Undernews is the online report of the Progressive Review, edited by Sam Smith, who has covered Washington during all or part of one quarter of America's presidencies and edited alternative journals since 1964. The Review has been on the web since 1995. See main page for full contents

February 23, 2009


Robert Kuttner, Washington Post - With the enactment of a large economic stimulus package, fiscal conservatives are using the temporary deficit increase to attack a perennial target -- Social Security and Medicare. . .

The Peterson Foundation is joined by leading "blue dog" (anti-deficit) Democrats such as House Budget Committee Chairman John Spratt of South Carolina and his counterpart in the Senate, Kent Conrad of North Dakota. The deficit hawks are promoting a "grand bargain" in which a bipartisan commission enacts spending caps on social insurance as the offset for current deficits. . .

Social Security's accounts are actually near long-term balance. The Congressional Budget Office puts the 75-year shortfall at only about one-third of 1 percent of projected gross domestic product.

Social Security is financed by taxes on wages -- and since the mid-1970s, wage growth has stagnated. If median wages rose with productivity growth, as they did during the first three decades after World War II, Social Security would enjoy a big surplus. Even without a raise for working America, Social Security needs only minor adjustments.

Medicare really does face big deficits. But that's because Medicare is part of a hugely inefficient, fragmented health insurance system. It makes no sense to "reform" Medicare in isolation.

If we just cap Medicare, needy seniors would get bare-bones care while more affluent people could supplement their insurance out of pocket. The decent cure for Medicare's cost inflation lies in comprehensive universal health insurance so that the entire system is more efficient and less prone to inflation. You don't hear many budget hawks supporting that brand of reform.

The deficit hawks' story also contends that we are sacrificing our children's future by too much (deficit) spending on the elderly. In fact, today's young adults are already falling out of the middle class because of the high costs of the investments we don't adequately finance socially -- child care, college tuition and health insurance. But fiscal conservatives seldom call for increased investment in the young. Today's young, of course, will be tomorrow's retirees, and they will need social insurance, too. . .

At the end of World War II, the public debt was about 120 percent of GDP -- about three times today's ratio. Yet the heavily indebted wartime economy stimulated a quarter-century postwar boom -- because all that debt went to recapitalize American industry, advance science and technology, retrain our unemployed and put them to work.

We need to increase public spending and debt now to restore economic growth and then gradually reduce the debt ratio once recovery comes. Social Security has little to do with this challenge. Nor does Medicare, if we reform our overall health system.


Blogger Lars said...

I suspect that this will not gain very much traction. Even that spineless bastard Harry Reid has come out in strong defense of Social Security. I went to an event held in Rhode Island shortly after Bush II proclaimed he was going to reform SS with all his political capitol. Reid and other democratic leaders toured the country saying no way, no how. And that was when Dems were in the minority. I know we can't count on the Dems for much, but even they know that massive loss of votes will be the only result of any attempts to cut needed benefits.

February 23, 2009 12:44 PM  
Blogger Bill Woessner said...

Social Security's accounts are actually near long-term balance.

Who cares? Social Security can ALWAYS be made solvent through tax increases and benefit cuts (or some combination thereof). That's not the point. The point is that Social Security is a bad deal for the worker. It has been for years. According to the latest CBO report, the median worker won't even recover 100% of his Social Security taxes in the form of benefits. In other words, he's getting a negative real return. What's the point of such a program?

since the mid-1970s, wage growth has stagnated.

Define "stagnated". Real wages increased 21.5% from 1975-2007. Real wages - after inflation. True, that's not spectacular growth, but it's not stagnation, either.

But fiscal conservatives seldom call for increased investment in the young. Today's young, of course, will be tomorrow's retirees, and they will need social insurance, too.

Cutting taxes, especially payroll taxes, IS investing in the young. And as for today's young needing social insurance tomorrow, high taxes are a really good way to ensure that. If you take enough money away from today's workers that they're simply incapable of saving for their own retirement then, yes, they will have to rely on government assistance.

February 23, 2009 3:54 PM  

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