Friday, May 13, 2011

Social Security And Medicare Are Just Like Winning a Lottery!

An opinion piece in the Wall Street Journal (where else?) about the impossible burden and unfairness of Social Security and Medicare starts like this:
Readers may recall the 1950s TV show, "The Millionaire," which portrayed stories of individuals who were given a "no strings attached" gift of money by an anonymous benefactor. Each week in one of the show's opening scenes, a man representing the wealthy benefactor, John Beresford Tipton Jr., knocked on an unsuspecting recipient's door and announced: "My name is Michael Anthony and I have a cashier's check for you for one million dollars."
That TV program is scheduled to return next year as a reality show, and the new recipients will be the typical husband and wife who reach age 66 and qualify for Social Security. Starting next year, this typical couple, receiving the average benefit, will begin collecting a combination of cash and health-care entitlement benefits that will total $1 million over their remaining expected lifetime.
Such clever tricks the author, John Cogan, used there! The idea that this gift comes unexpectedly, as if won in a lottery! No, it is not something the recipients have contributed to, in the sense of having paid into the funding system of both Social Security and Medicare.

And notice the show Cogan uses here. It is over fifty years old! A million dollars meant something quite different in the 1950s than it does today! But Cogan manages to emotionally tie this all into a pretty package wrapped in "undeserved" and "giant wealth."

Then there is the possibility that he may compare a check of one million dollars to benefits which might (assuming that his calculations are at all correct which is a huge assumption, and one I make only to discuss the rest of Cogan's tricks) add up to that amount over a period of years. Did Cogan discount the future benefits to that age of sixty-six to make them commensurate with that lump-sum gift check of the 1950s?

I'm not sure if he is giving us the present value of the benefit flow or not. But I suspect the latter, and that would be bad.

Think about it. Suppose that one lottery offers you a million dollars, given over a period of ten years at 100,000 dollars per year, and that another lottery offers you a million dollars, paid out today. The two winnings are NOT the same size, because you could always invest the latter check and earn more than a million over the next ten years.

Enough econo-babble. Cogan then ties all this to the poor children who must pay for the winnings of the elderly, and the attached cartoon reinforces that point. The piece ends with this:
So today's seniors need to consider how they want the script for "The Millionaire" sequel to be written: There's a knock at the door. We now know that on the other side there's a check for a million dollars. When the door opens, do we really want to see our children, under the commanding gaze of Uncle Sam, presenting us with that check?
That is hilariously funny, because in the absence of Social Security and Medicare who would it be who would have to support those elderly parents in many, many cases?

Their children.
Added later:
For much more on Cogan's piece, go here.