Do We Have to Starve Old People?
Emmanuel Macron says, "Oui!"
A specter is haunting Europe: the specter of having to pay for old people’s retirements.
This specter has spooked the governing elite in France, who just rammed through a reform to the pension system that would raise the legal retirement age from 62 to 64. Abandoning even the facade of democratic deliberation, French president Emmanuel Macron decided to invoke an article of the Constitution that allows a law to pass without the consent of parliament in pushing through the legislation.
The French people aren’t exactly pleased with this turn of events. They’ve been protesting for months against an increase in the retirement age, and opinion polls have consistently shown a large majority opposed to such a policy change. As French political scientist Yves Sintomer has put it,
The reform of the pension system has been imposed against the will of all the unions, even the most moderate; against a huge majority of French citizens, according to the polls, in all age groups and in all regions; in the face of huge demonstrations and strikes; and against the majority of deputies in the National Assembly.
Macron’s popularity has unsurprisingly taken a beating, with his approval rating down 8 points since December, to a current level of 28%. 70% are dissatisfied with the president.
Polling further demonstrates severe disapproval of the government’s anti-democratic methods. 83% of French people aged 18-24 and 78% over 35 consider the government’s invocation of article 49.3 to pass the pension reform bill “unjustified.”
The French aren’t shy about making their feelings known—when Macron proposed a more radical reform to the pension system in 2019, protests erupted across France. And they’re not keeping quiet this time either, as a recent Politico headline wearily lamented: “France is on fire. How bad is it this time?”
Yet Macron is insistent that this reform is necessary. He has argued that the current pension system is unsustainable and that raising the retirement age is simply the inevitable result of a commitment to responsibility: “The financial burden is huge and will continue to grow in the years to come. The only lever we have is to work longer.”
Many Very Serious People agree, including: the Washington Post editorial board (see my piece on its anti-Social Security tirades here); the Wall Street Journal editorial board; the Bloomberg editorial board; the Financial Times editorial board; and the Economist.
Are they all full of shit? Yes, they are.
Raising the Retirement Age is Unnecessary and Cruel
It’s simply a lie that “the only lever” that exists to shore up the French pension system is an increase in the retirement age. Another lever is more taxes. Oxfam France has in fact calculated that a mere 2% wealth tax on French billionaires could eliminate the projected pension deficit. A 3% tax would allow the government to boost pension levels.
Oxfam likewise points out that, since taking power in 2017, Macron’s government has pushed through 16 billion euros worth of annual tax cuts largely for the wealthy. Plugging the pension system’s projected deficit for 2030 would require only 14 billion euros.
The wild thing is, even without a rise in the retirement age, public spending on pensions in France is actually set to be well-contained over the next 50 years or so. Depending on how optimistic you are about labor productivity, spending on pensions as a percentage of GDP is either not an issue or really not an issue:1
As the above graph shows, even before the recent reform, the most pessimistic modeled scenario for the pension system was an increase in expenditures of less than 1% of GDP by 2070.
Many proponents of pension reform would of course argue that spending around 14% of GDP on supporting older people in retirement, as the French currently do, is too much in the first place. But why? France has one of the lowest elderly poverty rates in the OECD. Should it have a higher elderly poverty rate?
People who casually advocate raising the retirement age probably don’t ask themselves that question. But, when it comes down to it, their answer is probably “yes.” They don’t think people deserve to enjoy longer retirements, replete with free time and financial security, as society grows richer. Well, they don’t believe poor and working-class people should enjoy those benefits. The rich, who don’t rely on public support in old age, are of course entitled to their due.
The reality is, in affluent societies like France or the US, governments are more than capable of providing for retirees. Cuts to pensions and an increase in the retirement age should not be on the table. Benefit increases and a lowering of the retirement age should.
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This graph uses data from a September 2022 report by the Pensions Advisory Council (COR), “an independent and pluralistic body of expertise and consultation, responsible for analyzing and monitoring the medium and long-term prospects of the French pension system.” The report can be found here. For an English version, run the pdf through Google Translate.
Source data here.
It should be noted that these projections are done in a weird way. For the period of 2022-2027, the projections are based on macroeconomic assumptions from the government’s Stability Program. After that, the model transitions to the COR’s own assumptions. This is explained on page 64 of the report. Because the Stability program includes an ill-defined version of pension reform, the first few years of the projections use macroeconomic assumptions that are based on pension reform happening. This muddles the numbers but does not make them unusable. In fact, the report is quite explicit that it is trying to make projections based only on past reforms (which would not include a rise in the minimum retirement age to 64). Further, the COR report’s projections are generally in line with projections from its previous reports going back to 2015 and with the projections of the European Commission in its 2021 Ageing Report. I’m planning on writing up a post about the various projections soon, so will provide more details then. Long story short, the COR’s model is wacky but nevertheless gives solid long term projections for a scenario where the pre-reform pension system remains in place and the minimum retirement age stays at 62.