Tuesday, January 29, 2013

Quality Mythmaking

If ever you wonder how to separate the honest and the dishonest claims about earned benefits, here is one way:  if the speaker implies that the same factors apply to all of them, he or she is trying to play you for a fool.  Monday, Joe Scarborough, whose column in Politico should be entitled "The Wisdom of Conventional Wisdom," noted that Paul Krugman had appeared on Morning Joe with the temerity to claim that failure to slash the deficit immediately would not lead to the downfall of the nation.   The former GOP congressman wrote

But maintaining calm was not as easy for Council on Foreign Relations president Richard Haass, who agrees with former Joint Chief chairman Michael Mullen, that long-term debt poses the greatest threat to America 's national security. Richard took exception to the suggestion that deficits don't matter and that longterm debt can be pushed to the side for years to come . Mr. Haass, Admiral Mullen and former Clinton chief of staff Erskine Bowles all believe that entitlements and debt are the most pressing challenges we face as a country over the next few decades.

You can add my liberal co-host, Mika Brzezinski, to that group. Mika let out a gasp when Mr. Krugman suggested Medicare and Medicaid shortfalls should be ignored. She compared Krugman's "head-in-the-sand" approach to the one taken by climate change deniers. Krugman took exception, saying that no one could predict the future of entitlements so there was no need to worry until the programs became insolvent.

That response drew a spirited email from former Treasury official and “Morning Joe” regular Steve Rattner in defense of Mika's analogy, who wrote the following:

"We are putting millions of tons of carbon in the air every day; we are also adding billions of dollars to our future entitlement obligations every day. We are borrowing (stealing?) from our children to pay far more in benefits to seniors than we are paying into the system.
We have something like $60 trillion in unfunded liabilities to Medicare and Social Security. Paul Krugman would like us to just wait until those programs run out of money, at which point those unfunded liabilities would be just that much larger."

I know it will cause Steve, Mika and Richard much duress but I couldn't agree with them more.

And I know it will cause Steve, Mika, Richard, and Joe much duress but the Social Security, Medicare, and Medicaid programs differ from one another, including in target audience, funding, and solvency.  Still, the idea that "future entitlement obligations" (i.e., assistance for the ill, the elderly, and the poor) are the same as climate change is intriguing, if ludicrous.   Eleven days before his appearance on MSNBC's morning drive-time program, Krugman explained the difference, which begins

with climate change. Serious people are and should be deeply worried, indeed horrified, by the lack of action on greenhouse gases. But why? Why not just assume that when climate change becomes undeniable, we’ll do whatever is necessary?

The answer, first and foremost, is that each year we fail to act has more or less irreversible physical consequences. We’re pumping around 35 billion tons of carbon dioxide into the atmosphere annually; this stuff will stick around for a very long time, and its consequences for warming and sea level rise will last even longer. So each year that we fail to act has a direct physical impact on the future.

There’s also an investment aspect: each year that we fail to get the incentives right, people commit limited resources to the wrong technologies, especially coal-fired power plants instead of wind, solar, conservation, whatever. Again, these choices have a physical impact on the world of the future.

Now ask, what in the debate about “entitlements” corresponds at all to this kind of impact? Nothing physical, clearly. You could argue that it would have helped to prepay some of our future costs by paying down debt and indeed having the government acquire assets while the demography was favorable – not because this would have directly increased future resources (debt is money we owe to ourselves) but because it would have reduced the need for higher taxes, and hence the distortionary effect of those taxes. And this argument was, indeed, the reason people like me wanted to protect the Social Security lockbox way back when.

But we didn’t; Bush squandered the surplus on tax cuts and unfunded wars (and was, with notably rare exceptions, cheered on by the very people now lecturing us solemnly on the need to cut entitlements). Now the baby boomers are retiring fast, and as far as I can tell none of the deficit scolds are pushing for a big effort to pay debt down over the course of the next few years.

Instead, they’re pushing for things like a gradual rise in the retirement age and a change in the formulas used to compute benefits – things that will cut future rather than present outlays. Or to put it differently, they aren’t really trying to cut debt; they’re simply trying to lock us in now to the spending cuts they think we’ll eventually have to make anyway. And they never, as far as I can tell, really ask why it’s important to do this now.

But think about it; use Social Security as the example, although much the same argument applies to other programs. It seems probable if not certain that we will eventually either have to cut SS benefits (relative to current law) or raise additional revenue. So the threat, if you like, is that future benefits will fall short of what people now expect. To avert this threat, the usual suspects insist that we must gradually reduce the program’s generosity. That is, in order to guard against cuts in future benefits we must … cut future benefits. Huh?

Social Security is an easy call, given that it is projected to be solvent until 2033, would remain solvent forever if income caps on the payroll tax are eliminated, and does not contribute at all to the national deficit.  (Arguably, it did so briefly, while the payroll tax cut was in effect because the trust fund was reimbursed by money from the general treasury for revenues lost.  That ended with the fiscal slope deal.)    However, although Medicare- more efficient than the private market- does not itself add to the deficit, rising health care costs most emphatically do.

Nonetheless, critics of Medicare (as with Social Security) imply that its founders, and legislators thereafter, were ignorant of the demographic changes which would imperil the program. Not so, noted Sarah Kliff of Ezra Klein's Wonkblog, who found there is no reason to panic over Medicare when she noted last April

In 1970, when the Medicare Trustees projected the fund would be exhausted in 1972, Congress reduced payments to providers, primarily physicians and hospitals. The same thing happened in 1997, when the trustees projected the funds would run out in 2001. Then, Congress quickly passed the Balanced Budget Amendment, which again cut into doctors’ reimbursements.

“The appeal to ‘insolvency’ as a danger,” Marmor, Spencer and Oberlander write, “needs to be recognized for its symbolic and strategic value in framing the debate over Medicare.”

Their bottom line is that there’s a big difference between the Trust Fund running out of money and the death of the Medicare program. In fact, no one quite knows what would happen if the Trust Fund actually ran out of money. “There are no provisions in the Social Security Act governing what would happen in such an event,” the Congressional Research Service report concluded.

What it would not mean, however, is that Medicare would screech to a halt. Programs covering doctors’ visits and prescription drugs could continue on pretty much unfazed. As for hospital coverage, Congress could look for other revenue sources, or it could borrow, or it could move money over from other parts of the budget. Given Medicare’s political popularity, it’s difficult to imagine legislators letting the program go underwater.

Medicare and Social Security were put "on the table" by a President anxious to be the most responsible adult in the room.  But reductions as part of a grand bargain sold as a means to curb the deficit would be nearly impossible to undo.  And when at some point there is a GOP president, taxes will be slashed, defense spending will remain exorbitant, and the party in power will speak little of the deficits which so dominate their rhetoric today.

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