Old People Are Sucking Us Dry

Why senior citizens are bankrupting America.

Rich countries around the world have spent the past several years getting to grips with the costs of their aging populations. Some, like Norway, have a pot of gold ready to pay for their population's retirement. Others, like Japan, have gone heavily into debt. But no country has allowed demographics to threaten its growth the way the United States has.

It may seem strange that this calamity isn't a regular highlight of evening newscasts or trending on social media. Perhaps it's because the scope of the problem is visible not on faraway battlefields or in corporate boardrooms, but rather in careful yet obscure research papers such as "Trends in Discretionary Spending" by D. Andrew Austin, an analyst at the Congressional Research Service.

In the below figure, Austin splits federal spending into three parts: mandatory outlays required by law, which are mainly for Social Security and Medicare; discretionary spending that is approved annually, including defense; and net interest paid on the national debt. 

Thanks to low interest rates and the U.S. Treasury's canny refinancing of the national debt, interest payments are at extremely low levels as a share of federal spending. The real action is happening higher up in the graph: Mandatory outlays are eating into discretionary spending almost every year. At the height of the wars in Afghanistan and Iraq, the share of mandatory outlays was still growing. Even the peak years of the recent fiscal stimulus were only a bump in the road.

Under current legislation, this trend will only continue. As Austin's figure shows below, both defense and non-defense outlays -- the two components of discretionary spending -- will soon reach new lows as a percentage of the economy.

And this is where the problem arises. Non-defense discretionary spending is where the government does everything that might help the economy grow: education, infrastructure, scientific research, energy, space exploration, and the like. Some of these investments can take decades to pay off, but they often yield handsome returns: for example, as much as $34 for every $1 spent on research into cardiovascular disease.

By contrast, much of mandatory outlays are designed to prevent drags on growth. Reducing poverty and improving health among retirees and the elderly frees up time and resources for the working-age population. Undoubtedly, this is important to the economy as well. Yet the current trend has the government cannibalizing the future to protect the present; the country is spending most of Americans' tax money not to charge forward but to stand still.

This situation is not the fault of the elderly. They were promised certain benefits during their lives, and they are at least entitled to try to collect them. This is a time of sacrifice, though, and everyone -- including the country's seniors -- must surely give a little. The problem is that no sitting politician seems willing to ask them.

It is far easier to cut from the discretionary budget than from mandatory outlays. Republicans want to curtail programs they see as wasteful, from research in political science to food stamps. Democrats are usually willing to listen as long as tax increases are part of the bargain. Together they even allowed the sequester, a supposedly unthinkable set of arbitrary cuts, to slash discretionary spending across the entire government. But even Republicans who deplore the size of the federal government are reluctant to bring Social Security and Medicare into the discussion.

As a result, the discretionary share of spending dwindles while mandatory outlays go unchecked. Some of the costs of this choice may already be apparent. Consider, for example, how the ratio of patents to GDP has evolved in the United States and other major economies. From almost identical starting points in 1991, China and Germany have managed to raise their productivity in terms of patent applications much higher than the United States has, as demonstrated below in my table.

Basic scientific research leads to patents only with a lag, and China may be much more interested in immediate practical applications for manufacturing. But there is no good excuse for the United States to fall so far behind Germany in technological innovation. The German government now spends more than $240 per person on science, which would work out to more than $75 billion a year in the United States. But the combined budgets of the National Science Foundation and the National Institutes of Health come to less than $40 billion.

As for infrastructure, the United States ranks 19th in the World Economic Forum's Global Competitiveness Report, behind even ailing Portugal and Spain. In education, the Organization for Economic Cooperation and Development's most recent testing of 15-year-olds found the United States at the bottom of the G-8 countries and below two dozen other economies as well. As a percentage of GDP, public spending on education is lower in the United States than in many former communist and sub-Saharan African countries. These are far from perfect metrics for economic potential, but they can hardly be positive signs for the United States.

It will be several decades before the bulge in the country's population pyramid is smoothed out. Over such a long period, discretionary programs that enhance economic growth could actually help to pay for retirement benefits. Yet Washington operates with a much shorter time horizon, one in which discretionary spending must do battle annually with the unchanging demands of mandatory outlays. Because of well-publicized waste in some programs, discretionary spending as a whole will always be at a disadvantage in this fight. But it has lost so many times that muscle is now being cut along with fat. Unless politicians start to focus on the long term, nothing but bones will be left.



Angie the Good Cop

Why Germany can’t afford to get tough on Russia.

BERLIN — Germany has long taken the easy path with foreign policy -- content to write checks for international engagements while leaving the heavy lifting to its allies in Washington, Paris, and London. Today, there's no such luxury: Germany is now the pivotal player in the Ukraine crisis. And the world is watching.

Berlin's relations with Moscow are complex, and German Chancellor Angela Merkel's relations to Russian President Vladimir Putin even more so. Yet the ball is now in Germany's court, and its instinct to pursue diplomacy is right.

Not so long ago, of course, it would have been the United States calling the shots, with Germany following along like the humble, reliable ally it had been. But the tables are turned. Washington is paying the price for having neglected Europe for years, tapping the phones of the continent's leaders rather than engaging them in serious consultation and policymaking. Its high-handed dealings with Russia since the end of the Cold War have served to alienate and radicalize the country, which is just part of the explanation for the current disaster in Crimea.

As for the European Union, its foreign-policymaking apparatus is still not up to the task of diffusing such a high-level crisis involving the transgression of state sovereignty in Europe itself. So it falls to Germany, the de facto leader of the European Union today -- another role it never wanted.

The dilemma at hand is not that a bellicose Germany might abuse this newfound authority, but rather that it's not up to the task.

Since Merkel took office nine years ago, she has avoided formulating a farsighted, proactive foreign policy, choosing instead to muddle from crisis to crisis, following the lead of either the United States or her European allies. Big visions and bold gestures aren't her style, admittedly, but Germany has mostly shirked the responsibility that comes with its magnitude of economic clout and geostrategic position. Relations with Russia are no exception.

But Germany's unenviable position isn't Merkel's doing alone -- not by any means. The current paucity of options and even Russia's irrational, self-destructive seizure of Crimea has its roots in the post-Cold War policies of the 1990s, when there was a window to rethink Europe and create structures that would supersede those of the East-West conflict.

Indeed, just prior to that time, it was the Soviet Union's Mikhail Gorbachev who envisaged a "common European house" from the Atlantic to the Urals in which the United States and Canada would also have rooms. In 1989 he told the Council of Europe that a European security system encompassing all of Europe would undermine the old logic of "alliance against alliance."

But rather than pick up on ideas of a pan-European security architecture -- for example, by beefing up or restructuring the Organization for Security and Cooperation in Europe (OSCE) -- the United States and its European allies maintained NATO, their Cold War military alliance and a flagrant red flag for Russia. Moscow objected every step of the way while NATO expanded eastward from 1999 to 2009. In 2008, the alliance promised NATO membership to Georgia and Ukraine -- and later that same year, Russia invaded Georgia. Whether justified or not, Moscow sees NATO as an enemy -- a threat to its national security and one creeping ever closer to its borders. Putin and his associates couldn't have made their concerns more public, time and again. Yet their cries were ignored.

The result was a Europe divided -- with poor, dysfunctional states like Ukraine, Belarus, Georgia, and Moldova floating in limbo between the Western alliance and Russia. Out of neglect, the OSCE fell into disrepair and became the best argument for never going down a pan-European path.

So now negotiators, in Berlin and elsewhere, are faced with a Russia largely outside institutional structures other than the United Nations and the G-8. As far as the Germans are concerned, U.S. President Barack Obama's proposal to boot Russia out of the G-8 is a move in exactly the wrong direction: Russia has to be brought to the negotiating table, its concerns addressed (where they are legitimate), and a time table established for its withdrawal from Crimea.

Germany maintains closer relations to Russia than any other country in the European Union. Germany is Russia's third-largest trade partner; only 10 countries sell more to Germany than does Russia. And with trade increasing between the countries each year, the two countries naturally depend on each other. Germany exports BMWs, machinery, and chemicals to Russia, while Russia sells Germany over a third of its natural gas and oil. This translates into influence -- the kind the United States simply doesn't have.

Merkel and Putin have known each other for 14 years now, and they are said to talk frankly -- Merkel in German, Putin in Russian (even though they each are fluent in the other's native language), both occasionally interrupting their interpreters to distinguish finer points. The two have a shared history -- the German Democratic Republic (GDR) -- even before they met, though on opposite sides of the ideological barricades. Merkel was the daughter of a Protestant pastor raised in communist East Germany. Putin was in the KGB when he lived in the GDR, working out of Dresden.

Yet, Merkel also has had a testy relationship with Putin. In office, she has differed pointedly from her predecessor Gerhard Schröder, who, as chancellor from 1998 to 2005, brazenly cozied up to Putin -- even going so far as to call him a "spotless democrat." The Social Democrats in general, following in the spirit of their Cold War-era Ostpolitik, have been more eager than German conservatives to reach out to Russia -- and look the other way on human rights violations (indeed, just as they did during the years of the normalization policies in the 1960s and 1970s).

Merkel is cut from a different cloth from her current coalition partner, the Social Democratic Party. From the time she took office in 2005, she pledged to be tougher with Russia and China on human rights -- something that has happened to a degree, at least compared with Schröder. Putin's authoritarian style, macho persona, and old-school mentality obviously grate on Merkel, but Berlin has kept up good relations with Russia nevertheless. This is paying off now.

The person who may make the difference is not Merkel, but rather Germany's newly renamed foreign minister, Frank-Walter Steinmeier. A Social Democrat, he was Schröder's chief of staff; as foreign minister in Merkel's first government, from 2005 to 2009, Steinmeier struggled to distance himself from his former boss's coddling of Putin, while at the same time keeping Russia in play. When Steinmeier reassumed his post in the current government in late 2013, he promised a more substantial German foreign policy -- though without giving many details. Little did he know how quickly he'd be put to the test.

When Steinmeier and the E.U. negotiating team brokered a deal in Kiev in late February -- including the formation of a national unity government -- it looked like he was off to a promising start. Indeed, a bracing rebuke to "Fuck the E.U."

But in hindsight, the terms of the deal may have precipitated Putin's Crimea gambit. The new Ukrainian government didn't include a single Russian-speaking native, though Russian speakers account for a third of Ukraine's population. In fact, the government included several members of the far-right, Ukrainian nationalist Svoboda party in key positions. Shortly after the deal was struck, the armed rightists "protecting" the parliament pressured the legislature to rescind a law guaranteeing the special status of the Russian language in Ukraine's east and south.

Because no one else can do it, the Germans have another chance. Berlin's most recent proposal is to establish an ad hoc contact group for negotiations and an OSCE fact-finding mission to evaluate the claims of human rights violations on the ground. Putin approved both measures on the phone with Merkel. These are solid steps in the right direction and typically German: engagement rather than isolation. The Russians have to be given room to back down, reasons Berlin, which is ultimately in Moscow's best interests. This makes far more sense than the hysterical threats and doomsday scenarios coming out of Washington. The specter of sanctions can maximize leverage, but nothing would aggravate the crisis and solidify the Russian presence in Crimea more than involving NATO or otherwise militarizing the situation.

What we haven't heard from Merkel or Steinmeier are demands that the interim government in Kiev be reshuffled, the extremists replaced at once by representatives from the Russian-speaking regions, and Russian re-established as an official language.

A concrete date for internationally supervised nationwide elections in May would underscore the government's temporary nature and the country's unity. This could then set the stage for Russia-Ukraine talks, which need to happen in the immediate future. Perhaps, with the fears of the Russian speakers in mind, international monitors could replace the Russian troops in Crimea. Measures like these would go a long way to defusing the situation, which is not, as has been claimed, the gravest crisis in Europe since the fall of the Berlin Wall. Not yet.

Of course, this is all too little, too late and can only be the prelude to deep-seated changes in U.S.-Europe-Russia relations, including the creation of adequate security structures. Germany and the European Union have to make Russia a better offer than the lopsided post-Cold War démarche that redivided Europe in the first place, while at the same time being firm about human rights.

Russia scholar Edward Walker, for example, wisely suggests alternative institutional arrangements for European security, like a NATO-Russia-Ukraine treaty that ensures military neutrality and a common customs regime for Ukraine for trade with both the European Union and Russia. This kind of creative geostrategic thinking (which West Germany practiced gracefully at the height of the East-West conflict) has been woefully absent in recent years.

As infuriating as Russia can be, excluding it is much more risky than dealing with it. This much, at least, the Germans grasp. Perhaps the Crimea crisis provides the shove that Merkel and Germany, as a whole, obviously require to make foreign policy a priority again. It's been too long in coming.

Photo: ERIC FEFERBERG/AFP/Getty Images