The most recent report from the Congressional Budget Office (CBO) used the following language it the summary section:
The resulting rise in the projected rates of………….is noteworthy.
“Noteworthy” is an interesting word for the CBO to use. Normally, the reports don’t use words like that, so the word is, by itself, noteworthy. If I was writing the report I would have stepped it up from the CBO language. I would have used:
Holy Smokes! Look at this will ya! The country is trying to fix one problem – but the consequences of the “fix” – will be far greater than the benefits! We’re shooting ourselves in the foot! What are these people doing??
The CBO report is a discussion of the Full Retirement Age (FRA). How could that be interesting, and why is it noteworthy? Some background.
In a few years, Social Security will (gradually) increase the FRA from 65 years, to 66. This change in eligibility has been on the books for some time, so no one should be surprised when it happens.
If you put your economics hat on for a moment, and ponder the broader implications of changing the FRA, you probably would conclude that increasing the FRA causes older people to stay in the workforce longer. That conclusion is pretty obvious, and by itself, is not noteworthy. What is worthy of note is how significant the implications of adjusting the FRA are. The CBO estimates:
INCREASED LABOR FORCE PARTICIPATION
FROM CHANGING FRA
Men aged 62-64 = +3%
Men aged 65-69 = +4%
Women aged 62-64 = +4%
Women aged 65-69 = +4%
If you look at these results and conclude that the 3-4% changes over a 5-8 year period is a rounding error, and not of any consequence, you would be wrong. This is a very big deal. In this case, “Holey Smokes” for me, and “Noteworthy” for the CBO, are appropriate reactions.
Put the Eco 101 hat on again, and you can immediately conclude:
Changing the FRA by just one year, will translate into a generational increase in youth unemployment.
Changing FRA will reduce upward mobility for all workers who are under 50. This will be a permanent change.
The timing of the CBO blog is interesting. The change in FRA will not happen for years, and its consequences will take years more to be felt. – “Who cares? We have plenty of pressing stuff today; worry about this one later” - is one way of thinking about this. But actually, the CBO report is very timely and on point.
Over the next month we will (hopefully) hear some serious proposals on how to change the direction of spending and debt. The CBO sent a message to the legislators who will be crafting the “fixes”. There was no reference to the debt ceiling in the report, but the conclusions are obvious. I think what the CBO was trying to say was:
Beware of what you do with your fixes. Changing the age limits for SS and Medicare will backfire one day. You are trading an accounting problem for a social/economic problem to be. There is already a huge intergenerational transfer of wealth programed into the system with SS/Medicare. Do you really want to add to that burden?
Note: I’m quite sure that changing age limits will be part of the “fixes”. They are “painless” solutions, as the changes would not become effective for many years, and be phased in thereafter. So this is a politically cheap way of kicking the can a generation or so, and then claiming success.
I have no answer to this. I know it’s not a Platinum Coin. Nor is it 200 – 300% debt to GDP. I see that it is tempting to bend things to preserve a system today, at the expense of future generations. I also believe that some bending is necessary.
But lets not kid ourselves, we are shooting arrows at younger workers. The arrows will take years to land, but they will land, and when they do, they will hit 24 year olds.
What will come in the next few weeks will prove to be a huge pass-of-the-buck. No doubt, everyone will celebrate that result. Shooting arrows at kids who are five years old today is nothing to celebrate, even if the arrows won’t hit for another decade or two.