Medicareandsocialsecurity

As Ezra Klein likes to point out, when people talk about the long time fiscal liability of "Social Security and Medicare", it's pretty misleading, because the problem is overwhelmingly with Medicare--specifically, the rising costs of healthcare which is causing it to bust the budget.

For example, check out this excerpt from the Economist:

Mr Bush’s biggest failure, however, is on entitlements. The ageing of the population, coupled with rapidly rising health-care costs, means that in coming decades Social Security and Medicare benefits will outstrip workers’ payroll contributions by trillions of dollars.

...

Between the Medicare drug benefit and the failure to restore solvency to Social Security, the long-term unfunded cost of America’s programmes for the elderly had last year reached a stratospheric $43 trillion, or 5% of future wages, compared with $13 trillion, or 3% of future wages, in 2000.

From this it sounds as though both entitlements are more or less equally to blame for the looming budget crisis. But when you look at the chart that the Economist itself provides, you see a different story:



Believe it or not, those numbers on the right vertical axis are trillions of dollars. Even so, it is easy to see that the trouble is not with Social Security, the costs of which are actually quite stable--it's with Medicare (and the drug benefit), the costs of which have more than doubled over the last eight years (and are continuing to rise precipitously). Conservatives tend to lump the two entirely separate entitlement programs together because it serves their ideological aversion towards entitlement spending in general, but it's important to understand where the real budgetary problems are, and why healthcare reform that reduces healthcare costs is so necessary.

A time to spend

Says Krugman:

It’s now clear that rescuing the banks is just the beginning: the nonfinancial economy is also in desperate need of help.

And to provide that help, we’re going to have to put some prejudices aside. It’s politically fashionable to rant against government spending and demand fiscal responsibility. But right now, increased government spending is just what the doctor ordered, and concerns about the budget deficit should be put on hold.

It's somewhat counterintuitive but true: federal deficit spending is good in a recession, because it gets money flowing in the economy. Moreover, since lenders have lost confidence in the private banks, they all want to lend to the federal government--even if it means lending at an interest rate of a fraction of a percent. So the government essentially has a credit card with a hyper-low interest rate of, like, 0.15% that it can use to get money flowing in the economy in various ways: by increasing unemployment benefits, by cutting taxes, and by investing in infrastructure improvements. The idea is that you keep spending until the economy recovers, at which point tax revenues also recover and you can balance the budget and pay down the debt.