Policies for an Aging Society (review)

In the past few years, several edited books have been published on the challenges of providing health and income security to an aging population. To this list should be added the valuable collection Policies for an Aging Society, edited by Stuart H. Altman and David I. Shactman. This important book is distinguished by its careful attention to all three major programs affording retirement security to the elderly (Social Security, Medicare, and Medicaid), by its admirable insistence on the need to bring both historical and international perspectives to bear on contemporary American welfare state topics, and by its balanced treatment of the political and economic dimensions of critical policy issues. Every chapter in this high-quality, interdisciplinary collection makes an important contribution. Among the essays I found especially provocative and insightful are those by Henry Aaron; Joseph White; John Geanakoplos, Olivia S. Mitchell, and Stephen P. Zeldes; and Theodore R. Marmor and Jerry L. Mashaw.

A major reason policy experts and opinion leaders are concerned about the future of Social Security, Medicare, and Medicaid (America's de facto long-term care program) is that the costs of these programs are projected to rise dramatically in the future. According to a recent Congressional Budget Office forecast, total federal spending for these three programs could exceed 27 percent of the gross domestic product (GDP) in 2050 under some scenarios, up from about 8 percent of GDP today. If this scenario eventuates, it would have far-reaching implications for American economic, social, and political life. That is a very big "if," however. As Henry Aaron observes in a wise and penetrating essay, long-term budget forecasts are subject to tremendous uncertainty. While we can be fairly certain about some things (e.g., U.S. birthrates will not return to 1950 levels), we do not know how to project the magnitude of many key variables (e.g., we do not know how fast U.S. economic productivity will rise in the future). As a result, the budget forecasts on which entitlement reform plans are premised may turn out to be absurdly off the mark. Aaron argues that long-term projections do have an important place in American politics—they promote political discipline among officeholders with short-time horizons—but they must be kept in that place. The unforgivable political sin is for budget experts to suppress the uncertainty of their estimates. Greater candor about the unreliability of long-term forecasts will not only promote honesty in government but will also help keep the focus of entitlement reform debates on the underlying political values at stake, which is exactly where the focus should be.

Joseph White extends Aaron's analysis in a highly original chapter—possibly pushing it beyond where Aaron himself would be willing to go. Aaron's essay concludes by arguing that long-term budget projections reinforce the case for governmental efforts to boost national savings in order to prepare for the baby boomers' retirement. This could be accomplished by raising contribution levels, reducing the scope of entitlement promises, or other means. White, however, argues that the benefits of increased national savings are rather modest. Indeed, he argues that all calls for sweeping changes to existing programmatic arrangements rest on shaky foundations. They presume that today's leaders know what is best for future voters. Not so, White argues. The citizens of tomorrow will better know their own preferences and the facts of the situation than we can today. Making drastic changes to successful programs such as Social Security and Medicare might be warranted if the nation were truly in a crisis situation—but it is not. White calls instead for modest reforms to strengthen the government's fiscal capacity. This cautious policy approach permits midcourse adjustments to be made as new information arrives. White's argument is not unimpeachable. Many economists would argue that the case for encompassing reform is stronger than he allows. And, as White himself would readily acknowledge, the decision not to...