How Dangerous is the Baby Boom Bump?

A widely circulated Op-Ed piece in today's New York Times--"The Baby Boom Bump"--suggests that policy-makers are not paying sufficient attention to the fact that the baby boomers are moving into retirement ages. The authors, Kenneth Baer and Jeffrey Liebman, were both part of the Office of Management and Budget in President Obama's first term in office, so they presumably have insight into policy issues.

For decades we have known that the retirement of the baby boomers would be a monumental event for the economy. But now that it’s happening, many fiscal policy makers are acting as if the boomers are eternal teenagers and are turning a blind eye to how the boomers’ aging changes how we should approach economic policy. And this affects two of the central issues of the negotiations: how much the government should spend and how we can cut unemployment.

The main reason expenditures are rising this decade is that spending on Social Security, Medicare and Medicaid is increasing by a whopping 3.7 percent of G.D.P. as the baby boomers age and retire. This demographic fact also has been driving increases in disability insurance payments as more knees give way and backs give out.

In the end, the authors offer no plan of their own for how policy-makers should handle the aging of America, except to suggest that any plan--such as proposed especially by Republicans--that arbitrarily cuts government spending without consideration of demographic reality is likely to be bad policy. I couldn't agree more. 

It is not clear whether they are supportive of the recommendations of the Simpson-Bowles Commission with respect to Social Security, and which Alan Simpson has recently been touting on public tour. The Deficit Commission's report has a variety of suggestions, which seem to me to make sense:

To save Social Security for the long haul, all of us must do our part. The most fortunate will have to contribute the most, by taking lower benefits than scheduled and paying more in payroll taxes. Middle-income earners who are able to work will need to do so a little longer. At the same time, Social Security must do more to reduce poverty among the very poor and very old who need help the most.

Over the long haul, the health care costs associated with Medicare and Medicaid will be vastly more costly than Social Security, but fixing this will require a whole new way of looking at health care that few in the country seem to want to consider--an emphasis on health maintenance, rather than simply paying for treatment on a per incident basis. Since we've already been through "health reform," this debate is unfortunately not likely to occur again any time soon.