Robert (No Relation to Paul) Samuelson tries to define the entitlement problem:
The aging of America is not just a population change or, as a budget problem, an accounting exercise. It involves a profound transformation of the nature of government: Commitments to the older population are slowly overwhelming other public goals; the national government is becoming mainly an income-transfer mechanism from younger workers to older retirees … These projections are daunting. To keep federal spending stable as a share of the economy would mean eliminating all defense spending and most other domestic programs (for research, homeland security, the environment, etc.). To balance the budget with existing programs at their present economic shares would require, depending on assumptions, tax increases of 30 to 50 percent – or budget deficits could quadruple. A final possibility: Cut retirement benefits by increasing eligibility ages, being less generous to wealthier retirees or trimming all payments … Over the years, many think tanks have deplored budget deficits and undisciplined federal spending. There have been countless reports on Social Security and Medicare. Most are technical, though some propose major (even radical) changes.
Dean Baker objects to No Relation to Paul thusly:
Those familiar with federal budget projections (which should include economics columnists at the Washington Post) know that the bulk of the projected increase in costs in these programs is due to rising health care costs, not the aging of the population. Those familiar with the debate among presidential candidates (which should include economics columnists at the Washington Post) know that reforming the country’s health care system has been by far the most important domestic policy issue. But the two programs are usually treated separately, and the larger questions of adjusting to an aging society are mostly evaded.
Dean is defending what No Relation to Paul referred to with “the two programs are usually treated separately”. More on this later – but let’s turn the microphone over to Mark Thoma:
Social Security is not the problem, it won’t take much to get it on solid footing, though the scare stories over the past several years have made many people believe otherwise (and Samuelson has helped to generate this false impression). The problem is not demographics either, though it certainly costs more to serve a larger number of people. The main problem is rising medical costs, and unlike the misplaced emphasis on Social Security in the last election, there is a lot of focus on health care reform in the political debate this time around … Samuelson’s continual focus on the budget deficit obscures the real problem. It doesn’t matter whether health care is in the public domain or the private domain, the costs will be daunting either way if they continue on their present trajectory, so finding ways to hold down health care costs is where the focus needs to be. If Samuelson really wants to help, he can quit writing the same misleading and counterproductive column over and over again. Quit saying “cutting retirement benefits or raising taxes” are the “obvious choices” when it’s not obvious at all. Cutting retirement benefits or raising taxes will do nothing to reign in health care costs so these measures do not address the main problem.
While this sounds about right, Arnold Kling felt compelled to write:
Why is high spending on medical care a public policy problem at all? If the affluent were spending their own money to purchase health insurance or to pay for medical services out of pocket, I would see no need for government to “rein in” such spending. The public policy problem arises because our government allocates health benefits based on age rather than based on need. The public policy challenge is that we have obligated too much in future benefits to retirees relative to our likely ability to collect taxes. In that regard, I think that Samuelson has correctly identified the core issue.
Pardon me for saying this – but Arnold is not really making a point at all here. Mark already noted that possibility that we could have health care costs be financed either publicly or privately. The point that both Mark and Dean were making was that we should separate the Social Security and health care discussions. On the former – the government told us about a quarter of a century ago that we should make large payroll “contributions” so we could build up a Social Security Trust Fund reserve that would help pay for the Social Security benefits of the baby boomers. Their complaint with No Relation to Paul is that he tries to ignore the 1983 Social Security reform. So I don’t get how Arnold can argue that No Relation to Paul has correctly identified the core issue.
Update: Arnold Kling replies to our post with this:
Both Social Security and Medicare rely on the same tax source for meeting obligations to future seniors. Because we allocate more payroll taxes to Social Security than to Medicare, it looks like Social Security will be nearly in balance in 2040, and Medicare won’t. But if we allocated more payroll taxes to Medicare instead, it would be the other way around.
By the same reasoning, I have a solution for the General Fund deficit. Our income taxes go to fund both Interstate transportation (things like I-5 and I-10 in LA) and the defense department. Currently, we spend a little on transportation and a lot on stupid ventures desired by the neocon nitwits in the White House. Now Ron Paul – the only GOP Presidential candidate with a shred of integrity – thinks we should slash defense spending. If we do that, we could both reduce the General Fund deficit and fix those potholes in the roads I have to drive on.
But here is why Arnold’s latest – which is a far cry from his attack on Mark – does not cut it. When we raised payroll contributions in 1983, it was not to fund a Prescription Drug Benefit. It was to fund those retirement benefits that Dean, Mark, and I talked about. When President Bush decided to pass a bloated Prescription Drug Benefit, I opposed it simply because he was not raising payroll taxes as he was bragging about some phony income tax cut. Arnold Kling understands all of this just as well as I do. But he continues to defend Robert Samuelson’s garbage. For the life of me – I cannot understand why.