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July 12, 2003

Saturn Devouring My Children

Michael:

Speaking of epochal cultural shifts, does anybody other than me remember back in the 1990s that Generation Y types were pissed off about something called “generational equity?” As I recall, they had the nerve not to like the fact that by the time they got done making the Boomers’ Social Security payments, the cupboard would be bare, so to speak, for their own retirement. Washington insiders seem to have made all this go away by appointing a few commissions that made a few recommendations that never went anywhere—sort of the “stun ‘em into silence with sheer boredom” approach. Hey, it works.

The only reason I bring this up is that I noticed something odd about the Medicare Drug Benefit bill that the House and Senate are arguing about. To the best of my recollection, both versions of the bill include $400 billion in subsidies for pharmaceuticals to be consumed by old folks over the next decade. Well, looking for something else, I stumbled across an interesting statistic on the website of the Congressional Budget Office (which you can see here.) From a memo dated February 3, 2003:

The Congressional Budget Office (CBO) has recently updated its projection of aggregate spending for outpatient prescription drugs by and on behalf of Medicare beneficiaries. As shown in the attached table, CBO estimates that spending for outpatient prescription drugs for Medicare beneficiaries will total $1.84 trillion over the 2004-2013 period.

Now, I don’t know about you, but I very much doubt that the senior lobby (all 40 million voting members of it) are going to let the government get away with paying for less than a quarter of their prescription costs…once they’ve gotten their nose under the tent, so to speak. So I would assume that the actual costs of the Medicare drug benefit will come out much, much closer to $1.84 trillion over the next ten years than a mere $400 billion (hell, that’s chump change to an interest group with that much clout.)

Anyway, what’s odd is the deafening silence from Gen Y types (or anybody, much) about “generational equity” issues implicit in legislation like this. Looking for some sense of where all the hoopla had gone, I did a Google search on “generational equity,” which didn’t show much activity recently. But I did notice an interesting analysis that had been cranked out about 5 or 6 years ago by Jagadeesh Gokhale an economist with the Federal Reserve Bank of Cleveland who I’d run across before. Mr. Gokhale seems to enjoy playing with these scary subjects. (You can read the complete essay here.)

Mr. Gokhale brought a certain historical rigor to the discussion:

A given generation’s lifetime net tax rate is the fraction of its lifetime labor earnings that it pays in net taxes to the government, where both numerator and denominator are present values at birth….Figure 1 shows that the generation born in 1900 pays at the rate of 23.9 percent. Lifetime net tax rates increase steadily for later-born generations, peaking at 33.4 percent for those born in 1950 then gradually declining to 28.6 percent for those born in 1995. [The decline in the rate for those born after 1950 occurs because of the steep projected growth in future health care spending by the government on each aging citizen.] Thus, [projections of spending from government policy in the late 1990s] combined with past payments by living generations, imply a differential lifetime fiscal treatment of the generations alive today.

Looking forward, one may ask whether [government policy in the late 1990s]’s generational stance is equitable toward future generations. To answer this question, we need to compare that policy’s implict treatment of future generations with its treatment of some living generation. The newborn generation is the natural candidate because its entire lifetime lies in the future. Calculations show that the present value gap of $9.4 trillion [between the governments future revenues and its future obligations]…implies an average lifetime net tax rate of 49.2 percent [for cohorts born in the late 1990s].

I don’t know when the American social welfare state converted the elderly into Saturns devouring their children, but the demand by today’s Medicare recipients for a drug prescription benefit that they never taxed themselves to provide to anyone strikes me as pretty out there, ethically speaking. And I must sadly conclude that my own generation, the Boomers, aren’t exactly moral geniuses either. I suspect they'll gladly load up future generations for their own personal benefit.

F. Goya, Saturn Devouring His Children, 1821-3 (Detail)

So that leaves me to ponder: Given the tax cuts and the benefit increases of the current Congress and Administration (neither of which was included in Mr. Gokhale's analysis above) how much higher than a lousy 49.2 percent do you think my two-year-old son’s lifetime net tax rate will have to go? I don't know, maybe he'll emigrate or something.

Not-so-cheerful,

Friedrich

posted by Friedrich at July 12, 2003




Comments

That's an excellent thought. I think that Gen Y *did* get stunned into silence, and a lot of behaviour you so decried in one of your previous posts stems partly from that -- Gen Y simply deicded it will have to get rich on its own since there is no hope that their retirement or medical care would be assisted by the Government.

Thanks for bringing this thing up. :)

Posted by: Con Tendem on July 12, 2003 9:43 PM



Pity the number-crunchers who have to make projections decades in the future for investments and Social Security.

I thought of this when at a recent family gathering, a 19-year-old put JACKASS: THE MOVIE on the DVD player. (That movie itself convinced me that That's It. I'm Old. It's Official. But never mind that.) There's a fantasy or dream sequence where the 20-something cast is in old-age make-up and a super gives the date as something like 2062. The young lad with us observed that barring untimely accidents, he'd be around then. Girlfriend and I just looked at each other. We'd be 110.

I grew up on science fiction, with all its improbable-sounding far-future dates. Heck, I can remember when 1975 was The Future. And now we're in 2003, and I still do little double-takes when I see these 20-something dates. 2001 is already the past! 2062 would seem super far ahead, except that there are people alive today who will easily see it on their current calendars. More than that. Centenarians are not unknown even now, and who knows what improved medical treatments will do. There are children alive now who will see the dawn of the 22nd Century.

Now...imagine somebody in 1903 trying to plan for the retirement of someone who will likely live to at least 1962... Besides two World Wars and a Depression in there, the world will change in ways inconceivable to the adults living back in the Aughts, with whole industries rising and falling and technology changing everything, not to mention radical changes in the political system (like the introduction of Social Security in the '30s). Will the first sixty years of the 21st Century be as drastic as the those of the 20th?

I don't have any stunning conclusions, except as a twisted version of what I think John Lennon may have said -- maybe that the Future is what will happen when you're planning for something else.

Posted by: Dwight Decker on July 13, 2003 1:20 AM



Mr. Decker:

I'm glad to see that you're at least taking notice of subsequent generations. That appears to make you more morally aware than the average politician.

Your point about the difficulty of long-term prediction, which is true, only goes to show the "unwisdom" of carving entitlement programs in stone when one cannot see the economic or technologic future. Remember that we have not yet successfully killed the honey subsidy after many decades of trying; how do you think throwing something like Medicare overboard will go? I'm not terribly optimistic.

Mr. Tendem ("can I call you Con?"):

I believe that sooner or later we will see a sort of Twilight of the Entitlements. I thought that Gen Y might lead it, but whether or not they do, sooner or later a revolt will raise its head. Current trends are simply not sustainable.

Posted by: Friedrich von Blowhard on July 13, 2003 2:12 AM



Thinking about participation in the political process, people over 50 are more involved as informed voters and elected officials than people under 30. They also have a conception of death and aging that many younger people lack. So of course young people are going to get clobbered in a competitive democracy. When young people do get involved it's for more idealistic issues like saving the rain forests than nuts-and-bolts tax issues.

Posted by: Matt Leonard on July 13, 2003 3:23 PM



Okay, this is the third day that I've had to look at that, that, THING...that painting. I think I'm going to be sick. Could you have done any better in choosing an image for this post? I don't think so. Together they make me feel gross and hopeless.

So please, take it away, black it out, reconsider the image, do something. Sheesh!

I'm not too knowledgeable about art history. But what was the public response to this Goya? Where is the painting hanging now? Could you possibly send this social security post to the owner/curator of this painting? Frame and mat your words in something simple and ask that it be hung right beside it.

The pair would be guaranteed to make viewers wince and gag. But hmm...maybe more people will see it here, on your blog.

Ack! Ack! Ack!

Posted by: laurel on July 14, 2003 9:04 PM



Laurel:

The great spaniard Goya would no doubt be highly complimented by your reaction, 180 years or so after his death. I don't believe there was any public reaction to this painting, or any of his other late efforts, as he displayed them solely on the walls of his home in exile. A truly remarkable spirit, I must say: although obviously no fool and a very sophisticated artist, he created images very much out of his own uncensored emotional reactions to the world. The horror and disgust you feel obviously mirror his own feelings, at least those of his old age. (Earlier in life he sired 20 children, painted unflattering but very beautiful portraits of the high and mighty, and carried on a variety of obviously passionate love affairs.) He may be the very last emotionally complete human being in the modern world (note the look of ethical outrage on the main character in his painting "The Fifth of May"). This uncensored humanity gave him the artistic capital to out-Bacon Francis Bacon and (in many respects) to out Picasso-Picasso.

Posted by: Friedrich von Blowhard on July 15, 2003 1:42 AM



I'm hoping that many types of medical care will get much cheaper, but even if it's going to happen, we're barely at the beginning of the process. Laproscopic (sp?) surgery is a good start, and using DNA evaluate drugs and dosages is at least getting researched.

Posted by: Nancy Lebovitz on July 15, 2003 11:36 AM



Dear Mr von Blowhard,

I've no wish to sound petty but Goya certainly never sired 20 children and the painting you refer to (The Fifth of May) does not exist. You probably meant the 2nd or maybe 3rd of May 1808. I would hazard a guess that on the 5th the citizens of Madrid were burying the countless dead.

Forgive me but its a dull Sunday afternoon and I happen to be writing a thesis on Goya. Hence there's no way I could let this go. Also tell that guy Laurel not to be such a puss. Face your fears I say to him...thats what Goya did.

Yours Sincerely,

Alex M. Atwater

PS I like the rest of the website. Party on


Posted by: Alex on July 27, 2003 1:15 PM






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