 7.5 or 8 percent a year, when 3 to 6 percent has been more realistic. This bipartisan ploy hides trillions more in pension shortfalls, funds that will have to be forked over one day by (you guessed it) younger Americans."
Miller is obviously very confused here. When the stock market had price to earnings ratios above 20 in the late 90s and eventually over 30 at the peak of the bubble in 2000, it was not possible for pension funds to have 7.5 or 8.0 percent returns, as some of us argued at the time. However, now that the price to earnings ratio is back near 15, the long-run average, it will be possible for pensions to yield their historic rate of return. In fact, it is almost impossible to construct scenarios where this will not be the case.