Entitlements and the genius of FDR

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I promised a nephew of mine that I would give a response to one of those irate emails that you get from time to time. It was similar to that geezer group that was in that commercial recently threatening any politician who touched "his" entitlements.

I will omit most of it and just give you one paragraph which will give you the drift:

"I, and millions of other Americans, have been paying into Medicare from Day One, and now you morons propose to change the rules of the game. Why? Because you idiots mismanaged other parts of the economy to such an extent that you need to steal money from Medicare to pay the bills."

Now it may be that they have mismanaged it. But it is certain that we have not paid in enough to get back what we are scheduled to get back. Of course people who write these letters never tell you what they paid in. But I know one geezer of 68 who retired to half time at 62, got on medicare at 65, and began drawing SS at 66. I suspect that his facts are not much different from hers.

So here are the numbers from our geezer's SS report: SS 71,080 from him + 71,080 from his employer. That is a total of $142,160 from his compensation. Now if you assume some reasonable rate of growth, say 6%, then(the miracle of compound interest being what it is) that comes out to (roughly) $300,000 today. This geezer is scheduled to get about $24,000 a year for the rest of his life. That is probably not too far off the mark. That is why they say that SS just needs a bit of tweaking.

Now his Medicare coverage is worth about that much too. What does full scale healthcare cost for someone who is in the Medicare range? But how much does that SS schedule say our geezer paid for his Medicare? The total is ($16,345 +$16,345 =) $32,690. That was over time so we apply the miracle of compound interest again and come out with about $65,000. That is the approximate net present value of what this guy paid into medicare. His wife has paid almost nothing but she is covered too when she hits 65.

Now imagine that you are running a health care service. Would you agree to provide these old folks all the health care that they want for the rest of their lives in return for that 65 K?

This is the real genius and horror of entitlements. Someone proposed to Franklin Roosevelt that it would be better if people got SS without having to pay for it. Franklin said no! "If the people pay for it, then just let someone try to take it away from them." He understood people well enough to know that they wouldn't actually calculate the value paid as against the value received.

I wonder if he would be surprised at how far his successors have taken his idea.
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