Josh Patashnik Is Insane

Over at The New Republic Josh Patashnik writes,

Isn’t that second sentence sort of an odd interpretation of this chart? Clearly, the projected growth rate of health care costs is unsustainable, and finding ways to change that ought to be, far and away, the country’s top fiscal priority. But it’s not as though the chunk of money going to Social Security and “other spending” is simply an afterthought; this is 15 percent of GDP we’re talking about. I’ve never understood the argument that simply because their growth rates are close to zero they shouldn’t be part of the conversation. If you thought one part of your household budget were going to expand dramatically, wouldn’t you want to look for savings everywhere, rather than betting (probably unrealistically) that you can get the one offending budgetary item entirely under control?

That is precisely my thinking when I write things like “the actuarial imbalances for Social Security and Medicare pose serious medium to long term fiscal issues….” It isn’t that Social Security is in crisis and we must gut it, but that it seems like wildly optimistic to think that the problem can be solved entirely by addressing the underlying problem with Medicare: the completely unsustainable projected growth rates for health care expenditures coupled with some rather bad demographics. Note that the later is pretty much a fact and all you have to work with then is the former—changing the growth rates for health care over the coming decades. Arguing that we can ignore Social Security and even other spending is not simply hoping for the best it is being foolhardy.

Or to put it another way since some commenters here just can’t seem to wrap their minds around this concept. Sure, if Medicare were not a problem Social Security would not be much of a problem. With some reasonable policies we could get it under control. However, Medicare is at problem. Let me say that again: Medicare is a problem. And the third time is the charm—Medicare is a problem. So please spare me all your posts, and blabbering on about how we could solve the problem with Social Security while ignoring Medicare. Unless you have a plan that will assuredly solve the Medicare problem it is just mind bogglingly silly to ignore Social Security.

Update: In comments there are some who are having problems understanding my position on Social Security and Medicare. So I’ll try once again.

Medicare and Social Security are in actuarial imbalance and are likely to produce very bad fiscal situations in the not too distant future (think 10 years or so) if nothing is done. Why is this the case? There are two reasons.

The first is demographics. The baby boomers are starting to retire and there are alot of them. As such both Social Security and Medicare will see fairly substantial increases to their expenditures over the next couple of decades. For Social Security what will happen is there will be a ramp up in expenditures which will level off and is projected to hold constant for the next 75 years. By itself this isn’t a serious problem. The short fall for Social Security even in the infinite horizon case is around $13 trillion. Some minor modifications to the program would likely put it back in actuarial balance. Yes, these modifications might entail things like increasing the payroll tax, expanding the tax base the payroll tax applies too, increasing age for eligibility of benefits and indexing it to life expectancies, changing the COLA adjustment formulas, etc. Nothing huge or drastic and certainly nothing like gutting the program.

The second problem is that health care expenditures have been rising very quickly over the past few decades or so. This is bad news mainly for the actuarial imbalance in Medicare. This is where the bulk of the problem lies. To fix this problem is likely going to take more than applying the same modifications noted above in discussing Social Security–although they would help to be sure. What needs to be done is reform health care and the laws and policies pertaining to health care. One place to start is Medicare itself as it is likely one of the reasons why health care expenditures have been growing at such a high rate [1].

So, the reason why we can’t ignore Social Security is that it is unlikely that we will be able to fix the health care problem both in a timely fashion and sufficiently to completely solve the problem with Medicare. Indeed, one reason is that Medicare could be part of the problem, and it seems unlikely we are going to get rid of Medicare. So, we need to look at both programs and make modificiations like the ones noted here to help improve the fiscal outlook. At least until the isse of the rate of growth for health care expenditures is brought under control.

Finally it has been suggested that this is some sort of conservative conspiracy. However, these modifications noted here have been proposed by none other than Alice Rivlin of the Brookings Institute. Also Lawrence H. Thompson of the Urban Institute who writes,

As the baby boomers leave the workforce, additional stress on programs designed to support retirees will build, and some combination of benefit reductions and tax (or other revenue) increases will be necessary to maintain fiscal balance in both Social Security and Medicare. Benefit reductions might involve further increases in the Social Security retirement age, selected reductions in cash benefits, or increases in Medicare cost sharing. Revenue increases could involve general revenue transfers to finance either the cash benefit or hospital insurance programs directly or to fund a transition to individual accounts, or a more traditional payroll tax increase.

There is also Edward Gramlich, C. Eugene Steurle, and Randolph Penner, also from the Urban Institute. These are not exaclty hot beds of conservative propaganda.

FILED UNDER: Economics and Business, Government, , , , ,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. Dantheman says:

    Boy, this is a contradictory post. You start out trying to defend statements like “the actuarial imbalances for Social Security and Medicare pose serious medium to long term fiscal issues….”, even though you then admit Social Security is not really in a crisis.

    You then indicate (several times) that Medicare is the real problem. However, your solution to that problem seems to be limited to transferring revenue from Social Security to Medicare. There’s no reason (other than conservatives’ desire to turn the clock back to the 1920’s) that Social Security has to be the sole, or even the primary, means to close Medicare’s shortfall. It can be reached by cutting agricultural subsidies. Or defense spending. Or (horrors!) by raising taxes.

    Or to put it another way, if you are suggesting that there is no other way to close Medicare’s budget gap than by gutting Social Security, you and not your commentators are the foolhardy one.

  2. Michael says:

    How about we remove the cap on Social Security taxation, tax everyone the same 6.2% of every dollar earned. Would that produce enough extra revenue to pay for Medicare?

  3. bob says:

    in five years, the currency will be worth less than half of what it is worth today, given the inflation up ahead. without colas, all the obligations will be much less, and colas will have to go because of lack of capacity to pay them. houses will be worth much more in terms of the number of dollars than they were in 2006 and incomes will way ahead of 2006, erasing the mortgage problem. the country will be much poorer overall but the situation will have become much more manageable. Stimulus = inflation and that’s all there is to it.

  4. Of course… It all makes sense now. If Medicare is the problem, then the solution is to cut Social Security. Got it.

    Can we just be honest for a minute? Many conservatives hate Social Security with the same sort of blind passion that many lefty peaceniks hate defense spending. It just somehow embodies all that is wrong with the world to them. So, for lefty peaceniks, when the world is less dangerous, that is a good time to cut defense spending because, you know, we don’t need it. And when threats seem high, well that is a good time to cut it because if we disarm it will encourage our enemies to do so as well.

    That’s how conservatives are with Social Security. Everything and anything provides a compelling and self-sufficient justification to “reform” Social Security.

  5. Steve Verdon says:

    Dan,

    You do know what the word “and” means right? You have to consider both.

    Let me try once more since you are slow. You look at your finances and see that one expenditure, say your mortgage is becoming a problem. Do you,

    A. Spend like normal.
    B. Try to solve the mortgage problem, but spend in other areas like normal.
    C. Look at your entire budget and reduce expenditures where you can AND look into options to address the mortgage payments as well?

    I’m thinking C is probably the best strategy.

    Or to put it another way, if you are suggesting that there is no other way to close Medicare’s budget gap than by gutting Social Security, you and not your commentators are the foolhardy one.

    I never made such an assertion so now you are not only slow but dishonest too.

    Michael,

    How about we remove the cap on Social Security taxation, tax everyone the same 6.2% of every dollar earned. Would that produce enough extra revenue to pay for Medicare?

    Only problem with this is that people who earn income above the cut-off tend to earn income in ways other than wages. As such it wouldn’t get you much. And we have the demographics to consider as well. We will likely need a number of approaches such as reducing benefits, raising the retirement age, increasing taxes (maybe at a later date), and possibly some form of means testing. For both Social Security AND Medicare.

  6. Steve Verdon says:

    Bernard,

    You have to look at fiscal situation in its entirety. Your obstinate refusal to do so marks you as one of the fool hardy.

    Can we just be honest for a minute?

    Why should you start now Bernard?

    By the way, since I doubt people will actually click through and read Alice Rivlin’s testimony here is what she wrote about Social Security,

    Fixing Social Security is a relatively easy technical problem. It will take some combination of several much-discussed marginal changes: raising the retirement age gradually in the future (and then indexing it to longevity), raising the cap on the payroll tax, fixing the COLA, and modifying the indexing of initial benefits so they grow more slowly for more affluent people. In view of the collapse of market values, no one is likely to argue seriously for diverting existing revenues to private accounts, so the opportunity to craft a compromise is much greater than it was a few years ago. Fixing Social Security would be a confidence building achievement for bi-partisan cooperation and would enhance our reputation for fiscal prudence.

  7. Dantheman says:

    Steve,

    Try again, and start by actually read your own post this time. Please point to specifics of where in this post you suggest anything other than gutting Social Security should be done to solve Medicare’s problems.

    Shouting juvenile names at me for suggesting that other items should be on the table, while then proposing your option C after I have already done so is …, well, words fail in describing its dishonesty.

  8. Steve Verdon says:

    Dan,

    Nowhere did I indicated that gutting social security is the only nor even the preferred option. Further, I didn’t imply that gutting social securtiy would solve the problem with Medicare. Try again.

  9. My obstinate refusal? lol, that’s rich. I’m not the one peddling all sorts of easily debunked myths about the federal budget.

    Look, it isn’t that hard. We face a health care crisis in our country. We spend more per capita than any other country in the world, and our health care system is not any better. If we bring our health care costs down into the median of industrialized nations, the Medicare and Medicaid crisis become manageable indefinitely, even with an ageing population.

  10. Dantheman says:

    Steve,

    “Nowhere did I indicated that gutting social security is the only nor even the preferred option.”

    In other words, all readers should determine that your multiple references to us not ignoring Social Security in order to resolve Medicare, and your total lack of references to any other method of resolving the situation, really meant that you had a whole different set of preferences on how to resolve the situation, which you decided to spare us the pleasure of reading. Okey-dokey.

  11. Michael says:

    Only problem with this is that people who earn income above the cut-off tend to earn income in ways other than wages. As such it wouldn’t get you much.

    Good point, so on top of removing the cap on SS taxation, lets make both SS and Medicare income taxes instead of payroll taxes.

    and possibly some form of means testing

    Now you’re starting to talk like a Communist, to each according to their means? I don’t like it, it will just encourage people to not have the means to support themselves.

    How about this, instead of mailing out SS checks, retirees get a checking account at the fed that only the SSA can make deposits into. Any money left in the account when the recipient dies isn’t subject to estate taxes. Those who can support themselves have an incentive to do so, it even gives their families incentive to support them.

  12. Steve Verdon says:

    Bernard,

    I have to say you are impressing me with how dishonest you can be. I seem to recall that much of that was the result of your discussions with Drew, not me.

    About the only one I think you could, if you squint really hard, link to me is the one related to Social Security. And to the extent that we look at Social Security in isolation it is indeed not that bad of a problem. My position is that it is not a good idea to look at it in isolation.

    I did make a comment about the tendency for there to be deficits during the last 64 years and your very first graph would tend to support my contention. Using your own data source (the GPO) the country ran a deficit 87% of the time from 1945 to 2007.

    However, I think it is an error to look at programs in isolation. The government basically puts all of its money in one big fund. Sure there are legal requirements that you can argue make this not so, but Politicians have gotten so good at getting at the Social Security/Medicare Trust Fund money such distinctions are in the end pointless.

    Look, it isn’t that hard. We face a health care crisis in our country.

    Yes, we do.

    We spend more per capita than any other country in the world, and our health care system is not any better.

    Okay, comparing apples and oranges.

    If we bring our health care costs down into the median of industrialized nations, the Medicare and Medicaid crisis become manageable indefinitely, even with an ageing population.

    Okay, so you favor reducing quality of care. Good to know. Not exactly what I call a dazzling plan, but at least you have something.

    Oh, you do know that most other countries have health care systems that are not sustainable right? Canada, the UK, France,….

    And that not all countries use the WHO definitions in terms of defining successful medical outcomes, right? That using gross statistics like life expectancy, infant mortality rates, etc. may be somewhat misleading…right?

    Dan,

    In other words, all readers should determine that your multiple references to us not ignoring Social Security in order to resolve Medicare, and your total lack of references to any other method of resolving the situation, really meant that you had a whole different set of preferences on how to resolve the situation, which you decided to spare us the pleasure of reading. Okey-dokey.

    No Dan, what I was hoping even someone like you could grasp was that we have some serious fiscal issues and that we need to look at the entire fiscal situation and not do it piece-meal.

    Michael,

    Good point, so on top of removing the cap on SS taxation, lets make both SS and Medicare income taxes instead of payroll taxes.

    You want a depression? I think raising taxes right now is contra-indicated. Maybe in a few years, and no not an income tax either.

    Now you’re starting to talk like a Communist, to each according to their means? I don’t like it, it will just encourage people to not have the means to support themselves.

    Yep, but unfortunately that is one of the few politically feasible solutions. I noted this during one of our OTB Radio sessions. We pass policies and laws that create incentives not to save then politicians/policy makers are shocked when people don’t save.

  13. Michael says:

    Okay, so you favor reducing quality of care. Good to know.

    He didn’t say that, he said we needed to reduce the cost of health care. There may be no free lunches, but there are over-priced hamburgers.

    I think raising taxes right now is contra-indicated.

    Wouldn’t raise my taxes. Nearly all of my income is from wages, and all of my wages are below the SS cut off. I’d bet that’s true for the vast majority of Americans. Heck, if we do that, we might even be able to implement a flat tax rate instead of a progressive one. I hear Republicans like that idea.

    unfortunately that is one of the few politically feasible solutions.

    What’s wrong with mine?

  14. Okay, so you favor reducing quality of care. Good to know. Not exactly what I call a dazzling plan, but at least you have something.

    ….

    And that not all countries use the WHO definitions in terms of defining successful medical outcomes, right? That using gross statistics like life expectancy, infant mortality rates, etc. may be somewhat misleading…right?

    What statistics would you rather have? Life expectancy, infant mortality, access to medical care… those apparently as misleading… but then I’m guess you’re going to trot out some very specific illness that we treat better or some sad story about how John Bull had to wait 37 days for his appendix operation to counter them.

    DATA shows that our health care system is the costliest in the world, and DATA shows that our health care system is no better than the middle of industrialized notions. ANECDOTES do not refute DATA.

    sing your own data source (the GPO) the country ran a deficit 87% of the time from 1945 to 2007.

    So what? Many of those deficits occured during recessions. Others were small enough that our net debt burden actually declined during those years. And some of those deficits occurred because conservative ideologues (GWB) argued that running surpluses (even if used to repay debt) was immoral.

    We ran surpluses as recently as the 1990s. It is not impossible to do. And certainly running deficits that are small enough to actually reduce the net debt burden is possible as well.

    But all of that is irrelevant to the fact that even if you were to wholly eliminate Social Security, you would not fix the health care crisis. The path to fixing health care does not run through Social Security nor the defense budget nor any other spending category. Indeed, even if you managed to “fix” Medicare and Medicaid, we’d still be on the path to ruin because we spend twice as much on health care in the private sector than we do through the government and that portion of health care is growing just as fast. It is destroying our industrial competitiveness. It is a leading (not THE leading necessarily, but A leading) cause of bankruptcies. It is an unmitigated disaster looming. And I really, really resent conservative hacks trying to use the health care crisis as a justification to pursue their ideological vendettas against Social Security.

  15. Steve Verdon says:

    Bernard,

    What statistics would you rather have? Life expectancy, infant mortality, access to medical care… those apparently as misleading… but then I’m guess you’re going to trot out some very specific illness that we treat better or some sad story about how John Bull had to wait 37 days for his appendix operation to counter them.

    No, I was noting that using the published statistics are problematic and that one has to be careful when making a simple comparison as is often the case. In other wrods, you can’t make international comparisons without a considerable amount of work. Work you clearly have not done (me neither).

    DATA shows that our health care system is the costliest in the world, and DATA shows that our health care system is no better than the middle of industrialized notions. ANECDOTES do not refute DATA.

    For example, live births are counted very differently even in places like Europe. As such, making comparisons between countries without correcting for these differences in DEFINITIONS, not anecdotes, are problematic at best. The problem is that the DEFINITIONS are possibly skewing the data.

    So what? Many of those deficits occured during recessions. Others were small enough that our net debt burden actually declined during those years. And some of those deficits occurred because conservative ideologues (GWB) argued that running surpluses (even if used to repay debt) was immoral.

    Back tracking duly noted. However, in the conversation that was precisely the point I was trying to make. That deficits occur, and often frequently and also not just due to recessions (here is a hint DATA shows that the U.S. economy is in expansion more often than contraction). Hence your claim about not having deficits was overly optimistic.

    We ran surpluses as recently as the 1990s. It is not impossible to do. And certainly running deficits that are small enough to actually reduce the net debt burden is possible as well.

    It will be for the next 5 to 10 years. And when Medicare starts to run short on funds it will be highly unlikely that there will be surpluses unless something changes. This is why I think it is a mistake on your part to isolate Social Security in your analysis.

    But all of that is irrelevant to the fact that even if you were to wholly eliminate Social Security, you would not fix the health care crisis.

    I agree, but so what? I haven’t advocated this notion despite your fevered imaginings.

    The path to fixing health care does not run through Social Security nor the defense budget nor any other spending category. Indeed, even if you managed to “fix” Medicare and Medicaid, we’d still be on the path to ruin because we spend twice as much on health care in the private sector than we do through the government and that portion of health care is growing just as fast.

    I agree. However, you are missing my argument Bernard. Missing it completely.

    My position is that we should be prudent and address the fiscal situation in its entirety since it may very well be the case that we can’t solve the health care problem completely or in time. In other words, we should make some changes to Social Security because Medicare is a very large and contentious issue. Whatever reforms are made there may not be sufficient or in time and as such marginal changes to Social Security can make for a better fiscal outlook than there otherwise would be.

    In short, you are attacking a straw man and falsely claiming I’ve made arguments I have not.

  16. Dantheman says:

    Steve,

    “No Dan, what I was hoping even someone like you could grasp was that we have some serious fiscal issues and that we need to look at the entire fiscal situation and not do it piece-meal.”

    Funny, that’s what I was saying. Instead what you have been saying (surrounded by throwing insults right and left and distorting other people’s positions — two time proven ways to maximize the heft of your arguments!) is that we need to look at Social Security and Medicare to solve Medicare’s problems.

    You have now said it in your original post, in your update, and in your comments to me, your comments to Bernard (“My position is that we should be prudent and address the fiscal situation in its entirety since it may very well be the case that we can’t solve the health care problem completely or in time. In other words, we should make some changes to Social Security because Medicare is a very large and contentious issue. Whatever reforms are made there may not be sufficient or in time and as such marginal changes to Social Security can make for a better fiscal outlook than there otherwise would be.”), and your comments to Michael (“We will likely need a number of approaches such as reducing benefits, raising the retirement age, increasing taxes (maybe at a later date), and possibly some form of means testing. For both Social Security AND Medicare.”).

    If you actually intend to look at the entire fiscal situation, you would write about the entire fiscal situation. That seems entirely beyond your ken, though.

  17. Many conservatives hate Social Security with the same sort of blind passion that many lefty peaceniks hate defense spending.

    Is there anyone here that this applies to?

  18. Steve Verdon says:

    No Dan, despite your ravings and such that is not the case. The case has been made by people like Bernard and Ezra Klein that we need not worry about Social Security. My comments have always been along the lines of, “We need to address the actuarial imbalances in Social Security and Medicare.” Really.

    See Dan, that was the intent of this in my post,

    Arguing that we can ignore Social Security and even other spending is not simply hoping for the best it is being foolhardy.

    Note it doesn’t say, “We will solve the Medicare problem via Social Security.”

    Then there is this section,

    Let me say that again: Medicare is a problem. And the third time is the charm—Medicare is a problem. So please spare me all your posts, and blabbering on about how we could solve the problem with Social Security while ignoring Medicare. Unless you have a plan that will assuredly solve the Medicare problem it is just mind bogglingly silly to ignore Social Security.

    Does this say “solve the Medicare problem via Social Security”? No. It says, “You can’t ignore Social Security and focus only on Medicare.”

    And you are being deliberately obtuse, or are just outright stupid, regarding my comment to Bernard. There the point can be restated as:

    1. We should try to address the health care problem.
    2. However it is difficult.
    3. We may not be able to change it in time or sufficiently.
    4. Thus, making changes to both Social Security and Medicare that improve the fiscal outlook are prudent.

    Now, alternatively we could make no changes to Social Security and just whack Medicare extra-hard. But the bottom line is that business as usual is not an option.

  19. Steve Verdon says:

    Is there anyone here that this applies to?

    Apparently I’m a conservative who hates Social Security. Nevermind mind that I’m not a conservative, and while I don’t like Social Security* I realize it isn’t going anywhere any time soon, so it must be dealt with.

    *I think it is a bad program that relies on inter-generational transfers that can create perverse incentives to reduce savings amongst current works as well as excessive borrowing from future generations of tax payers. I’m not necessarily opposed to some form of social safety net.

  20. Dantheman says:

    Steve,

    Since your response only alluded to your claims of stupidity once, I will refrain from making any further remarks on your duplicity.

    “Now, alternatively we could make no changes to Social Security and just whack Medicare extra-hard.”

    Or, we might actually consider additional choices, as I stated way back yonder, “There’s no reason (other than conservatives’ desire to turn the clock back to the 1920’s) that Social Security has to be the sole, or even the primary, means to close Medicare’s shortfall. It can be reached by cutting agricultural subsidies. Or defense spending. Or (horrors!) by raising taxes.”

    The more time you spend saying we need to solve this problem and Social Security must be on the table (but not pointing to anything else which must be), the more the word “stupid” coming from you can only be interpreted to refer to the man in your mirror.

  21. tom p says:

    1. We should try to address the health care problem.
    2. However it is difficult.
    3. We may not be able to change it in time or sufficiently.
    4. Thus, making changes to both Social Security and Medicare that improve the fiscal outlook are prudent.

    Maybe I was one of the few who got what you were saying in the original, Steve, but I thought it was pretty clear.

    One thing I differ with you on tho is, I think that SS is the more easily solved problem, which means that politically it is the more likely to be done in the short term. Building on that success and tackling Medicare makes that problem more solveable(sp?) as well.

    In other words, don’t try to do it all at once, lest both problems/solutions be sunk by the more intractable politics of one.

    Maybe I am a fool, but I really don’t think SS is still the “3rd rail” of politics that it once was.

  22. Raoul says:

    According to actuaries- SSA is supposes to run into negative outlays in 2041 and not before; so your statement the actuaries show problems in ten years is false. Prove it otherwise. And if you do not comprehend what an actuary is, which appears to be the case, one cannot simply wave a wand and make the prior surplus contribution disappear like you are doing.

  23. Back tracking duly noted. However, in the conversation that was precisely the point I was trying to make. That deficits occur, and often frequently and also not just due to recessions (here is a hint DATA shows that the U.S. economy is in expansion more often than contraction). Hence your claim about not having deficits was overly optimistic.

    How is it backtracking to consider years when our debt burden as a percentage of GDP declines something other than a deficit. In those years, our fiscal situation in improving! What is so special about a “deficit” in the abstract. The question really is about the cost of the additional debt, not the number itself. Right?

    According to numbers I will post later this evening on my site, since 1950 our net debt burden as a percentage of GDP improved or stayed the same in 39 years and worsened in only 19. In non-recession years, it was 29 and 11. In short, historically, our deficits are small enough that their impact is wiped out by economic growth.

    I’ll have a post up tomorrow that also explains why the concept of “actuarial imbalances” is meaningless. Short version — we only have that discussion because Social Security has a special tax supposedly devoted to it. But since the funds go into general revenue, it is just an accounting technique. If you think Social Security is in actuarial imbalance, look at defense spending, which has no dedicated tax at all. Wow… imagine the imbalances there. Meaningless concept in both cases for the same reasons.

  24. Steve, I guess that means you aren’t a lefty peacenik who hates defense spending. So you got that going for you.

    But unseriously, why don’t we just borrow about $12T and invest it now to head off the day when Social Security runs out of money. There is apparently no real downside to borrowing any amount of money, the economy will recover within a couple of years, and think of all the jobs the multiplier effect will bring when that money is invested wisely by the government!

  25. Steve Verdon says:

    Or, we might actually consider additional choices, as I stated way back yonder, “There’s no reason (other than conservatives’ desire to turn the clock back to the 1920’s) that Social Security has to be the sole, or even the primary, means to close Medicare’s shortfall.”

    FFS.

    This has never been my contention. It is your claim that is what I’m saying. I do not and have not held this view. Really. Nothing I’ve written indicates that this is so.

    You. Are. Arguing. Against. A. Strawman.

    “It can be reached by cutting agricultural subsidies. Or defense spending. Or (horrors!) by raising taxes.”

    Yes we could do that, but it doesn’t address the problem, all you are doing is crowding out government spending in favor of Social Security and Medicare. Do it long enough and the only things in the federal budget will be interest, Social Security and Medicare. In short, it isn’t a very good long term solution.

    Now too the extent we can reduce the cuts to Social Security and Medicare by reducing other spending fine. However, you are, IMO, making the work just that much harder in that you are increasing the number of special interest groups you’ll have to fight, and in the end you’ll likely still have to make changes to both Social Security and Medicare, or give up all other spending at some future date.

  26. One other question, what happens to all these projections about Social Security if inflation hits 10% for a few years? Gonna make the 1.23% rate of return for my 51 years of Social Security contributions look kind of anemic won’t it?

  27. Steve Verdon says:

    According to numbers I will post later this evening on my site, since 1950 our net debt burden as a percentage of GDP improved or stayed the same in 39 years and worsened in only 19. In non-recession years, it was 29 and 11. In short, historically, our deficits are small enough that their impact is wiped out by economic growth.

    That’s fine Bernard, live in the past if you want, but looking forward it doesn’t look like it is going to be the 1950s and 1960s again. Comparing those time periods when we didn’t have Medicare (inception 1965) to the future is rather silly. But go ahead if it will make you feel better.

    I’ll have a post up tomorrow that also explains why the concept of “actuarial imbalances” is meaningless. Short version — we only have that discussion because Social Security has a special tax supposedly devoted to it. But since the funds go into general revenue, it is just an accounting technique. If you think Social Security is in actuarial imbalance, look at defense spending, which has no dedicated tax at all. Wow… imagine the imbalances there. Meaningless concept in both cases for the same reasons.

    Right, guys like Eugene Steurle and Edward Gramlich…pfft what do they know? Sorry Bernard I’m going with them and not you. Sping it all you like that there really are not problems, but it is just spin.

    Raoul,

    According to actuaries- SSA is supposes to run into negative outlays in 2041 and not before; so your statement the actuaries show problems in ten years is false.

    Try looking at Social Security and Medicare.

  28. Raoul says:

    SV: OK I looked- now what. Do you know what an actuary table is?

  29. fester says:

    Steve — Medicare AND anything else is in massive fiscal trouble. You are conflating problems and prioritizations.

    Right now the New England Patriots need an excellent pass rushing outside linebacker, a solid #2 cornerback, a versatile strong safety, a #3 wide receiver, a #3 tight end and a long snapper. And the priority order is roughly as I have written it.

    Your argument on Social Security is similar to arguing that the Patriots should use their first round pick on either the #3 tight end or the long snapper needs. Yes, the needs would be addressed and it would improve the team, BUT the scale of change in performance would be so damn small that the Patriots as currently constituted would be leading contenders for a top-5 pick in 2010.

    Yes, Social Security over a 75 acturial balance in the intermediate cost case is running less than a 1% GDP imbalance. That is less than George W. Bush’s tax cuts would cost over 75 years if they were made permament, or roughly what the US spent in Iraq last year. It is real money, but not big money.

    Social Security is only a problem if you want to renege on the social contract that the boomers would pay high payroll taxes for thirty years to ‘pre-fund’ Social Security and that the upper classes would presumably pay higher income taxes during the boomer’s retirements to pay back the pre-funding.

  30. Right, guys like Eugene Steurle and Edward Gramlich…pfft what do they know?

    If you begin with the assumption that Social Security is an insurance program and should be assessed according to the same kinds of models, then yes, there are imbalances.

    But the issue is one of sustainability. If I told we could continue Social Security unchanged with it consuming the same amount of the federal budget as today and the federal budget consuming the same amount of GDP and the debt/GDP ratio remaining constant, would you agree it was indeed sustainable?

    I will demonstrate something very close to this with wholly transparent assumptions. You are free to attack the methods, but arguing that Some Big Name said otherwise is sophomoric. Let’s talk fact and figures.

  31. Steve Verdon says:

    Bernard,

    You are wrong because if we take all reciepts and all expenditures including Medicare and Social Security there is indeed a problem. Granted the smaller of the two problems is Social Security, but the idea that there isn’t a problem is simply not true given various assumptions about where we expect things to go.

    So go ahead and post what ever rationalization you want. It wont change the projections in terms of expenditures vs. receipts.

  32. Steve Verdon says:

    Raoul,

    Medicare is going to start running out of money much sooner than 2041.

    fester,

    We spent $11 trillion on Iraq last year? Who knew.

  33. So go ahead and post what ever rationalization you want. It wont change the projections in terms of expenditures vs. receipts.

    Shorter Verdon: Facts don’t matter. I’ve made up my mind.

    Good to know.

  34. Steve Verdon says:

    The facts do matter Bernard, and when you look at projected reciepts vs. projected expenditures (based on past data–i.e. facts) they simply do not add up. Prattling on about how actuarial imbalance is a meaningless terms isn’t going to get you around that. In short, I can’t think of any other conclusion other than that you are an innumerate.

  35. Pete Burgess says:

    Steve, why do you use up bandwith arguing with these nitwits?

    Portion of comment in violation of site policies deleted. If you wish to buy advertising for your pet agenda, contact me for rates.

  36. Steve, for God’s sake man, think.

    The actuarial imbalance issue is about a specific revenue stream. It does not determine the sustainability of Social Security as a governmental expenditure. That is a function of GDP growth, general tax revenues, sustainable share of the budget, etc.

    Social Security does not HAVE to be paid out of payroll taxes. Money is fungible. The whole actuarial argument thing is about whether Social Security can stay afloat on its own bottom as if it were some separate sort of expenditure. But it isn’t. It is a program like any other.

    Good grief. This part of it isn’t rocket science, though there are a lot of tough issue as you actually beging to work through numbers.

  37. Drew says:

    “Can we just be honest for a minute? Many conservatives hate Social Security with the same sort of blind passion that many lefty peaceniks hate defense spending.”

    The comparison is ludicrous. Defense spending is the only major class of government spending I am aware of that has decreased significantly over time – as a fraction of our resources;a s GDP has grown.

    SSpending – nope. Its sucking up the defense benefit and is unsustainable. Why is this such a hard concept??

    Devolving the observation that defense spending has declined, and is the crutch that has allowed social spending to increase at unsustainable rates, into “you hate defense, I hate SS” is really, really, really weak argumentation. Sand box stuff.

    A manager in one of my companies – and we have tough budget debates given the difficult realities of our environment all the time – who gave me that line would be told to sharpen his thinking or pack it up. Competant managers are available.

  38. Michael says:

    I proudly support The FairTax!

    Yes, we’ve noticed that. Repeatedly. Please stop spamming us.

  39. Dantheman says:

    Steve,

    We are done. If you cannot see that the two halves of your 5:47 pm response directly contradict each other, and that you _are_ saying in the second part that reducing Social Security is the only possible primary way to deal with Medicare, which you call a strawman in the first part, then it is pointless to argue with you any further.

  40. Pete Burgess says:

    Michael, putting in a plug for The Fair Tax isn’t spam. If you spent a few minutes studying it, you might find a great deal of relevance to solutions for our bleak financial future. It seems the only way to get your attention is to make you think it is spam. All you guys are doing is endlessly arguing your own take on certain things. That will sure solve alot. Why don’t you become an activist on something worthwhile, like the Fair Tax?

  41. Michael says:

    Michael, putting in a plug for The Fair Tax isn’t spam.

    Putting in a plug isn’t spam, putting in four plugs in 24 hours is spam.

  42. Drew:

    But, it isn’t true that other parts of the budget don’t decline. As I documented here social spending other than health care has been declining for 30 years.

    It is simply put a myth that everything except defense spending is inexorably rising.

    You told me you were fair minded… check out my posts on this issue at Bernardfinel.com and tell me where you think I have gone wrong.

  43. Steve Verdon says:

    Steve, for God’s sake man, think.

    I am, you are the one not thinking. You are being either deliberately obtuse or are innumerate.

    The actuarial imbalance issue is about a specific revenue stream. It does not determine the sustainability of Social Security as a governmental expenditure. That is a function of GDP growth, general tax revenues, sustainable share of the budget, etc.

    Yes, fine. But there still remains the problem that Social Security spending is probably going to rise as a percentage of GDP. Revenues will not. As such, if other spending remains constant the budget, as a share of GDP, has to rise.

    Your new post is in direct contradiction to this information from the CBO. The only way for the budget to not rise as a percentage of GDP is for other parts of the budget to decrease by offsetting amounts.

    When you look at Medicare, Social Security, and other federal spending (NOT counting debt service) you see that the idea that federal spending cannot remain at a percentage of GDP that we are currently seeing except in the most optimistic cases (link).

    Your belief that current and recent trends will continue forever is at best a dubious assumption and eventually even with zero spending for non-Social Security/Medicare we’d still see federal spending exceeding the current level as a percentage of GDP.

  44. fester says:

    No, Iraq used about 1% of GDP last year, which is about what the long run Social Security acturial imbalance is using the intermediate cost projection.

    As long as you conflate Medicare with Social Security, and then argue that Social Security is unsustainable, you are being a hack.