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SS and Medicare: The Truth Stinks
When the subject of debt and deficits comes up in polite conversation — with its progenitor, entitlements — and I respond, I often feel like the dog who passed gas under the Thanksgiving dinner table. Sometimes, weakness shows and the “we all paid in” defense is presented with resounding harrumphs exchanged in agreement. If it gets this far, there is the assurance that the trust fund, while depleted, remains to cover our obligations. When I proceed to point out that this piggybank is filled with IOUs, not cash (and even if it were filled with appreciating assets, it contains far less than what will be needed to cover the actuarial obligation) I am summarily labeled as an un-American, naysaying, and unbelieving apostate. Who am I to denigrate the “full faith and promise of the USA?” To preserve the peace, I relent and agree to be muzzled.
The underlying and accepted conceit here is quite simple: wealth must find its origin in the bowels of Washington, DC. The corollary conceit is that the free marketplace perverts wealth and provides the means for its corruption. Thus, Washington not only creates wealth out of sheer political will, but it must counter the corrupting influence of the free market.
To be clear, I don’t argue that the federal government can’t create wealth. Of course it can by, for instance, sponsoring a successful enterprise. But the relevant question shouldn’t be whether government can create wealth, but whether it is empowered to do so or is any good at it. There is nothing in our founding documents that says that the government shall fund mortgages or student loans, shall subsidize favored businesses, or be in the pension and health insurance businesses. Moreover, all enterprise, whether governmental or private, is governed by economic principle. If efficient and competitive, an enterprise may consume less in capital than it produces. That is the creation of wealth. If, however, an entity consumes more than it produces it eventually fails. In the free marketplace, these failures can be dramatic. In government, however, taxpayer subsidies and regulatory protections mask economic failure and allow it to persist or expand. This allows the misconception that government can eliminate market risk. It can’t. It can simply afford to fail continuously by funding its red ink from the wealth of taxpayers, the regulated, and willing lenders.
Before we can tackle persistent deficits and the growing public debt, we must first debunk the notions that the government is the source and arbiter of wealth and that it can somehow defy economic gravity; that is, suspend economic risk and fund endless deficits. It can’t do any of those things. No armies of government economists, central bankers, or federal bureaucrats can create wealth or guarantee the “full faith and credit” of the USA through force of will. The federal government’s economic future is entirely dependent on tax receipts which are, in turn, dependent on private wealth creation.
It is the government that perverts and corrupts the creation of wealth in America. When the government monopolizes mortgage and student loan finance, it perverts the housing and lending markets, creating potentially catastrophic housing valuation, interest, and loan default bubbles. Moreover, Social Security and Medicare have evolved to become pay-as-you-go pension and medical insurance programs, even though such programs were outlawed in the private sector decades ago. These programs are so irresponsible, they border on criminal; in the private sector, SS and Medicare would be fraudulent and their promoters thrown in prison.
The private sector is hardly a community of angels, and competition and survival are hard masters. But government’s claims that lack of a profit motive somehow inoculates it from economic risk, corruption, and the possibility of failure are specious and contrary to the facts. The evidence surrounding the viability of SSI and Medicare — unlike the so-called evidence surrounding so-called man-made global warming — are empirical and undisputed. The federal government’s forays into the national pension and retiree insurance businesses are catastrophically ill-constructed and doomed to fail as demographic trends play out. Promises made to retirees cannot be kept and benefits will have to be restricted (especially for the so-called wealthy). Service providers will be forced to provide services as well as to accept fixed prices. The retirement age will rise, as will taxes. And even then, deficits will still persist.
It’s not rising oceans or rising temperatures that threaten America. No, it is a rising debt that presents our biggest threat. And we cannot begin to address this threat until we accept the fact that government does not have an endless spigot of wealth it can tap to keep the irresponsible entitlement promises made to a now ill-prepared populace. Although the government’s pension and insurance endeavors may survive for now, the demographic iceberg has been sighted straight ahead; it is only a question of time before the unsinkable entitlement Titanic sinks.
I may be the odiferous dog under the table, but unless we change course, we will all end up drowning in icy waters.
Published in General
Gee Doug, it’s called a Trust Fund .. QED
Doesn’t matter. Retirees vote and have money to spend on candidates to protect “their” money. Too many of my generation are too brain-dead to realize how badly their grandparents and parents are going to rob them, and too many of my grandparents’ and parents’ generation are too wedded to the notion that it’s “their” money and that the promises simply can’t be kept.
So we’ll go on our merry way right until the whole system collapses into rubble.
There are some relatively good solutions out there for SS. Andrew Biggs has a good proposal to switch SS to a flat old age anti-poverty benefit with some other incentives kicked in to promote the sustainability.
Medicare will be solved when we get a national healthcare system after the collapse of our current healthcare system due to Obamacare.
Nobody wants to talk about SS and Medicare because any solution will cause pain for many people.
America has a gangrene leg and no anesthetic. Nobody wants suffer the pain and the loss of the leg and so are willing to die rather than do what needs to be done.
Amy, even my conservative friends think I am nuts when I tell them that I do not intend to retire, and I do not intend to collect Social Security or participate in Medicare, ever. The standard old arguments, “you earned it”, “you paid in all those years”, “you are entitled to it”, don’t wash with me. I refuse to become a ward of the Administrative State, beholden to some bureaucrat in DC for my “livelihood”. I refuse to have some DC paper-pusher tell my doctor how she may treat me. We old folks aren’t all living off of you. I will continue to EARN my benefits, thank you very much.
Wow, I thought I was the only one.
I tell you what, keep the SS money I paid in, just give me back all the Federal Income tax, State income tax, and property tax and sales tax I paid in and I will go away.
But the pain of this will not go away…unless…
*Whispers* Soylent Green!
The federal reserve cannot delay the comeuppance forever, but it can push it back until some of the folks you are debating with are no longer receiving benefits.
Medicare will collapse into single payer. Most of the estimates said we would get there in the 20’s. Now I am not sure if we make it to January 20th.
SS is easily fixed if we eliminate the 10 year political buffer and deal with the core actuarial issues.
Doug is still correct. Discussing any reforms at all is near impossible and the hypocrisy of the mess is the reason the Tea Party will not become a national influence.
Don’t worry. Five or ten years of double digit inflation or a few years of hyper inflation will make the debt manageable. Of course all non commodity based financial assets will be wiped out. Or we could fix it which isn’t technically difficult and not as politically difficult as the leadership of both parties fear.
To all:
Just remember what Otter told Flounder when they returned to the Frat in the borrowed Town Car, now ruined, after the road trip to Emily Dickenson College.
What is that?
I would be happy if we:
OR
Replaced SS entirely with an interest rate floor on savings bonds of 6.8%
The first problem we have reforming SS is that politicians insist upon solutions that do not do the job that social security is intended to do which is CREDIBLY provide long term security for old age.
The second problem is the reforms are written by very clever and incredibly stupid people, who treat it as a mental masturbation exercise instead of developing a solution which is understandable, operate-able, and administrate-able by the lay person.
I Walton, I think you have seen the future.
Excellent point Doug and too, too true!
That is my shorthand for every politician promising not to change the eligibility age/benefits of anyone within 10 years of eligibility.
I agree we can’t change what people are currently receiving, but anyone not yet receiving has to be included in reform proposals.
Seems to me folks see this as needing an all or nothing solution. When the Armed Forces changed the retirement system in the early ’80s, the grandfathered in those already in the service. Anyone joining after a certain date knew up front what his retirement options were and people still joined. The services are still tweaking the system, but so far in such a way as to keep it’s promises to those who have already served.
We can change Social Security and Medicare without an all or nothing approach. We can do that now without waiting for the whole house of cards to collapse. If the political will was there. We could make the changes without breaking the promises we made to people by changing the way we do things in the future, taking the longer view.
We could change things but all I see is hysteria and hand-wringing about how awful everything is and no one actually working constructively toward solving the problem.
Things went to far. 10-20 years ago sure no problem.
Hopefully you will never have an accident or illness that makes you a ward of the Administrative State whether you like it or not.
Social Security can be fixed by openly labeling it as the elderly welfare program that it actually already is and gradually decreasing benefits while raising the age when they are dispersed. That won’t be a satisfying answer but it can be implemented gradually enough that it won’t be too painful and so that the young can be given plenty of heads up to save for their future.
The problem is the healthcare system. Single payer as a solution for elderly healthcare is a disaster. That cannot be fixed with government tinkering. That is where we need to really focus our energy and political capital.
We have to either increase revenues or decrease expenditures. We can increase revenues by significantly raising taxes or increasing immigration. We can decrease expenditures by making significant cuts or devaluing the currency.
Fi-cons won’t let us raise taxes.
The nativists won’t let us increase immigration, even for legal, educated, tax-paying immigrants.
The liberals, so-cons, and 99% of everyone over the age of 50 or so won’t let us make real cuts to benefits.
So what we’ll actually do is use inflation to effectively cut benefits without a law and the ensuing debate. I’m not trying to sound hysterical, but until we can get at least one if not multiple major political forces to basically betray their principles, no grand bargain will be possible.
An argument I have had some success with is the idea that entitlements should have “generational fairness”. That is, one generation of folks should not pay more or receive less than the next or the last generation of folks. You can slice and dice this down to whatever cohort you want, but it still works. We are already badly abusing this concept where people who are 50 years old now have paid and will pay much more than people who are 80 now for the same or similar benefits. And it just keeps getting less and less fair to new payers.
Ask your harrumphing retiree to defend that one and don’t let them off the hook. They will eventually throw up their hands.
Fairness is the only way I know to argue this.
I like Robert E. Lee’s logic, but fiscally I am not sure how it happens.
If we protect the benefits of those to whom they are currently promised we necessarily must confiscate the earnings of those who would be allowed a different/new program or to opt out.
Holy crap! Up is down; left is right; snow is hot; cats are lying with dogs.
We agree on something.
There is no fair way out, if fair ever existed in this thing to begin with. Tax payers were always going to foot the bill. So would get more than they put in and some would get less. Even averaging means half of those who make it won’t get anything. And what about those who die before they reach retirement age? Will the government refund their money? Not hardly. As for people living longer now, well, I’ve never seen anyone willing to cut his life short because he’d reached the expected average.
Digging ourselves out of this pit will take time and be costly. It won’t be fair but it can be done without throwing widows, orphans and old folks into the streets. (Talk about fair, I reach retirement age and people talk about “thanks for playing, game over, go away”)
Decent solutions are available or can be devised, but how are we to implement them with the criminals and cretins who got us here in the first place still occupying Washington?
I doubt it
So only you gets to walk away and not take a bit from the [redacted]-sammich?
I won’t lie, this works for me. I’m old, I’m tired, I can’t dodge very fast any more. If I can avoid taking the hit, I’m all for it. I don’t wanna take one for the team any more. I’m not that altruistic. And at this point in my life, I don’t see much in the way of alternatives.
The best paragraph I’ve read on the subject anywhere. Well done, Doug.
I applaud your honesty. We go can about trying to screw each other over like civilized people: To each others face, openly, and honestly.
I appreciate that kind of respectability. I am not being sarcastic either.
Since I was a teenager I figured my intentions were moot. I don’t believe I will ever see the benefits by the time I am eligible to collect. By 2050 we more likely to have nuclear fusion, robot butlers, and omni-nutritional genetically modified corn than a solvent government. Healthcare costs will still be unholy because lawyers and regulatory agencies are the last to go.
You won’t be able to get away with this forever, if you have a really long life. My father had every intention of avoiding Medicare forever, but eventually got forced into it.