If Children Are Being Crowded Out, It is Being Done by Rich People

There is a well-funded effort (think Fix the Debt and the Peter G. Peterson Foundation) to distract people from the upward redistribution to the rich through claims that the problem is really the elderly living high on Social Security and Medicare. Catherine Rampell contributed to this effort with a column warning the spending on the elderly threatens to crowd out spending on our children. Just about every claim in the column is either seriously misleading or outright wrong.

To begin with we get these two paragraphs:

"Spending on kids as a share of the budget is projected to decline dramatically in the coming decade -- to just 7.8 percent by 2024. If you exclude health spending, spending on children falls in raw, inflation-adjusted dollars, too, not just as a percentage of total spending.

"'Kids' share of federal spending isn't tumbling because children are suddenly becoming a smaller fraction of the population. Nor is this happening because we live in an "age of austerity"; the sizes of both the economy and tax revenue are at all-time highs, after accounting for inflation, and are expected to keep growing. Federal spending overall is likewise projected to swell in coming years."

Okay, why would we exclude spending on health care for kids, unless we are trying to deceive readers? After all, the piece doesn't exclude spending on health care when it discusses spending on the elderly. Also, we know that the main avenue for spending on kids is education. This is done primarily at the state and local level. Rampell acknowledges this point later in the piece, but then why the histrionics over the age composition of federal spending?

Also saying that we are not in an age of austerity is bizarre. Tax revenues as a share of GDP have fallen to levels not seen since the 1950s. Yes, the economy is growing and the budget is growing along with it, but what matters are the shares of the GDP going to tax revenue.

Then we are told:

"Entitlements that benefit older Americans increasingly dominate the U.S. budget, and not just because the population of older people is increasing. We're spending way more per elderly person, too. Per capita federal outlays on children rose by about $4,600 in the last half-century (from $270 in 1960 to $4,894 in 2011, after adjusting for inflation); during the same period, per capita outlays on the elderly rose by about $24,000 (from $4,000 to $27,975).

"The chasm between per capita funding received by seniors -- even after taking into account all the taxes they have paid -- and children looks likely to widen substantially, given the way Social Security, Medicare and child program benefits are structured."

The numbers for spending on seniors might sound dramatic, but it is important to remember that they paid for their Social Security benefits in full. In fact, according to the Urban Institute, which provided much of the basis for this column, the typical senior will have paid somewhat more in taxes to Social Security over their working lifetime than what they can expect to receive back in benefits. Complaining about what seniors get paid out without noting what they paid in would be like complaining about the interest payments that rich people get on their government bonds without noting that they paid for their bonds.

The basic story is quite simple. Social Security is a pension program that is run through the government. Under the law, it must pay for itself. Ms. Rampell might think that it is a good idea to take money from people and tell them it is for Social Security and then use it for other purposes, but this position would probably not garner much political support.

The government does spend more on Medicare beneficiaries than they pay in taxes but this is because we pay twice as much for our health care per person as people in other wealthy countries. This is due to the fact that we pay our doctors, drug companies, and other providers twice as much as their counterparts in other wealthy countries. (Our manufacturing workers get paid less.) If our health care costs were comparable to those in Germany, Canada, or the United Kingdom then Medicare taxes would easily cover the costs of benefits.

After this discussion of spending at the federal level, it then turns to the state and local level.

"Bear in mind also that the nation's oldest and youngest Americans are starting to look more different from one another in ways other than the obvious. Older Americans are predominantly white, and procreated almost exclusively in wedlock; a majority of infants today, on the other hand, are racial and ethnic minorities, and they are increasingly born to unwed mothers. In the generational tug of war over the public purse, it will not surprise me if both sides face mounting trouble empathizing with one another's economic needs. But one of those groups, politically active as it is, already has the ear of politicians -- and existing law on its side."

Actually, in ethnic terms the young and old are starting to look more alike. The major demographic change is of course the rapid growth of the Hispanic population. Currently non-Hispanic whites outnumber Hispanics by 11 to 1 among the over 60 population. They outnumber Hispanics by just 7 to 1 among the population between ages 50 to 60. This means over the next decade the over 60 population will be much less dominated by non-Hispanic whites than is currently the case. This means the on this dimension the old and the young will look increasingly similar in the decade ahead and beyond.

There is one final point that is worth mentioning in this context. If we are concerned about the well-being of the country's children we should be talking about the Federal Reserve Board. The drive of many policy types to get the Fed to raise interest rates would make the parents of millions of chidren unemployed. It would deny pay increases to the parents of tens of millions more children, leaving them less able to care for their kids. People who are concerned about the well-being of our kids should be very concerned about the course of Fed policy.