Should we retire later

One major issue with this approach is economic class. Upper-middle class folks don’t have the same physical demands on them that blue collar workers do. Working until you’re in your late 60s looks different if you’re a construction worker than it does if you work on a computer all day. This tends to get completely missed because of the people who are actually engaged in doing the discussion. It’s related to why very high unemployment in the US isn’t perceived as a crisis because it’s primarily happening to Them (at least as far as the college-educated people talking about it are concerned.)

Well, one of my minor hobby horses is the notion that we should, in fact, develop institutions that bring the retired more fully into child-rearing, to relieve their boredom and loneliness, make them more useful to society, and lessen the burden on the middle-aged. The extended family largely did this, and the atomized society we have now doesn’t seem to have found the path to this situation, though I think it is one to aim at.

“By contrast, at least for full-time workers, there has been no reduction in annual hours of work. Official full-time conditions were fixed in the early 1980s at 38 hours/week with four weeks annual leave + public holidays and some long-service leave. That hasn’t changed, but there was a big increase during the 1990s in people working longer hours,”

This is true and not true. It’s true if you only consider market working hours. But as Stiglitz and Sen pointed out in their report for Sarkozy, that’s not entirely the relevant point. What we really want to know is total working hours: household production and market production hours, leaving (after personal care) the balancing item of leisure hours.

And household production hours have been falling steeply for generations: largely for technological reasons (washing machines, tumble driers, microwaves, more reliable cars etc). I know JQ has said before that he’s not all that keen on the evidence from time use surveys but they are all we’ve got. And what they are showing is that while market working hours have, as he says, bumped around a bit, leisure hours have definitely been rising, so total working hours have been falling.

“Leaving the pension age unchanged when life expectancy changes pushes people to work harder since their required savings increase. This is, on the face of it, a bad outcome.”

I’m very taken by Brad DeLong’s argument here. Specifically about the state pension age rather than retirement age as such. The state pension is social insurance: insurance against outliving your savings. When such pensions were introduced they were (usually at least) set at about the average age of death. The pension was thus received by those who lived longer than average and thus risked outliving their (rational, given lifespans) savings.

Over the past century, life spans have of course increased. Now the state pension is more a form of social assurance. That is, not insurance against something which may or may not happen, but a form of saving for something which is highly likely to happen (to highlight the difference between insurance and assurance: fire insurance is insurance. It’s unlikely to happen so we pool the risk. Burial is highly likely to happen so burial insurance is a form of saving for it, not a pooling of risk in the same manner.).

DeLong’s proposed solution (and I’m not sure how much this is just an impish desire to shock and how much a real policy proposal) is to return the state pension to what it was: social insurance. This would mean that pension age would be the average age of death of that age cohort. As that’s rather difficult to predict in advance, we might use the average age of death of the previous age cohort. Say, 75/77 for men at present?

What people do with their own money is up to them: but social insurance should be insurance, not assurance.

John, I’m surprised you’re so easily won over in this debate. Don’t you think that the high levels of (forced) unemployment are enough of a question mark to seriously question such very crude and simplistic ‘activity’ thinking? And looking globally – isn’t it more challenging to get the large part of the world at the levels of wellbeing that are currently enjoyed by relatively small parts of it (as against a seemingly minor problem of keeping up the wellbeing in face of the slow moving demographic evolution in the West)?

And if the choice would be as you put it, what elements do you have to think people would go in for the preference of later retirement? Maybe the stress (if stress there must be) is managed the best if people can work in peaks and be assured that at some fixed age they can not work at all.

The real question is what is the target: keeping the status quo of the current system or making a change to the system that minimizes the amount of forced employment & unemployment alike. If it is the latter, there have to be solutions other than maximizing the quantity of ‘activity’ – as there have been in the past century. Maybe it can start with questioning the unbounded nature of ensuring people can die only after 20 years of unenjoyable back and forth in hospitals.

If anyone can come up with something that strikes a reasonable balance between tinkering round the edges of a demographically unsustainable system, and requiring wholesale socio-economic revolution, I’m all ears.

On a side-point, the argument about rising productivity allowing increasing leisure is well-put, but how does it account for people in other places who are willing to work harder for longer, potentially undercutting the prosperity of high-wage economies? Can we be sure that whatever future level of equilibrium the countries of the Pacific Rim find, it will be one which the retired working class of Australia and the aspiring middle class of China can both be comfortable with?

I think telling a roofer (to pick an example) that s/he needs to postpone retiring a few years won’t end well.

There’s a tendency, at least in the US, for people to discuss “work” as though it was all white-collar work now, when for most people work still involves some degree of manual labor.

Ernest and Steve are right on (though I don’t share Steve’s contempt for Delong.)

I retired at a year and a half ago, a week before my 62nd birthday, and about 3 years earlier than I expected to, partly because I was given an incentive that was hard to refuse. My employer was cutting costs (read efficiency gains benefit execs and possibly shareholders – I go to pension and SS, and become a liability to society.)

Raising the age for S.S benefits would assure that I deplete my retirement savings, and leave little or nothing for my heirs . The top earners and generational rich don’t have that problem. One effect of raising the age to receive benefits is to lock the social structure, and we already have too much of that, at least in the U.S.

Complex issue. Don’t forget to include considering unintended consequences.

Cheers!
JzB

My wife has just turned 60. Wehad no intention of retiring but she could not get any more work. She is ighloy qualified but on a contract which finished. My income was such that we were forced in to retirement. ( I am a viet vet) Until ageism is addressed this a futile dicussion

Sorry for the bad punctuation and spelling, John – you seriously pissed me off. It’s infuriating to see people suck down right-wing lies so willingly.

As time goes by, I’ve watched profession after profession demonstrate that they have no real ethical standards; it’s still maddening.

Very sensible post. I wonder what’s got some of the commenters so riled up. We have more leisure time over lifetime than before but there is no reason to artificially concentrate it all at the end of life, when for a lot of people Continued work might be more interesting/fulfilling.

What gives you the impression that this is about the particular contortions of US politics?

Tim Worstall: “DeLong’s proposed solution (and I’m not sure how much this is just an impish desire to shock and how much a real policy proposal) is to return the state pension to what it was: social insurance. This would mean that pension age would be the average age of death of that age cohort. As that’s rather difficult to predict in advance, we might use the average age of death of the previous age cohort. Say, 75/77 for men at present?”

In that case, shouldn’t cohorts take class and race into account, as well as gender?

Nick 06.02.10 at 1:48 pm

“Very sensible post. I wonder what’s got some of the commenters so riled up. We have more leisure time over lifetime than before but there is no reason to artificially concentrate it all at the end of life, when for a lot of people Continued work might be more interesting/fulfilling.”

Because it’s a very, very stupid post? As for concentrating leisure time in retirement, that’s been an actual problem of the industrialized world for decades. Go back and read some predictions decades ago, that people would be working 2-3 days a week, and enjoying the leisure of a more developed economy. And then cry.

Minus the anger I kind of agree with Barry. I think superficially it’s correct that retirement ages should rise in line with life expectancy, but in practice we need to even up a whole bunch of workplace issues before we do that. And we should never trust suggestions to raise the retirement age from a class of people (academics, economists, reserve bank chiefs) whose jobs are so interesting and rewarding that they voluntarily work into retirement anyway.

Landru summarized the state of play admirably. I don’t even have a personal stake in this game- I’m a public employee in a state where members of the state pension system don’t pay into SS (and where said system, thank the FSM, is in better financial shape than the vast majority of such systems), and SS benefits I earned from previous jobs will be slashed to ribbons by the “windfall elimination” provision due to my pension benefits (on a side note I’d love for somebody to explain to me why this is fair). But the outrageous reverse Robin Hood act still makes my blood boil.

I havent see data on this, but I assume that each additional year of life results in a greater proportion of people being unable to work. That is, if the employment rate at 60 is x%, i assume it is x-1% at 61, x-2% at 62, etc. In fact, it’s also very likely that people can work less hours, or are less ‘productive’ as they get older; and more likely to get ill/injured? I suspect insurers will respond quickly to an increase in the number of 70 year old men working in office environments, and you can bet employers will pass this cost on to employees.

If we assume that people cannot claim retirement-related benefits until they turn 70, do we then assume that (at least some) people will have to claim unemployment and/or disability benefits? Private pensions (given both take-up and annuity rates and timings) or asset-selling won’t meet the basic needs for everyone over 60 who is unable to work, or unable to work a 30+ hour week. And although health care systems vary enormously, a change in the retirement age is likely to have some effect on the way health costs are distributed everywhere.

I’m not saying we should reject the idea of raising the retirement age, but it’s not obvious that this will be less costly, nor that it will have no impact on the dignity of people in their 60s and 70s. There is a significant difference between claiming retirement benefits and claiming unemployment benefits, and given the ageist attitudes of many employers, i’m somewhat pessimistic that everyone who is able or willing to take a job in their 60s or 70s will be able to do so – or that they will be working in a job commensurate with their skills and experience.

“(I’m trying to avoid concluding that JQ is actually a freshwater economist after all, or a useful idiot for same. Because it seems both unlikely and unhelpful.)”

The frustrating thing is that he’s not. That’s one of the things that pisses me off – he’s somebody who should be opposing Chicagoites, not carrying their water.

Barry’s fifth point only makes sense if you analyze it as the same rich people across all time which doesn’t make sense as the main points in question are income tax and Social Security tax. In reality the fix was designed to make sure that the Baby Boomer generation middle class and up paid lowest income taxes in their peak earning years by screwing over the younger working middle class and up later. This was a class issue, but the question is which generational class you are in.

When the libertarians start applauding your economics, it’s time to look again at your economics.

“No preindustrial society had a substantial population of 70-year-olds at all.”

This is a common mistake, based on the idea that the life expectancy at birth quoted for any particular historical epoch and society, is the same as the age at which most people end their lives, the expected age of death. These two measurements are actually completely different. The numbers come out very close for our times, so it’s natural for people today to conflate the two. But for most of history, and still for some societies, the two numbers diverge widely.

Average (or “mean”, more technically) life expectancy at birth, generally shortened to just “life expectancy”, is the mean of the ages of death that anyone born in that society at that time could expect. If, as is true for most societies through most of history, the first six years of life are the years of greatest likelihood of death, life expectancy will be in the 30s or 40s, even though the 30s and 40s are not, at all, years of much likelihood of dying.

Before antibiotics and immunizations, the best guess is that mortality was about 50% by age six. It isn’t entirely clear that the eras on which this is based, because they are best attested, don’t overstate the extent of child mortality. It may be that the problem was much less in true pre-industrial societies (nothing today really escapes contamination by industrial society) because there was less crowding, but clearly childhood infectious diseases exact a heavy toll under all pre-immunization/antibiotic conditions.

In actual fact, for most of history, if you made it to age 6, you wouldn’t again see high death-rate years until your 60s and 70s, just as today, when cancer and the metabolic disorders start to kick in as the leading causes of death. To put this technically, life expectancy for a 10yo was not much different than for a 10yo today, despite the huge difference in life expectancy at birth.

Sometimes the mistaken idea that the 30s and 40s used to be high death-rate years is attributed to the prominence of infectious diseases in the pre-antibiotic/immunization era. Granted, infectious disease played a larger role as cause of death in the pre-antibiotic era, but the effect was still concentrated at the extremes of age, young and old, and, relatively, tended to spare everyone else. A 45yo was in greater danger from infectious diseases before immunizations and antibiotics, but was still less likely than a 75yo to die of, say, pneumonia (called “the friend of the aged” in the old days, because it was a relatively benign way to go once you reached the age of high risk from worse horrors like cancer). The death curve was somehwat flatter on the old side before antibiotics and immunizations because infectious diseases did tend to strike more evenly across different ages than cancer or the metabolics. But the curve still had a very clear late peak to go along with the more prominent childhood peak. The death curve is still bimodal, only now the higher peak has shifted to old age rather than infancy/early childhood.

In our present state of low childhood mortality (relatively, the first year of life is still more threatened than any until old age), the average life expectancy at birth happens to track the ages at which people do most of their dying fairly closely. But that’s entirely because the old age years now have little “competition” to skew things away from their dominance of mortality. The avg life expectancy at birth today, somewhere in the late 70s, corresponds to when we see people dying in great numbers pretty well, thus the two concepts are often confused.

At any rate, the idea that some 40yo would ever commonly be among the older members of any society, is not very realistic. If you survived childhood in any era, you would have roughly the same expected age of death, around 75yo, not 45yo, as people in industrialized society today. Middle age and old age have always been delimited by about the same chronological ages as today.

‘You know, it does mean that. The right-wing policies are not to help people, they’re to hurt people.’

speaking for myself, I’d like to help people rather than harm them. But regardless, you should judge these sort of policy questions on the likely outcomes rather than the alleged intentions of those supporting the policy.

I want to make a point that has only been alluded to above. In my opinion the biggest negative of our current employment system is that it is largely binary, either you work full time (or often full time plus overtime), or you don’t work at all. So few of the part-time positions pay enough for someone whose expenses could be met on say half of a fulltime salary. I.e. with only rare exceptions, if you don’t work fulltime, you are not considered to be a serious person careerwise. So what we do lifecyclewise, is train people nearly full time for an extended period. Then we work them flatout, until retirement (forced or otherwise), then we let them linger on. This dichotomy, I contend, is the progenitor of much of our difficulties. I can recall entering the forkforce having aspirations beyond my career (in my case serious hobbies/possible future career), but my only choice was to pursue a full time career, or starve and pursue my other interests. And obviously as people age, a sysytem that allows gradually decreasing workhours and responsibility rather than an either/or choice becomes important.

In the future there is a good chance that we won’t have enough work to can around, at least if the distribution of work follows the existing paradigm. We know we have to evolve into something resembling a steady-state economy -at least with regards to our consumption of resources and ecosystem services. And that likely means the number of fulltime jobs won’t be largeenough for our population. We are going to have to come up with a better solution to the problem of distributing X amount of work to Y potential employees better than we currently do.

A lot of our problems involving defined benefit retirement systems are due (I claim) to an inevitable decline in the rate of return on longterm investment. As the economy approaches steady state, as opposed to the rapid exponential growth phase that all these systems were financially engineered around, these systems are going to breakdown bigtime. The problem boils down to the promise fixed sized slices of pie, from an unknown sized future pie. If the sum of the promised pieces islarger than the pie you actually get, then something has to give.

Nick: “speaking for myself, I’d like to help people rather than harm them. But regardless, you should judge these sort of policy questions on the likely outcomes rather than the alleged intentions of those supporting the policy.”

Intentions matter, if you expect that the other side will keep their bargain. Or not.

Ah, assumptions, assumptions…

Let’s begin by assuming an economy of a fixed size at any given time. Size and efficiency may increase over time, but on Tuesday, the economy will produce a certain amount of stuff with a certain number of workers. So the decision to require later retirement before benefits can be collected is, necessarily, a decision to have a higher jobless rate. The unemployed may receive benefits, or may not, depending on their status within the system. Some, in any case, will not and those who do will very likely receive less in the way of benefits than would a retiree. On the assumption that the economy will be of a given size, raising the age at which we are eligible for retirement benefits means lowering benefit costs. It also will mean, in many cases, that older workers will be supporting youngsters in their family who might have work if the retirement age were lower.

All of which is to say that, assuming a given size of the economy, all we are deciding when we set a retirement age is who will work to support whom, and what pipes the money will flow through. Raising the retirement age expresses a preference for having the public sector less active, families more active, in supporting those who are not working.

Now, assume that the economy will be of a given size, but that the labor force can change size. All that means is that wages will adjust downward (relative to where they would have been) in response to a higher retirement age, as the workforce is kept larger. I don’t know that the wage bill will remain the same size. That seems unlikely, and would be what economists like to call “a trivial result” if it did happen. We don’t know how much lower, but we know lower.

Find me a mechanism by which having a larger workforce produces such a large productivity gain that it can overcome capital’s tendency to appropriate gains and generate real wage gains, and you will have shown a third alternative, in which everyone can have more goods and services – though not more leisure, as a result of working longer. Otherwise, we are still looking at deciding who should support whom, and how high or low we want wages to be, when we decide on a retirement age.

So when do you want your leisure? How do you want to divide up national income? Those are the questions that lie behind discussions of eligibility for retirement benefits, not some magic equation that makes us better off by making us work when we don’t want to or some national “place in the world” business about maintaining power through working as hard as the Vietnamese.

Kharris: I think your initial assumption prevents your rumination from having any relevance here : http://super-economy.blogspot.com/2010/05/simple-pictures-agains-bad-ideas.html

essentially, employment scales up remarkably well to labour availability. The idea of holding the size of an economy stable while increasing the availabilty of labour is bordering on ludicrous.

Glen beat me to the life expectancy fallacy. But speaking of grandparents raising children, I remember an anthropology article from only a couple of years ago showing that grandparents rearing the children allowed the parents to roam farther for food, and may have been a turning point in the development of civilization. I can’t find the article though.

And forget roofers. I’m looking forward to all the big rig truckers being 70-something.

Nick,

Ah, those who read very, very slowly sometimes fail to read to the end, then cry “ludicrous” to make themselves feel all smart even though they failed to do the reading. My initial rumination was not my only rumination. We made the labor market bigger in the next paragraph, and wages fell. All better now?

The point is that we are merely shuffling welfare among various participants, or potential participants, in the labor force, by changing the rules on them. We need to keep that in mind when deciding what rules we want. If you want to make the argument that somehow the economy produces more stuff by requiring more people to work, that’s fine, but it needs to be enough stuff to compensate them for lost leisure. If you don’t, then you aren’t really addressing the point of that next paragraph you apparently didn’t read.

Let me give you a simple answer to the work question: 75 percent of all “work” is neither necessary nor socially useful. I say this from personal experience with “work.”

If every single person that teaches economics, works as an economist or writes about the economy were fired tomorrow the world would get along just fine, probably better without the meddling of fools like Alan Greenspan. He finally admitted that everything that he was so confident about was not only wrong but terribly wrong. Not only was the old fool useless with his meddling, he had never actually “worked” in his life. Never talked to a waitress working two jobs to pay the babysitter and feed and house her kids.

His entire life was based on upper class privilege. A feeling of I’m running with the big dogs does not make you aware that unemployment is one step from starvation now that all of insane “policies” of believing that the rich have honor and will not embezzle, steal, lie, cheat, or rob have pretty well destroyed 20 percent of the american workers’ lives.

Raising the age of retirement is truly incredibly short sighted and stupid: screw every young person out of work that pays well. “Oh, kid, you got to work the fast food driveup because the engineering training you have is in a field full of old people. You’ll have opportunity in about 15 years.”

A truly effective alternative is to pay people to retire earlier. Keep dropping the retirement age until a society has full employment. Keep raising the retiree’s income so they don’t moonlight.

You got a shortage of youngsters to pay the taxes, go to Egypt, India, Brazil, Mexico, Vietnam, North Korea, South Africa, Tanzania, they have plenty of spares.

If you want to make the argument that somehow the economy produces more stuff by requiring more people to work

Yes, there may be an outlandish and obscure process by which more people working will get more work done. Somehow.

The fact that you regard this as dubious says little about economics, but a lot about you.

the benefits of tax cuts for the rich are to build up the nation’s productive capacity when they invest that money

Is it at all relevant to this concept that we have a ton of unused productive capacity and a lot of investment has recently gone into speculative asset bubbles? (I rather suspect the answer is “it would be if Reagan had been arguing in good faith, but in fact, no.”)

I mean, if there were some way of identifying a shortage of capital investment, and we actually had one, then it might make some sense to concentrate wealth to generate investment (although it still seems rather dubious compared to a SWF or an ownership society in which the masses actually own equity and aren’t just mortgaged to the eyeballs), but that’s not even a problem we have or have had in living memory AFAIK.

Also, on behalf of all the other Americans on this thread, I would like to apologize to JQ for the threadjack. Lots of industrialized economies face similar problems but not everything is about American domestic politics.

Martin Bento
F That! I and my wife raised our kids with very little help from our parents and we are not about to take on that responsibility now. Just my 2 cents. Our kids and those of our friends are delaying children to the point where the grandparents are in their old old age. Hell I am 75 this year and have only one grandchild and the wife is 63 and has only one. If this trend continues there won’t be any grand parents left to take care of the grand kids. The up side of this, in our life, is we have time to ski, ride our horses, hike, snowshoe and sail our boats (not yachts).
Anyway, I remember back in the day when TRW was cleaning out the top layers of the engineering and science jobs down at One Space Park, my boss saying that the reason was you could hire two fresh out PhD’s and lay off one senior engineer or scientist and save a bunch of money. Where I come from tech jobs are a young man’s game. Once you have passed 50 you are considered obsolete. I thanked my lucky stars that I transferred from a secondary source of government money to a primary one – NASA.

So Sebastian: would you prefer to fix this intergenerational injustice by (1) cutting Social Security for boomers, or (2) revoking the tax preferences for IRAs and other private wealth held by boomers?

Please think about efficiency wages. It’s an obvious but unstated corollary of the Stiglitz efficiency wages model that under asymmetric information about diligence, not only will market wages be higher than in the perfect-competition equilibrium, and some workers be stably unemployed, but those employed will work longer hours: golden handcuffs. But what happens about retirement? One consequence of slave-driving the employed is that some older workers can’t take the pace, and will be forced out earlier than they would have gone under perfect competition. This pattern is reinforced by institutional rigidities like final salary pension schemes, a tontine for the benefit of those lucky in the promotion stakes. But a Stiglitz-model employer should still face an incentive to hang on to reliable, known-quantity older workers, rather than hiring possibly more energetic, but possibly idle and/or disruptive, young ones. That would create a pressure for a later retirement and flexible working hours we don’t observe much outside say Norway.

It probably can’t be fixed

I see. Or ameliorated?

Chris, what Glen said. Besides which, people used to have children at younger ages. Two generations that have their first child at 15 gives you grandparents at 30. Two at age 20, and the average pre-WW2 was probably less than that, gives you grandparents at age 40. Who are the same 40 as someone now, as Glen showed, not some mythical old age 40.

As for the notion that people in their 60s and 70s are too decrepit to help with children, some are, some aren’t. I had occasion once to go interview all the people in a senior housing complex. They were so bored and lonely, the hardest thing was to politely get them to stop talking to me. Most seemed in reasonably good health – ambulatory, not in obvious pain, and coherent. Obviously, there are people in nursing homes much worse off than this. But I’m not talking about forcing anyone into this. I’m talking about creating institutions and attitudes that reward it, so it is a more natural thing for people to fall into if they want.

The simple answer wins but it is simply wicked to award no credit and get so personal with John for entertaining a thought. It is a wicked, wicked place where your character can be asassinated for merely entertaining a thought (even one that seems a clear loser).

Pedant point on lifetimes: if you really want to talk about earlier societies you really have to factor in things that are far less common today. For example, there was high mortality in the 20s, 30s, and 40s – for women in childbirth. And prior to the advent of modern medicine, plagues and diseases could kill people at any age. Go to any cemetery and look for the graves of families – father, mother, children – all dead in the same year or two. Then add in war, violence from societal collapse, and famine – not uncommon events in human history.

The oldest people lived as long as the oldest people today, but you had to be lucky; we really sometimes discount things like how much of an effect mass vaccinations have had on our health. And I haven’t even gotten to parasites, contaminated water, or spoiled food…

Earnest O’Nest 06.03.10 at 7:31 am

“The simple answer wins but it is simply wicked to award no credit and get so personal with John for entertaining a thought. It is a wicked, wicked place where your character can be asassinated for merely entertaining a thought (even one that seems a clear loser).”

When one’s though is extremely and multi-layeredly stupid, it is a good thing to dump on him. And it isn’t an innocent thought; it’s another propaganda attempt at ripping off 90-odd % of society to aid the elites even more.

I don’t see political conditions in the U.S. allowing for shorter work hours or much other improvement in working conditions. But political conditions do allow us to protect what benefits older folks currently have, such as the retirement age. So if we here were to accept a higher retirement age, we would be doing so without any hope of compensating factors, thereby screwing ourselves, the young who need jobs, and especially those of us with hard jobs. So advocates for raising the retirement age are essentially declaring themselves members of the anti-worker camp.

Barry, it is a many bad thing because are you the judge of what is multi-layered stupidity? I sure hope not because I would hate that somebody capable of so much profanity would be my judge.

Seth, if you could rewrite that in English, I’ll try to answer it.

“I know you’re not actually seriously comparing the baby boomers, most of whom are still in the workforce, with Native Americans of a bygone age. ”

You’re using a lot of work with that ‘most’ and a huge percentage of that ‘most’ is due to later than expected retirements due to the financial crash.

You’re also ignoring the fact that of those baby boomers still in the workforce, they on average are not now, and are not likely to, be earning their peak amounts as they in general have been moving toward retirement for almost a decade, so your corrections aren’t going to change much. And the estate tax isn’t going to do it either–you seem to be counting only the hyper-rich, but the critique hits pretty much any boomer who made in the top income tax brackets during their 40s-50s, most of whom are VERY unlikely to have a considerable-enough estate to be a big deal in the analysis even if we were taxing all of it away, which is never happening anyway. So in short, your analysis probably works really well for about 1,000-5,000 CEO or real VP level boomers over the past 20 years. Which is to say almost none of them. (Heck it might even be 10,000. Which is still almost none).

ajay, OK, I don’t have any hard statistics on this, so I will stipulate to the point. But as Chris suggests, this argument was actually counter to my main point, which I realized when I made it, but I wanted to show that Chris’ assertion that grandparents could not have been widely available for child-rearing was false.

Chris, first of all, you misunderstood my point. I’m not suggesting the use of elders for childcare be achieved within the extended family *now*. That is how it was done in the past; therefore, this constitutes something that has been viable. I assume that is being done within the family to pretty much the extent it is viable already, which is less than the past, partly because, as you say, people move around more. I’m suggesting encouraging the same relationship now, outside the family, given that the extended family is no longer the institution it was.

Of course, middle-aged people are having trouble providing adequate childcare now. That was explicitly one of my reasons for wanting to involve the elderly more. After all, someone has to do it. If you rule out the middle-aged and the elderly, who is left? Sure, I would like people to have more leisure, but they don’t, and it’s not a easy thing politically or economically to achieve. In the meantime, the kids are there and have needs.

I’m talking about incentives. If you don’t want to be caring for the “little brats” when you’re 70, fine. You’ll be relieved to know I won’t be sending the gestapo out to force you. And incentives don’t mean pulling people out of nursing homes or compelling the unwilling or unsuited. The question isn’t “are there old people for whom this would not be a good idea?” – of course, that’s true, but what kind of job is suitable for everyone anyway? The question is “Are there old people who would be suited for this: who are in good health, who like children, who are bored and lonely?” Or course, there are. Since I’m proposing an activity for some people, not for everyone, it is the second group that matters. But the organizational structure to make this easy isn’t there, and there are some disincentive. For example, some forms of retirement income penalize continued employment, and paid childcare is, logically enough, counted as such. If it were not so counted, there would be an incentive to move in this direction. That’s not the same as pointing guns at people’s heads and forcing them to take care of babies.

Chris, one more thing: Healthy life expectancy is extending as well as life expectancy per se. Currently, according to the WHO (as referenced here), a European 60 yr old has about 13 – 16 years of full health ahead.

“First of all, Sebastian do the math: the oldest baby boomers hit 65 only this year, so, no, most of this “most” has nothing to do with early retirement.”

But it has everything to do with the tax game being played as the higher income taxes have not (so far as I can tell) been implemented even yet. They aren’t going to be implemented in the middle of the recession. They won’t be implemented until the boomers are safely in retirement with much lower incomes. You are all talking about this as if the high income tax part of the ‘deal’ has already happened. It clearly has not. As for the capital gains analysis, it is a small portion of the federal income tax compared to other forms of income so side-stepping the discussion about income tax as if capital gains were the decisive part isn’t accurate.

I don’t particularly care from a personal point of view, I’m not likely to be paying the top bracket anyway. But it is annoying to have this analyzed as a pure class issue. It is particularly tied to rich baby boomers and tailored to maximize their benefit throughout the entire term of the ‘deal’.

Sebastian, payroll taxes. The payroll tax increases were implemented before the very first of the tax cuts, in 77, and then increased again in the early 80’s. That’s the tax raise part of the exchange. And that is where the social security surplus that has been raided originated. These payroll taxes were specifically to pay for boomer retirement, and, yes, they mostly hit boomers. Trying to limit the issue to income taxes is trying to bias the matter. And I would like to seesome documentation of the claim that taxes on unearned income and inheritance in the early 80’s were, or even now are, a trivial part of the total tax liability of rich and upper middle taxpayers. This is sure contrary to what they have been loudly braying.

First of all, the Greenspan commission concluded that the payroll taxes were adequate to fund the boomer retirement based on more conservative assumptions than what has actually happened. What basis do you have for saying that they necessitate further income tax increases? And don’t say “the deficit”; social security is still greatly in surplus. To talk about the deficit, we have to look at the spending and taxation decisions that have been made, including several wars of choice. What the political establishment seems to be trying to do – under Bush, and, through the deficit commission, probably under Obama – is to cut and/or privatize social security. Changes to social security now, of course, will screw the boomers out of what they have been paying elevated payroll taxes for all these years. Whether it will be “necessary” to raise income taxes in the future relies on the number of disputable postulates, nor is it necessary, if so, that the taxes raised be income – they could be capital gain or other unearned income taxes. In fact, unearned income taxes at the high end are what primarily were in the health care bill.

Barry, I could but I won’t because I know you understood and are just being a whimp about it ;-)

chris 76: “Heck, if there really weren’t a difference in the relative size of the elderly population we probably wouldn’t even be having this discussion.”

Just a clarification, the relative size of the elderly population in developed countries has increased fro two reasons: increased longevity, and lower birth rates. It is a common mistake to focus on the first factor. The second is more important. And no, it is not a problem per se. No reason to be concerned about “demographic collapse” and all tat propaganda crap. It’s just the predictable result of controlling population growth. The share of the elderly increases and the population share of children decreases, until a new balance is established. The economically active share of the population doesn’t change that much. Only, more resources have to go into supporting retired people as opposed to children.

“Accepted. Raise taxes on the rich.”

Well of course we will. I’m all about accepting the reality of how much money we need. But in raising it now, it will hit the non-boomer rich much harder and for much longer. Which was of course the whole point. The boomers got their lower taxes, all the spending they wanted, and a retirement package paid for by the government which will not be equaled by the later generations who will also be paying more for it all along the way.

We will do it out of necessity. But don’t talk to me about the ‘justice’ of it all. Boomers engineered the whole game so that they got the best deal at every part.

marc @71
chris @76

“…unless someone is going to post actuarial tables from different centuries it’s hard to pin down how big the difference is.”

That really is the nub of it, that such actuarial tables don’t exist for very far back, not at all for pre-industrial society. Edmund Halley (http://www.york.ac.uk/depts/maths/histstat/halley.pdf) is generally recognized as having prepared the first protoptyical life table, in 1693. But it was another almost century before the figures in such tables were considered reliable enough for insurance to be sold based on actuary, as opposed to the rule of thumb the nascent industry had relied on prior to that.

I’m not sure that I have fully understood Halley’s scheme, because I can’t fully square it from internal inconsistencies. And there are clearly questions about the generalizability of his findings, because he had to go pretty far afield (to Breslau, the capital of Silesia) for his study subject, as London and Dublin did not report ages of death very exactly or fully (If you want precision, you need to go to the Germans!), and because he suspected, based on many more deaths than births, that London and Dublin would be badly skewed by immigration, whereas Breslau, at least to his imagination, was more stable in that respect of population mobility. It is quite possible that Sir Edmund didn’t understand Breslau well enough not to have missed local effects and events that would make its figures not generalizable. But insofar as we do accept his work as generalizable for the period, he reports the conventional wisdom that I recited earlier. Breslau had a 50% mortality by age 7, with the biggest chunk of that in the first year of life. After that, it is certainly true that the middle years were more mortal for the people of Breslau in the waning days of the 17th Century than they are today. Only half of the people who made it to age 7 went on to make it to age 61 alive, where today that would be closer to 90%. At age 61, the mortality again picks up, and was 4-5 times greater than it was in those middle years. This still leaves a respectable number of people well into their 80s.

If that idea of 50% mortality by age 7 stands as generalizable to all early societies, then the huge decrease in that child mortality is indeed the overwhelming difference between then and now, between most of history and present conditions. But there is some question about that generalizability. Specifically, a city size of 34,000 (Halley’s estimate for Breslau) is both probably historically atypical, a population concentration reflecting the beginning of the Industrial Revolution, and probably way too big for a city to get to without adequate sewerage and not pay a horrible price in terms of diarrheal disease, which causes a mortality that falls very disproportionally on the very young. We really don’t know if childhood mortality figures from the early Industrial Revolution weren’t highly atypical because we have no life tables from earlier centuries.

Whatever the truth status of that generalizability of the Breslau of 1690, there is little point trying to find rationales for why a life expectancy for a given era reported to be in the 40s might actually mean that the 40s were about as old as many people at all would get at that time. Such reported estimates were all generated by assuming that pre-antibiotic/vaccination societies had Breslau’s 50% by age 7 morality rate. Make a different assumption about child mortality, and you radically change the life expectancy. Yes, it would not be as high for Breslau in 1690 even if we changed Breslau’s figures to get rid of that high child mortality, because, yes, even the middle years in 1690 were more mortal than they are today, but avg life expectancy would still be in the 6os, with many people surviving into their 80s.

Sebastian, boomers didn’t engineer anything in the early 80s. Once again, do the math: the oldest boomer on Earth did not turn 40 until 1985. Greenspan was no boomer; nor Reagan; nor any significant number of Congressmen in this period. The system we are talking about was not arranged by boomers for their own benefit, not least because it was not arranged by boomers at all.

Boomers came to political power in the 90s, and what did they do? Raise taxes, right in their peak earnings years, and bring the budget into surplus for a few years. Budget surpluses have actually been rare in US history.

Let’s remember what the point of distinguishing income from other kinds of taxes was: you said that the tax cuts of the 80s went disproportionately to boomers because they were in their peak earnings years. I pointed out that the government also raised payroll taxes, which do indeed vary directly with wages and therefore generally with age, though they cap out at around the level of upper-middle class. The compensating tax cuts were only partially income and therefore only partially varying with wages, and therefore earnings potential and age. You responded that the non-income portion was trivial and could be disregarded. I doubted this was so, and suggested that taxes on unearned income, particularly before the cuts we are talking about, were a significant portion of the tax revenues drawn from the upper-middle and upper classes. Now, you are trying to dismiss this by saying they are not sufficient to cure the deficit, which is an entirely other question. Also, you should recognize that if the payroll taxes were offset entirely and solely by earned income taxes, which is clearly not the case, boomers as a generation would only be breaking even, and redistribution would be by class within all generations. Since capital gains and other unearned income taxes were in fact cut significantly, this is not the case. Finally, if capital gain, inheritance, and other unearned income taxes are in fact trivial in the aggregate, will you stipulate for the record that all conservative moaning about these taxes is also trivial and to be dismissed as fundamentally dishonest? And, indeed, was also so back in the 80s, as you are implicitly arguing the cuts in those taxes then were trivial, and conversely, that complaints that they previously had been too high had to be false, as they had been trivial? (if the taxes were non-trivial, then my point that a non-trivial portion of the tax cuts went to these taxes stands, as it is clear that the taxes were cut quite substantially).

The mandate of the Greenspan commission was to fund social security, not to ensure general budget balance for the next few decades, which would clearly be beyond their capabilities. When I said their assumptions were conservative, I meant on general economic performance and resulting payroll tax income, where, of course, their assumptions should have been conservative. And it is not that “I want” social security to be a separate fund. It’s separation is an accounting convention in the same sense as the ownership of the money in my bank account by me rather than the bank that possesses it is an accounting convention. That money is not literally “floating there” in the vault; the bank has done something with most of it and has a bit of reserves. This does not mean that if the bank gets in trouble, they can repossess my account and say that I was “naive” to think that the legal fiction that assigned it to me would and should not give way before fiscal realities.

And if we’re going to play this silly cohort game anyway, I should point out that Medicare passed in 1965, when the oldest boomers were 20. This makes boomers the first generation that has paid into it their entire working lives, subsidizing for decades older generations that had not. Indeed, Strauss and Howe argue that the great intergenerational transfer of wealth was from the boomers to the greatest generation. Now that they are ready to start collecting, Medicare is being eyed for cutbacks. Of course, the Democrats have now partially wrapped Medicare in a broader health program, which complicates things. Nonetheless, it looks likely the deficit commission will come after Medicare with the axe.

06.07.10 at 2:13 pm

Another: “The reality is that in the United States we already have enormous numbers of makework jobs designed to keep the population’s nose to the grindstone”

chris: “I find this hard to believe. In the private sector anyone who didn’t eliminate those jobs would be crushed in competition by a leaner competitor, …”

Yes, in Econ One oh f*cking libertoonian One. In the real world, life is different.