The race and class dynamics of old age entitlement programs

The President and leaders in Congress have been bandying about different ideas for reforming Medicare and Social Security. As one might expect in a deficit reduction showdown, these ideas uniformly seek to reduce the costs of the programs for the federal government. Of course, any time a politician or commentator mentions reducing the costs of entitlement programs, they actually mean something a little bit different. What is really going on in these plans to cut costs is not a reduction in spending, but a shift in who carries out the spending. Cutting Social Security benefits, for instance, does not magically make seniors need less food; it just shifts the cost of that food on to the seniors and off of the federal government.

In the last year alone, there have been numerous and creative approaches to making old people pay more. Paul Ryan’s budget plan — which replaces Medicare with a voucher program that is indexed to inflation instead of health care inflation — was designed in a way that ensures that the rising costs of health care will be increasingly shouldered by seniors instead of the federal government. An idea which changes the way the cost of living adjustment for Social Security is calculated would decrease monthly outlays to pensioners by 9% in the next 30 years relative to current law. Finally, a recent proposal to increase the Medicare eligibility age to 67 would require seniors to pay for two additional years of private health insurance before they become eligible for Medicare.

This last idea — which was apparently endorsed by Obama at times in the debt ceiling negotiations — runs into more than just the typical cost-shifting problems. In addition to requiring old people to pay more, it has a disproportionate impact on poor people and oppressed racial groups. This is something that does not typically get brought up in the debates surrounding increasing the age qualifications for entitlement programs. For instance, I have never heard it mentioned when the occasional plan surfaces to increase the retirement age for the Social Security program.

The reason raising the qualifying age for entitlement programs disproportionately hurts poor people and oppressed racial groups is that these constituencies have a shorter life expectancy than average. A study published in 2010 provides a snapshot of the life expectancy differentials of various socioeconomic and racial groups. Differential socioeconomic status — which includes considerations of education, income, job type, and other factors — neatly correlates with differential life expectancies. Those in the lowest socioeconomic group have a life expectancy of 75.4 years while those in the highest group have a life expectancy nearly 6 years higher at 81.2 years. As this chart indicates, significant differences are also found along racial lines, with Blacks enjoying a life expectancy significantly shorter than their otherwise similar white counterparts.

While raising the qualifying age for Medicare or Social Security does take away benefits from all of the racial and socioeconomic groups, it takes away a higher percentage of benefits from the groups that have shorter lives. Taking away 2 years of benefits — as raising the Medicare qualifying age to 67 would do — from someone who lives to 70 years of age strips them of 40 percent of all of the benefits they would have ever received from the program. Meanwhile, someone who lives to 75 years of age would only be foregoing 20 percent of their benefits in such a change. At the extreme end, some groups — namely Black males in the lowest socioeconomic group — would, on average, miss out on Medicare benefits altogether if the qualifying age was increased to 67 since the life expectancy of that group is 65.3 years.

Compounding the injustice even more is the fact that the payroll taxes which fund Social Security and Medicare are only paid up to a certain level of income. These regressive taxes are not paid on any income made above $106,800. So wealthier individuals are paying a smaller percentage of their income into the Social Security and Medicare programs despite the fact that they live longer, and therefore reap more of the benefits from them. Raising the qualifying age will only increase the already existing imbalance of burdens.

The proposal to increase the age for Medicare eligibility is thus truly heinous. If forcing seniors to pay more for their health care is not enough of a problem by itself to reject the proposal, the class and race dynamics ought to be. Reducing the deficits by giving poor people and oppressed racial groups an even worse deal in this society than they already have is totally unacceptable.

Unemployed still suffering with nowhere to turn

Despite the two-year anniversary of the official end of the latest recession, around 14 million people are still unemployed, and the unemployment rate is at a staggering 9.2 percent. With the last couple of months having been monopolized by the high-stakes debt-ceiling theatre, this particular problem has been completely neglected with the exception of a few dogged commentators.

I am worried that as the unemployment crisis lingers on, many will eventually become tired of the problem altogether. Despite the fact that they did not cause the financial crisis, efforts to implicate the unemployed for their plight have already begun seeping into conversations about the issue. Some individuals refuse to believe that the unemployed cannot find a job, and as time progresses that sentiment will no doubt become more widespread. I can already imagine what the rhetorical line will be: “if you haven’t found a job 3-4 years after the recession, you must be lazy.”

Graph of number of unemployed and job openings

As the above chart indicates, the chances of an unemployed person landing a job still remains dismally low. There are just far too many unemployed persons per job opening. Although it has declined significantly since its peak, the ratio of unemployed persons per open job currently stands at 4.7. Even if every unemployed person was doing absolutely everything they could to fill those jobs, around 79 percent of them would still be out of luck.

With the number of job openings still as low as it is, the unemployed have very few if any places to find employment. Although the total inaction on this problem might seem to indicate otherwise, this level of unemployment is not unavoidable. There are ways that the government could act to decrease unemployment significantly.

For instance, the government could undertake a fiscal stimulus project. Despite the ignorant commentary to the contrary, the first stimulus did help soften the blow of the recession even if it was not big enough to completely turn it around. Allocating hundreds of billions of dollars for infrastructure projects and other enterprises would serve the dual purpose of improving the country while employing those currently languishing without work.

In addition to fiscal stimulus, the government could start a public jobs program. A new Works Projects Administration would serve the same basic function as the fiscal stimulus, but with public jobs instead of private jobs. Like the fiscal stimulus, the number of unemployed people would decline, useful public projects would be completed, and the incomes paid out to those employed by the project would be spent, increasing aggregate demand.

The last idea that I will mention here is the possibility of a work-sharing policy. Although the best time to implement a work-sharing policy has passed, it still could be called upon to provide some relief to the ranks of the unemployed. Under a work-sharing policy, instead of a firm laying off, say, 10 percent of its workforce, it reduces the hours of each of its employees by 10 percent. This kind of policy has been successfully put into use in Germany during the recession. In the German approach to work-sharing, the hours are cut as mentioned above, and the burden of those lost hours are shared among the government, the employer, and the workers. The government replaces some of the income; the firm replaces some of it; and, the worker foregoes the rest.

Of course, implementing any of these policies would require that the government actually care about the high rate of unemployment which does not appear to be the case. The government certainly should be concerned about unemployment if not for moral reasons than for practical ones. High unemployment rates cause the government to spend significant amounts of money on welfare programs like unemployment insurance and food stamps. The amount it might spend employing those people would probably be more, but at least it would lead to the production of useful things, something welfare does not.

Instead of focusing on this however, both the President and the Congress have been almost exclusively trying to work out just how much the elderly, the poor, and the disabled will pay in order to reduce a budget deficit that they did not cause. With the government uninterested in their plight and very few job openings available, the unemployed truly have reached a point where they have nowhere to turn.

The market is a distortion

Commentators and politicians of more conservative persuasions often criticize certain behaviors that they label as “market distortions.” Regulations, government spending, and progressive taxation are all said to distort the market because they change the economic incentives of certain behaviors. For instance, imposing fines on firms that dump poison into rivers distorts the market because if fines are high enough and properly enforced, the incentive to cheaply dispose of poison that way is destroyed. A firm then might have to undertake extra costs to dispose of the poison differently which might have various other effects on profits, wages, and prices.

Typically conservatives aim this bit of criticism at government actions like spending and regulation, but other policies that they support distort in similar fashions. Subsidies, corporate tax breaks, and individual tax deductions all have the exact same distorting influences as programs conservatives so often deride. Deductions and loopholes alone accounted for over $1 trillion in tax expenditures in 2010. Of course, these kinds of programs are typically targeted towards corporations and middle to higher-income individuals which no doubt makes their distorting influence more bearable for the conservative crowd.

As Mike Konczal points out, this kind of distortion manages to fall under the radar of most Americans, even those who actively benefit from the programs. The majority of those who receive a mortgage interest tax deduction do not realize that the deduction is nothing more than a way that the government spends through the tax code. It is functionally identical to setting up a mortgage interest welfare program in which the government sends out checks to those paying off a house. Just as that program would, the mortgage interest tax deducation distorts the housing and lending markets as well as the alignment of consumer incentives.

These sorts of programs — which are hardly if ever mentioned in the market distortion screeds of the small government advocates — make up what Suzanne Mettler refers to as the Submerged State (pdf). But instead of attacking the Submerged State for its market-distorting influences, the conservative commentators almost exclusively use the rhetoric to go after things like the minimum wage and labor unions. Recall Michelle Bachmann’s notable 2005 comment that we could wipe out unemployment if we got rid of the minimum wage, the suggestion being that the minimum wage introduces a distortion that affects the types and number of jobs that are available.

Labor unions are attacked as market distortions because their collective bargaining strength permits workers to command greater compensation than they would otherwise receive bargaining alone. This is claimed to have “job-killing” effects because so long as other locales do not permit unions to operate effectively, owners of capital looking to make as much money as possible may move to those locales where they can squeeze more profit out of the workers. (see also: What warnings about job-destroying regulations really mean)

Two things about the discussion of market distortions always baffle me. The first is that the label is used by itself to be synonymous with “bad.” Those who rely on the concept to provide policy commentary take it as a given that just calling something a “market distortion” is enough to argue that it is a bad thing. Unless you have some sort of fetish for the market, that assumption is completely off. An argument needs to be provided to explain why a specific market distortion is bad that makes a point other than simply remarking that it is one. For instance, consider the market distortion that consists of the government ban on leaded gasoline. This policy has a huge impact on public health, in particular the development of children, precisely because it distorts the market. To claim then that market distortions are an evil in and of themselves is totally foolish.

The second problem with the rhetorical device is that it relies upon the assumption that there is such a thing as a market without distortions. The fact of the matter is that the market is itself a distortion. Distortionary government policies are necessary to generate markets in the first place — granted these policy distortions are so entrenched that people do not even think of them as such.

For instance, consider certain aspects of the legal system in the United States. In that system, there exists laws which forbid individuals from taking over a house or building that someone else has a government-issued titled over. In addition to the law, the state has imposed taxes in order to hire police to enforce these laws — with violence if necessary — through the arresting of those who do not comply. A prison system is also built up in order to impose severe punishments to skew the personal incentives away from performing such an action. All of these policies are distortions. They affect the economic incentives surrounding the non-consensual seizure of property that someone has a title to.

Without those distortions, a great many people — for instance the homeless and very poor — might very well decide to simply take from others. But with the laws, police, and prisons set up, an enormous disincentive is imposed for that kind of behavior, distorting the decisions that they then make. But this kind of property protection is a baseline necessity for the existence of any market to begin with. I am doubtful you would find any conservative commentator arguing that the government distortions that create the market itself are wrongful despite the fact that they use the term in such an all-encompassing, pejorative way.

As I have mentioned previously, this whole enterprise of trying to describe behavior by appealing to specific baselines — in this case the market — is wrongheaded. We should not be asking ourselves whether something is a market distortion or not, especially since the market itself is a distortion. Instead, we should be asking ourselves who is owed what and why? From the answer to that question, we can decide whether a distortion is good or bad by determining whether it ensures that individuals are given what they are due. Treating distortions as categorically good or bad is simply untenable in any given ideology — especially the laissez-faire one — and also has the unfortunate additional quality of making absolutely no sense.