@menloparkmom, @marvin100, and @doschicos, I was dealing with likely outcomes, not my preferred policy choices. I was pointing out that our politicians from both parties have pushed in directions that have led us to where we are and that we voted for them.
Someone asked what people who have saved retirement would do when it hits them that there isn’t that much in the SS bucket. In my earlier post, I was suggested that a likely choice that people will make, which is to get mad and turn to government. Then politicians will push them in certain directions (higher taxes, lower taxes) in line with preconceived sellable nostrums without dealing with systemic causes. I fear that a reduction in standard of living (because people haven’t been saving will bring out the worst and not the best in our polity. I was trying not making policy prescriptions as I know we are not supposed to be political here. I was being sardonic (I was going to say sarcastic, but the feeling is a little darker) and I apologize for my lack of clarity. The root cause of the problem is us. So, I was mostly trying to be identify problems and likely responses. I didn’t mean to be confusing.
For our retirees without savings, health care costs will be a huge problem. Yet, we spend significantly more as a percentage of GDP (and per capita, I believe) on health care with worse health outcomes than many countries. I’ve worked in many countries in the world, including as advisors to private companies that are part of national health care systems or that sell to national health systems. Health care systems in other countries are also imperfect – the UK is having a real problem at the moment and Australia probably will – but overall, our system causes us to pay way more than anyone else for most things (docs, drugs, etc.) without better (and probably worse outcomes – in the last study I remember, the US was ranked 37th in terms of health care outcomes). Health insurance companies do not really insure because they are entitled to up to 15% of gross revenue (85% of revenue needs to be allocated for medical care). While they will do a bit to keep costs down to get their 15%, they are significantly more interested in the gross revenue growing than in bending the cost curve – if I understand the law correctly (and I may not), they actually make less profit over time by driving down costs as premiums would have to drop and they get at most 15% of total premiums). Because of their compensation, they are not taking meaningful risks (i.e., they are not really providing insurance). However, we are paying them as if they are taking risks, when they are really third party claims processors. It is easy in principle to reduce the system’s cost but politically it would be a very daunting task.
As I mentioned, retirees can substantially reduce their living costs in retirement by moving to Mexico or Panama or Costa Rica or Ecuador. If Medicare would pay for health care expenses in those places, there could be more movement and maybe there will be a political push for that. It would be ironic, I suppose, if the push to move elsewhere to retire came from folks who today are pushing to keep out immigrants. I’ve always thought there would be a real business opportunity in setting up retirement enclaves abroad which would allow people to live on SS checks and where Medicare would be accepted through affiliation with some US healthcare system.
@doschicos, what I was trying to say was completely in agreement with you from a policy perspective. A growing population is the primary cure for SS funding (and GDP growth generally) and that is what was separating the long-term prognosis of the US from Europe and Japan. Moreover, any reasoned way to increase US competitiveness in the world economy would include continuing to attract and retain the best and the brightest. Unfortunately, I suspect that the polity’s response to lowered living standards in retirement will be the opposite because it is easier to blame our problems on others than to step back, analyze the problem and take responsibility for our bad choices.
I fear generally that as a society, we are eating our seed corn rather than planting it. A lot of our productivity and GDP growth has followed from Federal government (NSF, NIH, and especially DoD) spending in basic and applied research. That has fueled productivity growth. Yet, we’ve been cutting that back year after year. The last Congress has also been trying to harm research universities. [A brilliant strategy.] US basic infrastructure (roads, trains, airports, ports and even internet) is closer to Third World standards than to most of the developed world. I live in a town where the median house price is probably over $1 MM and we have potholes everywhere. Our school system is one of the better ones in the state, which I believe is thought to have the best public schools in the country. A few years ago, we were having a debate about a special override on property taxes so we wouldn’t have to cut the school system budget. I advocated spending more than they were intending – I think we ought to be investing in being the best school systems in the world – and said that we should be (and I was) willing to pay more taxes and that it was generally in our economic self-interest to do so (property valuations would go up if people moved to our town because of the exemplary quality of the schools) as well as in our moral interest. My Op-Ed in the local paper got lots of flamingly angry responses. Many people just wanted to reduce property taxes and spend less on schools – another example of eating the seed corn.
On trade, I’m ecumenical. Both Democrats and Republicans chose not to meaningfully compensate losers from globalization of trade or new technology: the less skilled workers and their kids. The right strategy would have been training (if it would work) or supplements until people retired and heavy-duty investment in education of their kids (let them learn science and coding and statistics). Instead, we have fiascos like Kansas that do the opposite. The Democrats and Republicans also both chose to ignore the systematic theft and/or coerced transfer of technology to China combined with Chinese government policies that let very few companies really do well in China so that the Chinese companies could grow scale and then attack the Western companies outside of China. Neither of those things is new, but both parties have knowingly ignored them for a long time. I doubt there is much to do here from a policy standpoint – the horse is way out of the barn.
I hope I have stayed on the right line of diagnosis and not supporting particular parties. In short, people who haven’t saved will have to get by on less, will be mad at others because of their situation, and will generate government action that is likely to be counterproductive.
