Justice Between Generations

Unless a number of trends are soon reversed, the Baby Boomers are headed for a disastrous retirement

Every generation requires a strategy for its old age. An odd and chilling folktale that has been recited throughout Europe since the thirteenth century shows how far-reaching the repercussions of such strategies can be. "The Tale of the Ungrateful Son" begins with a description of an old merchant who day by day grows more infirm. The old man's wife has long since passed away, and he is miserably lonely. Fearing that he will soon lose his powers of mind, the old man finally decides to ask his middle-aged son and daughter-in-law if he might move in with their family in the country.

At first the couple is overjoyed, for by way of compensation the merchant promises to bequeath his small fortune to them before he dies. But the old man in his dotage becomes increasingly troublesome to clean and feed. Eventually his daughter-in-law grows resentful of his constant needs and senile chatter. Indeed, she harangues her husband night and day, until he reluctantly agrees that the time has come to take the old man to the barn.

The ungrateful son is too embarrassed, however, to confront his father directly with his shameful decision. He gives that chore to his own youngest child.

"Take your grandfather to the barn and wrap him in the best horse blanket we have on the farm," he tells the boy. "That way the old man will be as comfortable as possible until he dies."

With tears in his eyes the child does as he is told, except that, having selected the farm's best horse blanket, he tears it in half. He uses one part to swaddle his beloved grandfather but sets the other part aside. The merchant's son is furious when he learns what his child has done. "What sort of boy are you who would put his own grandfather out in the barn to freeze with only half a horse blanket?" he shouts.

"But father," the child replies, "I am saving the other half for you."

THE amount of help that each generation requires from its children may vary, but the demand for assistance in old age never vanishes. Today Social Security and Medicare are all but universal programs, with the typical recipient collecting benefits costing at least three times as much as the taxes he or she contributed. This year nearly 28 percent of all federal spending is going to the 11 percent of the population that is sixty-five and older. The budgets for all of the federal government's various retirement programs, including Medicare, are four and a half times bigger than the budgets for means-tested welfare programs.

Despite the huge cost of old-age subsidies, one hears only a modicum of complaint from taxpayers. It is easy to understand why. Not only would people in the work force, regardless of class, prefer to be relieved of direct financial responsibility for their parents, but also they themselves expect someday to take advantage of Social Security, Medicare, special tax breaks, reduced bus fares, and the like. For these reasons the majority of voters are inclined to favor generous benefits to the old. But there may be a point at which the young say "enough" and rise up in revolt against their elders. Today's older generation need not worry; though the cost of their entitlements is extraordinarily high, it is bearable, because it's spread across an unusually large working-age population. The 75 million members of the Baby Boom generation—all those Americans born between 1946 and 1964 have good reason to fear desertion by their successors, however. Unless many fundamental trends are soon reversed, the Baby Boomers are headed for a disastrous retirement.

The long-term solvency of the Social Security system has come to depend on several broad contingencies, none of which seems very likely in the lifetime of the Baby Boom generation. Consider first how the system's pension, disability, Medicare, and other trust accounts are financed. Since the late 1950s the system as a whole has collected just about the same amount every year as it has paid out. Because levels of revenue and expenditures vary from month to month and are difficult to predict, each trust account maintains what might be called a contingency reserve. Today these reserves are generally sufficient to cover only a few months' worth of benefits.

It has been widely predicted that over the next few decades the pension fund will grow substantially. The convergence of two demographic trends helps to explain why. First, the youngest members of the Baby Boom generation are just now entering the work force and starting to pay taxes. Second, in the early 1990s the rate of increase in the system's annual pension costs will taper off, owing to the relatively small size of the Depression-born cohort that will then be reaching retirement age. Barring another recession, these trends, in combination with a series of modest payroll-tax increases scheduled to go into effect between now and 1990, mean that by the early l990s the pension-fund account is likely to begin to take in much more than it pays out. And it should continue to do so until the very large Baby Boom cohorts enter retirement.

Some observers have suggested that a large reserve within the pension fund will help the system meet the tremendous cost of the Baby Boom generation's retirement. Unfortunately, for the same period in which the pension fund is projected to be in surplus the Medicare trust fund is expected to incur a huge deficit. If past experience is any guide, it is quite likely that Congress will adopt the quick fix of inter-fund borrowing. Thus the reserves expected in the pension-fund account will probably be used to replenish the Medicare fund, with no means of repayment in sight.

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