Casey B. Mulligan is an economics professor at the University of Chicago.



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The elderly receive a large amount of government assistance – an amount that is not commensurate with their numbers.

The total annual income in the United States (national income, as economists call it) is about $12.5 trillion, or about $40,000 per person per year. The egalitarian view of government is that it taxes persons with annual incomes more than $40,000, and pays benefits to persons with less than $40,000, so that those with less than average incomes could enjoy living standards closer to the average.

For reasons that I began to explain last week, our government actually does the opposite. The vast bulk of government spending goes to the elderly, whose average living standards are significantly above $40,000 per year.

Social Security, Medicare and government employee retirement (federal, state and local) are government funds paid to people aged 62 and over (aged 65 and over, in the case of Medicare), and total about $1.5 trillion in the current fiscal year. Annual Medicare spending is $12,000 per person aged 65 and over, and growing. Annual Social Security and government employee retirement payments are $21,000 per person aged 62 and over.

Medicaid, hospital and other public health programs are open to persons of all ages, although those programs spend more per participant on the elderly than on the others. I estimate that, on average, these health programs are annually spending $7,000 per American aged 65 and over.

Combined, the public pension and public health programs are spending an average of $40,000 per elderly American per year. Thus, even if elderly Americans could rely on no other income source, on average they could have living standards of $40,000 per year. Moreover, many of the elderly have significant private incomes and wealth in their homes, which means that elderly average living standards actually far exceed $40,000 and thereby exceed the living standards of the average American.

How is it possible that so much government spending goes to persons with above average living standards? This is one of the great puzzles in economics and political science. Some (including commenters on last week’s blog entry) have argued that elderly Americans vote more frequently, and with more attention to Social Security and health policies. However, that does not explain why nondemocratic governments – where leaders were not chosen by free and competitive elections – also pay at least as much to their elderly citizens.

Another explanation is that the marketplace is far from egalitarian, and it is difficult for the government to be much different.

If a family thinks it is appropriate for grandfather to have a higher living standard than his grandchildren, then they probably would not support a government that attempted to reverse that pattern. The question for the future of Medicare is this: Are families ready to triple their spending on the health care of their highest-income members?