Wednesday, April 06, 2011

Social Compacts

Social Security is a pay-as-you-go social compact. The compact says that I will pay taxes to pay retirement and medical expenses for current senior citizens and the next generation will pay for my benefits. There is nothing inherently wrong with this concept as long as the population demographics and costs are stable. If these factors change then you have a serious problem.

Think of it this way - when Social Security passed there were 11 people paying in to the system for every person drawing benefits. Now it is something like five people paying and demographics say that it will be two workers for every retired person in the foreseeable future. That changes the compact. The burden that I bear is less than I am asking the next generation to bear. Another factor - because of increases in longevity, many retirees will get far more out of the system than they put into it. That moves it from social compact to pyramid scheme.

Medicare has similar problems. Obamacare was supposed to address some of the problems by "bending the curve" down. Instead it bent it up.

So something needs to be done. So far the Republicans have made a proposal. Like it or not, they have at least admitted that there is a problem. The Democrats prefer to score political points by ignoring the problems and accusing Republicans of trying to undo a century of progress. This is irresponsible.

Social contracts are all well and good as long as they do not promise more than can be delivered. The President and the Democrats need to admit reality and offer their own solutions.

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