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A Funny Bit of Entitlements Nonsense from the U.S. Navy

Posted By J.D. Foster, Ph.D. On July 7, 2008 @ 5:07 pm In Economics | Comments Disabled

Russell Beland is a Deputy Assistant Secretary of the Navy. His piece [1] in the Washington Post over the weekend, “5 Myths About the Bust That Will Follow the Boom”, suggests the civilian leadership of the Navy may have too much time on its hands.

In brief, Beland’s thesis is that the widely accepted fiscal mess presented by the nation’s entitlement programs, in part brought on by the coming retirement of the baby boom generation, is in fact based on a series of myths and, in any event, “we’re out of time” to do anything about it. That, Dr. Beland, is so much bilge water.

First, Beland asserts that the retirement of the post-World War II baby boom generation is a demographic ripple. In fact, the ratio of Americans over age 65 to those of normal working age will almost double from 20.5 percent in 2005 to 37.2 percent in 2036, as the graphic below [2] illustrates.
ratio2.gif [3]
The balance of Beland’s relevant comments distill down to: Politicians don’t know what to do about the entitlements mess, which doesn’t matter because nothing would help, and in any event Congress won’t act. But, he counsels, “don’t be scared”. He’s wrong on all four counts.

Many politicians of both parties have studied the issues and do know much of what needs to be done. And they know that the solutions will work. Much of the disagreement lies in picking amongst solutions. And the politicians know they need to act, the sooner the better. Why will they act, despite the difficulties? Because they know enough to ignore Beland’s counsel – they are rightly scared for the future of this country.

Beland’s laissez-faire attitude toward federal entitlements is all the more astounding coming from the Department of Defense. He should know that these programs have been absorbing ever-higher portions of the federal budget since the 1960s at the expense of the defense budget. An adequate defense budget cannot be sustained without domestic entitlement reform. Absent reform, the military will starve for resources to build new weapons and equipment while fighting major combat operations.

What’s Beland’s magic elixir that solves all our problems? “Natural economic forces”. Specifically, he argues that the retirement of the baby boomers, even while having no material demographic effect, will nevertheless shrink the workforce, causing the demand for labor to grow, pushing up wages and therefore pushing up payroll taxes. In economic terms, as labor becomes scarce, producers will seek to increase productivity which will in turn increase wages. eland’s right to identify this process. He’s dead wrong to think it will materially diminish the fiscal problem. Interested readers are encouraged to see Chart 13-6 in the Analytical Perspectives [4] volume of the U.S. Budget [5].

The President and his Administration have tried through conferences, commissions, proposals, and a series of authoritative Treasury Department studies to explain the importance and imminence of the nation’s fiscal fiasco. The greatest impediment to progress has always been the ostrich contingent singing a don’t worry, be happy song. One can only wonder why the Department of Defense would allow one of its own to join the chorus publicly – and how long he will yet be on the payroll.


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URL to article: http://blog.heritage.org/2008/07/07/a-funny-bit-of-entitlements-nonsense-from-the-us-navy/

URLs in this post:

[1] piece: http://www.washingtonpost.com/wp-dyn/content/article/2008/07/03/AR2008070303201.html

[2] graphic below: http://www.heritage.org/research/features/budgetchartbook/fed-rev-spend-2008-boc-P2-The-Ratio-of-Elderly-to-Younger.html

[3] Image: http://www.foundry.org/wp-content/uploads/2008/07/ratio2.gif

[4] Analytical Perspectives: http://www.whitehouse.gov/omb/budget/fy2009/pdf/apers/assumptions.pdf

[5] U.S. Budget: http://www.heritage.org/federalbudget/

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