Bookshelf: The Bankruptcy Around the Corner

Some 76 million Americans were born between 1946 and 1964. Starting in 2008, 12 years from now, they will begin to retire. In “Will America Grow Up Before It Grows Old?” ( Random House, 237 pages, $21), Peter Peterson argues that America is utterly unprepared for this immense and imminent social transformation. He presents a blood-curdling vision of the future should America remain unprepared, and offers a practical crash program to help us begin preparing now. The book is not without its faults — Mr. Peterson served in President Nixon’s cabinet and is still sometimes blinded by his old liberal Republican faith. But despite them, “Will America Grow Up Before It Grows Old?” stands as an urgent tract for our times. Here, in a nutshell, is Mr. Peterson’s case. – By the year 2020, there will be 25 million more people receiving Social Security than receive it today. Paying their retirement benefits will add some $232 billion (in today’s money) to the annual federal budget. – Medicare’s costs will rise even more terrifyingly than Social Security’s. If the boomers receive Social Security and Medicare benefits as generous as those paid to today’s retirees, by the year 2030 the annual deficits of those two programs will rise to some $1.7 trillion. – To close that gap through tax increases alone would necessitate a federal payroll tax of between 35% and 55% by the year 2040 — and that’s before federal or state income taxes are computed. Nor will even an optimistic projection of economic growth eliminate the problem. In other words, Social Security and Medicare must be radically reformed — and soon. – Meanwhile, Americans continue to make troublingly little provision for their own retirement. Only 30% of American families save for the future at all: and even among that 30%, the median amount saved is just $1,000. Half of all adults in their late 50s have less than $10,000 socked away. Mr. Peterson argues that America must start saving now, packing away every nickel it can lay its hands on. He proposes to sharply reduce — and ultimately eliminate — Social Security payments to retirees whose incomes exceed $40,000; to raise the retirement age to 70 by 2015; and to force Medicare beneficiaries to choose between enrolling in health maintenance organizations and paying much steeper co-payments for fee-for-service medicine. He calls for a system of mandatory individual savings accounts, analogous to those of Singapore and Chile, that would largely replace government benefits for middle- and upper-income retirees. And he suggests enhancing national saving by shifting from an income to a consumption tax, while rapidly balancing the budget. Along the way, Mr. Peterson also tosses off ideas that are less creditable: higher tax rates on upper-income people (i.e., the people who contribute the most to the national savings pool that he considers inadequate already) and spending more federal funds on education and training (when there’s scant evidence that job-training yields benefits and when federal education money is largely used to fund bilingual education and other destructive programs). Nothing could be more natural, or more American, than to dismiss Mr. Peterson’s warnings in the hope that something — higher economic growth? expansion of the work force through higher levels of immigration? — will save us from the need to rethink America’s experiment with universal leisure at public expense for everyone over 65. And the optimists may even be right. Perhaps America can somehow resume the fast growth of the 1950s and 1960s after 25 years of slower growth. Perhaps Americans will decide to rethink their growing doubts about immigration if they are persuaded that their pensions depend on it. But then again, “perhaps” is an awfully weak foundation on which to gamble a generation’s financial future. Especially since the steps needed to avert catastrophe are so valuable in themselves. Moving America’s retirees from dependency to self-sufficiency would be a goal worth pursuing even if the country could afford that dependency. And if, as Mr. Peterson convincingly argues, the country can’t, then moving retirees off dependency becomes both financially and politically vital. As Mr. Peterson point out, the boomers began their adult lives by plunging the American political system into turmoil for selfish reasons. As things are going, we are acquiescing in conditions that will most likely cause them to end their political lives in the same disgraceful way.