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Hilbert Morales  EO Publisher

Hilbert Morales
EO Publisher

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The Rotary Club of San Jose, on January 8, 2014 had Stanford University’s Professor John Shovan as speaker. He is at the Stanford Institute for Economic Research, the Hoover Institute, has authored 20 published books and over 100 research studies on economic topics. Dr. Shovan has been, and is today, an economic advisor/consultant to the Council of Economic Advisors.

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Dr. Shovan said, “While part of this ‘keynote speaker’ assignment is to project the future course of the 2014 economy, my major concern today is about ‘entitlements’. He thought that the economy had been well managed by the Federal Reserve under Ben Bernanke, and that such would continue to be the case under Janet Yellen, for whom he has great respect and met at Yale University.  Dr. Shovan projects that unemployment would drop down from 7.0% to 6.5% during 2014. The stock market values would not achieve much growth during 2014, but there is solid ground for continuing the current recovery and growth.

However, the challenges today in recovery still include the tough one of unemployment.  “Essentially, an unemployed person without a high school diploma is basically unemployable, and certainly way behind in economic potential.” Dr. Shovan thinks the problem is not to get more students into college, but instead to get this bottom rung of unemployable individuals up to the level of having finished high school.

Two additional areas of Dr. Shovan’s concern in this nation’s economy are the entitlements in health care (Medicare) and Social Security (especially retirement planning practices). The challenge with health care is that its costs are out of control. The current Affordable Act (ObamaCare) is not designed to restrict increasing costs.

Current retirement plans such as those city and state employees have for continuing medical care in retirement are not feasible. Dr. Shovan noted that requiring the beneficiary to be a ‘copayor’ results in some cost control because the beneficiary applies personal values and frugality when some of his/her own money is involved. Also, such plans should not bear medical costs until the retirement age of, say, 67 years, is reached. The usual retirement today is at age 62. Dr. Shovan thinks today’s Social Security Administration’s system, which was designed not to be fully funded anyway, is not workable in the long term because the average age of death has increased by 20 years since it was adopted.

Dr. Shovan presented one very specific example of what is going on demographically today. He noted that, “In general, people are living longer as the outcome of expensive updated medical knowledge and its applied technology. For example, many attendees in this audience of 400 individuals today are age 62 or so. Many will live to age 90 and even 100. When Social Security was established (1936), the usual ‘death age’ was 50. Today it is age 82 for men and 86 for women, who tend to outlive men”.

The present Social Security Trust Fund is being funded by employees who pay 7.65% of their wages, (matched by their employers). This 15.3% of wages over a 40-year work period is too short today. That period of support needs to be extended to make the current system work as originally projected by its designers during President Franklin D. Roosevelt’s New Deal Administration.

To make the Social Security system work today “The retirement age should be moved up to age 70 or 72”. Dr. John Shovan’s ultimate conclusion: “It is necessary to keep people working longer and retiring later while continuing to pay into the Social Security Trust Funds. These funds are currently inadequate to meet the payout requirements of the ‘Baby-Boomer cohort’ which is now reaching retirement age 62”.

Dr. John Shovan’s additional concern was that many organizations and institutions have not incorporated these ‘demographic ageing shifts’ into their current plans for retirement and medical care entitlements. Until these economic realities, resulting from ‘longer life span’ that people are now achieving are incorporated into public policy and retirement policies, inadequate proactive practices will continue with dire outcomes.

This was an effective presentation about the economic impact of ‘entitlement issues’ which must be re-assessed and re-evaluated by this nation’s decision-makers and public policy formulators. Long-term adjustments are required. The capability of the body politic to accomplish necessary adjustments was the subject of one of several questions. In academia, economics is know as the “gloomy science”, and one can understand why in view of these entitlement issues to be resolved. This was an informative analysis of our current entitlement situation.

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