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Wednesday, April 06, 2005

Solution to the SS/Medicare Problem

It's questionable whether Social Security will have serious budget shortfalls in the future. With some back-door benefit decreases, it would be fine. Bush's plan, although he claims not to have a plan, is to make up for the benefit decreases by putting the money into stocks and hoping for the best. This has serious side effects.

Medicare, now, Medicare is the real problem. Medicine makes people live longer, so they get older, so they need more medicine, in a sort of death-spiral of treatment costs. The increase in longevity also increases the time that the elderly receive SS checks.

So the combination of these two benefits, a few years down the road, will drive marginal tax rates through the roof for you people who pay payroll taxes. Well, more accurately, you will be eating cat food and buying insulin on the black market, while your children pay high marginal tax rates. Same difference.

I will be avoiding wages in order to protest FICA.

The solution, however, is relatively simple: Work for a living. Back in the "day," everyone worked until they died. Then the depression came around, and FDR had the brilliant idea of fixing the economy by reducing the number of workers. He did this by paying people to retire, and taking the money from... Payroll taxes... This has a similar effect to decreasing minimum wage, which I might discuss tomorrow.

If you don't like your job, there's no reason to get up in the morning. Sure, you might want money, food, laundry soap, et cetera, but all of that only keeps you alive so you can keep going to the job you don't like for 40 years.

At this point, someone will say, this idiot must not have a family to support. I work for them, not for myself. >: ( Grrrrr.

Well, ok. I'm just saying, don't retire. The short term economic impact will be to lower wages, but the long-term impact will be to improve growth and productivity and therefore real wages. Plus, you'll have cat food for your cat, not yourself.

Many years ago I wrote something about... Let's see... The sudden increase in life span in England before the Renaissance, due to crop rotation or something, and its resultant increase in productivity. It takes 22 years to train someone for our economy. The longer they work, the greater the ratio of productive years to unproductive years. If it takes 10 years to pay back the first 22 years of screwing around, that leaves 33 years of profit. Raising the average retirement age by 8 years would raise GDP by 25%.

These numbers are fake but accurate. Of course, many people die before retirement age. To raise the average, we would have to lower the incidence of accidental death, murder, and death from illness. Since these people never collect retirement benefits anyway, I call it a wash for my purposes.

Raising the retirement age is not an original idea, but given the other benefits of staying active in old age, I think it deserves more attention and less despisal. Partial retirement? How about we just stop withholding FICA for people eligible to retire? Then everyone would get a 15% pay raise when they turn 65. This would have effects similar to reducing contributions and raising the age of eligibility, but it would be optional, and would probably provide a net savings.

(I'm not expecting people to do this out of the goodness of their hearts. Forfeiting a good SS check for a slightly better paycheck might not entice most people. Howevah, as we know, the good SS check is an endangered species. And yeah, I know of forced retirement. Don't you have any faith in my analytical skills? Do you really want me to add another 8 paragraphs waterproofing my thesis?)

The only "undesireable" effect is increasing labor supply, since there will be a lag of a few years before there are jobs created to absorb them, but what with the laws of economics, that's a short-term evil that can be minimised by careful phase-in of any regulatory change.


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