Social Security Medicare Scares

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http://www.nytimes.com/2004/03/05/opinion/05KRUG.html?th

 

March 5, 2004OP-ED COLUMNIST Social Security ScaresBy PAUL KRUGMAN

 

The annual report of the Social Security system's trustees reveals a system in

pretty good financial shape. In fact, it would take only modest injections of

money to maintain that system's current benefit levels for at least the next 75

years. Other reports, however, appear to portray a system in deep financial

trouble. For example, a 2002 Treasury study, described on Tuesday in The New

York Times, claims that Social Security and Medicare are $44 trillion in the

red. What's the truth?

 

Here's a hint: while even right-wing politicians insist in public that they want

to save Social Security, the ideologues shaping their views are itching for an

excuse to dismantle the system. So you have to read alarming reports generated

by people who work at ideologically driven institutions — a list that now, alas,

includes the U.S. Treasury — with great care.

 

First, two words — " and Medicare " — make a huge difference. According to the

Treasury study, only 16 percent of that $44 trillion shortfall comes from Social

Security. Second, the supposed shortfall in both programs comes mainly from

projections about the distant future; 62 percent of the combined shortfall comes

after 2077.

 

So does the Treasury report show a looming Social Security crisis? No.

 

Social Security's problem, such as it is, is a matter of demography: as the

population ages, the number of retirees will rise faster than the number of

workers. As a result, benefit costs will rise by about 2 percent of G.D.P. over

the next 30 years, and creep up slowly thereafter. By comparison, making the

Bush tax cuts permanent would reduce revenue by at least 2.5 percent of G.D.P.,

starting now. That — combined with the fact that Social Security, unlike the

rest of the federal government, is currently running a surplus — is why the Bush

tax cuts are a much bigger problem for the nation's fiscal future than the

Social Security shortfall.

 

Medicare, though often lumped in with Social Security, is a different program

facing different problems. The projected rise in Medicare expenses is mainly

driven not by demography, but by the rising cost of medical care, which in turn

mainly reflects medical progress, which allows doctors to treat a wider range of

conditions.

 

If this trend continues — which is by no means certain when we are considering

the very long run — we may face a real long-term dilemma that involves all

medical care, not just care for retirees, and is as much moral as economic. It

may eventually be the case that providing all Americans with the full advantages

of modern medicine will force the government to raise much more money than it

now does. Yet not providing that care will mean watching poor and middle-class

Americans die early or suffer a greatly reduced quality of life because they

can't afford full medical treatment.

 

But this dilemma will be there regardless of what we do to Social Security. It's

not even clear that we should try to resolve the dilemma now. I'm all for taking

the long view; when the administration makes budget projections for only five

years to hide known costs just a few years further out, that's an outrage. By

all means, let's plan ahead. But let's set some limits. When people issue

ominous warnings about the cost of Medicare after 2077, my question is, Why

should fiscal decisions today reflect the possible cost of providing generations

not yet born with medical treatments not yet invented?

 

The biggest risk now facing Social Security is political. Will those who hate

the system use scare tactics and fuzzy math to bring it down?

 

After Alan Greenspan's call for cuts in Social Security benefits, Republican

members of Congress declared that the answer is to create private retirement

accounts. It's amazing that they are still peddling this snake oil; it's even

more amazing that journalists continue to let them get away with it. Yesterday

in The Wall Street Journal, a writer judiciously declared that " personal

accounts alone won't cure Social Security's ills. " I guess that's true;

similarly, eating doughnuts alone won't cause you to lose weight. Why is it so

hard to say clearly that privatization would worsen, not improve, Social

Security's finances?

 

Should we consider modest reforms that reduce the expenses or widen the revenue

base of Social Security? Sure. But beware of those who claim that we must

destroy the system in order to save it.

 

 

 

E-mail: krugman

 

 

 

 

 

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