America's current domestic public policy shares a lot in common with Bernie Madoff's business plan: Keep growing the pyramid at the bottom to pay for the people at the top. What Madoff did was illegal. What's happening with the government's Ponzi scheme is something we've all agreed to.
In the US Government case, the top of the pyramid are older people and retirees; the bottom of the pyramid are young workers.
Any type of plan that depends on an ever growing base is completely unsustainable over the longer term. At some point, especially because of diminishing natural resources and other population-related issues, you can't grow the bottom of the pyramid enough to pay for the people at the top. With the current financial crisis, the US is building on to a huge pile of debt that will need to be paid by future generations. From an operating perspective, we've also got a hugely disproportionate share of the budget going to the elderly as compared to children and young people.
The reason everybody seems comfortable with this situation (at least, comfortable enough not to do anything about it) is that we haven't faced up to the idea that the underlying premise of continued population growth is fundamentally flawed.
What should be happening is that every generation pay for itself, through taxes that are designed to accommodate the choices a generation makes. If people want a system where you get to retire at 55, then the taxes that are collected during the 30 years between 25 and 55 should be onerous enough to care for the publicly financed programs for the 30+ years that are likely to come after. Same with health care - if people from my generation believe we should be getting knee and hip replacements into our 80s through Medicare, then our taxes now (I'm 48) better be high enough to pay for them later.
No one wants to face up to this reality so what happens is that Medicare expenses are climbing at more than 6% of a year, and are gradually squeezing out a lot of other very worthy programs that benefit people of all ages.
We also need to take a look at the estate tax in this context. Why not tax the estates of elderly people to pay for elderly-related expenses, including Medicare? This would tie the estate tax in a meaningful way to an expense that was incurred by the generation that should have built up an endowment to pay for it. Instead what happens now is that even wealthy people get their medical expenses paid at public expense (which increases the deficit - to be paid by younger generations of taxpayers), with their estates then passing down to their own very fortunate adult children and grandchildren.
In the last several decades, because our population was growing quickly, we were able to mask the problems associated with exploding elder-related expenses. Now, however, it's becoming impossible to dodge the fact that the boomer generation, as we become elderly, are going to be orders of magnitude more expensive than the generations that came before us. And we've done nothing to really prepare for that except hope that the generations coming after us will agree to pay the bills.
This blind faith in future generations might have made sense back in the days when people were routinely having five, six, or more children. (I come from a family of eight.) Now, however, for a variety of reasons the birth rate has slowed, with more and more two-children or fewer families. At the same time, the number of older people with long-lasting chronic health conditions continues to rise. This means that fewer people in their earning years are going to be supporting a much bigger number of elderly people, many of them with hugely expensive medical conditions.
The solution can't lie in encouraging people to have more children, because that just keeps the Ponzi scheme going a bit longer, and creates an even bigger problem for future generations to solve.
Creating a tax system that requires each generation to forecast its public expenses and to fund them fully while still in their earning years would change a lot of things in our society. Younger people would have more of a stake in the decisions that affect their lives, middle aged people would have to confront tough questions about whether they're saving enough, and elderly people would know that the quality of support they're getting from government is directly tied to decisions they made earlier in their lives.