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Joan M. Dim (212) 998-6849

"...since our current fiscal policy does not add up...it may make sense to share the pain broadly, even if this means that the politically powerful elderly bear a portion of the pain...."

Baby boomers who are counting on Social Security and Medicare to help with their retirement are making a big mistake, says NYU School of Law Professor Daniel Shaviro.

Within ten years, says Shaviro, as the first baby boomers near retirement, big fiscal changes will be necessary to reduce a sea of government red ink that is simply too large for the economy to absorb. Plus, says Shaviro, there's an excellent chance that the government will use renewed inflation to help escape from this mess without having to raise taxes and openly cut spending. This will hurt people on fixed incomes, as well as those who are counting on big government programs to keep on protecting them against inflation.

Shaviro, author of the recently published Do Deficits Matter?, explains that deficits, Social Security, and Medicare are all part of the same big problem: policy sustainability.

"The government's unwillingness to pay for what it spends isn't actually hurting economic growth all that much," says Shaviro. "But it does mean that the government's promises to people of continued Social Security and Medicare cannot and will not be kept, which will mean grave disappointments for hard-working Americans who are currently in their 40s or 50s and expecting the same level of government support when they retire that their payroll taxes are providing to today's retirees."

Politicians have done little to address the approaching fiscal crisis, says Shaviro, because they are afraid of the political power of today's retirees, and they over-rate the contribution that deficit reduction can make to heading off the fiscal crisis.

"Moreover, the current budget agreement, under which the deficit supposedly would be eliminated in 2002, would do little to help even if it were credible," says Shaviro. "The budget is not credible because assumptions about the economy, tax increases and spending cuts that the next Administration and Congress will be able to agree upon are wildly over-optimistic. The problem lies in the long term and is due mainly to the big entitlements programs. To wait until baby boomers actually start retiring in the first decade of the twentieth century before changing these programs makes no sense. Unfortunately, changing these programs means that real people will suffer from getting fewer benefits than they expected. But someone is going to suffer in any event, since our current fiscal policy does not add up, and thus it may make sense to share the pain broadly, even if this means that the politically powerful elderly bear a portion of the pain."

Thus, Shaviro concludes that the problems are not really whether Social Security and Medicare should be reformed, but when. And the sooner the problems are meaningfully addressed, the better.

Professor Daniel Shaviro is available for interview. Please call Joan M. Dim at (212) 998-6849 to setup an appointment.