America's fiscal cliff, an artificial crisis
[LP note: TM posted the article by Homan Jenkins below. LP takes Mr. Jenkins's work with a grain of salt ... and a lot of Pepto-Bismal.
This first problem with his article — as with many discussions of Social Security and Medicare — is that he lumps together the two programs into the term "entitlements", which is a brilliant word co-opted by some very smart members of the right-wing idea machine. The media, pundits and theoretically equally as smart members (but not really) of the left-wing side have all embraced it, which is unfortunate for the country as a whole.
Let's get this straight: Medicare is a health insurance program run by the federal government. Social Security is a retirement and benefits program run by the federal government. If they were done by the private sector, premiums would have to be adjusted to cover outlays in order for the insurer or administrator to remain solvent. But they are not. They are done by political bodies — congress and the president — who do not want to tell the policy holders — the people — the truth, and who do not want to raise premiums to reflect what the actuaries are telling them. If they were the upper management and board of directors of an insurance company, they would be (or should be) fired.
There are solutions, the vast majority of which have been proposed and summarily rejected by one or both political parties. But one solution — and I would argue the best solution — is not even being discussed, and that is to spin Social Security and Medicare off into independent, self-financed nonprofit government-owned entities.
There are similar models with varying levels of success. The Federal Reserve is relatively independent from political winds and whims, though under Greenspan and even Bernanke it eschewed its responsibility in favor of crazy Ayn Randian theory, which helped bring about the crash of 2008. The Postal Service should have been independent, but congress has seen fit to hog-tie it with requirements and limitations so that it's more or less bound to fail. Fannie Mae and Freddie Mac are, of course, ridiculous constructs guaranteed to make lots of money for a few insiders and guarantee losses to taxpayers.
Social Security and Medicare can be set up to be run by professional administrators and independent, nonpartisan boards empowered with guaranteeing certain benefits and certain levels of care according to broad constructs set by law. Yes, these constructs would need to be adjusted from time to time — perhaps every 10 years in the odd year so that political hijinks would affect the decision-making less (or hopefully so). But the rest of the time the administrators and boards of Social Security and Medicare would deal with the details, including benefits and the cost of the premiums and how they are allocated across the general population.
Of course, no system is perfect, but one of this type run by professional administrators (not politicians) and monitored by independent inspectors general (to keep the administrators honest) would no doubt be much more effective than what we have now.
And now for Mr. Jenkins ....]
Jenkins: None Dare Call It Default
This first problem with his article — as with many discussions of Social Security and Medicare — is that he lumps together the two programs into the term "entitlements", which is a brilliant word co-opted by some very smart members of the right-wing idea machine. The media, pundits and theoretically equally as smart members (but not really) of the left-wing side have all embraced it, which is unfortunate for the country as a whole.
Let's get this straight: Medicare is a health insurance program run by the federal government. Social Security is a retirement and benefits program run by the federal government. If they were done by the private sector, premiums would have to be adjusted to cover outlays in order for the insurer or administrator to remain solvent. But they are not. They are done by political bodies — congress and the president — who do not want to tell the policy holders — the people — the truth, and who do not want to raise premiums to reflect what the actuaries are telling them. If they were the upper management and board of directors of an insurance company, they would be (or should be) fired.
There are solutions, the vast majority of which have been proposed and summarily rejected by one or both political parties. But one solution — and I would argue the best solution — is not even being discussed, and that is to spin Social Security and Medicare off into independent, self-financed nonprofit government-owned entities.
There are similar models with varying levels of success. The Federal Reserve is relatively independent from political winds and whims, though under Greenspan and even Bernanke it eschewed its responsibility in favor of crazy Ayn Randian theory, which helped bring about the crash of 2008. The Postal Service should have been independent, but congress has seen fit to hog-tie it with requirements and limitations so that it's more or less bound to fail. Fannie Mae and Freddie Mac are, of course, ridiculous constructs guaranteed to make lots of money for a few insiders and guarantee losses to taxpayers.
Social Security and Medicare can be set up to be run by professional administrators and independent, nonpartisan boards empowered with guaranteeing certain benefits and certain levels of care according to broad constructs set by law. Yes, these constructs would need to be adjusted from time to time — perhaps every 10 years in the odd year so that political hijinks would affect the decision-making less (or hopefully so). But the rest of the time the administrators and boards of Social Security and Medicare would deal with the details, including benefits and the cost of the premiums and how they are allocated across the general population.
Of course, no system is perfect, but one of this type run by professional administrators (not politicians) and monitored by independent inspectors general (to keep the administrators honest) would no doubt be much more effective than what we have now.
And now for Mr. Jenkins ....]
Jenkins: None Dare Call It Default
A nicer term for what's about to sock the middle class is 'entitlement reform.'
By HOLMAN W. JENKINS, JR., WSJ
To call Greece First World may be a stretch, but Greece has defaulted once already, and it is only a matter of time until Greece defaults again. Welcome to default-o-rama, the next chapter in the First World's struggle for fiscal sustainability.
Japan is piling up debt in the manner of a nation beyond hope. France, Belgium, Spain and Italy are defaults waiting to happen unless Europe can somehow generate the kind of growth that has eluded it for decades.
America's fiscal cliff is an artificial crisis. We have no trouble borrowing in the short term. But at some point the market will demand evidence that long-term balance is being restored. President Obama said in his first post-election press conference that he doesn't want any proposals that "sock it to the middle class." He knows better. A long-term socking is exactly what's coming to the middle class, which must pay for the benefits it consumes.
A few years ago, when the economy was humming, a common estimate held that federal taxes would have to rise 50% immediately to fully fund entitlement programs. Today, a 50% tax increase would be needed just to meet the government's current spending, never mind its future obligations.
(More here.)
By HOLMAN W. JENKINS, JR., WSJ
To call Greece First World may be a stretch, but Greece has defaulted once already, and it is only a matter of time until Greece defaults again. Welcome to default-o-rama, the next chapter in the First World's struggle for fiscal sustainability.
Japan is piling up debt in the manner of a nation beyond hope. France, Belgium, Spain and Italy are defaults waiting to happen unless Europe can somehow generate the kind of growth that has eluded it for decades.
America's fiscal cliff is an artificial crisis. We have no trouble borrowing in the short term. But at some point the market will demand evidence that long-term balance is being restored. President Obama said in his first post-election press conference that he doesn't want any proposals that "sock it to the middle class." He knows better. A long-term socking is exactly what's coming to the middle class, which must pay for the benefits it consumes.
A few years ago, when the economy was humming, a common estimate held that federal taxes would have to rise 50% immediately to fully fund entitlement programs. Today, a 50% tax increase would be needed just to meet the government's current spending, never mind its future obligations.
(More here.)
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