What is driving growth in government spending?

by on January 22, 2013 at 12:34 am in Data Source, Political Science, Uncategorized | Permalink

Here are some very useful pictures and infographics, excerpt:

To clarify: all of the major categories of government spending have been increasing relative to inflation. But essentially all of the increase in spending relative to economic growth, and the potential tax base, has come from entitlement programs, and about half of that has come from health care entitlements specifically.

That is not NRO but rather Nate Silver.  Here is the concluding tag:

We may have gone from conceiving of government as an entity that builds roads, dams and airports, provides shared services like schooling, policing and national parks, and wages wars, into the world’s largest insurance broker.

Most of us don’t much care for our insurance broker.

For the pointer I thank Rob Raffety.

Addendum: Henry Aaron has a very sane piece on progressives and the safety net.  I see the current American Left as rapidly losing what it once knew about the need for entitlement reform.  This is a shame, it does not augur well for our fiscal future, and it remains an under-reported story.  I see it happening right under my nose, day by day, article by article, blog post by blog post.

prior_approval January 22, 2013 at 12:48 am

Social Security is not an ‘entitlement’ program.

Pensions are not an ‘entitlement’ program either – they are a term of employment, and no more an ‘entitlement’ than a worker’s wages.

NK January 22, 2013 at 2:32 am

Of course they are.
If everyone puts in and takes out the same amount if money then the programs aren’t needed.
If they take out more than they pay in, then those are entitlements.

prior_approval January 22, 2013 at 3:30 am

Well, that is a fascinating way to look at ‘entitlement.’

So, when an employer agrees to a pension for an employee, how does the employee get paid more than what was contracted for? The failure of an employer to provide properly for a pension would be called fraud in another age, but in today’s America, it is just called bankruptcy – see how this worked with American Airlines shafting its employees and escaping its obligations as a practical example.

As for Social Security, what is paid in is also what is paid out – no extra money is being provided. Social Security is not a program intended to pay back what you paid into it – the German term concept ‘Generationenvertrag,’ or ‘contract between generations.’ This framework covers the idea of obligation between members of a society, between the too young to care for themselves, those able to work, and those too old to take care of themselves. But then, the German version of this exceedingly basic concept has been running through 130 or so years, with governments as disparate as monarchy, totalitarianism, and democracy.

In other words, the young are ‘entitled’ to be cared for (as someone clearly did for you), and those that cared for the previous generation are ‘entitled’ to be cared for, a sense of mutual responsibility being considered the basis of a society able to survive over the long term, regardless of what advertisities it faces – or, as so clearly in the case of Germany, brought upon itself.

dan1111 January 22, 2013 at 6:04 am

Even if Social Security were functionally exactly the same as a private pension, the fact that the former is a mandatory government program is a key distinction. A worker who takes a job voluntarily agrees to a certain set of benefits. But everyone who works MUST pay payroll tax, which the government then redistributes as it sees fit.

That is why Social Security is an entitlement: not simply because it redistributes, but because it is mandatory government redistribution.

prior_approval January 22, 2013 at 7:53 am

Except that participation in the government run Medishield system is mandatory – at least according to a poster in another comment at this blog. Or you can read about it here – http://www.moh.gov.sg/content/moh_web/home/costs_and_financing/schemes_subsidies/Medishield.html

prior_approval January 22, 2013 at 8:07 am

‘That is why Social Security is an entitlement: not simply because it redistributes, but because it is mandatory government redistribution.’

If that is intended to be a definition of ‘an entitlement,’ it is quite, well, let us say, charming.

But I’m a bit confused – is a self funding program that only pays out to people that pay into an entitlement for those that are entitled to the benefits of a system they fund? And those that don’t pay into it are not entitled to any benefits, so this means that the entitlement is for those that earned it by paying for it – which sounds quite fair, actually, and exactly the point of how Social Security has worked since its founding.

Or is the fact that the federal highway system is funded by mandatory taxes/excise fees on fuel and tires mean that the interstate highway system is an entitlement system for vehicle owners, as the money from those buying the fuel is not only redistributed, but this is a mandatory government redistribution?

Somehow, the meaning of the terms seems to be getting lost here. However, this remains absolute truth – only those that pay into Social Security (in a large enough amount, it must be noted) are entitled to its benefits. Social Security is only available to those that have paid for it – which seems like the American Way, actually.

Which raises the question why some people seem so opposed to a system which only rewards those that have worked for a living.

dan1111 January 22, 2013 at 8:36 am

Social security is redistributionary because those with low incomes receive a benefit that is a much higher percentage of their average annual income than those with high incomes. The effect is that high-income earners receive back far less than they paid in, while low-income earners receive far more. It is a gross oversimplification to say that “Social security is only available to those who have paid for it”. It is only available to those who have made a certain minimum contribution, but the required minimum contribution for an individual is far from paying for the benefits received. Social security is self funding on the macro scale, but on the micro level a lot of individuals are paying in money that is then distributed to others.

If we want to get technical about definitions, Wikipedia’s statement seems as good as any: “a guarantee of access to benefits based on established rights or by legislation.” Social security is founded on the idea that workers should have a guaranteed retirement income, which is why it is mandatory. If the benefits of social security are not seen as a right that should be guaranteed to all, then there is no reason to make it mandatory or even have the government involved: just let people choose whether or not they want to save for retirement.

I what your point is concerning the Medishield program–it seems to me that this is also pretty clearly an entitlement.

None of these arguments (or my previous ones) were intended to imply that Social Security was good or bad.

PK Sully January 22, 2013 at 9:48 am

Social Security is a redistribution between generations and within a generation. The spreadsheet below compares workers retiring today (not exactly, it’s a few years old) that made 50% of AWI, 100% of AWI and the FICA cap. On average, they receive a bit more than $50,000 in benefits than they paid in in today’s dollars but the 50% guy’s number is $71k, the 100%’s is $41k and the cap pays about $17k more than she receives. This doesn’t factor in all the exceptions to the rule which always increase benefits paid (surviving spouse, disability, that Texas school district scam).
http://home.comcast.net/~pat.sullivan1/Social_Security_sprd_sheet.xls

ezra abrams January 22, 2013 at 7:11 pm

I know conservatives make a big thing of the distinction between “mandatory” gov’t programs and the private sector, where one’s participation is voluntary
The trouble is, this is one of those things that doesn’t work in the real world: you can’t really, unless you are very extreme, not participate in the private sector
So the “mandatory” nature of gov’t programs isn’t , in the real world, that different from voluntary participation in the free market system – it just seems diff cause you conservatives always harp on it.

Brian January 22, 2013 at 3:58 pm

Ok you nut, let me help you out.

Here is the definition of an entitlement: it is something you enjoy or benefit from on the basis of legislation. An entitlement is a right only statutorily.

Social Security is an entitlement, not a right, because of the structure of the program. While you are correct that there is a statutory minimum you have to pay into it, there is nothing that confers any kind of right to your contributions. Renounce your citizenship and move elsewhere and you’ll see. You don’t get your contributions back. They are a tax and nothing more.

When you get the benefits, those are entitlements, because the benefits you get are not based on how much you paid into it, beyond a certain minimum. You don’t have the ability to withdraw your entire benefit at once. You can’t even borrow against it. Why? Because, as an entitlement, your rights to the benefits are only based on what the current legislation says. The law can change at any time. Congress can raise the retirement age, thus reducing your benefits. Congress can change the formula for calculating inflation. Congress can even change your benefit payments. And Congress can do this without impairing any of your rights, because your rights ONLY exist by virtue of statute.

Brian January 22, 2013 at 3:59 pm

Ok you nut, let me help you out.

Here is the definition of an entitlement: it is something you enjoy or benefit from on the basis of legislation. An entitlement is a right only statutorily.

Social Security is an entitlement, not a right, because of the structure of the program. While you are correct that there is a statutory minimum you have to pay into it, there is nothing that confers any kind of right to your contributions. Renounce your citizenship and move elsewhere and you’ll see. You don’t get your contributions back. They are a tax and nothing more.

When you get the benefits, those are entitlements, because the benefits you get are not based on how much you paid into it, beyond a certain minimum. You don’t have the ability to withdraw your entire benefit at once. You can’t even borrow against it. Why? Because, as an entitlement, your rights to the benefits are only based on what the current legislation says. The law can change at any time. Congress can raise the retirement age, thus reducing your benefits. Congress can change the formula for calculating inflation. Congress can even change your benefit payments. And Congress can do this without impairing any of your rights, because your rights ONLY exist by virtue of statute.

RZ0 January 22, 2013 at 6:07 am

By that definition, Social Security is not an entitlement. Americans spent three decades actually getting back less than they put into it. The difference was being invested.
Over the past couple of years, Americans have received more than they paid in, the difference coming from interest on the investment. That investment was, of course, government bonds. Now you might argue that getting interest from government bonds makes the program an entitlement. That would imply that anyone who receives an interest check from the government is a recipient of entitlement spending, a group that would include Savings Bond holders, hedge funds and virtually every intelligent investor in the world.

prior_approval January 22, 2013 at 8:12 am

‘That would imply that anyone who receives an interest check from the government is a recipient of entitlement spending, a group that would include Savings Bond holders, hedge funds and virtually every intelligent investor in the world.’

Bingo – and since Social Security feels that its investment in American Treasury debt is just as solid as the Treasury debt portfolio of someone like Peterson ( http://en.wikipedia.org/wiki/Peter_George_Peterson ), it is always fascinating to read why Social Security’s investment is a mirage, while Peterson’s same investment continues to be a valued asset in his portfolio.

It would almost make one wonder if a billionaire might just have an ulterior motive.

Andrew' January 22, 2013 at 8:21 am

What are you talking about?

Money is going from one group to another. The from group is taxpayers. People call these taxpayers payroll taxpayers. Some people want to eliminate the payroll tax entirely.

I’m not sure why you are overthinking this.

dan1111 January 22, 2013 at 8:55 am

A single institution owing money to itself is meaningless. All that matters is the government’s overall balance sheet.

Careless January 22, 2013 at 9:41 am

Yeah, and that IOU I wrote to myself is just as valuable as my mortgage is to whatever owns it now.

Hi, I’m America’s first trillionaire.

PK Sully January 22, 2013 at 1:24 pm

Social Security pays more in benefits, collectively, to current recipients than they paid in through payroll taxes, assuming FICA payments were invested in U.S. 10 year notes, which is effectively what happens to those payments. Retired former high earners get a short shift as a sub group of that whole but the vast majority of Soc Sec recipients, past and present, get a good deal and on average. A brand new beneficiary receives more than $50,000 in NPV over the course of his/her lifetime. (see above link)

Hazel Meade January 22, 2013 at 10:59 am

Americans spent three decades actually getting back less than they put into it.

Individual Americans in the past spend three decades getting back more than they put into it. Which is why there isn’t enough money in the fund to pay individual Americans in the present back what they put into it in the past.

Brian January 22, 2013 at 4:03 pm

No, it’s an entitlement because the benefit you get is based on statute and nothing more. Unlike a bond where you have a basic property right to the principle or any assets in the event of default, your claim to social security benefits is entirely dependent on what the legislation says at the time. If the legislation changes, your rights change; they are not impaired at all.

mulp January 22, 2013 at 10:45 am

“If they take out more than they pay in, then those are entitlements.”

So, auto insurance and property insurance are entitlement programs.

Of course, the claim usually made is Social Security costs more than you get in benefits because if you put the money in Wall Street, you would retire with a higher benefit even if you are hit by a bus and disabled at age 30 and start drawing Social Security for the rest of your life.

Cliff January 22, 2013 at 1:39 pm

Social security disability is unrelated to social security the retirement program, I hope you know that.

Anthony January 24, 2013 at 6:46 pm

Because money isn’t fungible.

Brandon Berg January 22, 2013 at 5:14 am

You don’t seem to understand what “entitlement” means.

Cyrus January 22, 2013 at 7:29 am

The relationship between employees and employers is not comparable to the relationship between the electorate and those they elect. The generation that elected some among their number to promise them a retirement income scheme that has not adequately funded itself is responsible for both ends of the bargain.

prior_approval January 22, 2013 at 8:14 am

Again, someone seems to have raised you – did you have a contract?

Read Claudia’s comment about what Social Security really is.

Cyrus January 22, 2013 at 8:44 am

The contract between generations is more between cohorts than individuals, and for those of us born in the 1970s, the cohort was only partially raised, and the degree of support that can be expected is proportionately reduced.

eccdogg January 22, 2013 at 10:11 am

Yes my parents raised me and I will do whatever needed to take care of them. Same with my wife’s parents (in fact I already have).

As for the millions of other old people who had no hand in my upbringing I don’t feel a lot of obligation to pay promises that they made to themselves before I was allowed to vote.

mulp January 22, 2013 at 11:50 am

Unless your parents were so wealthy they never worked, you have benefited from Social Security from the moment of conception, just as you benefit from auto insurance from the moment your payment is accepted by the insurer. If a parent dies while you are a child, Social Security provides a survivor benefit. If you are born disabled, Social Security provides a benefit. If you become disabled after you begin work, you get a disability benefit. These benefits are hardly generous, and many need welfare to survive.

Only half of Social Security benefit payments go to retirees; the other half go to survivors, dependents, and disabled.

Urso January 22, 2013 at 10:05 am

Entitlement — something to which one is entitled. Pensions and SSI are pefect examples of entitlements. In the case of a pension, the entitlement is contractual; in the case of SSI, it is legal.

You seem to believe that entitlement is pejorative, and means “something you get which you do not deserve.” This is how the word is used by many politicians on the right in the US. But it is not what the word actually means.

derek January 22, 2013 at 10:34 am

Sure. But then you have to decide how much. to whom. and when.

Your comment is an example of what Tyler is saying.

Hazel Meade January 22, 2013 at 10:56 am

A defined benefit pension is arguably an entitlement if the government is relying on future tax dollars (inctead of a proper pension fund) to guarentee the promise.

Floccina January 22, 2013 at 12:01 pm

If you took a job with the agreement that you would X as a pension then you are entitled to X. (I agree that on is not entitled to any specific payment of SS so it is not an entitlement.)

Sigivald January 22, 2013 at 5:52 pm

“Entitlement” means “a benefit one is entitled to receive by law”.

Social Security is definitionally an entitlement program. Pensions may or may not be depending on their specific terms, I suppose, but I expect most will be; you paid in, and the law says they have to pay you back. (Not that that helps you if they’re underfunded and go broke…)

You seem to be confusing “entitlement” with “unearned or undeserved handout”. But that’s not what the term actually means.

Miley Cyrax January 22, 2013 at 1:22 am

A generalized problem is the expansion of “insurance,” both as a policy and a euphemism.

“Insurance” has grown from a notion of tail-risk management to include de facto subsidization.

prior_approval January 22, 2013 at 1:51 am

Four letters – TBTF

And do not how cleverly that avoids any use of the term ‘insurance,’ while ensuring that all of the benefits of insurance are provided to those who have proven they don’t deserve it.

GiT January 22, 2013 at 11:42 am

Insurance always results in subsidization. That’s what risk pooling does. Money goes from the lucky to the unlucky.

Cliff January 22, 2013 at 1:43 pm

Very retarded analogy. He’s talking about the government subsidizing health care.

GiT January 22, 2013 at 3:17 pm

It’s not an analogy. Very retarded literacy skills.

Willitts January 22, 2013 at 3:57 pm

My risk of superannuation is increased by a mandatory savings plan that has a negative rate of return for me. This is not risk pooling from the lucky to the unlucky. It is income transfer from the successful and the thrifty to the unsuccessful and the prodigal.

SS is NOT insurance. If given the option, more than half of us would have opted out in our early years. The program is maintained by the votes of people forced to pay into it for thirty years and who now want returns. It is a social trap.

JonF January 22, 2013 at 4:17 pm

I think you will find that only a tiny fraction of people (mainly the rich and a certain ideological fringe) would opt out of Social Security. Its obviously a hugely popular program. If even a sizable minority of people hated it, it would not be politically lethal to suggest even making small changes to it.

mulp January 22, 2013 at 11:59 am

Social Security itself has required no subsidy for a comprehensive cradle to grave insurance program, and should not require any subsidy ever because it is as sound as any comprehensive program that the private sector came up with.

No insurer has sufficient capital to cover all possible claims but relies on ongoing premium payments. You auto insurer does not have a private account for you and your auto.

Cliff January 22, 2013 at 1:44 pm

Link please. SS will need a subsidy extremely soon.

Careless January 24, 2013 at 11:35 am

And by “soon” you mean three years ago.

Ricardo January 22, 2013 at 1:54 am

“I see the current American Left as rapidly losing what it once knew about the need for entitlement reform.”

This sounds like a No True Scotsman quip to me. People like DeLong and Krugman certainly do not disagree that “health care entitlements specifically” are a big and growing part of government spending and are in need of reform. Nor would Obama or any of his economic advisers (especially Peter Orszag and Christina Romer, who have written publicly on the subject) dispute this. I can best make sense of this quip by defining “American Left” to exclude large numbers of influential politicians, commentators and economists who identify with the left half of the political spectrum.

I am sure there are members of the “American Left” out there who dispute this but how much influence do they actually have?

dan1111 January 22, 2013 at 2:52 am

I’m not sure whether Tyler is right about this, but “losing what it once knew” only implies that the debate is moving in a particular direction. That is different from saying that the entire left believes there is no need for reform.

RZ0 January 22, 2013 at 6:14 am

+1. More than once Klugman has referred to the federal government as an insurance company with an army. Dean Baker consistently points out that were our health care spending in line with any other country, we would be facing long-term surpluses instead of long-term deficits. It has been a mantra on the left that the phrase “Social Security and Medicare” is sophistry that attempts to put a tiny long-range problem, Social Security, next to an enormous one, Medicare.
And as someone who works in the insurance industry, I will point out that the government is not acting as an insurance broker in Social Security and Medicare. It is acting as an insurance provider. That’s a big difference, and someone who makes such a mistake is not well-informed about the structure of the insurance marketplace.
I will also point out that few like their insurance provider when they pay premiums, but all like their insurance provider when the provider delivers benefits as promised. And as I recall, most people like Social Security, and Medicare grades out higher than most private providers.

Floccina January 22, 2013 at 12:21 pm

It has been a mantra on the left that the phrase “Social Security and Medicare” is sophistry that attempts to put a tiny long-range problem, Social Security, next to an enormous one

Well if you believe that you can only tax people so much (that is without adding a new tax like a VAT and a VAT is problematic under the constitution), the fact that SS absorbs the whole FICA tax is a problem. A sensible reform like paying the same amount (say $800/month) to all retirees could save a lot of money without hurting the needy. SS reform is needed because it is too expensive not because it spends much more that the FICA tax brings in. There is really just one big bucket not separate buckets for separate programs. Now we elected a CEO of SS and he set the tax and the payout that would be different.

RZ0 January 24, 2013 at 9:40 am
lxm January 22, 2013 at 10:57 am

I agree.

Could be what Tyler is noticing is the Left’s reaction to the radical tactics coming from the Right. The current government by crisis drills we are going through seem to be less interested in achieving actual solutions as in proving who is the toughest boy on the block.

As far as I can see pretty much everyone agrees that medical spending is a problem.

jdm January 22, 2013 at 1:54 pm

I have a similar impression. “The Left”, however defined, seems to be learning a lesson
in negotiation strategy from “The Right”. When both parties to a negotiation are reasonable and moderate it is possible to jointly seek and often to find win-win outcomes. However when one party’s style is to compromise and the other’s is to scorch and burn, the moderate party will usually lose the negotiation (see for example Shell’s “Bargaining for Advantage: Negotiation Strategies for Reasonable People”). Unfortunately the equilibrium of Left scorch and burn and Right scorch and burn is far worse for the republic than that in which both parties are willing to negotiate in good faith and find acceptable compromises.

Michael January 23, 2013 at 11:10 am

So, that response is a classic case of projection.

Let me make sure I understand your argument: “everybody agrees” that we have a problem, but, when the Left refuses to address the problem, it is the Right’s fault for actually pointing it out?

Popeye January 23, 2013 at 1:53 pm

Maybe if we ever got around to electing a Republican government we could finally address these problems by starting new wars, expanding Medicare coverage, and cutting income taxes. One can dream, right?

lxm January 23, 2013 at 3:39 pm

I’m not quite sure who is projecting here.

The Left has made serious proposals for dealing with medical costs. It’s called the ACA. This plan may not work and may even turn out to be worse than the status quo, but it’s scored as a reduction to the budget. And it is an attempt to deal with medical costs.

The Right, on the other hand, has proposed no serious plans to reduce medical costs. There is Paul Ryan’s premium support plan, but the Republican leadership has not brought that forward during the recent budget talks. There is also discussions of raising the Medicare eligibility age to 67, but this will actually increase medical costs in the United States even if it will lower costs to the government..

What we get from the Right is the threat that they will shut down the government if this problem is not solved to their satisfaction and they have refused to say what will satisfy them.

The problems of medical costs have been years in the making and will probably be years in the solving. There are serious discussions to be had about our medical system and I hope our country can find a way to have these conversations.

To think these problems will be quickly solved by threats and posturing on the ledge of a fiscal disaster is just stupid.

Fnord January 22, 2013 at 2:06 am

Also from the linked page: “The growth in health care expenditures, for better or worse, is not just a government problem: private spending on health care is increasing at broadly the same rates and is eating up a larger and larger share of economic activity.”

RM January 22, 2013 at 2:20 am

What role does the government have in regulating private spending?

Marton January 22, 2013 at 6:17 am

A massive one if it gives tax breaks and doesn’t bust regional and statewide insurer monopolies…

Nathaniel January 22, 2013 at 11:05 am

If it had a hand in creating those monopolies by making interstate competition illegal (among other things), I would hope its solution to the problem begins by eliminating the laws that created it in the first place, rather than keeping them intact and regulating the completely preventable results.

RZ0 January 22, 2013 at 12:29 pm

I think once the tax breaks are in place (about 60 years now), the tax break won’t affect the rate of inflation, except when tax rates change. Since tax rates have been falling the past three decades, I would think the tax break has actually decelerated healthcare inflation.

ralph January 22, 2013 at 2:52 am

yeah, uh, not so much. our health care spending sucks per unit of outcome. fix that. in addition, aaron argues that some nonphysical workers are living longer, and richer, so we can and should deal with tightening the system, but then never discusses HOW we are going to deal with those who labor physically — they get to retire at lower amounts, i guess. this article really doesnt deal well with much except it does a good job of laying out the demographic complexities of the system. thanks for that, certainly.

Doug January 22, 2013 at 6:57 am

> our health care spending sucks per unit of outcome

Repeat after me: Medicine has very little affect on health. Many many things have much greater effect on health than medicine.

For example exercise, diet, social interaction, air pollution, stress, sleep, alcohol consumption, violence, marriage, and race all have far greater statistical impact on health than medical consumption. If you don’t believe me look up the Rand healthcare study. Or read Robin Hansons excellent work.

You can’t compare the medical system of two countries by looking at health outcome. Any two countries are going to vary far more in many other far more significant health related factors. At the end of the day the relative strength of the medical systems comes out as an insignificant rounding error when comparing life expectancy.

To make an analogy concluding that country A has a superior medical system to B because A has longer life expectancies is like saying that gentleman X must be better at holding doors open since he’s in a stable relationship and Y is not. Yes it’s true that holding doors open for ladies will make them appreciate you, but it’s only one of many many factors, most of them more important, that determines if someone will have relationship success.

dan1111 January 22, 2013 at 9:04 am

Medicine is not the only factor in health, but it is a very large factor.

Take a look at these charts, for example:
http://www.infoplease.com/ipa/A0005140.html

Life expectancy at birth in the U.S. has risen by about 25 years over the last century. How do you explain that?

Buzzcut January 22, 2013 at 12:28 pm

Clean water, mostly. Water treatment at the front end, sewage treatment at the back end. You can thank Civil Engineers.

Usems January 22, 2013 at 12:46 pm

Antibiotics, clean water supply, indoor sewage, and vaccines. Refrigeration/general increase in food supply to a lesser extent. The above, however, make up a very small fraction of total “medical outlays.” The rest of the medical spending generally is spent trying to increase quality of life or make a difference in longevity at the margin (e.g., I am going to get this weird mole checked out by a dermatologist – projected impact on life span: .002 years). Paging great stagnation…

The Anti-Gnostic January 22, 2013 at 1:01 pm

Nutrition, hygiene, exercise, less smoking.

Floccina January 22, 2013 at 1:25 pm

People like Hanson usually exclude Vaccinations calling them public health rather than healthcare. The cheap stuff like Vaccinations and antibiotics has sizable effects. Trauma care and infant care also have sizable effects but the stuff that accounts for mast spending is has very little effect.

Roy January 22, 2013 at 3:20 pm

If medicine has very little effect on health, then why do we need to provide it at all? Why not all of us become Christian Scientists?

Claudia January 22, 2013 at 7:17 am

ralph, disability insurance is an option who are no longer physically able to work.

Bill January 22, 2013 at 7:39 am

Disability has become an alternative welfare system since we “reformed” welfare as we know it in the mid 90s. Persons who had been on assistance that was coming to an end were encouraged to get on social security disability, some of who actually were qualified for it. Others were not.

The result has been that the middle class–those making less than $110k–have been picking up what amounts to a welfare program, protecting those making more than $110k from the costs of welfare reform.

I’m in favor of moving social security disability off of social security and putting it on the general budget, and reforming it. Reform could include retraining, work programs, etc. In addition, military programs that deal with military disabilities could be included in the package, as many of the military disabled qualify for SS disability and receive support under it.

Andrew' January 22, 2013 at 9:26 am

” disability insurance is an option who are no longer physically able to work.”

Or when you are!

somaguy January 22, 2013 at 3:40 am

So I wonder, if we got rid of health service plans (which is what most “health insurance” plans are now-a-days) and had everyone pay out of pocket for the first, say $2000 in annual heath care spending, how would the market react? There’s a huge lack of transparency in healthcare pricing, to the extent that when you ask how much something will cost, your provider looks at you funny and essentially tells you “I dunno, try it and find out.”

My car insurance does not cover oil changes, inspections and such. Consequently I maintain my cars frugally – I do as much as I can myself and am aggressive about price shopping. And in general “car care providers” offer fairly transparent pricing where I can find a fair price for most work. If we had the same sorts of incentives, on the consumer side, for health care, how would the market change?

albatross January 22, 2013 at 8:33 am

I believe the big medical expenditures would remain the same even after this kind of change, because as I understand it. most of the medical spending done by Medicare and private insurers isn’t in that first $2000. A serious illness or surgery can easily run you into the hundred thousand dollar range, and you mostly aren’t in any state to do careful comparison shopping about which hospital is offering the best deals on bypass surgery this week.

I mean, I’m not even all that healthy of a person, and as an adult, I just haven’t consumed all that many medical resources, because I haven’t had a serious illness or injury. But if I have a heart attack or get into a serious car crash, I could blow through 2K in the first hour after I get to the hospital. Similarly, cancer or diabetes will probsbly involve spending many times that figure,over the course of several years.

Nathaniel January 22, 2013 at 11:15 am

That’s what insurance is for. Or at least, what it’s supposed to be for. If you’re unconscious, of course you can’t do comparison shopping… but if you can plan a surgery in advance or make an appointment for some future date, then by definition it’s not urgent enough that you can’t shop around. Many people already sort of do this by shopping around for the best provider for many procedures. I see no reason why they couldn’t do it on the basis of price as well if prices were more available

Cliff January 22, 2013 at 1:51 pm

Well, immediately health care costs would go down significantly because you are no longer paying an insurance company for their services (for routine care).

foosion January 22, 2013 at 6:09 am

There are two general strategies for dealing with Medicare (1) shift the costs to seniors and (2) find a way to lower costs.

How does it help the nation to shift costs to seniors, considering the Medicare is less expensive than private alternatives (due, e.g, to more negotiating power, less overhead)? We might improve the government’s balance sheet, but worsen the nation’s balance sheet.

I see Republicans resist and attempts to lower costs (death panels! socialism!), while trying to shift costs to seniors (e.g., capped voucher plans) in a way that increases costs (e.g., see CBO on Ryan’s plan).

Making consumers more responsible for costs might work for small items, such as checkups, but doesn’t work for big ticket items. How many negotiate while in the ambulance after a heart attack or price shop after a stroke? How many have the ability to judge the efficacy of expensive cancer treatments? Doesn’t anyone read Arrow anymore – healthcare is not a normal market.

Doug January 22, 2013 at 6:32 am

“How many negotiate while in the ambulance after a heart attack or price shop after a stroke?”

How many people negotiate with the tow truck or road side assistance when their car breaks down on the side of the road? Should we have the federal government “buy in bulk” from AAA to keep rates down or “bend the cost curve”?

“How many have the ability to judge the efficacy of expensive cancer treatments? ”

How many people have the ability to judge the hyper theading benefits of an
x86 chip? Or the relative tradeoffs of shared vs core caching? Semi conductors are orders of magnitude more complex than cancer treatments. Yet somehow a free market in computer hardware seems to work pretty well without central planning by government “CPU economics experts”

Plenty of things far more complex and inelastic than healthcare are produced by markets all the time. There’s nothing extraordinary about the healthcare sector that makes it different than the other 90% of economic activity that we all agree works better with capitalism than socialism.

Healthcare merely “feels” different for holistic reasons. The sacred temples of our body should not be desecrated with the base gyrations of money grubbing. So we come up with flimsy ex post rationalizations for socialism in healthcare that really fail to fold water.

uffy January 22, 2013 at 6:47 am

“So we come up with flimsy ex post rationalizations for socialism in healthcare that really fail to fold water.”

By “we” do you mean literally every country on Earth, as all seem to involve government intervention in health care markets? America is only an outlier in terms of costs; the whole “socialism” boogeyman doesn’t apply when there is no laissez-faire alternative currently in operation anywhere.

I suppose you think it a grand idea that we become a fun test case.

Doug January 22, 2013 at 7:03 am

There are certainly healthcare systems that are more free market than others. Given that there’s no honest intellectual argument against free market medicine, only a cautionary one, lets move incrementally to freer markets.

A start would be picking an extant healthcare system that we want to emulate. Instead of looking to Europe we should be looking to Singapore, which has a much more successful system than Europe both in terms of cost and outcome. It’s no coincidence that Singapore healthcare is the freest in the world.

dead serious January 22, 2013 at 12:19 pm

Someone above cautioned against comparing different country’s health care systems due to extant factors such as diet, race, exercise, etc. Here, let me quote him:

“Repeat after me: Medicine has very little affect on health. Many many things have much greater effect on health than medicine.

For example exercise, diet, social interaction, air pollution, stress, sleep, alcohol consumption, violence, marriage, and race all have far greater statistical impact on health than medical consumption. If you don’t believe me look up the Rand healthcare study. Or read Robin Hansons excellent work.”

Oh wait, that was you, wasn’t it?

Usems January 22, 2013 at 1:08 pm

@dead serious It depends on how you define an outcome. General life expectancy is a pretty poor outcome to measure. If that is the only outcome you want to focus on, we should implement a government policy where we all become Asian. However, there are other outcomes worth considering. The Singapore model, a couple European countries, and the Latin American country I live in have a system of incentives to make health care competitive and empower the consumer. I strongly prefer the “socialized” two-tier medical system in the country where I am to the US system. The poor receive necessary health care for “free” and the the non-poor receive the “quality of life” procedures that are of high-quality but at a much lower cost than the US.

dead serious January 22, 2013 at 1:23 pm

Please understand: I’m not making any argument, just taking “Doug” to task for talking out of both sides of his mouth.

But yes, obviously the US system is broken and we should look to other countries where successes are not only observable but repeatable.

Claudia January 22, 2013 at 7:13 am

Doug, self insuring is much more complicated than buying a computer…saving for retirement and even more so saving for future medical expenses requires households to be forward looking and able to accurately judge the health shocks (and institutions) that they face until death. As the Aaron piece points out, Social Security is a real success story. Old age poverty used to be a serious problem (when people didn’t even live that long) and now it’s not. The improved standard of living in retirement is a big deal and it wasn’t happening when we were in a self-insure-for-retirement regime. I love models with rational, forward looking consumers…they are easy to solve and understand. But I think we should be giving more credit to the model of Social Security for addressing our actual behavioral tendencies. I bet more left-leaning folks would get excited about entitlement reform if the right-leaning folks lifted up Social Security as an example for Medicare, instead of trying to whack it back with CPI gymnastics.

Andrew' January 22, 2013 at 8:38 am

That’s the benefit side (assuming it’s not a just-so story, e.g. maybe we just got richer). So what problems did it create? One of the problems is of course it’s own undoing where people thought they were getting more from the program than they actually were.

Claudia January 22, 2013 at 10:31 am

Since it will be 40 odd years before we can trade personal anecdotes on this one, I would like some evidence that problems caused by Social Security are larger than the ones solved. I find the reduction in old age poverty impressive. What would you point to? (Yes, there is research that shows some crowd out of private saving, but not full and then some crowd out.)

Norman Pfyster January 22, 2013 at 11:48 am

If you only measure the success of a government transfer program by whether the people who receive the benefits benefitted from the program, you will find that every government transfer program is a success.

Brian Donohue January 22, 2013 at 12:12 pm

Old people used to be poorer than average before Social Security. Retirement, as originally conceived, was not a finish line, but something bad that happened to you, like disability, and if you lived long enough, the probability approached 1.

Nowadays, old people are richer than average. Maybe we overshot, but Social Security really has addressed really real issues for a really large number of people over decades. And the benefits are hardly extravagant.

As Tyler points out, the whole ballgame, to a first approximation, is health care. Social Security finance, comparatively, is a piece of cake. Far too many pixels are being spilled on this red herring.

Claudia January 22, 2013 at 12:46 pm

Norman, you’re right benefits is only one (very important) metric of interest. How about administrative costs? SSA does quite well on that dimension too: “The table below shows Social Security administrative expenses, by trust fund. Since 1989, such expenses have totaled one percent or less of combined expenditures from the trust funds.” http://www.ssa.gov/oact/STATS/admin.html

Cliff January 22, 2013 at 1:56 pm

I wouldn’t shout from the rooftops a 1% expense ratio for a forced purchase of government bonds. Needless to say this is a significant “dead weight loss” compare to investing on your own. And can you link to anything comparing the effect of SS to the rise of GDP over the same time period?

Norman Pfyster January 22, 2013 at 2:52 pm

Administrative costs are hardly the point. Any problem that is defined by a lack of funds can be addressed by transferring funds to that problem. Problem solved! Family farmers are poor (or poorer than they could be)… so, farm subsidies! The fact that you are moved by the plight of the elderly poor and not by, say, the farmerly poor, is just random.

My objection to SS, to follow up on Brian’s comments, is that it permits the able-bodied to retire when they are perfectly able to work. You can call me a squish, but I don’t object to my money going to people like my grandparents, who are unable to work and who have outlived their savings. I get grumpy when I pay for people like my parents to retire early and play golf in Florida all year round. If they turned it into a disability-only insurance program, I wouldn’t object.

Hazel Meade January 22, 2013 at 12:45 pm

It’s not that people feel that their bodies are sacred or whatever.

It’s that we’re all mortal, and death is the thing we fear most, so almost all of us will do pretty much whatever it takes to stay alive. And that includes rationalizing reasons why other people are obligated to pay whatever it takes to keep us alive. I.e. a right to health care.
It’s really nothing more than highly focused survival instinct.

Brian January 22, 2013 at 4:25 pm

And since your survival instinct is just as powerful as mine, and because your demand for my earnings to fund your fear of death comes at the expense of my ability to fund my fear of death, then I have just as much right to euthanize you as you do to my money. I don’t care how many of your grandchildren you’ve volunteered without their consent to pay for my future needs. Maybe they’ll change their minds.

byomtov January 22, 2013 at 2:39 pm

a free market in computer hardware seems to work pretty well without central planning by government “CPU economics experts”

Yeah. After all, having my computer take a quarter-second longer to load a spreadsheet than it should because I made a poor choice of model is pretty much comparable to getting inferior medical care because I made a poor choice of doctor or hospital.

Hazel Meade January 22, 2013 at 11:06 am

Making consumers more responsible for costs might work for small items, such as checkups, but doesn’t work for big ticket items.

And yet the D’s insist that small items such as birth control pills be covered free of cost by insurance.

And the eliminate co-pays for “preventive” care.

And they cap the deductibles that insurance companies are allowed to offer. Thus ensuring that people have even less incentive to shop around for small ticket items.

It’s also worth noting that not all “big ticket” items are emergencies. And not all emergencies are big-ticket.
If you need an MRI sometime in the next two months, you have time to shop around for a radiologist.
Or a hip replacement. Etc.

Or if you go to the emergency room for a UTI, you’re probably not paying more than a few hundred.

You get insurance for things that are BOTH high-cost, AND emergencies.

foosion January 22, 2013 at 6:15 am

Regarding Social Security, the other big “entitlement,” the last grand bargain was to increase the retirement age and increase the cap on wages subject to SS taxes. The increase was designed to capture 90% of wage income. Due to rising inequality, the current cap gets much less than 90%. That’s why there’s a projected shortfall in about 20-25 years, not some unexpected demographic shift. If we increased the cap, Social Security has no funding issues at all.

CG January 22, 2013 at 12:48 pm

Saying that a problem exists by the failure to adopt a proposed solution doesn’t address the root cause of the problem.

Social Security Board of Trustees Summary of Annual Report (2012):

“[Social Security and Medicare] will experience cost growth substantially in excess of GDP growth in the coming decades due to aging of the population and, in the case of Medicare, growth in expenditures per beneficiary exceeding growth in per capita GDP. Through the mid-2030s, population aging caused by the large baby-boom generation entering retirement and lower-birth-rate generations entering employment will be the largest single factor causing costs to grow more rapidly than GDP. Thereafter, the primary factors will be population aging caused by increasing longevity and health care cost growth somewhat more rapid than GDP growth.”

http://www.ssa.gov/oact/trsum/index.html

DocMerlin January 22, 2013 at 7:25 am

“What is driving growth in government spending?”

Lack of baseline budgeting.
A standard baseline that is 3x the GDP growth rate is just insane.

y81 January 22, 2013 at 7:46 am

“Henry Aaron has a very sane piece” which points out that everything bad is the fault of conservatives. That pretty much sums up what the professoriate thinks is the definition of sanity, which is why most of us don’t take academics very seriously.

Claudia January 22, 2013 at 8:00 am

You are free to disagree with Aaron, but it would be a multi-dimensional mistake to dismiss him as ‘ones of those academics.’ You would have a hard time finding someone who has spent more time grappling in a thoughtful way with entitlement issues than him. Also I think you misread this piece.

Andrew' January 22, 2013 at 9:12 am

Then who is he supposed to be, and if so, why does he write like that? If these programs are “under attack” they are attacking themselves.

Bill January 22, 2013 at 9:33 am

y81, What are your reactions to Aaron’s solution:

“Earnings above $110,100 in 2012 are exempt, as is compensation channeled into the increasingly popular medical savings accounts, dependent care accounts, and transportation reimbursement plans. Gradually raising the fraction of earnings subject to tax from the current 84 percent of earnings to the historical target of 90 percent of earnings, boosting the payroll-tax rate from 6.2 to 7 percent, and taxing currently exempt cash compensation would fully close Social Security’s projected long-term financing gap.”

Rich Berger January 22, 2013 at 11:59 am

Sure, let’s raise the marginal tax on income above the wage base by 12.4% (that’s absolute not relative to the current base). That should spur growth!

mulp January 22, 2013 at 1:34 pm

Growth was higher when the marginal tax rate was 90%. It was higher when it was 70%. Higher at 50%.

Cliff January 22, 2013 at 1:59 pm

Well that proves it, let’s increase the marginal rate to 100% and watch growth soar. Let’s ignore economists and reason and focus on arbitrary correlations.

Bill January 22, 2013 at 2:05 pm

Rich, The increase you talk of is small on a small base. If I paid .1% rate and increased it to .2%, that would be a 200% rate increase.
This is a change of .8% over time.

How about applying the change to real incomes.

Amounts to $400 on a $50k income; $800 on a $100k income.

Of course, phased in over time.

Rich Berger January 22, 2013 at 8:02 pm

I take it that you are not a numbers guy. You can’t get a big effect with small tax increases. Raising the amount covered from 84% to 90% is a big chunk of earnings. And he wants to increase the rate from 6.2% to 7%, so the marginal rate er/ee goes to 14%. That is a big increase.

The problem with “progressive” plans is that there is not enough money to support these programs unless everybody pays. We can’t let the common man know that. He must be made to believe that the rich will pay for it.

Bill January 22, 2013 at 8:43 pm

Yeah, it’s not like you, as a later SS beneficiary, get the money back in an annuity later. Oh, you do, sorry. $800 on $100k is goin to kill ya. Say, the covered amount goes to $140k or $160k over 15 years, that won’t kill you either.

Andrew' January 22, 2013 at 7:52 am

Ahem. Leading Nate Silver by a year, two years and running.

Andrew' January 22, 2013 at 7:53 am

(Of course, he’s wrong about these cash transfers being insurance, but close enough for government work)

Brian Donohue January 22, 2013 at 12:17 pm

Dude, I think you’re wrong about this. Of course Social Security provides social insurance against old age.

muirgeo January 22, 2013 at 10:47 am

Wait … can we back up? Can some one confirm that spending is increasing abnormally? BEA numbers don’t support the claim. There is arguably no growth in spending since quarter 3 2010. That’s why it’s so fun ask people who complain about Obama’s spending to point to the most expensive new program he has put forth. And yeah most of the increases are related to the stagnant economy… more people on food stamps, unemployment ect. If there were true big increases in government spending we’d probably be much further along.

Zachary January 22, 2013 at 10:48 am

It’s simple: Government spending is increasing faster than the private economy is growing. That’s bad. Doesn’t anyone know Mitchell’s golden rule?

muirgeo January 22, 2013 at 10:58 am

Zachary … than that makes the problem the private economy NOT government spending. How about we focus on the private economy which by the way is making record profits and banking record dollars. Stocks are up 70% these last 4 years.

Hazel Meade January 22, 2013 at 10:54 am

The problem is… every single one of us (ok, maybe 99%) is willing to spend an infinite amount of other people’s money to stay alive.
Health care is a price inelastic good in a market for which there is near-infinite potential demand.
Thus, making an open ended promise to pay for other people’s health care is bound to (A) break the bank and (B) wreck havoc with prices signals in that market.

muirgeo January 22, 2013 at 11:00 am

Hazel we are the ONLY developed country who’s public health care is breaking the bank 30+ other developed countries prove your claim of unlimited health care spending wrong. http://newshour.s3.amazonaws.com/photos/2012/10/02/At_17.6_percent_of_GDP_in_2010_slideshow.jpg

Hazel Meade January 22, 2013 at 11:09 am

All of those countries ration care in various ways. Sometimes explicitly, sometimes through waiting lists.
Which isn’t an “open ended promise” any more.

One way or another, there is no “right” to health care. We either start rationing, or we stop promising to pay for it.

Bill January 22, 2013 at 11:26 am

Hazel,

Define your terms first. What do you mean by “ration care”. If you mean that governments negotiate for the price of drugs that they pay for, or that they monitor doctors so they don’t perform unnecessary procedures, then you have one thing.

If you mean that they don’t give care to those who would benefit from it: ask yourself this question: are these countries democracies and what has stopped them from changing their system.

Name the countries that deny their citizens health care by rationing.

Hazel Meade January 22, 2013 at 12:04 pm

By “negotiate the price of drugs”, what you really mean is price controls. And price controls will cause shortages. Which means there will be less drugs available than demand. Which means some people won’t be able to get them.

Whether a procedure is “necessary” is subjective. If someone is empowered to decide something is not necessary, at some point, he’s doing some kind of cost-benefit analysis, and deciding that the benefit is not worth the cost. That’s always going to be driven by how much money is available. If it’s a limited amount, it’s rationing. If it’s an unlimited amount, then you bias the system towards spending, and you don’t deal with the cost inflation question.

If you die on a wait list, or because drugs aren’t available, you are denied care. Even if nobody says you can’t have it, if it’s simply not available, you are denied care.

There is no “right to health care” in Canada. You have a right to a place in line. Whether you actually get the healthcare depends on how much money the government budgets to spend on health care.

ad*m January 22, 2013 at 12:14 pm

Bill,

I often like your comments, but either you are commenting in bad faith here or you really don’t want to know this. Maybe my perspective is different because I am a physician and was born and raised in Europe, but rationing is widespread in Europe. Hint: don’t look for “rationing”, a term that is obviously never used, but instead for terms like “capitization” / “streamlining” / “cost-effectiveness”. Here is one recent example from the UK:

http://www.rcophth.ac.uk/news.asp?section=24%C2%A7ionTitle=News&itemid=880

Bill January 22, 2013 at 12:15 pm

Hazel,

How about if we cut out the rhetoric of price controls, please, no one is saying that.

By negotiate the price of drugs, let me say: put it up for bid. Put it up for bid.

And, by the way, you didn’t name a rationing democracy.

Hazel Meade January 22, 2013 at 12:37 pm

I’m all for government negotiating a fair price for drugs, the same as every other market participant. Or to be more accurate, I’m all for the government paying the market price for drugs, just like everyone else.

Cliff January 22, 2013 at 2:03 pm

Put patented drugs up for bid? I guess you don’t’ want to get any more new drugs?

Bill January 22, 2013 at 3:11 pm

a*dm, I am sincere in my belief of the inefficiency of the current system, and that words like capitization or efficiency should not be anathema to medicine or effect outcomes. Let me give you some examples:

1. A medical device sold in the US but not Europe: why: the sales manager tells me that the product gives palliative care for 6 months, and after that the choice is medicine or surgery. Then, why in the US. Answer: Because there is a drg for it and the docs own the equipment and sell the disposables.

2. A JCAH standard requiring a certain test, and the purchase of the test drugs, to test for a disease that, if you waited 4 days, would reveal itself in time for you to respond. Waiting for the test: takes 4 days as well.

3. Physicians paid on the introduction of a new procedure. Payment set high to cover their training investment. 10 years later, after students have learned the procedure in med school, still has the payment at that level, even though routine and now very fast to perform.

4. Just attended a graduate marketing department seminar in which a faculty member from the School of Health (really an Insurance prof) presents a paper on measuring doctor efficiency. Paper says there has been no measure established to measure efficiency. This guys paper reads like what I would expect a 1940s Soviet econ study to look like because he takes everything off a list price. Find out that docs who substitute nurse time capture the gain but no one measures this as productivity improvement, nor do reimbursement levels change.

5. By the way, I do measure where things are too restrictive as to care by looking at what docs say, as in your eye example. But, for the 99.99% of the other care, you do not see docs in Germany, England, Canada etc. complaining about their patients getting poor care. No strikes. No demonstrations. No electorate response.

Hazel Meade January 22, 2013 at 4:35 pm

Bill,
Nobody’s arguing that there is a free market in medicine in the US.
The problem with the current system is that our third-party payment model separates the person making the decisions (the doctor and patient) from the person who is ultimately paying the costs (employers and government). If we tie the hands of the latter with respect to what they are willing to pay for, then it shouldn’t surprise us at all that we get price inflation. And because patients have no reason to know or care what anything costs, doctors pretty much never even bother to tell pateitns what it costs in advance. That makes it hard for even patients who want to pay out of pocket and shop around to find out price information. The whole system is set up to hide costs from patients and then force someone else to pay for them.

It’s not a surprise that outcomes are more cost efficient in systems where the government takes the decision making power away from patients and doctors. But ultimately that’s because the government then gets to say “no” to things. I.e. rationing, in some form.

GiT January 22, 2013 at 11:48 am

markets in healthcare ration care as well. So what? Rationing will happen, period.

Hazel Meade January 22, 2013 at 11:56 am

At least markets preserve the incentives and the price signals needed to maintain efficiency.

GiT January 22, 2013 at 12:11 pm

At least governments don’t determine access to health services on the basis of individual wealth.

Hazel Meade January 22, 2013 at 12:14 pm

No, they determine it on the basis of which demographics are the most important in key swing states.

GiT January 22, 2013 at 3:50 pm

In what way are medicare and SS “targeted” to swing voters in swing states specifically? It’s a nice inane platitude about democratic government there, but it doesn’t really have much to do with reality.

Hazel Meade January 22, 2013 at 4:25 pm

You don’t think the fact that Medicare is much better funded (and much harder to cut) than Medicaid has something to do with the fact that old people vote a lot, and there are lots of them in Florida?

Or are you saying that it’s objectively fairer for the elderly to be better taken care of than the poor?

GiT January 22, 2013 at 4:50 pm

That elderly voters in Florida are specifically benefited by Medicare seems to me to be largely incidental. The elderly are a stronger constituency than the poor, but I don’t see how that’s a result of targeting swing voters in swing states. The elderly are an important constituency across the country.

In any case none of that has much to do with the failures in provision of services to the poor given a scarce and accordingly expensive supply of health service providers and free competition over their labor. The market may very well become more efficient, but that doesn’t mean the pattern of distribution will become more equitable.

Hazel Meade January 23, 2013 at 11:27 am

The point is that the pattern of distribution isn’t necessarily more fair or more equitable in a government run system – it’s just driven by political considerations instead of economic ones. And, other things being equal, it’s better to preserve the incentive structures that drive improvements in outcomes and efficiency. Over the long term even the poor will end up with better outcomes.

ezra abrams January 22, 2013 at 7:09 pm

please support your contention of long wait time rationing with references to the peer reviewed literature
I have a very superficial knowledge of that lit, and it is not really a settled point yet, iirc

please tell me your thoughts on the moral correctness of rationing by price (what we have) where if you make a lot of money running a bank doing fradulent mortgages, you get as much healthcare as you want, but if you are a poor kid who had the bad luck to choose bad parents you don’t get health care.

seems like a really really morally defective system to me.

JonF January 22, 2013 at 4:22 pm

There is no such thing as “infinite demand”. Infinite demand would require infinite time and infinite space. We humans have neither. As someone with solid math training, I find the use of “infinite” as a sloppy way of saying “some very big, but unspecified though still very finite number” a terrible verbal habit.

Floccina January 22, 2013 at 11:55 am

One thing not mentioned in the article is that state and local government spend a lot on education and though education spending has lagged GDP a bit it should have been reduced a lot because young people are much smaller part of the population now. This is an area where big spending reductions can be made without much pain.

Here is my rundown of how it is technically easy to cut spending without hurting the needy but politically impossible at this time. I think sensible reform will require a crisis. Like the bond gools not wanting to buy US treasuries.

GiT January 22, 2013 at 12:13 pm

Ha, hadn’t seen your comment when I posted mine, but it looks like we’re on two sides of the same coin.

GiT January 22, 2013 at 12:10 pm

% of population over age 65 has increased by 50% from 1950-2000. So, one might expect medicare and SS spending to go up as a % of GDP. That definitely doesn’t explain everything, but it would account for a decent chunk of the increase in entitlement spending as a % of GDP.

Mr. Beefy January 22, 2013 at 12:32 pm

Curious about a couple issues w/ SS:

1) what happens to all the pay-ins that illegal immigrants make on facetious SSNs? shouldn’t we be encourage more of this to alleviate the funding concerns?

2) why is there now suddenly a 13-1 disabled to worker ratio? it’s become increasingly easier and easier to get disability – newest flavor is for addicts

Bender Bending Rodriguez January 22, 2013 at 6:12 pm

Are these the illegals that are being paid under the table that are making billions of dollars in FICA payments? Or are we discussing the ones paid as contractors responsible for their own SS/Medicare payments?
Surely the latter, despite their disregard for immigration laws, are more than happy to make payments that take money out of their pocket and benefit rich old white people.

Kent Lyon January 22, 2013 at 1:24 pm

The really perverse thing about Social Security is that the funds paid in are spent by the federal government in the general budget, and used to make the budget deficits look smaller. Thus there are IOU’s in the SS trust fund, not cash. Plus, there is no return on Social Security funds to the beneficiaries. Years back, certain state and county employers could let their employees opt out of Social Security, and those who did had an income in retirement 4 times greater than they would have had under SS because they owned the money and it gave them a return during their working years. So, SS is actually a system that coerces poverty in retirement, not adequacy of income. It thus defrauds Americans by promising something it actually prevents. If Americans were allowed to opt out of SS and put the same money into a savings account, they would be far better off, for the most part. The exceptions might be those who live to very old age. When SS was set up, with retirement at age 65, the average lifespan was 67. Now it is 87. That change was not foreseen and now hampers the program. Plus changing demographics make the system unsustainable. Plus SS is a very regressive tax on labor. Those starting their working careers now have little liklihood of ever receiving benefits from SS. They are paying for the prior generation, with little expectation that they will ever see anything back from it themselves. This makes SS a coerced (thus worse than a voluntary) Ponzi scheme. Further, the structure of Social Security makes those in retirement (who actually have far more financial resources than the 25 year old starting his working life) extract from current workers (with fewer and fewer workers per retired or disabled beneficiary) money to pay their current benefits. The effect is to split the generations. That German concept of intergenerational responsibility is actually vitiated by Social Security in that it creates divisions between the generations. A private retirement system would do the opposite, with the retired having paid for their own retirement benefits during their working lives, hence they would not be dependent on the next generation, who wouldn’t get screwed by the system due to changing demographics.
Regarding illegals with fake SS numbers: One of the most impoverished cohorts on the planet is paying into a system from which it will receive no benefits, to support one of the wealthiest cohorts on the planet (American retirees). One should be profoundly ashamed of such exploitation. One can argue that the lax enforcement of immigraion laws in the US are due the federal interest in getting additional money into the SS system by exploiting illegal immigrant labor. I would consider this to be almost as bad as slavery in moral terms. No fairness there whatsoever. Anyone who has no shame about this circumstance is a truly perverse and depraved individual.

JonF January 22, 2013 at 4:28 pm

All financial instruments, including cash, are nothing but IOUs.

And life expectancy (even at age 65) is no where near 87*. Where are you getting that number from? Moreover the last couple of years life expectancy in the US has declined (very slightly overall, significantly for some groups)

* Per the US Census bureau, life expectancy is 78 at birth, and 83.7 at age 65.

Claudia January 22, 2013 at 4:24 pm

“I see the current American Left as rapidly losing what it once knew about the need for entitlement reform.” (from TC’s post.) To which I say, well at least they knew something once. The discussion here in many places is a disgrace (particularly given the average IQ of the participants). If you hate government just say it and move on, don’t pretend to have serious discussion about the details of a government program. I admit all the time that things I don’t particularly like (and want to improve) actually work pretty well…it’s not that difficult to be open minded.

Bill January 22, 2013 at 5:37 pm

+1 Don’t give up hope.

Steve J January 23, 2013 at 11:41 am

“it’s not that difficult to be open minded”

We never agree on ground rules in the fights. I’ve found the issue is not whether or not people agree with your ideas but whether or not they even understand what your ideas are. Social Security is a perfect example for something that seems easy to discuss but in reality requires significant effort to even define the problem space. Smart people talk right past each other when you don’t agree what black and white mean.

Claudia January 23, 2013 at 8:37 pm

Open minded might not have been the right word, but some people don’t even want to understand the other person’s ideas. All they want to do is win them over and failing that attack them personally. It’s more than miscommunication (though I agree there is that too) it’s a matter of not showing up to talk.

Brian Donohue January 23, 2013 at 10:43 pm

On the specific subject of Social Security, I find the discussions here often frustrating. I actually think it’s much easier to understand analytically than a lot of the issues, but people aren’t generally willing to give the topic a fresh set of eyes. Oh well.

Ultimately, it’s a very minor chord in the budget drama anyway.

I also think that this closed-mindedness or whatever is still much less pronounced here than at almost any other blog with which I am familiar. Just my opinion of course.

I also also think that Tyler’s original sentiment is correct, obviously true even.

The state of our polity today is that the children, I mean the American people, must be spared the awful truth. One party says no tax increases, never, not ever, while the other warns reflexively that any decrease in the rate of spending growth amounts to savagery inflicted upon the children, I mean the American people.

You can see where the path of least resistance is leading us. Tyler reflects, correctly, the mirror-image ridiculous denial of the left that accompanies the more widely played upon theme of ridiculous denial of the right.

You know what really gets me though? The true mark of the depths of political cowardice to which we have sunk in this country? It is each party’s stealthy appropriation of the other party’s main plank. So, nowadays we have Democrats without the guts to propose tax increases (other than on the rich, which ain’t gonna get ‘er done) and Republicans chary of offering meaningful spending cuts (other than on discretionary programs, which ain’t gonna get ‘er done.)

If something is unsustainable, it tends to stop. How, of course, is the question? Me? I’m an optimist. I reckon the political calculations may tilt in favor of biting the bullet and breaking it to the American people this year. I sure hope so.

diet for lower cholesterol January 22, 2013 at 5:56 pm

The very next time I read a blog, I hope that it won’t disappoint me as much as this particular one. After all, Yes, it was my choice to read through, however I truly believed you would have something interesting to talk about. All I hear is a bunch of complaining about something that you can fix if you weren’t too busy searching for attention.

Steve J January 22, 2013 at 8:15 pm

You must have very high expectations of the internet.

ezra abrams January 22, 2013 at 7:06 pm

Respectfully, as a liberal, may i say..
The idea of no entitlement reform on the left is silly for two reasons
1) why on earth should seniors choosing between dog food and medicine take a hit when we have the carried interest exemption ? that is, first things first.
iirc, we spend more on defense then the next 5 countries combined, and you are telling me it is morally ok and sane that M Romeny can do multi million dollar tear downs while old people can’t afford medicine ?
I’m sorry, the ethical lapse here is just to me stunning.
2) We do talk about reform a lot.
For instance, liberals like myself say that we need to deliver healthcare at the same quality for a lot (a lot) less, and that that is a technology prolbem and a social organization problem
I think most liberals like myself would be very much in favor of reforms that resulted in a lot of businessmen – many conservative gop supporters no doubt – being thrown in jail for medicare theft.

I know these are side issue, but the symbolism is important

SR January 22, 2013 at 7:44 pm

Wow, I actually went ahead and read the entire Aaron article. 100% accurate and he gives both good /policy prescriptions/ AND /political prescriptions/ to both the left and the right. As a more moderate guy, this is good work.

social security:
(1) Social security IS an insurance. SS is the reason there’s no real market for annuities in the United States. (good read: http://www.nber.org/papers/w8045)
(2) Because it’s an annuity, increases in life expectancy are blowing up the expected payments side (at least in the long term). Aaron gives a few good suggestions: raise retirement age (why isn’t SS legally tied to life expectancy anyway?), change benefits formula to pay more the older you are (or the longer you’ve been on SS)
(3) raise payroll tax slightly to 14% instead of 12.2%

mm January 22, 2013 at 9:19 pm

if that is sanity we need to hope for insanity. Hank needs to learn about dynamic analysis. First, putting more money into the payroll tax will just increase the reckless spending by the feds & none of it will be “saved” for SS-just like there is no saving for SS now. Pelosi will just find more cronies to fund- Solyndra’s forever, worthless high speed rail project, etc. Secondly, the idea that we should cut payments to those who prudently saved for retirement in order to give more to the imprudent is really crazy. The net effect will be discourage people from funding their retirement since they will just be rewarded with a cut in their SS check for every dollar they save, thereby increase the net dependence on SS. Lastly, his argument that many in the OECD have more generous programs is hysterical, since they are all going bust as well-using them as a benchmark is like using Dean Martin as your model for temperance.

Claudia January 22, 2013 at 10:04 pm

On the bright side…when you pay your payroll taxes you are accruing a claim to future benefits. (They could just jack up your income taxes to cover current programs.) Your comment made me think how insane it is that when I put an electronic dollar in the bank, I don’t get to draw out the same electronic dollar … the bank lends those bits to someone else. Hmm. Again I asked earlier for the work showing the SS actually lowers retirement saving on net. I don’t think it exists. Finally most people are not forward looking, that’s a large part of why SS is mandatory.

Mm January 23, 2013 at 8:38 am

But Your “claim”is at the whim of congress- you have no”right” to it- ie no claim that congress cannot abrogate readily. The people who are forward looking are the “greedy” top 10% who are the targets. The mandatory nature of SS exists mainly to force (and benefit)the nonforward looking portion of the population- but proposals to reduce benefits for those that save targets the”forward” thinking, who will respond by reducing savings so that they maximize their benefits- thereby reducing the hoped for saving in expenditures

mulp January 23, 2013 at 1:16 am

The high rate of growth in government spending began with the tax cutting frenzy which was based on deficits don’t matter.

When handing out tax cuts left and right, who cares if government works or is efficient.

All the complaints about government spending are raised only when Democrats are in control. Otherwise, there are a thousand reasons for more government spending and more tax cuts.

It is pretty funny to hear all these guys who claimed the budget was in surplus even as the debt was rising back in 2001 calling the 4.8% unemployment a crisis requiring massive government stimulus, and within two years, the balance between revenue and spending swung by $400 billion a year. That was the debt added per year in 2002.

Handworn January 25, 2013 at 9:04 pm

To me, the question of Henry Aaron’s sanity begins and ends with his statement, “Cuts in Social Security, Medicare, and Medicaid benefits are neither necessary nor desirable and should be resisted.” I don’t need to read the rest of the piece; if that’s where he starts then he and I have nothing to discuss.

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