When I was a neocon like you are now I was surprised to learn that this claim that Social Security is broke assumes a very low and unreasonable GDP growth rate. If you assume a normal rate it’s fully solvent. That’s what my research indicated at the time. Also social security operates at a very low overhead rate.
Medicare gets the bills paid with a mere 4% overhead rate. In other words 96% of the funding provided to Medicare goes to paying doctor bills. You know how much goes in with private insurance companies? It’s like 75%. Something around 25% is overhead.
So the question you have to ask yourself is not “Do public plans have problems?” The question is should we prefer a public plan or a crony capitalist plan. Free market would be great. Problem is I’m not sure we’ve ever had free markets and probably in the future we’ll never have them either.
You surprise me sometimes Jon. Seriously. You rebuke your previous beliefs and call them gullible and misguided…and yet your new beliefs are equally gullible and misguided. Im shocked you buy into these views. It makes me question just how much you really understood your previous beliefs.
Regarding Social Security, it takes a lower level of GDP because it has to account for booms and recessions…not just booms. In fact, if you look at social security busting projection dates they have been moving closer, not further away.
Regarding Medicare, sure, if you have a government program running in tandem to a private system, you would expect that the government program would have lower than expected administrative costs. After all, it can just piggy back off the efficiencies of the private market. It can peg its equipment costs, its research costs, and other stuff to the private market level without having to do all of the investigating necessary, along with other things. But this is very different than saying a government program alone would be just as efficient.
Second, even with that benefit, Medicare is not the low cost provider it claims to be. Much of its benefit are accounting gimmicks, see here and here.
Maybe next time you will post a comment questioning whether I really do spend my money better than others do for me, suggesting that you learned somewhere that my money is spent better if politicians control it.
What takes a lower level of GDP? I don’t know what you’re saying.
But that initial point was not about me changing my opinion. I’m just relating the facts that I discovered. I found that the bust projections assumed unusually low growth rates. That’s just the facts as I discovered them at the time. Did I have bad information? It’s possible, though I will say my goal was to prove that it was insolvent. I was unable to.
Of course bust dates have been moving closer. We had an economic downturn.
Piggy back efficiencies? I thought you were the one that recommended the Stossel program to me which showed that the private system in fact is introducing gross inefficiencies with a third party payer system. So in fact Medicare is being forced to piggy back onto an outrageously expensive and grossly inefficient system. Without it costs would be lower, as they are in all other countries that have public health care.
I do rebuke my previous beliefs, but not my previous principles. The principles I’ve held haven’t changed. It’s just that as I’ve been exposed to additional facts I’ve stuck with my principles and changed my views. I’ve always been sort of liberterian and that’s how I view myself today.
Take a look at your quote of the day from today. I agree with it. Seems you do. But then when it comes to bashing a plan originating mainly from the Democrats you forget about your quote of the day and suddenly Medicare is “piggy backing on the efficiencies of the private market” as if the system we currently have is efficient. What I would like to see from you is commitment to principles rather than Republicanism.
Of course bust dates have been moving closer. We had an economic downturn.
First, any GDP growth rate has to take into account that there will be booms and busts. So of course during growth years, it may seem like the GDP growth rates assumes a very low and unreasonable GDP growth rate. Its the average we are looking for, not the highs. Also, even before the current economic downturn, Social Security insolvency dates have been moving closer. In other words, it seems like the predictions have tended to be too generous, not to stringent, towards Social Security.
Second, you can make an argument that GDP growth itself isn’t a good metric in calculating Social Security solvency and the important factors are overly optimistic. Andrew Biggs explains:
Please, I’m begging you, stop these comparisons of past to projected GDP – they just miss the point. As far as Social Security is concerned, “GDP” doesn’t matter. The closest thing to GDP growth that matters for Social Security is the sum of real wage growth and labor force growth. The Trustees projected rate of real wage growth (1.1% annually) is – cue the music – slightly higher than the average from 1960-2007. What’s lower is the rate of labor force growth, but this makes total sense: from 1960-2007, labor force growth grew rapidly (around 1.7%) principally due to Baby Boom birth rates and rising female labor force participation. But birth rates have fallen significantly, meaning fewer new workers, and female labor force participation isn’t going to get much higher than it is today. As a result, total GDP growth is projected to slow, even if output per worker – a better measure of the economy’s health – continues along just fine.
Don’t believe an economist from AEI? Here is Obama appointed Doug Elmendorf of the CBO explaining the same thing:
Projected growth from 2015 to 2019 is also below historical average growth rates, a difference that is more than accounted for by slower growth in the labor force because of the retirement of the baby boom generation. Over the postwar period, the labor force grew at an average annual rate of 1.6 percent; by contrast, we project it to grow only 0.4 percent per year in the period from 2015 through 2019. As a result, potential GDP grew 3.4 percent per year on average in the postwar period, but CBO expects that it will grow by only 2.4 percent annually (allowing for a tad more productivity growth) in the 2015-2019 period.
Third, aren’t you the same person that has been warning me for years about future economic destruction because of our debt and monetary policy? If you believe what you have been arguing, then you would have to conclude that the GDP growth rates are too optimistic. So which is it?
Regarding Medicare: I’ve made two claims above. I’ve made the claim that medicare can achieve “lower than expected administrative costs” relative to the private sector by simply using the information that private firms generate.
But then I made the argument that even though, in principle, this could happen, alot of the supposed gain from medicare administrative costs is an accounting gimmick. Here is a quote from one of the links I provided:
Medicare is low cost because the government accountants are permitted to ignore some inconvenient truths: $34 trillion in unfunded liabilities plus $89 billion in underpayments to medical care providers, which are ultimately paid by private insurers. With correct accounting, Medicare’s cost would increase by more than a trillion dollars.
So to be clear, I didnt mean to imply that the private sector is efficient in itself, my point was that medicare, being a large organization with its own fixed customers, can use the private sector as a reference point, and take the good and leave the bad. So that by comparison it looks more efficient. But even then, it still comes out lacking.
Decent points, HP. As I said, it’s just what I was aware of at the time. I’m not quite sure I buy off on what you’re saying. I need to look into it more.
But let me respond to point 3. Yes I think our government is insolvent. This doesn’t mean I think all Republican talking points on the issue are correct.
Also my priorities are different from yours. Social Security provides income to Americans that are oppressed by a system rigged against them. Compare graphs of productivity to real wages for instance. So if our government is going to waste money, why not waste it on such people rather than paying Blackwater millions of dollars to fight wars nobody knows why we’re fighting and that are benefiting the major financial contributors to U.S. politicians? In addition they’re slaughtering many innocent people. So this is the first place to be concerned about wasteful spending.
And I don’t buy the notion that defense is a temporary expense. What happened when the Soviet Union collapsed? New bogeyman needed to be invented to justify aggression. It was off to Panama to remove a thug we had installed so we could charge him with crimes that he committed while on the CIA payroll. Oh no. Drugs. He’s going to come over here and inject our kids with heroine. Then when Saddam did something similar a few months later, invading Kuwait and killing far fewer people than our government did in Panama, it was time to be all afraid of this new Hitler that was going to take over the world. In 2003 we we’re supposed to be scared of Iraq again, despite the fact that nobody in the region was afraid of Saddam after he was devastated by sanctions. Next may be Iran. Polls in the region show that Iran’s neighbors would rather have a nuclear armed Iran than American intervention. They’re not scared. Hell, they haven’t attacked anyone in forever (disregarding the Shah, who was a dictator we installed). But our government gets us all scared to justify more aggression. It’s just never ending. So these expenses are costly and deeply immoral. Would that our government did go bankrupt lavishing gifts on the American people as opposed to wealthy donors that need violence to sustain their wealth.
For the record, I am not a Libertarian: by that I mean, I do not seek the abolition of safety nets like social-security, medicaid and even welfare. Some argue that that makes me a liberal. But what separates me from a liberal is that I advocate strong means testing – in other words, the fundamental difference I have with the liberal is not whether there should be social programs for the poor, it is whether there should be social programs for the rich. Liberals would argue, for example, that Warren Buffett deserves medicare benefits just as much as my family in Compton. I strongly disagree. So my complaints with social-security and so forth are in making them both more efficient and more targeted – not outright abolishment (for one example, see here).
Regarding your belief in a sort of neo-starve the beast philosophy, I tend to agree – but I’d rather it be done via the tax system than social programs. In other words, something like an across the board tax cut instead of a fiscal stimulus. Money in peoples hands will be spent more efficiently, directly and, more importantly, in a way that benefits us all – instead of through an inefficient system like the government where we only get cents on the dollar in return – if that.
If you are serious about investigating further medicare and administrative costs, I’d recommend the articles here, here and here.
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