Retirees and Wrong Assumptions

Posted on Aug 1, 2011

Flickr / Borya

On Sunday, President Obama and members of the U.S. Congress agreed to cut at least $2.4 trillion from federal spending over the next 10 years, some of which will come from programs that benefit retired Americans.

For this reason, a vigorous conversation on the necessity (or not) of reducing funding to programs that affect retirement age, pension allowances and other provisions for the elderly is urgently needed. Teresa Ghilarducci, an economic policy analyst at the New School for Social Research in New York City, makes a serious contribution to that discussion below, arguing that policies governing retirement age and pension allowances that have functioned effectively since the end of World War II are not the fundamental cause of our inability to pay for other social services.

The table comparing the ratios of young to old people, retirement lengths and pension and education spending of major Western nations that appears at the end of the article is especially informative. —ARK

Logos:

Raising retirement ages is not a good policy and support for it is based on two wrong assumptions: one, that people can and should work longer and, that two, society cannot afford to pay for retirement because pensions and health care spending for the elderly take too many resources away from younger people.

Pensions do not limit resources for younger people. A survey of 58 nations shows that government spending on programs for the elderly does not reduce public spending for younger people. The most important determinants of government spending on education and youth health programs are whether or not political forces are allied with the vulnerable members of a population, for example the elderly, young families, and children. When such a political alliance is in place public spending on social insurance increases: my statistical analysis shows that a 10% increase in ... education spending (as a percent of GDP) is correlated with a 7.3% increase in spending on pensions.

... The repositioning of retirement as a luxury and no longer affordable depends, in part, on the wrong belief that pension spending takes resources away from other deserving people. There is also the wrong conviction which is more positive that supporting retirement is not as necessary as it once was because the current and future elderly are different: they want to work longer and they are healthier.

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