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Confronting the Entitlement Crisis Deniers

Posted By Stephen Keen On February 23, 2009 @ 6:16 pm In Economics | Comments Disabled

Liberal author Robert Kuttner doesn’t believe in the entitlement crisis. [1] His argument – reflecting conventional far left thinking on the issue – goes something like this:

  1. Conservatives exaggerate the entitlement problem by using shady figures.
  2. Social Security is just fine, so don’t worry about it.
  3. Medicare is a problem, but only because of rising health care costs. Once the country embraces socialized medicine the costs will fall, thus solving the problem.
  4. History proves this correct because the government ran up heaps of debt during World War II setting the country on the path to prosperity.

Let’s face this argument point by point.

First, the figure Mr. Kuttner finds problematic is the 75 year present value of future expenditures in excess of future revenue. In other words, this is the total current dollar amount the government has promised minus the total amount of revenue they expect to take in. The Treasury Department explains [2] “While these expenditures are currently not considered Government liabilities, they do have the potential to become liabilities in the future, based on the continuation of the social insurance programs’ provisions contained in current law.”

The often quoted statistic [3]is that Medicare has $36.3 trillion and Social Security has $6.6 trillion in unfunded liabilities. These figures are taken directly from the 2008 Financial Report of the United States Government [2](see page 58-59 of the pdf: “Present value of future expenditures in excess of future revenue”). Opting to examine the nation’s long-term financial situation is hardly “shady accounting.”

Second, Mr. Kuttner believes Social Security to be nothing to worry about. Unfortunately, according to both the Social Security Trustees and the Congressional Budget Office [4] Social Security is set to run annual cash flow deficits within the next ten years. Given the government has already sucked the Social Security Trust Fund dry, leaving behind IOU’s, the situation will soon become very real. The question then becomes does the government respond by raising taxes, cutting benefits, or implementing meaningful reform? The answer from the liberal camp is to sit back, relax, and do nothing.

Third, the Obama health care plan only reduces cost if specific criteria are met. As Professor Mark Pauly, a prominent health care economist at the University of Pennsylvania, explains: [5]

The main problem is that these [popular, common methods] are “if only’ savings, which can be achieved “if only’ certain events would occur, such as physicians’ being willing to adopt health IT, consumers being willing to accept changes in diet and exercise. … There is little evidence that there are known methods to cause the “if only’ behavior to occur, and to occur quickly on a large enough scale to matter.”

Heritage Foundation analysts [6]also point out:

The efficacy of these “if only’ savings has been seriously questioned by the Congressional Budget Office (CBO). The CBO has reported that evidence of disease management [7], comparative effectiveness [8], health information technology [9], or prescription drug re-importation [10]reducing costs quickly and appreciably is lacking.

Finally, Mr. Kuttner recalls his own version of American history. He states:

History provides a parallel. At the end of World War II, the public debt was about 120 percent of GDP — about three times today’s ratio…. all that debt went to recapitalize American industry, advance science and technology, retrain our unemployed and put them to work.

And I thought all that debt went to defeat the axis powers. My mistake.

Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2009/02/23/confronting-the-entitlement-crisis-deniers/

URLs in this post:

[1] Liberal author Robert Kuttner doesn’t believe in the entitlement crisis.: http://www.washingtonpost.com/wp-dyn/content/article/2009/02/22/AR2009022202003.html

[2] The Treasury Department explains: http://www.fms.treas.gov/fr/08frusg/08frusg.pdf

[3] The often quoted statistic : http://www.pgpf.org/about/nationaldebt/

[4] Social Security Trustees and the Congressional Budget Office: http://www.heritage.org/Research/SocialSecurity/wm2049.cfm

[5] As Professor Mark Pauly, a prominent health care economist at the University of Pennsylvania, explains:: http://www.heritage.org/Research/HealthCare/wm2114.cfm#_ftn12

[6] Heritage Foundation analysts : http://www.heritage.org/Research/HealthCare/wm2114.cfm

[7] disease management: http://www.cbo.gov/ftpdocs/59xx/doc5909/10-13-DiseaseMngmnt.pdf

[8] comparative effectiveness: http://www.cbo.gov/ftpdocs/88xx/doc8891/12-18-ComparativeEffectiveness.pdf

[9] health information technology: https://www.cbo.gov/ftpdocs/91xx/doc9168/05-20-HealthIT.pdf

[10] prescription drug re-importation : http://www.cbo.gov/ftpdocs/54xx/doc5406/04-29-PrescriptionDrugs.pdf

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