Should Education Be Federalized?

Today Catherine Rampelle devotes her Washington Post column to complaining that we’re robbing the young to pay for the old:

This year, as in years past, the report exemplifies the country’s seemingly bottomless commitment to add debt on behalf of retirees. The researchers calculate that a single man who earned the average wage every year of his adult life before retiring in 2020 at age 65, for instance, paid roughly $470,000 in taxes into the Social Security and Medicare systems. But he can expect to receive benefits equal to $640,000 over the course of his retirement.

is the nub of it. And here’s her peroration:

This is a choice. So, too, are the consequences for other, younger constituents. Politicians can’t find “room” in the budget for investments in pre-K, or child care, or paid parental leave, or a more generous child tax credit. But they’re perfectly happy to leave the entitlement system on autopilot, with programs for seniors gobbling up an ever-growing share of our future spending obligations.

American society long ago committed to ensuring minimum living standards for the elderly — whatever the cost. What, I wonder, would it take to secure the same sort of commitment to the young?

I have all sorts of problems with her analysis. She’s looking at the wrong numbers; she’s not taking the right things into account; she’s combining things that should not be combined.

Using the Urban Institute’s own figures, when you compare FICA (Social Security) paid over a working lifetime by someone earning the average income, based on conventional actuarial assumptions about their life expectancy they can expect to collect about 8% more in benefits from Social Security Retirement Income than they paid in FICA. That’s at 0% interest.

If they put 15% of their income annually into an account paying just 1% interest (without fees), by the laws of compound interest at the end of the period they’d have an account worth more than the expected benefits. The problem, obviously, is not that their retirement benefits are too high or they’re not paying enough for them. It’s that the money is being used as though it were part of the general fund.

Furthermore, average is not the right measure to use. Median is. Right now the average individual income is $61,000 but the median individual income is $54,000. Based on that, my conclusion is that there are far too many people earning minimum wage. That’s what happens when you reckon economic welfare based on the unemployment rate: you optimize your economy for minimum wage jobs. But that’s not well-suited to the “safety net” we’ve constructed.

The real problem (most of the difference between the 8% gap I mentioned above and the 36% gap identified by Ms. Rampell is Medicare. As Uwe Reinhardt put it more than 20 years ago, it’s the prices, stupid. We’re paying too much for healthcare and Congress has steadfastly refused to control healthcare spending. That refusal is the reason that, after enacting short term waivers of the increases they knew to be sustainable (the “doc fixes”), they finally three up their hands and stopped trying to control expenses at all.

There is no way to control healthcare expenses without controlling Medicare “reimbursement rates”.

My final point in this post is that last year the federal government paid about $750 billion on Medicare but government at all levels paid $870 billion on public education. Kids aren’t being ignored.

The simplest explanation of Ms. Rampell’s plaint about spending too much on the old while not spending enough on the young is that she wants education to be federalized. We should be doing the opposite. Healthcare for the elderly should be the responsibility of the states, not the federal government. I don’t believe the present Medicare system can be fixed.