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.

Financial literacy

The commentariat is slowly turning towards the issue of personal debt and financial literacy, led by reports in recent months about the terrible average savings rates for individual Americans. And it's about bloody time--I've always wondered why this very critical issue never gets any play.

Stephen Dubner at the Freakonomics blog at the Times has a must-read entry about financial illiteracy in America, and the subject's absence from school curricula:

I’d like to think I’m at least adequate in taking care of my family’s finances and everything that includes in the modern world: real-estate and insurance decisions, saving for college and retirement, investing and tax planning, etc. But it has been a bit of trial-by-error mixed with trial-by-fire — and to be honest, I was very fortunate to have an older brother who is smart, frugal, patient, and who worked for many years in finance. If it weren’t for him, I’d be in considerably sadder shape.

But here’s my point: I’m not exactly undereducated. I had 13 years of public schooling, 4 years of college, and another 2 years of graduate school — and after all that schooling, I don’t know if I learned enough to answer all three of Lusardi’s questions correctly. The subjects simply didn’t come up. Just as they apparently didn’t for the two-thirds of the older respondents to Lusardi’s questions.

I have similar story. Basically I wouldn't know jack about anything finance related if weren't for a fellow I work with named Karl who happend to press into my hands a book called The Four Laws of Debt Free Prosperity. The book sounded, and was, fairly cheesy, but it was short and in those few brief chapters made me realize that I had been out to lunch on an extraordinarily important subject, a subject that--if ignored--could literally ruin a person's life.

So it's always been sort of crazy to me that they don't make a serious effort to scare kids in high school into never, ever running a credit card debt, or show them how a steady and conservative savings plan begun early enough can make them into millionaires when they are old. And I never understood the point of quibbling over various ways to refine Social Security when a large number of Social Security recipients will have frittered away their incomes over the span of decades because they simply did not know what they were doing with their money. Financial literacy seems to me the first and most important step in establishing a sane set of policies dealing with retirement and supporting the elderly crowd, and yet in our politics it's treated as an afterthought.