The Corner

The Left’s Four Fantasies About Medicare, Social Security, and Deficits

Jon Cowan and Jim Kessler, of the centrist think tank Third Way, had a really great piece in the Washington Post on Friday about how the Left needs to get real about the need to reform Social Security and Medicare and get serious about the deficit. It is also a very courageous piece and speaks truth to power – even when that means going after your friends. The article is based on a new study that Third Way just released that looks at the four fiscal fantasies that Democrats tell themselves about our fiscal outlook and how to fix it. All of the fantasies that Cowan and his colleagues identify will sound familiar to you since I have been harping on them for a while now. Here they are:

‐”Fantasy No. 1 is that taxing the rich solves our problems. . . . Sure, raising some additional taxes on the wealthy is necessary, but it is not nearly sufficient.”

‐”Fantasy No. 2 is that “we can have it all” – a bigger safety net and more investments that spur growth and opportunity. Events of the past 50 years say the opposite.”

‐”Fantasy No. 3 is that a delay on entitlement fixes is benign for the middle class. As evidence, some liberals point to this year’s Medicare trustee report, in which the program’s fiscal outlook — mercifully — improved. In truth, it improved from horrid to awful.”

‐”Fantasy No. 4 is that the politics to fix entitlements will get better. In fact, the politics will get worse every election cycle.”

The study is hereOne of the things I like about this report is how honest it is. For instance, they explain that the stagnation of health-care costs may not be here to stay, the relative improvement isn’t as a sign that Medicare doesn’t need fixing now. They write:

On Medicare, we had a welcome pause in health care’s growing costs, but we’ve had pauses before. In the 1990s, health care inflation took a three year hiatus. Many crowed that the problem of exploding health care costs was over. So, is this current pause permanent? There is no consensus whatsoever that it is. In fact, unlike the rest of the economy, there has been zero productivity growth in Medicare in two decades. We also know there is massive overutilization of health care services – tests that shouldn’t be administered, procedures that won’t improve people’s lives, drugs that needn’t be prescribed, and medical errors that shouldn’t occur all tied into a health care system that still mostly rewards the quantity of services offered, not the quality. There is an enormous economic cost of this for middle class wages, business job  creation, and taxpayer funding of Medicare and Medicaid. Why shouldn’t we aggressively solve these problems?

They also make the point that we haven’t had an austerity budget:

First, we haven’t had an austerity budget. Between 2004 and 2008, federal outlays averaged $3.022 trillion in 2013 dollars. Between 2009 and 2013, federal outlays averaged $3.698 trillion in 2013 dollars – an average annual budget that is 22.3% higher in the most recent five-year period than over the previous five-year period. This doesn’t include short-term tax expenditures like the payroll tax break for workers.

But there will be austerity in some Americans’ lives: our kids’. They add that entitlement spending will crowd out other federal spending, something you don’t hear often on the left. 

Second, the course that we are now on, in fact, sets us on an austerity budget path for kids, science, roads, research, energy, and investments. Fourteen cents of every federal dollar not going to interest was spent on entitlements in 1962, but in 2012 that amount was 47 cents. By 2030, 61 cents of every non-interest dollar will go toward funding these programs. The other 39-cents will go to everything else – net interest, defense, intelligence, veterans, foreign aid, children, infrastructure, energy, and research. In this battle for the remaining scarce resources, investments will lose.

As you know, I think investment on roads and other infrastructure should be left to the states and the private sector. However, if one thinks that these activities ought to be funded at the federal level, then the trend described by Cowan and Kessler should be a source of concern.

Finally, they offer some ideas about how to fix Social Security and Medicare. I do not agree with their solutions (I favor a total overall of both programs with significantly less federal-government intervention into the health-care and retirement markets – call that my fantasy – as opposed to tax increases and the hope that we can cut Medicare enough to save it) but they are by far the most realistic and reasonable of the left-leaning proposals. 

To conclude, I would like to say that while Republicans do not share these fantasies with Democrats, they aren’t very courageous when it comes to reforming Social Security and Medicare. Many of the conservatives’ plans out there leave Social Security untouched, while the Medicare reforms are never set to kick in until a good ten years down the road (see this plan for instance). Basically, too often Republicans claim they want reforms while they are themselves stalling. As such, they too would benefit from reading Cowan’s and Kessler’s report about the consequences for Americans and our economy of waiting to implement reforms. 

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