Sunday, May 24, 2009

Keeping it Real on Social Security and Medicare

Scott "Social Scientist" Lemieux, at Lawyers, Guns and Money, perfectly demonstrates that membership in the "reality-based community" is all about living in the utopian make-believe "reality" of postmodern ideology.

Heads exploded today
LGM in response to Robert Samuelson's latest column on Social Security and Medicare, "Let Them Go Bankrupt, Soon." Why bankruptcy? These entitlements are inevitably insolvent and thus fundamentally unsustainable:
When the trustees of Social Security and Medicare recently reported on the economic outlook for these programs, the news coverage was universally glum. The recession had made everything worse. Social Security, Medicare face insolvency sooner, headlined The Wall Street Journal. Actually, these reports were good news. Better would have been Social Security, Medicare risk bankruptcy in 2010.

It's increasingly obvious that Congress and the president (regardless of which party is in power) will deal with the political stink bomb of an aging society only if forced. And the most plausible means of compulsion would be for Social Security and Medicare to go bankrupt: trust funds run dry; promised benefits exceed dedicated payroll taxes. The sooner this happens, the better.

That the programs will ultimately go bankrupt is clear from the trustees' reports. On pages 201 and 202 of the Medicare report, you will find the conclusive arithmetic: over the next 75 years, Social Security and Medicare will cost an estimated $103.2 trillion, while dedicated taxes and premiums will total only $57.4 trillion. The gap is $45.8 trillion. (All figures are expressed in "present value," a fancy term for "today's dollars.")
Samuelson's argument isn't that controversial, actually. Talk of the entitlement "time bomb" is not new. That policymakers keep kicking the can down the road is irresponsible, if unexceptional. It currently takes taxpayer contributions from 2.5 workers to finance the Social Security benefits of one recipient. In 40 years we'll have only two workers supporting one retiree. The facts are staring us in the face. I teach social policy every semester. According to George Edwards, in his non-partisan textbook, Government in America (2008):

About 75 million baby boomers will start retiring in about 2010. Chances are, they will live longer and healthier lives than any generation before - and run up even bigger costs for the Social Security system and its health care cousin, Medicare ... There are some - President George Bush is among them - who think Social Security needs reform. It is a time bomb, most experts think, ticking away, moving inexorably toward the day when the costs will exceed income ...
The text notes that at some point, likely 2038 (one year later than Samuelson's estimate), expenditures will exceed payouts, and the government will have to siphon increasingly large amounts of funding from other federal programs to cover the deficit.

But that's just my textbook, written by some of the most prominent political scientists in American governmental studies. They can hardly be attacked as embarrasing "hacks," as is Samuelson by
Scott "Social Scientist" Lemieux.

But for good measure, let's check in with Daniel Shea, another political scientist who's got a brand-new textbook out,
Living Democracy:

Everyone talks about the crisis that is coming to Social Security and Medicare - is it real? Left unchecked, spending for Social Security will account for 6.4 percent of GDP by 2050, and Medicare and Medicaid will use a combined 21.9 percent, for a total of 27.3. Over the past fifty years, total government spending has averaged 18.5 percent of GDP. What this means is that by 2050, these programs will absorb 150 percent of average government spending without appropriating a penny for food stamps, defense, science, space exploration, or anything else - including interest on the federal debt, which is projected to average 2 percent of GDP in coming years.

Something's got to give. You can't run an annual deficit equal to 18 percent of GDP without wrecking the economy. Solving this problem will require either huge tax increases or huge benefit cuts - or some combination of the two. With our aging workforce, this seems to foreshadow some sort of generational conflict, and conflict that might be eased in part if the immigration of working-age foreign-born people continues to surge and more of them become legal, Social Security-paying workers. Boston University economist Laurance Kotlikoff and financial columnist Scott Burns have called this confluence of more retirees and fewer workers "the comuing generational storm" ....

This generational storm is still decades down the road and may break just when you are ready to retire ...
As you can see from mainstream political analysis, Robert Samuelson's hardly an extremist on Social Security and Medicare. But Scott "Social Scientist" Lemieux's too blinded by his own ideology - and too economically illiterate - to know better. It's no coincidence that Lemieux is joined by Bruce Webb at Angry Bear, "Hacktackular! Samuelson on Social Security."

But as this essay shows, the genuine "hacks" are those idiots in the left-blogosphere who claim to know something about entitlements, but only end up showing their abject incompetence in addressing complicated policy issues requiring something other than, er, partisan hackery.


smitty1e said...

Save Sonny.
What I really think should be done is to have the states reclaim responsibility for entitlements.
The federal experiment has failed.

Bruce Webb said...

Samuelson is a hack. And the only reason I have not forgotten more about entitlements than you ever knew is because I have not really forgotten anything.

Social Security faces a very small gap in cash receipts vs cash disbursements come 2017. It is projected under Intermediate Cost projections to take in $984.8 billion in FICA, another $46.6 billion in tax on benefits for a total of $1031.4 billion. It faces total outlays of $1074.3 billion meaning the Treasury will have to come up with $43 billion.
Only an economic cretin would see this as a major economic challenge. Moreover that $43 billion is only a fraction of the actual interest owed on the Trust Fund that year which will be $194.3 billion meaning that for Unified Budget calculations (the ones reported in the newspaper when we talk budget deficit) Social Security will be be piling up a surplus totalling $151.4 billion.

Of course there are people who insist that Trust Fund balances are just 'phony IOUs'. On the other hand those people still continue to collect current cash surpluses from FICA. There are some words for people who borrow money while never intending to pay it back, among those are 'liar' and 'thief'. People who deny the validity of the Trust Funds are both.

No the talk of Entitlement Crisis is not new, and yes it remains the dominant narrative among serious people. Kind of like Iraqi WMD back in the day or the permanence of the housing boom. Large majorities believed in both because large majorities continue to get fooled by hacks like Samuelson.

I have been blogging on Social Security for a lot of years now and am constantly astounded by claims that "None of my friends believe Social Security will be there for them. So there." Well that is largely because those friends have never actually examined the numbers for themselves. And I suspect this includes you.

Conflating Social Security and Medicare is fundamentally dishonest hackery. Cato, Concord and a variety of Pete G Peterson funded groups have been pushing a conscious propaganda campaign since 1983. This campaign has authors named Peter Germanis and Stuart Butler, they assigned it a name in 1983, they call it the "Leninist Strategy" and they set out to convince gullible 20 year olds that Social Security was a failure. Those 20 year olds and their younger siblings are now the Gen-X workers of today and by and large bought the entire con.

Think I am making this up? Try Googling 'Cato Butler Germanis Leninist Strategy'. First result is a PDF of the plan as published in the Fall 1983 Cato Journal:

Dude you have been pawned, you have been punked by a brilliant marketing campaign carried out with great message discipline over the last 25 years.

I don't blame you, pretty much your whole generation got bent over in the same way, but you have some reading to do before you dismiss me as some know-nothing.

Punked. And never felt the insertion.

Social Security can be fixed by increasing payroll tax by between 50 cents and a dollar per week for workers making the median or below in 2010 and another quarter to fifty cents a week in 2011 with no further changes needed until 2026. If that is you use numbers instead of unimformed hackery to guide your judgements. Check the numbers for yourself.

'Idiots' 'incompetence' 'hackery'? Man it is a wonder you can actually still sit on that drum stool after the punking you got.

See you at Angry Bear tool.

Bruce Webb said...

Sorry that was smitty on the stool.

Another guy that got punked.

Because turning entitlements back over to States like California is like, man, such an awesome idea.

Denis Drew said...

Malthusian! Malthusian! Malthusian!

That's 150% of government spending will be in a 2X today's per capita GDP economy -- Malthus. IOW, if government spending reaches 118.5% of today's GDP we will still have 81.5% of TODAY'S GDP left over to spend on everything else. And that will not even count 3D ("Strange Days") TV for the same inflation adjusted $600. And imagine what 40 years more progress in medicine will bring. Some crisis!

BTW, CBO aging population survey projects worker/retiree population to level off at 1/2 after 2050.

80 years out medical costs could soak up 300% of today's GDP -- if medical cost keep growing 5 times as fast as the economy: 4 X 5 X 15%. But we will have 400% of today's per capita to pay for it -- and that wont even count flying cars for the same adjusted $25,000.

Where will the money for today's medical cost come from. I've got an idea: remember the 15% of today's GDP going for medical care. That is the exact same percentage of overall income SHARE that has drifted into the pockets of top 1 percentile earners over the last 3 1/2 decades -- due to Americans believing the "hidden hand" sorts out things satisfactorily in the labor market (unlike every other market).

In no other scientific discipline do they expect a collection of interacting equilibrium points (the so called "hidden hand" in economics) to sort out social justice. Want to save today's patients -- and doctors -- get that 15% back. As of two years ago 25% of American workers earned less than the minimum wage (impossible?)...
...of 1968!

Sector-wide labor agreements! Sector-wide labor agreements! Sector wide labor agreements!

That is the shot in labor's strong arm heard around the world...
except in the USA where our best progressive economic thinkers wont even discuss the obvious answer.