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NYT Asks: Are We Overpaying Grandpa?

From the Economix Blog at the New York Times, which describes its mission as: “Explaining The Science Of Everyday Life”:

Are We Overpaying Grandpa?

The elderly receive a large amount of government assistance – an amount that is not commensurate with their numbers.

The total annual income in the United States (national income, as economists call it) is about $12.5 trillion, or about $40,000 per person per year. The egalitarian view of government is that it taxes persons with annual incomes more than $40,000, and pays benefits to persons with less than $40,000, so that those with less than average incomes could enjoy living standards closer to the average.

For reasons that I began to explain last week, our government actually does the opposite. The vast bulk of government spending goes to the elderly, whose average living standards are significantly above $40,000 per year.

Social Security, Medicare and government employee retirement (federal, state and local) are government funds paid to people aged 62 and over (aged 65 and over, in the case of Medicare), and total about $1.5 trillion in the current fiscal year. Annual Medicare spending is $12,000 per person aged 65 and over, and growing. Annual Social Security and government employee retirement payments are $21,000 per person aged 62 and over.

Medicaid, hospital and other public health programs are open to persons of all ages, although those programs spend more per participant on the elderly than on the others. I estimate that, on average, these health programs are annually spending $7,000 per American aged 65 and over.

Combined, the public pension and public health programs are spending an average of $40,000 per elderly American per year. Thus, even if elderly Americans could rely on no other income source, on average they could have living standards of $40,000 per year. Moreover, many of the elderly have significant private incomes and wealth in their homes, which means that elderly average living standards actually far exceed $40,000 and thereby exceed the living standards of the average American.

How is it possible that so much government spending goes to persons with above average living standards? This is one of the great puzzles in economics and political science. Some (including commenters [sic] on last week’s blog entry) have argued that elderly Americans vote more frequently, and with more attention to Social Security and health policies. However, that does not explain why nondemocratic governments – where leaders were not chosen by free and competitive elections – also pay at least as much to their elderly citizens.

Another explanation is that the marketplace is far from egalitarian, and it is difficult for the government to be much different.

If a family thinks it is appropriate for grandfather to have a higher living standard than his grandchildren, then they probably would not support a government that attempted to reverse that pattern. The question for the future of Medicare is this: Are families ready to triple their spending on the health care of their highest-income members?

Casey B. Mulligan is an economics professor at the University of Chicago.

So once again the New York Times is beating the drum for cutting Social Security and Medicare/Medicaid benefits for the elderly. What timing.

And isn’t it funny how during election years the media and the rest of the Democrats always accuse the Republicans of wanting to do precisely this.

Even so, does the New York Times apply this same "egalitarian view of government" when they are talking about welfare benefits?

Don’t people in the so-called safety net also “receive a large amount of government assistance – an amount that is not commensurate with their numbers”?

Moreover, unlike retirees who receive benefits in their ‘golden years,’ too many on welfare have seldom if ever contributed anything of significance to the government fund.

And yet practically every day The Times publishes articles that advocate expanding the welfare rolls and getting more people on government assistance.

Why is that?

This article was posted by Steve on Wednesday, February 24th, 2010. Comments are currently closed.

15 Responses to “NYT Asks: Are We Overpaying Grandpa?”

  1. GetBackJack says:

    Why doesn’t Al Queda ever target the New York Times?

    Just asking.

    (maybe we can slip them the longitude and latitude coordinates)

  2. proreason says:

    Ummmm. How much taxes have the average 65 year old paid in his or her lifetime?

    Just asking.

    But then again, the tea party people are generally older aren’t they? But certainly that could’t be related could it?

    Fortunately, the solons at the Slimes don’t have to worry about piddling benefits of 40K or so annually. That’s chump change to them. So they can be totally objective about it. They measure their own well being by the amount of absolute power they and their buds have.

  3. NoNeoCommies says:

    It is ironic that in this article they make a good argument for cutting public employee pensions.
    Of course they will not allow anyone to just strip out that portion of their demands, just like we can’t just agree with the (paltry few) portions of their health care proposals that make sense.

    I do think that Medicare/Medicaid and Social Security should have means based cutoffs for benefits.
    For some reason, the “Tax The RIch!” gang don’t want to push for such limits.

  4. LewWaters says:

    Didn’t a certain despised president warn of this coming just a few years ago and the now whiners opposed any effort to head it off?

    Seems I vaguely recall some very strong statements against any effort at reform.

  5. freelancer says:

    This is such a lopsided article about the Social Security benefits that eligible seniors receive. Nobody in the system had a choice about their pay being docked for SS, nor did the employer who winds up with serious legal problems if they neglect to kick in their equal share. None of us had a say in the govt using our retirement funds to finance their spending and now those funds which would have, should have, been drawing interest all this while, are part of the huge national debt, owed to ourselves. Or maybe not, if such ‘borrowing’ was not counted as such but merely taken because it was there. I cannot believe that this author has a clue as to the amount of actual income individual seniors receive from SS. Unless a person has made other provisions for retirement, SS alone will not, in most cases, provide a more than subsistance living. I would like to see Social Security retirement placed in a seperate catagory from other SS benefits that have been grafted on to the system to provide for situations that have nothing to do with retirement. I doubt that the public in general has a clue as to how much of what they pay into SS goes to other benefit programs exclusive of retirement. Along with all this, consider the number of people who have paid SS for thirty or forty years and do not live to collect anything, or very little. President Bush tried to initiate legislation addressing the SS drastic situation but neither party was willing to make it their priority. One thing for sure, this government cannot get by with taking about 15% of a workers pay in the name of Social Security and then renig on the retirement payout. And if the program is scrapped entirely, just what will the govt do without that income to squander?

    • jobeth says:

      Very well said!

      I really get irritated when people try to tell us that we are getting an “entitlement”, when actually it is the government who considered the SS fund to be THEIR slush fund “entitlement.”

      If only we could have invested that money in the way we wanted our retirement would have taken care of itself. Even if we would have simply put it in a simple savings account I think we may have been better off.
      At any rate that’s our money. We earned it and turned it over to the Government in trust. So much for the word ‘trust’.

      Or if only the government had put the money in a REAL trust lock-box and left it alone. Think of the size that fund would be now from simple interest.

      It such a shame that Bush was unsuccessful. Hopefully we will put better people in office in the future who will get some protection for seniors who have paid in all their lives. But I can see getting cuts instead. I am already losing out on full year due to the push back to 66 before it starts. Lucky me I am in the first group that, that effects. But so be it. I can get over that.

      As a senior, I can see O’Balmy pitting the young against the old just like they pitted Black against White, rich against poor. I am already getting the feeling from the young progressives that they look at us as leaches.
      They are going to be encouraged to think like that.

      Sad state of affairs for this country who has always treated its old fairly well. At least in my family we always had respect for elders. They worked hard for what they got. These youngsters are pretty demanding of the perks people my age and older worked years to attain. They feel entitled to it instantly. And will look to the government to get it. I used to see it all the time when I was still working. Fresh from school and full of P*** and vinegar…they wanted everything that the rest of got only after years in the job. AND they didn’t think they should have to work hard.

      Not all of course but every year it seemed more and more that demonstrated that behavior.. Now I can watch as they see another give away aimed at them by O’Balmy wanting to put those 50 years old on Medicare. I pray this Health Care bill falls flat on it’s face….again…for the third time (Hillary care was the first)

      Anyway…great comment!

  6. Perdido says:

    It’s an intensely immoral system.
    Fact is you could have not paid into the system. Fact is you could have raised hell about how the money was being spent. Fact is there is no “account” with your name on it and the Supreme Court has ruled that the US Gov’t is not required to pay a nickle in benefits.

    So now come the Boomers and they’re damned sure they’re gonna get their check. Well, yeah. But its a Faustian Bargain. It’s been known widely since the Sixties that the system was a Ponzi Scheme and eventually untenable. So here you go, retire soon while you can and use the SS check. Count on it. But the US Govt is going to default. It has to. And how old will you be when that happens? The point you’d better be damned clear on is will you be able to go back to work when the SS check is $4000. a month and gasoline $300. a gallon.

    ‘Cause that’s exactly what is coming down the ‘pike.

    We Boomers could, however, take upon ourselves the mantle and refuse the SS retirement. We could demand that the US Govt no longer trick the younger generations into paying into this unethical system. We could be a great generation by saving the people coming up behind us.

    It’s the right thing to do.

    • proreason says:

      I don’t think Social Security is untenable at all.

      There are only two problems with fiscal viability:
      1) people continue to live longer and
      2) the ratio of workers to retirees continues to get smaller

      To fix it financially:
      1) the retirement date should be set to x% of then-current longevity. Example, if people live to 80, retiement should be 68. If they live to 82, it should be 70. That adjusts for increasing life spans. And after all, if people are living longer, they should work longer.
      2) the ratio of workers to retirees is a harder problem. But that might be improvable by giving tax credits for family size, which would make it easier to have larger families. If that isn’t enough, then the retirement age would have to be pushed back more.

      But the rules for people over 50 need to be fixed so they can plan properly. The changes should be for younger people, which is exactly what was done in past adjustments.

      Personally, I don’t think private accounts are a good idea. Inevitably, investment returns will vary, even for people who are the same age, and luck will have a lot to do with it since investment markets are unpredictable. The outcry when it turns out that some people have 4 times as much as others will be too much for the country to tolerate. The Democrats would demagogue it, and take the money from the lucky ones and give it to their favored groups.

      Medicare is the biggest problem, but Paul Ryan knows how to fix that. Just pay the benefit as insurance vouchers instead of guaranteeing payments. The market will then adjust the voucher premiums.

      But if people demand that Medicare give them an unlimited fountain of youth, there is no hope for it. That’s part of the problem with Medicare today, and unless Obamycare is passed to put a stop to medical innovation, it will become an increasing difficult dilemna.

    • Rusty Shackleford says:

      1) the retirement date should be set to x% of then-current longevity.

      Problem is, Pro, from the outset of this program, some people die before they get bennies, (most, in fact prior to about 1970) and some get bennies well past the expected “die” date. From the very beginning, like all govt programs, they tried to put fixed values on variables by using “averages”. Thus, on its foundation, it’s unfair to some and more-than-fair to others. Social engineering at it’s finest….and intended, primarily to be a money-maker for the government and many knew this would happen but were ignored or scolded or unelected next term. SS has a nasty little history. You know this. Many don’t.

      I’m not saying scrap it…or anything. It’s just an observation and yes, it’s here to stay and well, have to make the best of it, I s’pose.

    • proreason says:

      Rusty, “Problem is… from the outset of this program, some people die before they get bennies”.

      But that’s no different than other forms of insurance, all of which I hate, btw, but still buy. You can pay and pay, and get nothing back with any form of insurance.

      If you want your guts to wrench, estimate the cost of all the insurance you have bought in your life (health including costs your employer pays as your middle-man, home, car, life, and others), and estimate your claims collected. Then figure what you would have today if you had invested the difference. You could be hundreds of thousands (perhaps millions) in the hole. But people who aren’t wealthy still have to buy insurance.

  7. retire05 says:


    Let’s be real clear here: I don’t know where the Slimes gets their numbers from, but here are the acutal numbers from my better half’s last SS statement:

    Employee paid: $92,577
    Employer paid: $92,580

    total: $185,157.00

    Benefits at age 66: $2,120/month

    That means my better half will have to live to age 74 1/2 before he breaks even.

    So for all those years, the federal government used his money for free, and if he lives to age 74 1/2, he will get back only what was paid into the system WITHOUT any interest.

    But here is the clencher: over that same working career, he invested 5% of his paycheck into the company’s 401(k), and even with the down turn in the market of September and October, 2008, his 401(k) plan is now worth almost $400,000, over twice as much. So which system worked out best?

    Social Security was never intended to service the number of people it now does, but damn, us Americans just started living longer. You know, from all that rotten health care that the Democrats keep telling us we have. When SS was first initiated, the average life span for a white male was 58, a white female was 62, a black male, 47. Gives you a whole new view on why the benefit age was set at 65, doesn’t it? Because it was never intended to pay that many people, only those who were lucky enough to beat the odds and live past the average life span.

    Social Security could be fixed by allowing people to opt out. Or let those who are up to the age of 45 (with 20 working years left) to take a one time payment, or a buy out of the money that they have paid in along with what their employers have paid in. Relinquish benefits at retirement age.

    And anyone who thinks Medicare is such a great deal, of all the insurance providers in the U.S (major ones), Medicare has the largest number of benefit reductions being around 6 1/2 % of claims being denied.

    Here is another cost saver: when you turn 65, Medicare becomes your primary insurer. Why not allow those medical health plans that workers are given as part of their retirement packages to stay the primary? Most unions negotiate for retirement health care benefits, and many non-union companies give retirement health care as part of the retirement package. But by federal law, Medicare becomes the primary which allows the retirement health care system to only pick up the part of the bill not paid by Medicare, AND the health care companies are allowed to use the federal governments R & C (reasonable and customary) benefit amounts. Here is how that works:

    Your doctor charges $75.00 for an office visit. Medicare says R & C is $60.00 and they pay 80% or $48.00. That leaves a bill for $27.00. The secondary insurance covers the other 20% , but only 20% of the $60, not 20% of the $75. Now, if the doctor accepts M/M, they are not allowed to charge you for the differnce of $15, so ever visit you made, the doctor loses $15 or takes a loss of 20%. Would you work for a 20% reduction in salary? I don’t think so.

    That is why 52% of all doctors in the state of Texas refuse to accept Medicare patients. Because they have to service those patients at a loss.

    I am not a fan of Social Security. It makes people think that they will have enough money to live on when they retire, so they don’t plan for retirement on their own. And it makes people dependent on the federal government. I think it is unconstititional, and should have been abolished long ago. But once the government finds a cash cow, they will continue to milk it for all its worth.

    • proreason says:

      Not sure what your points are retire05. Your post doesn’t have your usual clarity.

      I’m not saying SS is a good deal. I’m saying it’s a done deal. It can’t be unwound, period, so we may as well make the best of it.

      I’m also saying that private accounts would be a disaster. Not because overall, people wouldn’t do better, but because there would be enormous disparities in the results, and that would cause a firestorm that you can’t imagine. In the end, people who do poorly would be covered by NEW taxes that the people who do well would have to pay. It’s 100% inevitable. And that’s just one of the unintended consequences.

      Side note. Look at cumulative investment returns for 30 years, with a difference of just one month in the starting time, using historical yields. The disparities can be hundreds of thousands of dollars for investments of a few hundred dollars a month. And that’s with a standard investment scheme. Factor in different strategies, and the differences are cosmic. Which is what happens with 401K’s. But funding 401K’s is voluntary. SS funding is mandatory. Investment return differences would cause WWIIII in this country.

      FDR was right about one thing. Once SS kicked in, there would be no going back.

      Medicare is different because people don’t care that much about it. Nonsense, you say? Well, the Dims are threatening to reduce funding by $500B. Where’s the outrage? If they threatened to cut SS by 15%, grannies would be forming militias and buying assault rifles.

      And btw, people don’t care that much about Health Insurance in general. How do I know that? Because millions of people have $200 cell phone plans but no health insurance. Despite the rhetoric, Health Insurance is about 10th on the average person’s priority list. Until they think they can force other people to buy it for them.

  8. Mithrandir says:

    Gee, the social piggy bank system doesn’t work? Who would have thought? Conservatives that’s who! Newt Gingrich proposed having everyone contribute to their own health savings and retirement plan without government meddling and taxation. Sounds good.

    So grandpa who retired from the steel mill and made $5/hr back in 1962, doesn’t really translate into 2010 retirement dollars very well? Wow! The government promise doesn’t work well?

    Hmm, maybe if all the taxes we pay today were lower, people could stay in their homes. Maybe if teacher X making $78,000/year for 180s of work was capped at a living wage, grandpa wouldn’t have high property taxes and rental taxes. Or the expensive government employees who seem to get more money and benefits every year despite being pitiful workers. Hmmm

  9. Edward2001 says:

    This is a bogus article designed to get everyone talking about Social Security. I say this because of the following sentence in the in the article:

    Social Security, Medicare and government employee retirement (federal, state and local) are government funds paid to people aged 62 and over (aged 65 and over, in the case of Medicare), and total about $1.5 trillion in the current fiscal year.

    They are lumping in all the government employee retirement (federal, state and local retirees into their numbers. They mention this in passing then the article immediately jumps to talk about the problem in general terms.

    This article would be relevant regarding SS if it was only about SS and not combination of SS and Govt employee pensions. It would be nice to know how much of the $1.5 trillion is for the Govt pensions and how many people are added to the total number of beneficiaries. I would expect that the averages they mention would go down if these numbers were excluded.

    But then they may not be able to make the point they want to make.

  10. Media_man says:

    Overpaying for Grandpa? Isn’t it really Grandma we’re paying for? What’s the ratio of female to male in a typical nursing home: 10 to 1?

    The NYT’s obsession with all things race, gender, and sex related is endless.

    If you looked at Medicare expenditures by sex, the female spend would be about double or maybe more what the male spend is. In the 80 plus group it would be 5 to 1.

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