Ben Bernanke says federal entitlement programs are unsustainable:
To avoid large and unsustainable budget deficits, the nation will ultimately have to choose among higher taxes, modifications to entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above. These choices are difficult, and it always seems easier to put them off–until the day they cannot be put off any more. But unless we as a nation demonstrate a strong commitment to fiscal responsibility, in the longer run we will have neither financial stability nor healthy economic growth.
But a Rand Corporation study sees a way out:
An unprecedented upturn in the number of older Americans who delay retirement is likely to continue and even accelerate over the next two decades, a trend that should help ease the financial challenges facing both Social Security and Medicare, according to a new RAND Corporation study.
Hat tip to Mark Thoma for these. My thoughts:
When actuaries project that raising the retirement age from 65 to 67 (or 71 to 72, as I heard proposed on the radio recently), what do they assume about the number of jobs that will be available? If 65-year-olds keep at it another 5-7 years, will there be that many more domestic jobs for them, or would younger folks be forced into unemployment? I strongly suspect it's the latter. Labor force participation rates for men have been declining since the 1970s and for women since 2000, according to EPI.
If we could put in place policies that cause sustained broad increases in real wages and increasing labor force participation, fiscal problems all over the nation would start to shrink and disappear. On the other hand, if real middle class incomes continue to stagnate and decline, there will be no good solutions to fiscal problems.
Furthermore, Social Security cannot morally be discussed as a mere problem of fiscal management for the national government. There is no realistic prospect that reduced Social Security benefits will be replaced by private savings or any other program because employer benefits and private capacity are shrinking even faster. What's really being discussed is managing the regression to dystopian conditions that our grandparents struggled to put behind us. Our leaders should be thinking the big ideas that will be necessary to prevent that decline, not about how to cope with it.