By Patricia Chadwick
When it comes to the matter of debt—be it Government, corporate, or consumer—one can read endless tomes on the subject regarding both its value and its risks. Countries, empires and dynasties have risen and fallen on account of the wise and the not-so-wise use of borrowing. As an affordable mortgage, debt has proven to be an invaluable means to home ownership; on the other hand, as a mechanism to acquire goods beyond one’s financial means, debt—credit card or equity line of credit or borrowing from sweet Auntie Mame—has proven so often to be disastrous.
The ever-growing level of U.S. debt is, and should be, a matter of concern. As a percentage of GDP, the total debt of the Federal Government now stands close to 125%. It was last that high over 75 years ago, during World War II—a time when defense spending comprised 40% of the nation’s GDP and a whopping 90% of the U.S. budget. Some fifteen years later, at the height of the Cold War in 1960, defense spending was still the largest component of the federal budget, at just above 50%, although only about 9% of GDP, as the U.S. economy expanded rapidly during the 1950s. By the time the Cold War was ruptured by the fall of the Berlin Wall in 1989, defense spending had declined to 28% of the budget and only 6% of GDP and today it is a mere 3% of the economy and about 16% of the federal budget. That is all good news within the context of managing the size of Government spending. So why is the deficit expanding?
The Federal budget can be broken into two parts—nondiscretionary, i.e., mandatory spending, and discretionary spending. Interestingly, while defense spending is a critical and essential responsibility of the Federal Government, it is not a mandatory obligation, as its budget, together with those of numerous other federal services, must be approved annually by Congress through appropriation. Nondiscretionary spending, on the other hand, includes programs that the government is obligated to fund annually. Today, the largest two items in that nondiscretionary bucket are (1) Medicare and (2) Social Security and over the last fifty years, they have comprised the lion’s share of the growth in the entire Federal budget and thus to the size of the deficit.
The Social Security Act, signed into law by President Franklin D. Roosevelt in 1935, during the depth of the Great Depression, introduced into the American economic system the concept of “social insurance.” In order to fund that retirement program, Congress established a 1% tax to be paid by both the employer and the employee (for a total of 2%) on the first $3000 of an employee’s wages. At that time, Congress established the national retirement age at 65, and it’s interesting to note that the average life expectancy at birth in 1935 in the U.S. was 61.7 years. So, simply put, an “average” baby born in 1935 was not expected to have to call on the resources of the social security system, despite having paid into it. Once reaching the age of 65, life expectancy was between 12 and 13.5 years—depending on where one was male (12 years) or female (13.5 years). Those statistics generated a model that was notionally selffunding for Social Security funds.
In 1935, the U.S. population stood at 127 million and there were approximately 7.6 million people—about 6% of the population— who were aged 65 and older. Today, the U.S. population stands at 340 million, an almost three-fold increase from 90 years ago. There are now more than 58 million residents over the age of 67 (Congress raised the age from 65 in an attempt to reduce the cost of the program)—a nearly 8-fold increase from 1935, comprising about 18% of the population. Furthermore, life expectancy at birth today is 80 years, some 19 years more than it was when Social Security was signed into law in 1935. And when one reaches the “young” age of 67 today, one can expect to live an additional 18 years to the age of 85. I think we all have more than a few friends who are 85 and looked destined for 90. It is unlikely that the existing trend will suddenly make a U-turn.
With data like those cited above, it’s easy to see why the basic Social Security arithmetic has spiraled out of control, little by little, year by year, over nearly a century. So what’s the secret sauce that has allowed for such an extraordinary trend in longevity? It can be described in two simple words: “medical science” that has steadily found ways to improve health and enhance the quality of life for millions of Americans. That brings me to the second program in the non-discretionary Federal Budget, namely, Medicare. The program was enacted into law by President Lyndon Johnson as an attachment to the Social Security Act. Its purpose was to provide health care for retired Americans, many of whom could not afford to purchase private insurance. In 1970, the program spent $7.5 billion, approximately 3.8% of the Federal budget. In 2024, its outlay was $1.12 trillion, nearly 14% of the budget.
As a seventy-seven year old who has benefited from what medical science has had to offer, I think of the combination of Social Security and Medicare as one giant virtuous cycle—good medicine leads to healthy longevity; healthy longevity leads to the ability to enjoy life more fully. Bring it on! Let’s get to the year one hundred! However, were I a green eye shade Government employee (with no offense to the position) I more likely might wring my hands and describe the two programs that are joined at the hip as a vicious cycle—medical science is bankrupting the Federal Government.
It is not politically expedient for anyone running for office, regardless of party affiliation, to attack either Medicare or Social Security. The fastest growing age bracket in the country today is the group that is 85 years and older. They number 6.5 million people today and are expected to reach 19 million in 35 years. At the other end of the age spectrum lies the issue of fertility. From a post-war high of 3.8 in 1957 (at the peak of the baby boom), the fertility rate in this country has dropped to around 1.6 today, well below the 2.1 that is necessary to maintain the size of the population without the stimulant of an immigration policy. Food for thought that might provide some serious indigestion even for an optimist.
Patricia Chadwick is a businesswoman and an author. Her first book (2019): Little Sister: A Memoir, tells the story of her growing up in a religious community-turned cult in the 1950s and 1960s. Her most recent memoir (2024), Breaking Glass, with the subtitle: Tales from the Witch of Wall Street, came out last May. It is a sequel to Little Sister and tells of her starting out on the lowest rung of the corporate ladder and succeeding in what was then the all-male bastion called Wall Street. www.patriciachadwick.com
