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Home Publications Blogs Beat the Press Robert Samuelson Wants Us to Default on the National Debt

Robert Samuelson Wants Us to Default on the National Debt

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Thursday, 22 May 2014 04:36

Actually, he probably doesn't, but that would be the logic of his complaint (taken from Gene Steuerle) that "dead men" have established priorities for federal spending. After all, dead men made the decision to borrow the money that constitutes the debt, which thereby obligates the country to pay back the interest and principal.

But Samuelson's complaint is not about the interest and principal being paid back to rich people like Peter Peterson, Samuelson is upset about the money being paid out to ordinary workers (mostly retirees) for Social Security, Medicare, and Medicaid.

"In 1990, Social Security, Medicare and Medicaid (health insurance for the poor) totaled 6.7 percent of national income, or gross domestic product. By 2010, they were 10 percent of GDP. Using plausible assumptions, the Congressional Budget Office estimates this spending (including the Affordable Care Act) at 15.2 percent of GDP by 2038."

There are several immediate problems with Samuelson's complaint.

First, if we are counting the spending on the Affordable Care Act, it is hardly a story of "dead men." The folks who made this into law are almost all still alive, and the person who pushed it through Congress, Nancy Pelosi, is not a man. In other words, this spending reflects priorities of people who very recently represented public opinion.

The second problem is that including Social Security in the arithmetic simply confuses the issue. Almost all of the rise in spending over this period is due to rising payments for health care programs, not Social Security. In 1990, the government was spending 4.3 percent of GDP on Social Security (it had spent as much as 4.9 percent in the early 1980s). It is projected to spend 6.2 percentage points of GDP on Social Security in 2038.

Furthermore, taxes were raised explicitly to pay for this increase. While Samuelson may think it's reasonable to tax people for Social Security and then use the money to pay for the military or other purposes, most of the public does not share his perspective. According to Steuerle, people will be paying slightly more money in Social Security taxes than they receive in benefits, so there doesn't seem much basis for his complaint about "giveaway politics."

The real story here is health care and there is a real giveaway, but not to the folks in Samuelson's rifle scope. The United States pays more than twice as much per person for its health care than people in other wealthy countries. It has nothing to show for this additional spending in outcomes. If we spent the same amount per person as Germany, Canada, the U.K., or any other wealthy country, the government would be looking at large budget surpluses for the rest of the century.

The additional costs are due to fact that our doctors get paid twice as much as doctors elsewhere, we pay twice as much for drugs and medical equipment, and we have an insurance system that drains away almost 20 percent of spending on needless administrative costs. Unfortunately these groups are so powerful that the excessive costs they impose on the government and the country rarely even come up in public debate. (Increasing trade in physician services is not even on the agenda in current trade agreements and a main goal is increasing the cost of prescription drugs.)

In short, there is a very simple story here that Samuelson is grossly misrepresenting by including Social Security in the discussion. We are being badly ripped off by our health care system. And, the beneficiaries are so powerful they mostly prevent the ripoff from even being discussed. Instead, we get people like Samuelson who want us to beat up seniors.

Comments (15)Add Comment
Welcome back!
written by Justin, May 22, 2014 7:07
Glad to see you're right back at it! Hope your vacation recharged your indignation. :)
Wait, What?
written by Paul Mathis, May 22, 2014 9:57
Unfortunately these groups are so powerful that the excessive costs they impose on the government and the country rarely even come up in public debate.

Every single member of Congress and the Administration understands that these groups are ripping off the government. The only reason they don't debate this gouging is that there is nothing to debate: a majority of the Congress has been bought and paid for by these groups so what would be the point of debating? Nothing is going to be changed by talking about how badly we are being ripped off.

When has Pres. Obama proposed negotiating with the drug companies over their ridiculous prices for Medicare or Medicaid? No other country in the world pays these prices, but nobody in Washington even raises the issue of getting a better deal on pharmaceuticals for obvious reasons. And that is just the tip of the iceberg.

Until our corrupt system of campaign finance is reformed, the health care predators will continue their feasting at the public trough. In fact it will probably get worse in the future thanks to John Roberts.
hey dean how about this one
written by djb, May 22, 2014 10:27


"Medicine’s Top Earners Are Not the M.D.s"

http://www.nytimes.com/2014/05/18/sunday-review/doctors-salaries-are-not-the-big-cost.html?_r=0





CEOs earn even more than doctors
written by Dean, May 22, 2014 10:50
djb,

I'm not sure what the point is. CEO's surely get excessive pay and I have written about this frequently. It is the result of corruption in corporate governance. I'm not sure how this justifies our doctors getting paid twice as much as doctors in other wealthy countries.
welcome back
written by dean, May 22, 2014 12:05
You should also clarify that SS "spending", along with SSI, is really a transfer, no direct cost on the economy, simply shuffling money around, whereas medical spending does cost, i.e., employment effects and obviously (mal)investment in questionable medical technology. But spot on that our medical suppliers, nurses, docs, etc., do seem to have higher incomes than European counterparts. Having U.S. join the EU would do wonders for our health care costs.

There is a second order effect of SS, since the transfer is from youthful high spenders to low spending seniors, so that the SS tax and transfer probably is a small net negative on the economy.
to dean again
written by djb, May 22, 2014 12:11
well, its not true that primary care docs make twice as much

what is true is that in a lot of those other countries the medical education is free or much cheaper

so the doctors dont come out 200,000 to 300,000 dollars in debt like american graduates (whose parents arent rich) do

and in france the doctors education is free and apparently a large portion of their taxes they would have to pay for healthcare is handled by the government

I am all with you on the specialists pay being way too high

but thanks for answering
budget surpluses for the rest of the century
written by joe, May 22, 2014 12:32
and then people who understand accounting identities die laughing.
What? Seniors socking away their checks?
written by Bruce Webb, May 22, 2014 1:20
There is a second order effect of SS, since the transfer is from youthful high spenders to low spending seniors, so that the SS tax and transfer probably is a small net negative on the economy.


I really doubt that the vast majority of SS recipients are not spending every dime of their checks in the month they receive it. That is the elderly poor and those just getting by may be "low spenders" in gross but hardly so as a percentage of their income.

The transfer effect might be real but I would want to see some numbers as to its actual existence and magnitude.

This is particularly so as some might read that as validation of the "Greedy Boomere Geezers Driving their Lexuses to the Golf Course to pay Greens Fees with their Social Security" narrative that Alan Simpson is so fond of. By and large I doubt that any sizable percentage of Social Security benefits falls into the category of truly discretionary spending and still less as a source of savings.
Welcome back and Spot On!
written by Barkley Rosser, May 22, 2014 1:23
That is it, Dean. I have done my best to hold the execrable RJS's feet to the fire over at Econspeak, but you are The Man on this matter. So, welcome back!
...
written by Dryly 41, May 22, 2014 4:54
Once again, this is totally correct.

Robert Samuelson proves that the 21st century celebratory culture, and, the Washington Post completely have abandoned any notion of intellectual honesty and moral integrity. If the facts don't fit the opinion you hold, just make 'em up. After all, there is no sanction for doing so. It does make establishing good public policy difficult.
Even GPs in the US make considerably more than EU GPs
written by Rachel, May 23, 2014 1:49

Uwe Reinhardt did a nice piece back in 2012 on doctor indebtedness. So we can deduct 7.1% from the salary of a US GP, to cover student loans, and they still make at least 90% more than GPs in Belgium. Still twice as much as GPs in Sweden. Still considerably more than GPs in France.

And if we reduce 3.6% from the salaries of the MD specialsts they are still doing extremely well.

This is not to say that MDs don't overpay for medical education. (Another way of artificially reducing their supply, possibly.) But this expense is far from enough to justify their excessive salaries.
ooops
written by pete, May 23, 2014 11:01
My comment on SS as transfer mistakenly had the name Dean. Sorry about that. Should be obvious since I said Welcome back Dean!
.....
written by djb, May 24, 2014 6:18
Rachel

Dont know where you get your figures ....most of reinhardts articles point out where doctors are not the prime driver of medical expense......

The average debt of a doctors whose parents are not rich will be 200000 to 300000 ..... at 7 percent... thats at least 18 to 27000 thousand a year........

None of that is deductible.... it comes off your take home pay

So equivalently its like almost twice that

And then fees for licenses... professional societies, education...all required..... and recurring board exams..... that can easily cost 4000 a year

All not deductible so double that

So subract 40 to 60 grand off that primary car docs grossvif you want to be fair
.........
written by djb, May 24, 2014 6:22
And lets shorten their earning years by 10 years plus for training

Not uncommon to finish training in mid 30s or later

No assets building up value
.......
written by djb, May 24, 2014 6:26
And french docs get free education and healthcare taxes paid by government ...... that in effect puts em right up with american docs. ...primary care docs anyway

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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