September 19, 2013
A popular line of argument in Washington policy circles is that spending on seniors is crowding out spending on our kids. In this story we would be able to pay for good schools, early childhood education and daycare, and health care and child nutrition if only grandma and grandpa weren’t sucking away all the money for their Social Security and Medicare. The remedy for these folks is to cut Social Security and Medicare and tell our seniors that they will have to get by on less.
While there is tons of money behind this argument (e.g. the myriad of Peter Peterson funded groups, the Washington Post news and editorial sections, and most of the rest of the elite punditry), it doesn’t fit the data. The idea that there is some fixed sum available to support social welfareprograms, and it will either go to kids or to seniors, has no basis in reality. The share of GDP going to support social spending of various types has increased substantially over the post-World War II era. So this sum clearly has not been fixed in the United States.
At the federal level, Social Security and other forms of social spending accounted for less than 5 percent of GDP in 1950. Today they account for more than 12 percent. It’s not clear why anyone would think that this sum is fixed for all eternity. (It’s also worth noting that much of our spending on health care is wasted on excessive payments to doctors, drug companies, insurers, and other health care providers. It is seriously misleading to treat this waste as spending on the elderly.)
We get an even stronger story if we look at the situation across countries. It turns out that countries that spend a larger share of their GDP supporting their seniors also spend a larger share of their income supporting the young. The chart below shows spending per kid and spending per senior for the OECD countries, both divided by per capita income.
The chart shows a strong positive relationship between per capita spending on seniors and per capita spending on kids. (The relationship is significant at the 5 percent level.) At a given level of per capita income, a dollar of additonal per capita spending on kids is associated with 67 cents of additional spending on seniors. In other words, the countries that are willing to spend more to support their seniors are also willing to spend more to ensure that their kids get a decent start in life.
From this perspective the efforts to cut back programs that seniors depend upon can be seen as part of a generic meanspiritedness. Money saved from cuts to Social Security and Medicare is more likely to end up as tax cuts to business or the wealthy than as additional funding for programs that benefit low-income children.
In this respect, it’s worth noting that the generational separation postulated by the seniors versus kids story doesn’t make sense from the word go. Many families, especially poor families, are multi-generational. In 2003, almost 12 percent of the children living in families with incomes below 200 percent of the poverty level had someone in the household receiving a Social Security check. That share would likely be higher today. For these families, cutting benefits for the elderly is cutting benefits for kids. There will be fewer resources available to the family as a whole, which means the kids will suffer along with everyone else.
The reality is that the United States is plenty rich enough to provide both a decent retirement to our seniors and to ensure our children a proper upbringing. The reason that this may seem difficult is that so much money has been redistributed to the wealthy over the last three decades. If the public focuses on policies that reverse this upward redistribution then there is no reason to pit our children against their grandparents.