Crisis-mongering at Home
President Bush is calling on the Democrats to join him in solving the Social Security crisis. Quite a few Democrats share the president’s notion that indeed there is a Social Security crisis. Moreover, sadly large numbers of young people, polls show, believe what they have been told by their elders: that they will never collect a penny from Social Security, after paying for it during their working years. 60% of all workers today believe that there will not be enough money in the system to pay their benefits when they retire, according to a 2005 Pew poll. Worse, they believe that the taxes used to fund Social Security will have to rise sharply to cover its deficits.
Actually there is no Social Security crisis. To arrive at the notion that some forty years from now Social Security will run out of money, projections by the Social Security Trustees assume U.S. productivity growth of 1.6% a year for the foreseeable future. This estimate falls below the average 1.8% productivity between 1960 and 2000; significantly below the 2% average productivity between 1993 and 2003; and is way off some of the yearly growth rates of the last decade that have run as high as 3.8% Even if one assumes a much more modest increase in the future, say of 2.5% or even merely 2% a year, the Social Security “crisis” vanishes, and the program remains in clover for generations to come.
Similarly, the Trustees’ current projections significantly downplay the role of immigration in keeping Social Security solvent. Immigrants, who are mainly young, raise the ratio of young taxpayers to retirees. Although the dominant forecast calls for 0.22-0.25% immigration rates, this prediction is also unduly conservative. Recent immigration rates have been about 0.38% since 1970.
I do not deny that to get a democratic community to face tough decisions, it is often necessary to generate a sense of crisis; otherwise such communities find it difficult to get people to agree to policies that impose costs and changes in long established lifestyles. However, crying wolf where there is none has the opposite effect—it distracts attention from the true crises.
In the case at hand, one need not look far for a true crisis: Medicare must be salvaged. The Social Security Board of Trustees estimates that Medicare’s long-term costs will be double those of Social Security. They estimate that by 2012, Medicare will begin experiencing shortfalls, and by 2020 its trust fund will be entirely depleted.
A truth-in-crisis-mongering policy would lead us to focus on the realistic ones, and not squander political capital and public good will on fixing public systems that are not broken. Once we successfully apply this approach at home, maybe we can next introduce it to our foreign policy—going after nations that have weapons of mass destruction and threaten us, our allies, and the world peace.
Amitai Etzioni’s new book, to be published in spring 2007 by Yale University Press, is titled Security First: For a Muscular, Moral Foreign Policy.
(This is a cross-post with PoliticalMavens)
Not much, if anything, to argue about, here --
Although we do have to figure out where we'll get the revenues to run the government after the date when excess FICA receipts are no longer, as they currently are, available to subsidize the general budget.
February 12, 2007 9:39 AM | Reply | Permalink
Ellen
Isn't most of the FICA problem as a result of Medicare not Social Security? Unless medical costs are gotten under control no plan for the retirment insurance programs will be adequate.
Daniel A. Greenbaum
February 12, 2007 10:41 AM | Reply | Permalink
Fixing Medicare has to be at the top of the list. If we don't fix the Medicare situation then so much of anything I receive at retirement age will have to go to medical related expenses that it could well be unmanageable. And that is assuming my wife and I have no major health crises. It certainly will be impossible for a significant number of Americans who might not have the good fortune to be relatively healthy or be unfettered by the need for regular monthly prescription drugs.
The Social Security myth is so well entrenched that I'm not sure we will ever purge it from the majority of American minds. We wife and I have consulted periodically with a financial planner for retirement planning. At a year-end review meeting a couple of years ago, when we were in the midst of the administration's hard-sell on the SS "crisis", he pointed out that we really should plan on socking away a lot more money since "there probably won't be anything there from SS when you reach retirement age". When I asked him what made him make a statement like that, he proceeded to parrot all of current-at-the-time George Bush talking points. When I pointed out that I thought he was just flat out wrong, that he was giving out information that was not really based on any real and documented facts, he kind of stammered and stuttered and said, "Well, yes, there are some people who disagree.". And he proceeded to change the subject.
There is obviously a lot of incentive in the financial sector to have people believe there is a crisis looming such as the one pushed by our President in recent times (And still being pushed, by the way).
I would be interested in your take as to how we turn around what is essentially an "aircraft carrier-sized boat of misinformation" that has been put out so stridently for so long a time as to be almost impossible to reverse. It would seem an almost impossible task, as the media and financial conglomerates are so deeply and inexorably entwined and have so many common interests.
How do we get this message out? Any thoughts?
February 12, 2007 10:44 AM | Reply | Permalink
The FICA tax pays only for Hospital Insurance under Medicare. That's Part A.
Part B, the physician's insurance is paid by a mixture of the premium eligible people pay and General Revenue funds. Neither is part of the FICA tax. The biggest problem federally is Medicaide, which is all General Revenue funds.
You are perfectly correct when you say the real problem is the increase in medical costs. That is primarily in the Part B of Medicare and a great deal more in Medicaide.
Eliminate the sales costs of private insurance companies and you will knock 15% to 20% of the total healthcare costs out. Then replace the multiple administrative systems and standards of who gets what care with a single system and you save another 10% to 15%. (Both estimates are conservative.)
Competition does not provide better and more efficient health care. It just jacks the cost up to an unreasonable degree.
February 12, 2007 10:49 AM | Reply | Permalink
Daniel,
I haven't had a chance to check the current fiscal state of the Hospital Insurance Trust Fund (HI) -- that is, whether it continues in surplus in terms of either income or assets.
How about taking up the project. :-)
February 12, 2007 10:57 AM | Reply | Permalink
No real disagreement, but --
How will we control the demands of hospitals, doctors, labs, drug companies, et cetera, et cetera, et cetera to maximize their net profits?
Under your plan won't we be losing whatever fiscal discipline insurers impose on the "market" for medical services?
February 12, 2007 11:05 AM | Reply | Permalink
Here Ellen:
Google Search: current fiscal state of the Hospital Insurance Trust Fund
Have a field day... :~)
~OGD~
February 12, 2007 11:24 AM | Reply | Permalink
Took your advice, OGD. Here's what I got.
February 12, 2007 11:29 AM | Reply | Permalink
Majkia
http://www.livejournal.com/users/majkiaOf course there is a Social Security Crisis. Anyone with brains knows that the Republicans are trying to destroy it, either by electing enough Republicans to kill it, or by starving the government so much that it will be killed by politicians trying to keep the lights on.
Change the rhetoric.
February 12, 2007 12:07 PM | Reply | Permalink
All projections on health costs assume that they will continue to rise at the rate that they have in the past two decades. But there were some fundamental changes during the period which have now been completed.
The most important of these has been the shift from a non-profit to a for-profit model for most medical services. Hospitals have become privatized as have health plans. Blue Cross used to be non-profit but has been transformed in many regions.
In addition the drug companies have transitioned from dealing with doctors to dealing directly with the public. This has increased their promotion costs. Even if this continues the rise in costs won't continue at the same rate, they are already saturating the market with ads and promotions.
There has also been a transition from traditional to high tech medicine, but the installation of MRI and other similar devices is now widespread and this has become a replacement market.
Lastly, we should expect that all the high tech medical advances will bring down the cost of treatment and prevention. Preventative bypass surgery, while expensive, can prevent a lifetime of disability as happened previously. A person who is treated successfully can resume their career instead of going on disability.
So, while health care may remain expensive and even inefficient (compared to other industrialized countries) there is no reason to assume that the cost increases will continue at the same rate.
--- Policies not Politics
Daily Landscape
February 12, 2007 12:27 PM | Reply | Permalink
I would agree that the rate of increase in health care costs will be less in the future, except that pharmaceuticals corporations are in business to make money. They will do that by developing ever more expensive drugs for a variety of illnesses and conditions. The medical equipment corporations likewise will continue to develop ever more expensive equipment, which will offer enough advantage that the equipment will be considered by hospitals to be vital to their bottom line.
We haven't even begun to tap the potential of genetic medicine or stem cell derived medicine. That will soon change.
One result of all of this progress will be that people will live longer as senior citizens, which skews the population distribution towards more people needing more medical care.
My prediction is that the rate of rise of medical care costs can only increase, unless we reform the whole industry.
Hoppy in Sacramento
February 12, 2007 1:18 PM | Reply | Permalink
There are a number of ways to introduce fiscal discipline, although there's definitely no single way. Disclaimer: I do work on information systems that are intended, in part, to improve hospital efficiency and lower errors. I also do research on expert systems for advising physicians, especially in drug prescribing. As a sort of undisclaimer, I have worked, in the past, on administrative and billing systems, but the things I now do are parallel to them. Still, I do understand a fair bit of the billing and cost accounting details.
In no particular order, a partial list:
--
Howard
*equal opportunity offense to both extremes*
February 12, 2007 2:14 PM | Reply | Permalink
I agree with everything here except the last statement. There's no reason to expect that technological advances in medical care will reduce costs, because of the ugly reality that most advances in device technology or drug therapies are either useless or, at best, no more than equivalent to other, less expensive treatments. We should keep in mind that the next big technology or drug is rarely ever the boon to humanity that it's marketed to be, and it's almost always significantly more expensive than everything preceding it.
February 12, 2007 2:35 PM | Reply | Permalink
I think your complaints are a bit too sweeping. For example with arthroscopic surgery people go home the same day with only tiny, easily-healed, incisions. Previously the same procedures required making a big incision and required longer hospital stays, had a higher incidence of complications and much longer recovery times.
A simple regulation change may also reduce the desires of drug firms to make me-too drugs. The two easiest steps are to eliminate direct to consumer marketing for prescription drugs and the need to demonstrate that a new drug is not just safe and better than a placebo but that it is better than an existing offering.
These changes can be expected to be resisted by the drug industry, but the only thing stopping implementation is politics, not technology or a major change in consumer behavior.
As much bio-medical research shifts away from the US (due to our poor support for basic science education and research) we may see companies in India or China creating new drugs. Their financial model may not be the same as the current trans-national firms. The Indian firm Cipla sells many drugs for a fraction of the name brands. It may only be a matter of time until they start creating original compounds.
--- Policies not Politics
Daily Landscape
February 12, 2007 3:19 PM | Reply | Permalink
When Bush took office the national debt was $5.6 trillion. It is now $8.6 trillion and rising. The projected current interest on the national debt is $261.3 billion for 2008. So Bush has now presided over an increase in national debt of $3 trillion. Pro-rate that and it means Republican fiscal irresponsibility has added over $91 billion a year to our interest payments. As of 2005, the Social Security Trust generated a $172 billion surplus. The Bush Administration has not only run a deficit, but has continually spent the annual social security surpluses as well.
As Daniel Gross pointed out in a recent Slate column:
“Between 1983 and 2001 a total of $667 billion in excess Social Security payroll taxes was spent—about $35 billion per year. It was only in fiscal 1999 and 2000, when the government ran so-called on-budget surpluses, that excess Social Security funds were actually used to retire debt.”
What Mr. Gross means is that the social security surpluses could have been used to retire the public portion of the national debt, currently held by a host of foreign interests. Conversely, when the special social security bonds are redeemed circa 2018, they could then be converted to public debt. Instead, we are now burning the debt candle at both ends.
According to the actual and projected numbers, from 2002 until 2008, the Bush Administration has and plans to spend $1.332 trillion in social security surpluses. Strange how this number correlates with the tax cut estimates of May, 2001. Then, Congress passed a reduced form of Bush's tax cut, then estimated to be worth $1.35 trillion over 10 years.
In 1983, the youngest boomer was nineteen, meaning that almost all of the generation was in the work force. It didn’t take the genius of Alan Greenspan’s calculator to figure out that deliberate social security tax increases would put the system in a surplus condition. The Greenspan Commission numbered 8 Republicans and 7 Democrats. Rep. Claude Pepper (D-FL), a true champion for social security, has long since passed on. Sen. Pat Moynihan (D-NY) became disillusioned before his death, likely because he realized that the compact of the Greenspan Commission was unkept and the social security tax surpluses were utilized to mask the massive Reagan deficits.
Greenspan’s name may mast his commission, but the most influential and visual spokesman for their work has sold out. He may have convinced President Clinton to close the budget deficits, but as Federal Reserve Chairman he wholeheartedly endorsed Bush’s tax cuts. In March of 2005, at a Senate hearing, Senator Hillary Clinton got Greenspan to admit that “we were all wrong” to support the tax cuts back in 2001. To which Clinton immediately replied: “Just for the record, we were not all wrong.”
February 12, 2007 9:51 PM | Reply | Permalink
What would the Chinese, the Japanese, and every other exporter that runs a trade surplus with the U.S. do with their USD earnings if we didn't run a budget deficit? There simply aren't enough private investment opportunities to soak up all those dollars.
$1,000,000 shacks? They'd be $5,000,000 shacks before we blinked!
February 12, 2007 10:34 PM | Reply | Permalink
This ought to be the headliner. . .
and not stuck half way down the column. I argue this on three counts
Thanks.
aMike
February 13, 2007 6:08 AM | Reply | Permalink
Indeed, that is one of those global ties that bind, and in our case its all those dollars stashed about the globe from the “Great Inflation.”
The public portion of the national debt likely is around $4.7 trillion. Had all the social security surpluses been used to pay down debt, the public portion would be at least $1 trillion less.
Our domestic bond traders have long been assumed to be more sophisticated than their equity counterparts. Why we still have an inverted yield curve is beyond me. Global economic growth is still robust and our own economy appears to be continually pulled at the bootstraps–discounting the usual negatives of lost manufacturing jobs and workers terminated by outsourcing. Perhaps all those foreign bond holders are less sophisticated than thought, and will gladly finance our boomer retirements.
Former Treasury Secretary Lawrence Summers believes that the middle class squeeze is global:
“As the great corporate engines of efficiency succeed by using cutting-edge technology with low-cost labour, ordinary, middle-class workers and their employers – whether they live in the American midwest, the Ruhr valley, Latin America or eastern Europe – are left out. This is the essential reason why median family incomes lag far behind productivity growth in the US, why average family incomes in Mexico have barely grown in the 13 years since the North American Free Trade Agreement passed, and why middle-income countries without natural resources struggle to define an area of comparative advantage.”
“It is this vast group that lacks the capital to benefit from globalisation and is desperately seeking either reassurance or a change in course. Yet without its support it is very doubtful that the existing global economic order can be maintained.”
For the middle classes, home equity is not the place to be while liquidity is the global king. Given abundant time and a fertile field of “irrational exuberance,” liquidity never seems to resist full blossom as a tulip.
February 13, 2007 10:44 AM | Reply | Permalink
Agreed on all points. But I think that the columns are posted to the front page in reverse chronological order, so there's no particular editorial priority assigned to one or the other.
February 13, 2007 1:05 PM | Reply | Permalink