Some People Are Making Fun of Alan Simpson

by Reihan Salam

Ryan Grim pointed out an interesting and important fact to former Senator Alan Simpson:

 

HuffPost suggested to Simpson during a telephone interview that his claim about life expectancy was misleading because his data include people who died in childhood of diseases that are now largely preventable. Incorporating such early deaths skews the average life expectancy number downward, making it appear as if people live dramatically longer today than they did half a century ago. According to the Social Security Administration’s actuaries, women who lived to 65 in 1940 had a life expectancy of 79.7 years and men were expected to live 77.7 years.

“If that is the case — and I don’t think it is — then that means they put in peanuts,” said Simpson.

And the former senator really should be embarrassed about this. It’s a major flub! But here’s the thing: what really matters in a pay-as-you-go system is the dependency ratio, i.e., the ratio of workers paying into the Social Security system to the number of Social Security beneficiaries. The number of over-65s is a lot higher today than it was at Social Security’s inception. This would have been challenging enough on its own, but a series of Carter-era measures increased the rate at which Social Security benefits grow. It is also worth noting that over-65s were the most impoverished age group when Social Security was established, and that distinction now belongs to under-18s.

I’d say that these facts are pretty darn important to understand why it makes sense to put Social Security on a more sustainable footing, whether by revamping it as a true safety net program, like Superannuation in Australia, embracing a middle-way approach like Jed Graham’s Old-Age Risk-Sharing that balances benefit adjustments designed to encourage a longer working life while raising taxes, keeping the program as it is and raising taxes considerably, or increasing the size of Social Security benefits and raising taxes even more, by paring back the tax subsidy for private retirement savings and by increasing Social Security payroll taxes.

The dependency ratio is the pressing issue, not increasing life expectancy per se. So while some of our friends poke fun at Alan Simpson, I’d suggest that the rest of us think through the implications of the changing dependency ratio.