On Oct. 2, the Washington Post published a lead editorial entitled "Democrats in Denial." In substance, it said that since the Republican Party has linked itself to irrational tax cuts, it falls to the Democrats to develop a program of fiscal responsibility. This would include not simply rolling back the Bush tax cuts, but also making cuts in social programs, including pushing back the age of Social Security eligibility, and a means test for Medicare.
The Post editorialists have the right idea, sort of. Unfortunately, they're missing a key element in the projections. In the near future, the US will need more social programs, not less. Desperately. Although the consumer economy has been robust during the recent recession and jobless recovery, there is a deep rot that will begin to reach the surface in just a few years. While President Bush has surrounded himself with Pioneers (people who pledge to raise $100,000 for his re-election campaign) and Rangers (those who pledge to raise at least $200,000), poverty is increasing in the real world. On Sept. 26, the US Census Bureau reported that the number of Americans with incomes below the poverty level rose to 12.1% in 2002 from 11.7% the year before, bringing to total number of people living below the poverty line to 34.6 million. The median household earned income fell $500 over the same period to $42,400. Per capita income declined by 1.8% in 2002 to $22,794, the first decline since 1991.
On Sept. 29, the Census Bureau reported that in 2002, 2.4 million people who previously had health insurance lost their coverage, bringing the total number of uninsured to 43.6 million. That means 1 in 15 Americans has no health insurance coverage. The Medicaid rolls grew during the year, as more people fell into poverty and became eligible for government coverage, but the Medicaid increases weren't enough to balance the losses.
While the consumer economy has kept the US going through the recent recession, consumer expenses have been financed by debt. People who might once have accumulated equity in their homes have financed their buying with home equity loans and refinancing. According to the Hoover Institute home mortgages total nearly $8 trillion. Mortgage borrowing grew by $4 trillion over the past decade. According to CNN, the average American family with at least one credit card is carrying over $8,000 in credit card debt at interest rates in the mid to high teens. Some of this debt may be due to irrational buying behavior and overconsumption, but others have fallen into debt because of job loss, reductions in income, or increases in essential expenses like medical costs.
Simply, many, too many people are getting old without being financially ready. Postponing retirement isn't an option, since the job market is too weak to absorb new graduates and layoffs remain common. Even so, according to MSNBC, 75% of American families approaching retirement age have a net worth below the recommended $1 million that's recommended for a comfortable old age (that figure includes the values of home equity, fixed benefit pensions and 401(k) accumulations.) In fact, the median nest egg value for people aged 50 to 59 is only $95,130, less than 10% of what they'll need in 10 years. Because the need is relatively near-term, the money will have to be saved out of income, not accumulated out of interest payments over decades. Taken as either a nation or as individuals, we're broke.
The late economist Herb Stein said "anything that can't go on forever, won't." An economy based on debt is inherently unstable. The social programs, Social Security, Medicaid, Medicare, become more important as the population ages. Means testing may have a place; the rich already got their share of government beneficence through the Bush tax cuts, but postponing eligibility for those who need help isn't an option.
It's time we took a look at the increasingly misnamed "defense" budget. On Feb. 3, Bush requested a defense budget of $379.9 billion for 2004, an increase of $15.3 billion over the 2003 budget. While this was presented with the claim that the funds were needed to fight the war on terrorism, the bulk of the money is still being spent on weapons systems designed to fight a war with a modern superpower. We continue to fund nuclear submarines designed to target Moscow, even as we cut back on funding for veterans' hospitals. The cold war is over. We won. Get used to it.
We're going to need that money very soon. We're living the fable of the grasshopper and the ant, and winter is coming.
Sam Uretsky is a writer and pharmacist living on Long Island, N.Y.