December 06, 2013
Couldn’t resist this one. No the WaPo columnist isn’t complaining about too much money going to big banks. He is once again complaining about money going to seniors, or more specifically the idea pushed by Senators Tom Harkin and Elizabeth Warren that we might want to increase the money going to seniors.
Harkin proposed a bill, which Warren has now endorsed, which will base the annual cost of living adjustment on a price index that more closely tracks the consumption patterns of seniors than the current index. It would also raise benefits by an average of about $70 a month.
This makes Lane unhappy since he thinks seniors are doing just fine. Ironically he cites a study showing that the share of 70-year olds who won’t be able to replace 75 percent of the income will rise from 25 percent for those born between 1940-1944 to 30 percent from 1970-1974.
This actually is a low bar for two reasons. First weak wage growth over this period means that 75 percent of working income is much less relative to the economy’s average productivity for this later age cohort. The other reason is that at age 70 the later born cohort will have on average have about 2.5 more years of life expectancy (12.6 year versus 10.2 years). This means that they will likely have more wealth and will more likely still be working.
The real value of Social Security benefits do increase through time and therefore are projected to be a considerably larger share of retirees’ income in future decades. This shows the importance of Social Security, but hardly describes a scenario of a thriving population of wealthy seniors.
But getting back to the issue of the size of this transfer that Lane terms “vast.” The increase in benefits of $70 a month would cost around $50 billion a year. We don’t know exactly how much the elderly CPI will differ from the currently used index, but if we lift the numbers in the other direction that the Congressional Budget Office estimates for the chained CPI, the additional expense will be around $10 billion a year over the next decade, bringing the total cost to $60 billion, a bit less than 0.4 percent of GDP.
By comparison, Bloomberg News estimated the size of the implicit taxpayer subsidy to the big banks at $83 billion a year, a bit more than 0.5 percent of GDP. For some reason the vast subsidy to the big banks, and implicitly their top executives and shareholders, doesn’t draw the same attention in the Washington Post’s pages (news and opinion) as money going to seniors.