Friday, January 28, 2011

Obama's missed opportunity

For a former part-time professor, President Obama could have taken the opportunity of his national audience for the State of the Union to explain to the American people the dire financial situation the country is in. But he passed up the opportunity in order to promise us more spending. Robert Samuelson goes into three myths he'd like our leaders to explain to the American people.
Myth: The problem is the deficit. The real issue isn't the deficit. It's the exploding spending on the elderly - for Social Security, Medicare and Medicaid - which automatically expands the size of government. If we ended deficits with tax increases, we would simply exchange one problem (high deficits) for another (high taxes). Either would weaken the economy, and sharply higher taxes would represent an undesirable transfer to retirees from younger taxpayers.

l Myth: Eliminating wasteful or ineffective programs will close deficits. The Republican Study Committee - 176 House members - recently proposed $2.5 trillion of cuts over a decade in non-defense, non-elderly programs. This plan would kill dozens of specific programs. Now, many of these programs should go; they're either unneeded or ineffective. Consider one candidate for elimination, the Corporation for Public Broadcasting. In an information-drenched society, it's hard to justify government subsidies for TV and radio.

But this budget category covers only a sixth of federal spending, and squeezing it harshly would penalize many vital government functions (research, transportation, the FBI). The Republicans' cuts are huge, about 35 percent. Even so, they would reduce projected deficits by at most a third. Over the next decade, those deficits could easily total $7 trillion to $10 trillion.

l Myth: The elderly have "earned" their Social Security and Medicare by their lifelong payroll taxes, which were put aside for their retirement. Not so. Both programs are pay-as-you-go. Today's taxes pay today's benefits; little is "saved." Even if all were saved, most retirees receive benefits that far exceed their payroll taxes. Consider a man who turned 65 in 2010 and earned an average wage ($43,100). Over his expected lifetime, he will receive an inflation-adjusted $417,000 in Social Security and Medicare benefits, compared with taxes paid of $345,000, estimates an Urban Institute study.
Unfortunately, the truth is not fun and won't excite voters to be told that they have to give up some of the promised pie-in-the-sky benefits that politicians have been deceiving the American people about for decades.
It's a cliche, but true: There are no easy - or popular - solutions. Controlling the budget requires some combination of (a) reducing benefits for the elderly; (b) downsizing other programs, including defense; and (c) raising taxes. Not only did Obama avoid choices, but he failed to frame the debate in a way that clarified what the choices are. So public opinion remains muddled, and politicians - sensitive to public opinion - remain stalemated.

Obama's expedient evasion is the opposite of presidential leadership. It maximizes short-term approval ratings while running long-term risks. A loss of investor confidence could trigger a chaotic flight from Treasury bonds and the dollar. One economist recently wrote in the Financial Times: "I hope it does not ultimately require a crisis to restore fiscal [responsibility] . . ., but I fear it will." That was Peter Orszag, Obama's first budget chief. Sobering.

6 comments:

Rick Caird said...

The Sanderson link is wrong. Here is the correct one:

http://www.washingtonpost.com/wp-dyn/content/article/2011/01/26/AR2011012605730.html

I followed Sanderson's link to the Urban Institute study and tables regarding Social Security. The assumptions they used are debatable for two reasons. They are using chained dollars, which is good, but a 2% return after inflation seems way too low. They use that return both for the accumulation period and for the annuity period. It would not take much of a bump in the rate of return to get the $345K paid to equal the $417K in benefits. We are talking about a period of about 60 years here. The second problem with the numbers is they purposely discard the chances of paying into the system for 40 years and then dying before collecting a penny. That really has to be factored in.

I do agree the early recipients of SS got a great deal, but I believe the people retiring about now actually have about 0% excess of benefits over contributions while the 20 years olds (assuming the program continues) will have a negative return on their contributions.

Nw, I certainly understand there are no savings lying around just waiting to be used for benefits, but I do disagree with the Urban Institute claims of benefits in excess of contributions. That is why I fully support a system of private accounts with some kind of "kicker" for low income workers.

pumping-irony said...

Samuelsom wrote "Obama's expedient evasion is the opposite of presidential leadership. It maximizes short-term approval ratings while running long-term risks."

Yeah, Obama and lots of others in Congress. As long as it continues to win elections, that's what they'll do. Real statesmen and leaders finish last; the winners are the dissembling frauds.

Ron K said...

"The elderly have "earned" their Social Security and Medicare by their lifelong payroll taxes, which were put aside for their retirement. Not so. Both programs are pay-as-you-go. Today's taxes pay today's benefits; little is "saved." Even if all were saved, most retirees receive benefits that far exceed their payroll taxes. Consider a man who turned 65 in 2010 and earned an average wage ($43,100). Over his expected lifetime, he will receive an inflation-adjusted $417,000 in Social Security and Medicare benefits, compared with taxes paid of $345,000, estimates an Urban Institute study."

the system might be a pay as you go, but not for the people that had 14+% of their income taken from them for 40 to 50 years. think of it this way you go to a car dealership and make monthly payments for a car, and you will get the car after it's paid for, when you go to the dealership to get the car, they tell you they gave the car to someone else, how would you feel. I went to the site to see if he showed his work, no supporting figures or calculations.

mark said...

It is true that Obama is failing to lead on this issue. Unfortunately, either side is afraid to offer any bold solutions because the other side will twist it. Think "death panels". We spend billions of dollars for un-wanted procedures to extend life a few days, weeks or months. People have the OPTION for counseling. If you are one of the simpletons who have parroted the power-whores like Sarah Palin and Rush Limbaugh, or have winked at their moronic antics, you are part of the problem.
Do some liberal also do that? Of course. And it is equally disgraceful.
If we really care about future generations (instead of just paying lip-service), we need to stop playing politics, and call out the people on "our side" when it happens.

tfhr said...

mark,

"Power-whores"?

Looks like you've really taken heart to Obama's pleas for civility. You name names when it comes to the people that offend you but just for sake of balance, why not list the prime offenders on the left that engage in such tactics. I'd like to see your list.

Still, you seem to advocate withholding - or at least promote the idea of convincing some patients to turn down - care at some point in their lives. My question to you is why would you think the government should have any hand in such considerations?

I also wonder if the left is finally realizing that it's promises of "social security" and "social justice" have finally collapsed due to demographics and that some of you are actually beginning to recognize that fact. That's the point Thatcher made so clear so long ago: Socialism works fine until you run out of other peoples' money.

Rick Caird said...

Mark, you continue to be absurd. You say: "We spend billions of dollars for un-wanted procedures to extend life a few days, weeks or months". Really??? Are you claiming we run around performing procedures on people who do not want them? Absurd.

The whole idea of "counseling" is to convince people NOT to have a procedure. It is not designed to induce them to have additional procedures. Yet, if they do not have the procedure, they are sure to die as soon or sooner. Now, add to that the "Efficacy Panels" and you have created what Sarah Palin rightly calls "death panels".

The conversation will go something like this: "The Efficacy Panel has determined there is relatively little benefit to most people from this drug or procedure. So, they will not pay for it. However, even if you decide to pay for it, we really think you should die...."

If you doubt that, Google "Avastin". Maybe you will want to reevaluate who the "power-whores" are.