Spending on Elderly Saps U.S. Savings, Economist Kotlikoff Says: Tom Keene

Elderly Americans’ growing consumption of health care and Social Security benefits has lowered national savings to unhealthy and unsustainable levels, said Laurence Kotlikoff, a Boston University economics professor.

“The ratio of personal consumption to national income has dramatically increased, and explains virtually all the decline in the national savings rate,” Kotlikoff said in an interview today on “Bloomberg Surveillance” with Tom Keene. “If you ask who within the household sector is consuming so much more, the answer is the elderly.”

Kotlikoff, 59, said elderly Americans’ consumption has more than doubled since the mid 1960s, in large part through medical services. He said government social programs have reduced the nation’s savings rate to negative two percent from 14 percent in 1965.

To foster investment in a healthy economy, the national savings rate should be 10 percent, said Kotlikoff, who is the author of numerous books, including his most-recent, “Jimmy Stewart is Dead: Ending the World’s Ongoing Financial Plague with Limited Purpose Banking.”

“The dissaving is a reflection of government fiscal policy, which has been taking resources from young savers and giving to old spenders,” Kotlikoff said.

Medicare Costs

Medicare, the U.S. government’s health plan for the elderly and disabled, will run short of money in 2029 instead of 2017, according to the report by the program’s trustees, including Treasury Secretary Timothy Geithner and Health and Human Services Secretary Kathleen Sebelius.

In 2009, Medicare covered 46.3 million beneficiaries and paid $502 billion in benefits, the report said.

Medicare this year is projected to spend $534 billion, or about 21 percent of total U.S. health expenditures. Medicaid is expected to spend $427 billion, or 16 percent.

According to Bloomberg data published Sept. 9, Social Security paid $57.4 billion in retirement, survivors’ and disability benefits in August, providing an average payment of $1,072 to 53.6 million beneficiaries.

To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Thomas R. Keene in New York at tkeene@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.