Robert Samuelson November 3, 2013

“Never underestimate the difficulty of changing false beliefs by facts.”

— Henry Rosovsky, Harvard economic historian

Two analysts at the Federal Reserve Bank of St. Louis have produced an important study that should (but probably won’t) alter the climate for Washington’sstalemated budget debate. The study demolishes the widespread notionthat older Americans need exceptional protection against spending cutsbecause they’re poorer and more vulnerable than everyone else. Coupledwith the elderly’s voting power, this perception has intimidated bothparties and put Social Security and Medicare, which dominate federal spending, off-limits to any serious discussion or change.

It has long been obvious that the 65-and-over population doesn’t fit theDepression-era stereotype of being uniformly poor, sickly and helpless.Like under-65 Americans, those 65 and over are diverse. Some are poor,sickly and dependent. Many more are financially comfortable (or rich),in reasonably good health and more self-reliant than not. With lifeexpectancy of 19 years at age 65, most face many years of government-subsidized retirement. Thestereotype survives because it’s politically useful. It protects thosesubsidies. It discourages us from asking: Are they all desirable ordeserved? For whom? At what age?

No one wants to be againstGrandma, who — as portrayed in the media — is kindly, often sufferingfrom some condition, usually financially precarious and somehow needy.But projecting this sympathetic portrait onto the entire 65-pluspopulation is an exercise in make-believe and, frequently, politicalpropaganda. The St. Louis Fed study refutes the stereotype. Examining different age groups, it found that since the financial crisis, incomes have risen for the elderly while they’ve dropped for the young and middle-aged.

The numbers are instructive. From 2007, the year before the financialcrisis, to 2010, median income for the families under 40 dropped 12.4percent to $39,644. For the middle-aged from 40 to 61, the comparabledecline was 11.9 percent to $56,924. Meanwhile, those aged 62 to 69gained 12.3 percent to $50,825. For Americans 70-plus, the increase was15.6 percent to $31,512. (All figures adjust for inflation and are in2010 “constant” dollars. The “median income” is the midpoint of incomesand is often considered “typical.”)

There has been a historicshift in favor of today’s elderly. To put this in perspective, recallthat many family expenses drop with age. Mortgages are paid off; workcosts vanish; children leave. Recall also that incomes typically follow a “life cycle”: They start low in workers’ 20s, peak in their 50s, andthen decline in retirement, as wages give way to government transfersand savings. Against these realities, the long-term gains of the elderly and losses of the young are astonishing. From 1989 to 2010, medianincome increased 60 percent for those aged 62 to 69 while falling6 percent for those under 40 and 2 percent for those 40 to 61.

Just why this happened is less clear. Economist William Emmons, a study co-author, suggests some possible factors: more collegegraduates among retirees; more stable and generous Social Securitybenefits; pensions. Whatever the causes, similar patterns affectfamilies’ net worth. The young and middle-aged, with high debts andwealth concentrated in housing, suffered huge losses from the financialcrisis. With less debt and more diversified investments, older Americans fared better. From 1989 to 2010, the median inflation-adjusted networth of those 70 and over rose 48 percent to $209,290. During the sameyears, the net worth of those under 40 fell 31 percent.

The political implications of these trends are clear, though Emmons and co-author Bryan Noeth avoid policy. We need to stop coddling the elderly. Our system of aidto the elderly — mostly, Social Security and Medicare — has a splitpersonality. On the one hand, it serves as a safety net for the elderlyby providing crucial income support for the poor and near-poor as wellas health insurance. On the other hand, it provides payments to millions of already-comfortable older Americans who could get along with lessor, for some, don’t need subsidies. We ought to preserve the system’ssafety-net features while gradually curbing the outright subsidies.

The idea that Social Security and Medicare spending should be defended tothe last dollar — as advocated by many liberals — is politicallyexpedient and intellectually lazy. Rather than promote progressive ends, as it claims, it prevents government from adapting to new social andeconomic circumstances. It’s a growing transfer from the young, who areincreasingly disadvantaged, to the elderly, who are increasinglyadvantaged.

But political change needs honest debate, and honestdebate needs a willingness to accept unpopular facts over friendlyfictions. It requires that people who candidly pose difficult choicesnot be stigmatized. As long as Grandma is the poster child for theelderly, that won’t happen.