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More on the “Entitlements” Debate

Last week I predicted that after the election Washington would return to deficit hysteria, and especially toward Pete Peterson’s well-financed attempt to gut our social safety net. You see, he doesn’t believe that Wall Street should have any competition. Americans should have no alternative to Blackstone Group and Goldman Sachs when it comes to retirement and health care. Peterson hates Social Security and Medicare. He’s by far the most important multi-billionaire in American politics. He’s bought both parties. And he’s got the CBO on board, as Yves Smith at Naked Capitalism argued last week.

In any case, I know some readers want to explore these issues more deeply. I’ve written a lot on Social Security since 1990–the demographic issues, the financial issues, and the long-term projections. I’ve also written more recently on health care issues–arguing against Obamacare (and health “insurance” more generally) in favor of health care. Today I’m going to provide links to some of this work, all easily accessible at the Levy Economics Institute (www.levy.org) and all written for a non-wonky audience. Here is a sample. I am not sure if the links will work for you, but if they don’t go to the Levy website, click on Scholars, click on my name, scroll down and click on “All Publications”, and then scroll down the list to find the listed publication.

Let me begin with what is perhaps the most detailed piece on the demographics of aging:

Working Paper No. 468 | August 2006

Global Demographic Trends and Provisioning for the Future

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And then here are the others in chronical order that I wrote (or co-wrote) on Social Security, Pensions, and Health Insurance (with some summaries). You will note that in some cases there are 2 versions–a long version and a shorter “highlights” version.

Policy Note 1999/8 | August 1999

More Pain, No Gain

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Breaux Plan Slashes Social Security Benefits Unnecessarily

Neither the Breaux plan nor President Clinton’s proposal for “saving” Social Security promises much gain, but the Breaux plan, unlike the president’s proposal, would inflict real pain in the form of reduced benefits.

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Associated Program:
Author(s):
Public Policy Brief Highlights No. 55A | August 1999

Does Social Security Need Saving?

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Providing for Retirees throughout the Twenty-first Century

Projections of an impending crisis in financing Social Security depend on unduly pessimistic assumptions about basic demographic and economic variables. Moreover, even if the assumptions are accepted, the projected gap between Social Security revenues and expenditures would not constitute a “crisis” and could be eliminated with relatively simple adjustments when it occurs. The real issue regarding our ability to provide for retirees throughout the coming century is not the size of Social Security Trust Funds, but the size and distribution of the whole economic pie. When the issue is viewed in this light, it becomes clear that most proposals to “save” the system—locking away budget surpluses, investing the Trust Funds in the stock market, privatization, reduction of benefits—do not address the real problem of caring for future retirees. Solutions consistent with the true nature and scope of the problem lie not within the Social Security system itself but in the realm of a general fiscal policy aimed at ensuring the growth of the economy.

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Associated Program:
Author(s):
Public Policy Brief No. 55 | August 1999

Does Social Security Need Saving?

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Policy Note 2001/6 | June 2001

Killing Social Security Softly with Faux Kindness

Public Policy Brief No. 82 | August 2005
Social Security Is Only the Beginning . . .

As his new term begins, President George W. Bush has been trying to focus his domestic agenda on what he calls the “ownership society,” a sweeping vision of an America in which more citizens would hold significant assets and be free to make their own choices about providing for their health care and retirement, and educating their children. L. Randall Wray, who has written for the Levy Institute on many topics, evaluates the premises and logic of this program in this new public policy brief.

Wray points out that much of the history of the Western world since the advent of liberalism has been marked by a gradual rise in the power of those who lack property. Some of the milestones in this progression include universal suffrage, regulation of business, and progressive taxation. Bush’s ownership society proposals, according to Wray, would result in a partial reversal of the progress of the last 250 years. The reason is that, while Bush’s plans would undoubtedly increase the choices and power of those who have property, they would fail to democratize ownership. Many gains to the wealthy would come at the expense of the poor, the sick, and the elderly.

Public Policy Brief Highlights No. 82A | August 2005
Public Policy Brief Highlights No. 98A | February 2009
The Accounting Campaign Against Social Security and Medicare

The Federal Accounting Standards Advisory Board (FASAB) has proposed subjecting the entire federal budget to “intergenerational accounting”—which purports to calculate the debt burden our generation will leave for future generations—and is soliciting comments on the recommendations of its two “exposure drafts.” The authors of this brief find that intergenerational accounting is a deeply flawed and unsound concept that should play no role in federal government budgeting, and that arguments based on this concept do not support a case for cutting Social Security or Medicare.

The FASAB exposure drafts have not made a persuasive argument about basic matters of accounting, say the authors. Federal budget accounting should not follow the same procedures adopted by households or business firms because the government operates in the public interest, with the power to tax and issue money. There is no evidence, nor any economic theory, behind the proposition that government spending needs to match receipts. Social Security and Medicare spending need not be politically constrained by tax receipts—there cannot be any “underfunding.” What matters is the overall fiscal stance of the government, not the stance attributed to one part of the budget.

Public Policy Brief No. 98 | February 2009
Public Policy Brief Highlights No. 110A | April 2010

More Care Less Insurance

The United States has the most expensive health care system in the world, yet its system produces inferior outcomes relative to those in other countries. This brief examines the health care reform debate and argues that the basic structure of the health care system is unlikely to change, because “reform” measures actually promote the status quo. The authors believe that the fundamental problem facing the US health care system is the unhealthy lifestyle of many Americans. They prefer to see a reduced role for private insurers and an increased role for government funding, along with greater public discussion of environmental and lifestyle factors. A Medicare buy-in (“public option”) for people under 65 would provide more cost control (by competing with private insurance), help to solve the problem of treatment denial based on preexisting conditions, expand the risk pool of patients, and enhance the global competitiveness of US corporations—thus bringing the US health care system closer to the “ideal” low-cost, universal (single-payer) insurance plan.

 

Public Policy Brief Highlights No. 109A | April 2010
Toward an Alternative Public Policy to Support Retirement

Pension funds have taken a big hit during the current financial crisis, with losses in the trillions of dollars. In addition, both private and public pensions are experiencing significant funding shortfalls, as is the government-run Pension Benefit Guaranty Corporation, which insures the defined-benefit pension plans of private American companies. Yeva Nersisyan and Senior Scholar L. Randall Wray argue that the employment-based pension system is highly problematic, since the strategy for managing pension funds leads to excessive cost and risk in an effort to achieve above-average returns. The average fund manager, however, will only achieve the risk-free return. The authors therefore advocate expanding Social Security and encouraging private and public pensions to invest only in safe (risk-free) Treasury bonds—which, on average, will beat the net returns on risky assets.

 

Public Policy Brief No. 110 | March 2010

The United States has the most expensive health care system in the world, yet its system produces inferior outcomes relative to those in other countries. This brief examines the health care reform debate and argues that the basic structure of the health care system is unlikely to change, because “reform” measures actually promote the status quo. The authors believe that the fundamental problem facing the US health care system is the unhealthy lifestyle of many Americans. They prefer to see a reduced role for private insurers and an increased role for government funding, along with greater public discussion of environmental and lifestyle factors. A Medicare buy-in (“public option”) for people under 65 would provide more cost control (by competing with private insurance), help to solve the problem of treatment denial based on preexisting conditions, expand the risk pool of patients, and enhance the global competitiveness of US corporations—thus bringing the US health care system closer to the “ideal” low-cost, universal (single-payer) insurance plan.

 

Public Policy Brief No. 109 | March 2010

 

7 Responses to “More on the “Entitlements” Debate”

Jsutin HoltNovember 9th, 2012 at 9:20 pm

Thanks Dr Wray,

I've read Public Policy Brief No. 110 before and found it to very enlightening.
I'm looking forward to your text book with Bill Mitchell.

Justin Holt

daveNovember 10th, 2012 at 12:21 am

how can peterson have such pull in policy making? he is not an elected representative, he appears to be just a rich prick with too much time on his hands trying to milk everything he can from the public and in the process making people suffer for no good reason.

MarcusSedlmayrNovember 10th, 2012 at 7:21 am

Cash and debt acts as a barrier in our minds – and they are a proxy scapegoat for explaining the current economic crisis. Debt is no physical law of nature that prevents us from doing things which should be done.

Debt is basically a contract between two parties. And the enormous amount of debt the U.S. and other countries have accumulated simply means that many obligations need to be fulfilled sometime in the future. Therefore it makes sense to reduce debt because as more and more obligations pile up the future interrelationships and interdependencies in our societies grow to an unmanageable size.

Those people favouring more money printing are right to say that we have many unused resources (i.e. jobless people) in our society which shall not be wasted. But if we can put those resources only to work by piling up more obligations in the future it begs the question how those obligations could be met or why nobody in the private industry right now finds any use for those resources. Can it be that we do not really need those resources any more?

There is no physical law which prevents us from accumulating excess resources. Okay we would need to renew our infrastructure; we would need many more personnel for the healthcare business etc. But why does this not come naturally? Why does the government need to issue debt in order to finance these activities? The answer may simply be the fact that those activities are inherently unprofitable, i.e. the costs of these projects exceed future income generated by them.

The consequence of this thinking is therefore that there need to be some technological achievements which reduces the costs of those projects and which would give enough incentive that they can be realized without government support. One possible compromise to overcome the current deadlock between spending more or less would be for the government to focus spending on developing technology recipes and let private businesses decide what kind of projects to realize.

One can view this also from a different angle: why does nobody want to utilize all those idle resources in the economy right now? Is this just because of a previous misallocation of resources? Or is it a psychological effect? Can't people imagine all the wonderful payoffs new infrastructure projects etc. would yield in the future? Or is it because the existing mesh of future obligations is already so interwoven that businesses are just scared to add more complexity? It is right that the U.S. government could always meet its obligations formally by printing money but that would immediately result in high inflation because existing creditors would try to compensate the losses by increasing prices.

The problem is complex and the magic thing the new administration needs to do is to try to incentivise the country to work more, to increase the level of economic activity without creating more future obligations.

McWattNovember 10th, 2012 at 3:30 pm

Funny, the campaign to reform Social Security and Medicare turns out to be
a campaign to disenfranchise those who have paid into a system that the
government routinely raids to "balance it's budget".

McwopNovember 12th, 2012 at 3:50 pm

Regarding health care.

1) Yes people need to be more healthy, but I have no idea how to tackle that than to make those people pay higher premiums if say they are overweight.

2) As boomers get older, and hit the ages where healthcare needs increase, then is there really any way to expect costs to not increase?

3) Health industry jobs pay well, so why do we want austerity there to push those wages down? Shouldn't we actually be ok with health spending?

4) Shouldn't we increase health supply?

Note: yes I believe healthcare can be more efficient, and I can point out some huge areas of waste, but those are because of stupid regulations (like when my mother automatically gets sent from nursing home to hospital because of a state regulation requiring it – which makes no sense). I also believe in having a nationally financed system.

L_Randall_WrayNovember 12th, 2012 at 4:57 pm

ALL: WONDER OF WONDERS! The "intense debate" bugs seem to have been sorted out. I found a number of your comments that got lost in the stratosphere and have got them posted up. So, as far as I can tell you just need to join up (register) then login and you should be able to post comments. Again, we moderate only nasty comments; and less moderation if you use your real name.

Debate PopularNovember 15th, 2012 at 2:09 pm

Interesting entire debate. I believe in social policy and I think if you think about it in many cases can help the economy inyestado in health sectors. We must create a solidarity system in which everyone gains in service quality based on an even distribution of all funds and inclusion of all sectors of the industry both productive as articulated service.

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