Social Security and Medicare are the biggest financial problems facing my generation. If left unchecked, the two programs will put our country in a deeper finical hole than we are in now, or have ever been in. Despite the opportunity for a political rally to grow and for a firestorm to brew, no politician seems to want to talk about the issue, let alone say that they will be the one to solve it.
Why is that? The answer lies where it always does when explaining behavior: incentives, voter incentives to be precise. Imagine for a moment a world with no government benefits, welfare, etc. One day, an elected official within the government proposes a new benefit plan, (an intentionally outlandish one for the sake of this example) to pay all people with green hair $5 a day. In order to fund these transfer payments, the government must levy additional taxes that costs everyone $.01 a day. Such a plan would initially be met with steep resistance, except for the green-haired amongst us; after all, why should I pay the government to give money to someone else? But for the sake of example, in spite of all the protests, the plan passes. Now, fast-forward 50 years later. Although the plan is still in effect, some enterprising folks who are fed up with giving their money to green haired people want to overturn the plan. Unfortunately, in spite of their best efforts, they are unlikely to find success, due to the idea of concentrated benefits, disbursed costs.
That existence of CB-DC means that even though the total social costs of a plan might be large ($.01 per person, per day adds up in a nation of 315 million) the individual costs that it creates are small; no individual person is likely to take to the streets in protest over a penny a day. Because of that, it is difficult to get a dedicated opposition movement, since those hurt by the plan are not hurt very much, while those few who benefit from the plan do so immensely. Those who are receiving benefits much more acutely feel the effects of the program, and are thus far more likely to lobby, protest, etc. in order to ensure that their cheese doesn’t get moved. After all, $5 a day is a free Subway sandwich for life, I’m not going to give that up without a fight!
Seniors have traditionally had by far the largest voter turnout in the United States. As such, it would be political suicide to say anything that could even be misconstrued to be anti-senior benefits. Speaking from personal experience, the youngest voters (whom the programs most affect) are the least likely to vote. This could be due to apathy, poor time-management, sloth, low private marginal benefit placed on voting or simple inability to remember to get off the freakin’ sofa and vote. Contrast that with seniors, who have nothing but time and a strong desire to keep the benefits flowing, and you have a recipe to make sure that nothing gets done about Social Security and Medicare.
Is there a solution to this problem, then; given the current incentives of politicians and voters? It may be that the best we can do is to stop the provision of Medicare and Social Security after a fixed number of years, while still providing for those who are already receiving the benefits. In doing so, those who are already receiving or are about to receive the benefits would have no reason to protest the measure – nothing would happen to them. But, those who are hurt by the plan (younger generations) would have strong incentives to support the plan. Is this solution perfect? No, not at all – but at least there would be an end!