Economist Rejects Budget Body's Gloom

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ECONOMIST Robert Eisner wasn't invited to testify before the Bipartisan Commission on Entitlement and Tax Reform.

Perhaps Sen. Robert Kerrey (D) of Nebraska, chairman of the commission, had good reason for not inviting him: The Northeastern University professor is well-known for his iconoclastic views, including not seeing any need to reduce the deficit or drastically reduce entitlements such as Social Security.

``I think they were afraid of me,'' Mr. Eisner says.

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Senator Kerrey and the vice chairman of the commission, Sen. John Danforth (R) of Missouri, proposed raising the eligibility age for Medicare and the normal retirement age at which full Social Security benefits become available, from 65 to 70. They also would chop Social Security, Medicare, unemployment insurance, and certain veterans' benefits for the well-to-do. But the 32-member body, appointed by President Clinton, couldn't agree on a detailed plan to cut the budget deficit. Instead, they voted 24 to 6 to send a letter to Mr. Clinton warning that ``tough action is needed sooner rather than later.''

Eisner disagrees, calling the Kerrey-Danforth plan ``foolishness.'' In a phone interview, Eisner offered his reasons. One point, he says, is that working people always have to support those not working - children, the handicapped, and those who are retired.

``The financing is a secondary problem,'' he says.

In other words, the goods and services nonworkers consume are always produced and provided by those who are working. How retirees, for example, pay for goods and services they need is a separate matter. They could get their income from the government's Social Security system; or it could come from a private corporate pension or from their children.

The big fear of baby boomers is that the Social Security system will fail them when they retire because it is inadequately financed today. ``That's fed to [baby boomers] by politicians and the media,'' Eisner says. ``Their own cynicism feeds it.''

To him it is a misdirected concern. When baby boomers retire 20 or 30 years from now, their working children will have to support them - either through Social Security taxes, or through paying high enough prices on goods and services to provide profitable investments for corporate pension plans.

The important ratio, notes Eisner, is that of all dependents (not just retirees but children and the disabled) to the working population. Today, around 131 million working Americans support a total population about twice as big - 259 million.

Probably that ratio won't change much 30 years from now, Eisner says. Because baby boomers are so numerous, there likely will be more retirees - though perhaps senior citizens will be so healthy and vigorous they will want to work beyond age 65. Also likely, the ratio of children to the employed will be reduced. So children will be less of a financial burden for society. The overall burden of supporting dependents may not change much.

Further, retirees will be numerous enough to have political clout to protect Social Security. Eisner asks: Will their children be so nasty as to cut off the financial means of their parents?

Another relevant factor is that the standard of living should advance considerably in 30 years. The working generation should be better able to afford supporting the nonworking generation.

Eisner does see some issues of today relevant to the next generation of retirees. One is that adequate housing be encouraged. Houses last for decades. If enough homes are constructed in the next decades, these will help provide for retirees.

Another of Eisner's concerns is that enough money be spent on education. If too many people are nearly illiterate and otherwise ill-prepared for a technological age, society will find it more difficult to support its retirees and other dependents.

As for the budget deficit, Eisner says it ``is not a problem now.'' That's because it has fallen sufficiently that the ratio of outstanding federal debt held by the public to total national output has started to shrink again. He's concerned that Kerrey, Danforth, and others will scare the public into demanding such large budget cuts that the economy will be pushed into recession. Then business would be less willing to make the investments necessary to advance the nation's standard of living, he says.

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