Money and Markets: Essays in Honor of Leland B. Yeager

248 Gordon Tullockthe Bismarckian scheme of governmental health insurance. Today most countrieshave both, although a number of government health schemes prohibit privatepractice or severely limit it. In the United States, poor people have health insuranceunder a government plan, as do all people over the age of 65. This is paid for by theSocial Security tax which falls on practically all wage earners not in the blackeconomy.The effect of the combination of the old age pension and medical provision isironic. With modern medicine this subsidized medical service increases the lifespanof older people so that the pension must be paid for a longer period of time. Further,in the United States we are about to have a major increase in people over the age of65 when the immediate postwar bulge of births hits us. Congress provided for thisby arranging an increase in taxes, with the money to be saved for future pensions.This was the American government, however, and the money was spent, althoughan accounting trick covered the expenditure.We may face a more severe crisis, however. Medicine continues to improve andthus avoids deaths. Further, it rather looks as if the progressive decay which we callold age may itself be “curable.” If so life expectancies might go up into the hundredsof years of science fiction. Both the increase in medicine and the possibility ofeliminating the progressive decay to which all human beings and animals are subjectnow are obviously highly desirable. They would, however, produce a crisis forthe Bismarckian system. Nobody would be injured except the government accountsand almost everybody would gain, but nevertheless it would appear to be a crisis.One certainly cannot criticize Bismarck for not anticipating the sharp increase inlifespan. In fact I’m sure he would’ve thought it was desirable, as do I. Neverthelessit is a problem which faces the system in the future and not even the far distantfuture. It seems likely that the problem will become more and more serious overtime, but this is immensely more than made up for by the reduction in humansuffering and the possibility of much longer lives.To return to my previous discussion of this in my book on income redistribution,the old-age pension system is a trap. When first put on, it imposed a sizable taxliability on young people in order to make a gift to old people. Since young peopleeventually get the gift too, they presumably discount a future gift against thecurrent taxes. This, of course, requires an assumption that the program will becon tinued and that is not certain granted the fact that governments do collapse,inflate the currency, and just repudiate their debts. Nevertheless, it seems as reasonablean investment as most others. On the other hand it should be pointed out thatthis does not provide capital for economic expansion as genuine savings would.How important that is I do not know.There is another problem which is that medicine does progress. This will bedealt with at length a few paragraphs further down and when we turn to discussionof another part of Bismarck’s work, government provided medical care. It has adirect impact, however, on the old-age pension scheme because every time we curea disease we increase somebody’s lifespan and hence increase the liability of thepension scheme in the future. So far the system has been able to cope withincreasing lifespans, but we don’t know how long lives will eventually last.