Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, August 5, 1993 TAG: 9403080001
SECTION: EXTRA PAGE: 1 EDITION: METRO
SOURCE: JANE GLENN HAAS ORANGE COUNTY REGISTER
DATELINE: LENGTH: Long
The public scoffed at his mathematical conclusion that more old people equals less clout for retirees.
``Actually, everyone said I was nuts,'' said McKenzie, 51. He is the Walter B. Gerken professor of enterprise and society at the University of California, Irvine, graduate school of management.
Now talk has changed.
McKenzie's theory carries enough weight to merit publication in the current issue of The American Enterprise, a publication of the Washington-based American Enterprise Institute for Policy Research.
What turned the tide for McKenzie wasn't a change in his theory; it was current events that seemed to bear out his predictions.
Demographers still see a burgeoning elderly population, but political commentators speculate more freely about cutting benefits for older people, including reducing the once-sacred Social Security cost-of-living adjustments.
Advocates for retirees say the talk is just a result of national concern over budget deficits.
``The truth is one of the reasons that these people [commentators and politicians] are attracted to proposing reductions is that the elderly are what we call a third rail in politics,'' said Evelyn Morton, legislative representative with the Washington-based American Association of Retired Persons.
``It's a he-man test of political strength to take on the elderly. That doesn't mean their power has diminished. In fact, it's really a test of the politician's power.''
McKenzie said the bottom line is the same.
``The ostensible objective of these proposals may be to curb the growth of the federal deficit,'' McKenzie said, ``but the probable effects can be nonetheless the same - control of the size of elderly benefits.''
Instead of more benefits, people older than 60 will get less, even though the number of old will swell to 25 percent of the population by 2030, he said.
Five years ago, skeptical demographers told McKenzie that because the world is aging, the majority of old will take more from the fewer young. Politicians called elderly benefits ``entitlements,'' unchangeable because politicians feared raising the ire of elderly voters.
But McKenzie persisted in applying what he calls the ``law of the many'' to economic events.
His law of the many is a theory that as a population expands, it grows more diverse, splintering into many special-interest groups and losing its political clout.
McKenzie's updated study, replete with fresh charts and diagrams, was published in the May/June issue of The American Enterprise, a publication of the Washington-based American Enterprise Institute for Public Policy.
This time, few are scoffing. Recent political events are proving the soft-spoken professor accurate.
Congress is expected to approve President Clinton's tax package, which taxes 85 percent of the Social Security benefits received by individuals with incomes of more than $25,000 a year, $32,000 for couples.
The California's Department of Aging's November conference will ask 800-plus delegates to redefine aging, possibly to assert that benefits (a daily hot meal, for example) should be based on need, not age.
If he is correct - and McKenzie believes he is - then baby-boom generation taxpayers can relax, he said. ``Contrary to earlier reports, the elderly will not be eating us out of house and home [with tax increases].''
Instead, they will be more dependent on their adult children to get by. Or they will be forced to save more and more dollars during their middle years, curtailing their disposable incomes, he said.
``Either way, the economy will be affected,'' McKenzie said.
The way McKenzie reads the numbers, elderly benefits peaked in the early 1980s. Since then the real purchasing power of benefits have not, on the average, been maintained.
Early 1980s retirees eligible for Social Security benefits could expect to receive back five times the amount of their lifetime contributions because of increased benefits and increased longevity.
But those retiring after 2000 ``will be lucky to get back what they contributed, if you figure the amount of the contribution plus compounded interest,'' McKenzie said.
He is talking about people who retire before the baby-boom generation first starts drawing Social Security benefits in 2008.
After the baby-boom population reaches retirement, the incremental increases in the number of elderly will further dilute benefits.
McKenzie said he believes this will happen even though the people receiving benefits will outnumber - and have potentially greater political weight than - the generation of workers still paying Social Security.
Among his arguments:
The expanding elderly population will be more diverse and no longer will have a unified political front.
Younger voters will become more politically active, applying Nobel Prize-winning economist Milton Friedman's ``law of the few,'' which says the smaller group can be more focused and have greater political clout.
Many of the elderly themselves will oppose an elderly welfare state if it is at the expense of their children and grandchildren.
Because of increasing good health and longevity, many elderly will work several years beyond the current retirement age of 65.
Growing demands for higher taxes to finance the existing elderly welfare benefits could mean Congress will tax a progressively greater share of the benefits.
by CNB