February 05, 2023
For the 43,578th time, the Washington Post called for cuts to Social Security and Medicare. While the paper rejects Republican efforts to use the debt-ceiling hostage-taking route, it tells readers:
Yet the discussion [about the programs’ finances] needs to happen sometime, and sooner rather than later. These entitlements — which already account for about a third of federal spending — remain on unsustainable trajectories, and protecting them for future generations is too important to keep reform off the table indefinitely.
I’ll make a few quick points here. First, as Social Security is now financed, through a payroll tax, there is a problem. The Social Security trust fund is projected to be unable to pay full benefits in a bit more than a decade.
But it is important to note that this is primarily an accounting issue. We have already seen most of the rise in benefits associated with the retirement of the baby boom generation. There will be further increases in costs, but we’ve seen roughly two-thirds of the projected rise already, which has not devastated the economy.
The second point is that the Washington Post editorial board is apparently unable to get access to current economic debates, being isolated in downtown Washington, DC. Contrary to what had been the conventional wisdom two or three decades ago, the problem with an aging population is not too much demand, but rather too little.
With a stagnant or declining labor force, companies invest less. This puts a drag on demand. The result is a story like what we have seen in Japan, with an economy with low-interest rates and low inflation coupled with weak growth. (Some guy named Larry Summers talked about this a few years ago in a piece on “secular stagnation.”)
While some deficit hawks make a big deal about Japan’s debt as a horror story that could face the U.S. in the future, the interest burden on this debt comes to roughly 0.3 percent of Japan’s GDP. That compares to a burden of 1.7 percent in the United States at present. Our burden was around 3.5 percent in the 1990s, which by the way was a decade of strong growth and rising living standards.
The other bizarre aspect of the Post’s editorial is that it indicates zero knowledge of the Medicare program. It calls for raising the age for Medicare eligibility to 67 from 65.
As people who follow policy have long known, this would have little effect on the budget, since it would raise the amount spent on providing insurance in the ACA exchanges. It could also end up increasing health care costs in the country overall. Medicare is far more efficient than private sector insurers, so forcing people to get insurance through the private sector would likely mean higher healthcare expenses for the country as a whole.
The other part of the story is that the Washington Post’s editorial writers apparently can’t be bothered to look at the Medicare Trustees’ reports. The program’s projected costs have actually plummeted in the last 15 years.
If we go back to the 2009 report, the program was projected to face a shortfall of 1.2 percent of GDP in 2030 and 2.33 percent of GDP in 2050. (That would be $300 billion and $600 billion in today’s economy.) In the most recent Trustees report the projected shortfall for 2030 is 0.21 percent of GDP and for 2050 it’s 0.41 percent of GDP.
This is a huge improvement. It is likely in part due to reforms made with the Affordable Care Act, as well as other changes in the healthcare system. It seems likely that the projections will improve further with the 2023 report, as healthcare spending has actually been falling as a share of GDP since the pandemic.
In any case, much has been done to improve the program’s finances in contrast to what is implied in the Post’s editorial. The key is reducing the costs of our healthcare system as a whole. This means less money going to drug companies, medical equipment suppliers, insurance companies, doctors, and others in the industry. Apparently, the Post does not want to have that conversation, it is more interested in cutting benefits for retirees.