Leveraging posterity’s prosperity

a column by Laurence Kotlikoff for VOX: CEPR’s Policy Portal

The US has spent the entire post-war period running a massive and ever-growing Ponzi scheme that takes from the young and gives to the old.

This column discusses how the scheme has been and is being run by expanding take-as-you-go-financed Social Security, Medicare, and Medicaid systems, by running huge official deficits, and by imposing a larger share of taxes on the young and a smaller share on the old.

Take as you go, whether done on or off the books, has done precisely as theoretically predicted – reduced the US’s national saving rate from 13% in the 1950s and 1960s to 3% in the last two decades. This underlies, in large part, a commensurate drop in the domestic investment rate, which was also 13% between 1950 and 1969 and is now running at 4%. The textbook predicted consequence? Lower median labour productivity and median real wage growth.

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As I have tried to explain to my husband many times, what you paid in over the years paid for welfare and health benefits for those needing it at the time. It was not, and was never intended to be, an insurance that you would be supported later in life.
Support for the NHS and welfare benefits needs to be financed by today’s taxes whether in the USA or the UK.

Labels:
social_security, Medicare, Medicaid, US_saving_rate

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