Slow Train Coming

Actually, it appears to be accelerating. The train is the impending insolvency of the large entitlement programs. The news today: Social Security. A summary of the latest trustee report (as presented in the Christian Science Monitor):

The trust funds that support Social Security will run dry in 2033 — three years earlier than previously projected — the government said Monday.

There was no change in the year that Medicare’s hospital insurance fund is projected to run out of money. It’s still 2024. The program’s trustees, however, said the pace of Medicare spending continues to accelerate. Congress enacted a 2 percent cut for Medicare last year, and that is the main reason the trust fund exhaustion date did not advance.

Setting aside the fiction that the trust funds constitute a store of wealth, there is nothing genuinely surprising here given the economic conditions and the policy response. Many of those who have exited the workforce (those “discouraged workers” whose exit has helped mask a sluggish recovery) have simply retired. Many who remain employed are working fewer hours and thus paying less into the system. At the same time, efforts to prop up demand by providing payroll tax cuts have further reduced the flow of revenues into the system.

There is also little new (other than the accelerated timetable for fund insolvency). Analysts have been projecting this for decades, urging reform. Of course, myopia reigns in Washington. Few would ever engage in a serious and sustained consideration of reform if doing so would require that they sacrifice the short-term political advantages that might be derived from framing reform as “balancing the budget on the backs of the elderly” or “an ideologically-driven assault on two of government’s finest programs.

Of course, fixing Social Security is not a technically difficult task. There are a few key leverage points (e.g., increase revenues by raising the earnings cap, changing the indexing formula, means testing benefits, etc.). Medicare is more complicated, but only marginally. Each of the alternatives have costs and benefits and should be subjected to vigorous analysis and debate. The problems, alas, are political and can be reduced to a simple fact: elected officials (and those who seek to join their ranks) place a high discount rate on the future.

As we approach the 2012 presidential campaign, we have the opportunity, once again, to address the impending entitlement crisis. If the past is any guide, both major party candidates will choose instead in a conspiracy of silence.

And why not? A decade or two is an eternity in politics.

7 thoughts on “Slow Train Coming

  1. We could always go back to work til you die. Most people born in the world do that. And until the twentieth century, everybody did that. If you know with certainty you will work til death then you might be inclined to enjoy life, a little more today, not worry about accumulating today, and finding work that you can enjoy over the long haul, instead of chasing a higher and higher paycheck that “will set you for retirement.”

  2. The political risk of championing reform is simply too great for any single politician, group of politicians, or party to take on. The people just do not support the notion of cutting these programs in big enough numbers to embolden politicians to act. Go back and read some of the comments that came out after the Bowles-Simpson report was issued. I think it was Alan Simpson that said the thing that stood out for him was the fact that every group that came before the commission was all for advocating cuts, but just not for their particular program or group.

    And that is why financial failure is the only way these programs are reformed/eliminated, whatever.

  3. America is bankrupt. Soon inflation will wipe out most savings. When this occurs we will have rationing and tyranny. These circumstances are at the end of every Welfare State in history. It is happening throughout Europe now and will happen in America next. It is the end result of politicians promising something for nothing in exchange for votes. However,the laws of economics always have the final say. When the tipping point comes,it will mean either a peaceable return to our Constitutional roots and an orderly dismantlement of entitlement programs with some kind of a return to fiscal sanity or…….the Gulags. There is no 3rd way.

  4. Things happen faster now. The many centuries that passed as the Roman Empire declined will be telescoped into a few decades for the USA. A government that operates on fear will be opposed by a small minority of individuals that value freedom more than the opportunity to sit in a rest home watching Seinfeld re-runs while waiting for an immigrant to change their diaper. On what date did the majority of citizens decide that the maximum extension of life, no matter how meaningless and shabby, was more important than being able to make one’s own choices? That violent resistance to violence is an inconceivable alternative?

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