In a blog post at Econbrowser, Princeton Economist Angus Deaton complains about how his work on the impact of inequality on health outcomes was challenged by Michael Ash, an economics professor at the University of Massachusetts. He compares this challenge to the more recent challenge posed by Ash, along with Thomas Herndon and Robert Pollin to the work of Harvard professors Carmen Reinhart and Ken Rogoff. People may recall in this latter work, Herndon, Ash, and Pollin showed that the results in Reinhart and Rogoff’s original 2010 paper on the relationship between national debt and growth were due to both an Excel spreadsheet error and a peculiar method of aggregation.
Deaton joins the criticisms of the two papers:
“In our case, as in Reinhart and Rogoff, neither the coding error (in our case there was none) nor the choice of weights has any effect on the main results. … With Reinhart and Rogoff, they referred only to an early paper, ignoring updated results. But the effect is the same, to magnify a tiny or non-existent problem and claim that it threatens the whole enterprise whereas, in fact, nothing of the sort is true.”
Deaton then complained that the criticisms of Reinhart and Rogoff did not even take place in refereed journals, but rather through blog posts (yes, I’m one of those guilty) and the media.
Perhaps Deaton is unaware of the impact of Reinhart and Rogoff’s work on the debate over stimulus and deficits. Otherwise it is difficult to see how he can trivialize the importance of the criticisms from Herndon, Ash, and Pollin (HAP) to the public debate on this issue.
Contrary to what Deaton implies, Reinhart and Rogoff highlighted the idea of a cliff at a debt to GDP ratio of 90 percent from their first paper. Above this level, their earlier work showed a sharp falloff in growth. This paper had enormous impact on policy debates in Europe and the United States. In fact, it was the explicit basis for the debt targets set out by Erskine Bowles and Alan Simpson, the co-chairs of President Obama’s deficit commission.
While Reinhart and Rogoff’s later work did not provide evidence of such a cliff, this conclusion from their original paper continued to guide public debate uncorrected by Reinhart and Rogoff. The spreadsheet error uncovered by HAP managed to bring this issue into the public spotlight. When the error was corrected, any basis for claiming a large growth penalty for debt to GDP ratios in excess of 90 percent disappeared. There was in general a negative correlation between growth and debt levels, but the sharpest tradeoffs were at relatively low levels of debt (under 30 percent of GDP), not the 90 plus level highlighted by Reinhart and Rogoff.
HAP also inspired a series of papers that examined the direction of causality. All of these papers showed evidence that the causation overwhelmingly went from slow growth to debt rather than in the other direction. In other words, countries that were growing slowly tended to accumulate lots of debt, rather than the other way around.
The result is that policymakers and the general public now have a much clearer view of the potential limits posed by debt. The fact that this exchange of analysis among economists occurred outside of professional journals would seem to be a criticism of professional journals and their limited relevance for policy debates. If a side effect was that two prominent Harvard economists were publicly embarrassed, that seems a small price to pay.
Addendum:
Reinhart and Rogoff might have saved themselves and the rest of the world much grief if they had made their data publicly available in January of 2010 when their work first began to have a major impact on policy debates.
In a blog post at Econbrowser, Princeton Economist Angus Deaton complains about how his work on the impact of inequality on health outcomes was challenged by Michael Ash, an economics professor at the University of Massachusetts. He compares this challenge to the more recent challenge posed by Ash, along with Thomas Herndon and Robert Pollin to the work of Harvard professors Carmen Reinhart and Ken Rogoff. People may recall in this latter work, Herndon, Ash, and Pollin showed that the results in Reinhart and Rogoff’s original 2010 paper on the relationship between national debt and growth were due to both an Excel spreadsheet error and a peculiar method of aggregation.
Deaton joins the criticisms of the two papers:
“In our case, as in Reinhart and Rogoff, neither the coding error (in our case there was none) nor the choice of weights has any effect on the main results. … With Reinhart and Rogoff, they referred only to an early paper, ignoring updated results. But the effect is the same, to magnify a tiny or non-existent problem and claim that it threatens the whole enterprise whereas, in fact, nothing of the sort is true.”
Deaton then complained that the criticisms of Reinhart and Rogoff did not even take place in refereed journals, but rather through blog posts (yes, I’m one of those guilty) and the media.
Perhaps Deaton is unaware of the impact of Reinhart and Rogoff’s work on the debate over stimulus and deficits. Otherwise it is difficult to see how he can trivialize the importance of the criticisms from Herndon, Ash, and Pollin (HAP) to the public debate on this issue.
Contrary to what Deaton implies, Reinhart and Rogoff highlighted the idea of a cliff at a debt to GDP ratio of 90 percent from their first paper. Above this level, their earlier work showed a sharp falloff in growth. This paper had enormous impact on policy debates in Europe and the United States. In fact, it was the explicit basis for the debt targets set out by Erskine Bowles and Alan Simpson, the co-chairs of President Obama’s deficit commission.
While Reinhart and Rogoff’s later work did not provide evidence of such a cliff, this conclusion from their original paper continued to guide public debate uncorrected by Reinhart and Rogoff. The spreadsheet error uncovered by HAP managed to bring this issue into the public spotlight. When the error was corrected, any basis for claiming a large growth penalty for debt to GDP ratios in excess of 90 percent disappeared. There was in general a negative correlation between growth and debt levels, but the sharpest tradeoffs were at relatively low levels of debt (under 30 percent of GDP), not the 90 plus level highlighted by Reinhart and Rogoff.
HAP also inspired a series of papers that examined the direction of causality. All of these papers showed evidence that the causation overwhelmingly went from slow growth to debt rather than in the other direction. In other words, countries that were growing slowly tended to accumulate lots of debt, rather than the other way around.
The result is that policymakers and the general public now have a much clearer view of the potential limits posed by debt. The fact that this exchange of analysis among economists occurred outside of professional journals would seem to be a criticism of professional journals and their limited relevance for policy debates. If a side effect was that two prominent Harvard economists were publicly embarrassed, that seems a small price to pay.
Addendum:
Reinhart and Rogoff might have saved themselves and the rest of the world much grief if they had made their data publicly available in January of 2010 when their work first began to have a major impact on policy debates.
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Eduardo Porter used his column today to point to a skills gap in the United States between the skills needed for the jobs being created and the skills of the people currently entering the workforce. The column rightly points out that this gap does not explain current unemployment and that employers could find more skilled workers if they offered higher wages. But it then refers to a study put out by the Brookings Institution:
“Mr. Rothwell says that the problem is getting bigger: while just under a third of the existing jobs in the nation’s 100 largest metropolitan areas require a bachelor’s degree or more, about 43 percent of newly available jobs demand this degree. And only 32 percent of adults over the age of 25 have one.”
There are two points that should be made on this comment. First a small one: in the most recent data 33.5 percent of people age 25-29 had college degrees. And, the share of young people in large cities with college degrees would be even higher, since people with more education tend to gravitate to large cities. So the gap between the 43 percent figure and the share of the work force with degrees may not be that large. (It’s also worth noting that the Brooking study looked at vacancies in a severely depressed economy. These are going to be skewed towards higher end workers. When the economy is closer to full employment the ratio of retail clerks and assembly line workers to managers increases.)
The other more important point is the one raised earlier by Porter, employers are not raising wages for college grads. The wage is a signal. Higher wages tell young people that it is worthwhile to invest the time and money needed to get a college degree. If young people don’t anticipate a payoff for this investment, they won’t make it.
This is yet another enduring cost of the prolonged downturn. We can anticipate a future workforce that will be less well-educated because the downturn prevented the labor market from giving the right signals to young people.
Eduardo Porter used his column today to point to a skills gap in the United States between the skills needed for the jobs being created and the skills of the people currently entering the workforce. The column rightly points out that this gap does not explain current unemployment and that employers could find more skilled workers if they offered higher wages. But it then refers to a study put out by the Brookings Institution:
“Mr. Rothwell says that the problem is getting bigger: while just under a third of the existing jobs in the nation’s 100 largest metropolitan areas require a bachelor’s degree or more, about 43 percent of newly available jobs demand this degree. And only 32 percent of adults over the age of 25 have one.”
There are two points that should be made on this comment. First a small one: in the most recent data 33.5 percent of people age 25-29 had college degrees. And, the share of young people in large cities with college degrees would be even higher, since people with more education tend to gravitate to large cities. So the gap between the 43 percent figure and the share of the work force with degrees may not be that large. (It’s also worth noting that the Brooking study looked at vacancies in a severely depressed economy. These are going to be skewed towards higher end workers. When the economy is closer to full employment the ratio of retail clerks and assembly line workers to managers increases.)
The other more important point is the one raised earlier by Porter, employers are not raising wages for college grads. The wage is a signal. Higher wages tell young people that it is worthwhile to invest the time and money needed to get a college degree. If young people don’t anticipate a payoff for this investment, they won’t make it.
This is yet another enduring cost of the prolonged downturn. We can anticipate a future workforce that will be less well-educated because the downturn prevented the labor market from giving the right signals to young people.
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According to the Washington Post, a debt default would have some clearly positive outcomes. Specifically it told readers that it would weaken the United States position as a financial safe haven for the rest of the world.
This would have two beneficial effects. If less money flowed from elsewhere in the world to the United States this would reduce the value of the dollar relative to other currencies. This has in fact been a stated goal of both the Bush and Obama administration, which both claimed that they wanted to end “currency manipulation.” Currency manipulation means that other countries are deliberately buying up dollars to raise the value of the dollar against their own currency.
The effort to end currency manipulation is an effort to lower the value of the dollar. If investors stop buying dollars because it is no longer a safe haven, then this would lower the value of the dollar in the same way that if foreign central banks stopped buying dollars to “manipulate” the value of their currency, it would lower the value of the dollar. In other words, people who would applaud the end of currency manipulation should also applaud the ending of the dollar as the world’s safe haven currency.
The other positive part of this story is that such a shift would lead to a downsizing of the financial industry in the United States. This would allow the resources in the sector to be reallocated to more productive sectors of the economy. It would also reduce the power of the financial industry in American politics.
A debt default may still be a bad story, but the vast majority of people in the United States have little to fear from the ending of the dollar as a safe haven currency.
According to the Washington Post, a debt default would have some clearly positive outcomes. Specifically it told readers that it would weaken the United States position as a financial safe haven for the rest of the world.
This would have two beneficial effects. If less money flowed from elsewhere in the world to the United States this would reduce the value of the dollar relative to other currencies. This has in fact been a stated goal of both the Bush and Obama administration, which both claimed that they wanted to end “currency manipulation.” Currency manipulation means that other countries are deliberately buying up dollars to raise the value of the dollar against their own currency.
The effort to end currency manipulation is an effort to lower the value of the dollar. If investors stop buying dollars because it is no longer a safe haven, then this would lower the value of the dollar in the same way that if foreign central banks stopped buying dollars to “manipulate” the value of their currency, it would lower the value of the dollar. In other words, people who would applaud the end of currency manipulation should also applaud the ending of the dollar as the world’s safe haven currency.
The other positive part of this story is that such a shift would lead to a downsizing of the financial industry in the United States. This would allow the resources in the sector to be reallocated to more productive sectors of the economy. It would also reduce the power of the financial industry in American politics.
A debt default may still be a bad story, but the vast majority of people in the United States have little to fear from the ending of the dollar as a safe haven currency.
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I am not quite sure why, but apparently some people do take Niall Ferguson’s pronouncements on economics seriously. I usually ignore his comments, since I can’t imagine not having something better to do with my time. Nonetheless, I did note Paul Krugman and Brad DeLong beating up Ferguson for his failure to understand the Congressional Budget Office’s projections for the long-term budget deficit.
But rather than having the decency to find some rock behind which to hide, Harvard Professor Niall Ferguson rose to the occasion and tried to rewrite what he had earlier said. In a new blog post he writes:
“Which is more important then:
1. The fact that, as far as the CBO knows today, the fiscal position in 2038 will almost certainly be worse, and maybe much worse, than it is now?
OR
2. The fact that one of the CBO’s projections is not quite as bad this year as it was last year, when it was abominable, as opposed to just terrible.”
Well, there are all sorts or reasons why we should not be terribly worried about #1 (see my paper here for beginners), but for purposes at hand, #2 is exactly what Ferguson had argued in his original column where he highlighted the deterioration in the new CBO projections compared to the projections from 2012.
This one is not really debatable. Here’s the key paragraph:
“A very striking feature of the latest CBO report is how much worse it is than last year’s. A year ago, the CBO’s extended baseline series for the federal debt in public hands projected a figure of 52% of GDP by 2038. That figure has very nearly doubled to 100%. A year ago the debt was supposed to glide down to zero by the 2070s. This year’s long-run projection for 2076 is above 200%. In this devastating reassessment, a crucial role is played here by the more realistic growth assumptions used this year.”
I was always taught that when you make a mistake the best thing is to own up to it and apologize. Apparently at Harvard and the WSJ the accepted practice is to deny the error and to criticize the people who corrected it.
I am not quite sure why, but apparently some people do take Niall Ferguson’s pronouncements on economics seriously. I usually ignore his comments, since I can’t imagine not having something better to do with my time. Nonetheless, I did note Paul Krugman and Brad DeLong beating up Ferguson for his failure to understand the Congressional Budget Office’s projections for the long-term budget deficit.
But rather than having the decency to find some rock behind which to hide, Harvard Professor Niall Ferguson rose to the occasion and tried to rewrite what he had earlier said. In a new blog post he writes:
“Which is more important then:
1. The fact that, as far as the CBO knows today, the fiscal position in 2038 will almost certainly be worse, and maybe much worse, than it is now?
OR
2. The fact that one of the CBO’s projections is not quite as bad this year as it was last year, when it was abominable, as opposed to just terrible.”
Well, there are all sorts or reasons why we should not be terribly worried about #1 (see my paper here for beginners), but for purposes at hand, #2 is exactly what Ferguson had argued in his original column where he highlighted the deterioration in the new CBO projections compared to the projections from 2012.
This one is not really debatable. Here’s the key paragraph:
“A very striking feature of the latest CBO report is how much worse it is than last year’s. A year ago, the CBO’s extended baseline series for the federal debt in public hands projected a figure of 52% of GDP by 2038. That figure has very nearly doubled to 100%. A year ago the debt was supposed to glide down to zero by the 2070s. This year’s long-run projection for 2076 is above 200%. In this devastating reassessment, a crucial role is played here by the more realistic growth assumptions used this year.”
I was always taught that when you make a mistake the best thing is to own up to it and apologize. Apparently at Harvard and the WSJ the accepted practice is to deny the error and to criticize the people who corrected it.
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The Washington Post told readers that a chart showing a spike in the interest rate on Treasury bills coming due on October 31 should scare us. The rate on short term notes has gone from near zero to around 0.29 percent. This is a huge hike in own percent, but it is still a pretty damn low interest rate.
The story here is pretty simple. These short term bills get much of their value from the fact that they are hugely liquid. Because of concerns over the debt ceiling they are no longer hugely liquid. Okay, this is not good news, but I just can’t get that scared over this. The financial markets will not freeze and the economy will not shut down because the interest rate on these notes is getting close to 0.3 percent.
Pushing the government against the debt ceiling is not smart and not going to be good for the economy (unless it ends the dollar’s status as the preeminent reserve currency), but we should refrain from telling horror stories.
The Washington Post told readers that a chart showing a spike in the interest rate on Treasury bills coming due on October 31 should scare us. The rate on short term notes has gone from near zero to around 0.29 percent. This is a huge hike in own percent, but it is still a pretty damn low interest rate.
The story here is pretty simple. These short term bills get much of their value from the fact that they are hugely liquid. Because of concerns over the debt ceiling they are no longer hugely liquid. Okay, this is not good news, but I just can’t get that scared over this. The financial markets will not freeze and the economy will not shut down because the interest rate on these notes is getting close to 0.3 percent.
Pushing the government against the debt ceiling is not smart and not going to be good for the economy (unless it ends the dollar’s status as the preeminent reserve currency), but we should refrain from telling horror stories.
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It looks like CBS News can no longer afford to do their own news reporting so they are picking up material from other sources. There seems no other way to explain the piece it ran last night on the Social Security disability program on Sixty Minutes which is best described as a spinoff of an earlier This American Life piece.
The remarkable aspect of this story is that it completely ignored all the comments from experts in the field in response to the This American Life piece pointing out that fraud is in fact not rampant in the disability program (e.g. here and here). There were any number of experts who could have been interviewed on this topic to counterbalance the views of a far-right senator who is best known as a denier of global warming (Tom Coburn). But Sixty Minutes apparently could not be bothered to present a more balanced picture of the disability program.
The basic fact, which may be painful for CBS News and Sixty Minutes, is that it is not easy to get on Social Security disability. Close to three quarters of applicants are turned down initially and even after appeal, 60 percent of applicants are denied benefits.
If Sixty Minutes was actually interested in the incidence of fraudulent claims it might have turned to the authors of a University of Michigan study. This study identified a group of applicants who it considered marginal since they might be either approved or turned down, depending on the hearing officer who dealt with their case. Of this group (which comprised 23 percent of all applicants), 28 percent were working two years later if they were turned down. If we applied this to all disability approvals and assume that almost none of the non-marginal cases (i.e. more severely disabled cases) would be working, it means that less than 7.0 percent of the new applicants would be working two years later if the disability program did not exist.
Furthermore, the portion of this marginal group who were working after four years had fallen to just 16 percent. Their earnings averaged just 25-50 percent of their earnings in the years before they filed for disability. This hardly suggests widespread fraud.
Disability is a large program. That means there will be some fraud. This is not news, except perhaps at CBS.
Perhaps the most remarkable part of this story is that the Sixty Minutes crew seems to think they are being tough for going after people on disability. Needless to say they are far too cowardly to say anything about the failure in Washington to push either stimulus or a lowered valued dollar to boost net exports, a failure that is costing the country $1 trillion a year in lost output.
It looks like CBS News can no longer afford to do their own news reporting so they are picking up material from other sources. There seems no other way to explain the piece it ran last night on the Social Security disability program on Sixty Minutes which is best described as a spinoff of an earlier This American Life piece.
The remarkable aspect of this story is that it completely ignored all the comments from experts in the field in response to the This American Life piece pointing out that fraud is in fact not rampant in the disability program (e.g. here and here). There were any number of experts who could have been interviewed on this topic to counterbalance the views of a far-right senator who is best known as a denier of global warming (Tom Coburn). But Sixty Minutes apparently could not be bothered to present a more balanced picture of the disability program.
The basic fact, which may be painful for CBS News and Sixty Minutes, is that it is not easy to get on Social Security disability. Close to three quarters of applicants are turned down initially and even after appeal, 60 percent of applicants are denied benefits.
If Sixty Minutes was actually interested in the incidence of fraudulent claims it might have turned to the authors of a University of Michigan study. This study identified a group of applicants who it considered marginal since they might be either approved or turned down, depending on the hearing officer who dealt with their case. Of this group (which comprised 23 percent of all applicants), 28 percent were working two years later if they were turned down. If we applied this to all disability approvals and assume that almost none of the non-marginal cases (i.e. more severely disabled cases) would be working, it means that less than 7.0 percent of the new applicants would be working two years later if the disability program did not exist.
Furthermore, the portion of this marginal group who were working after four years had fallen to just 16 percent. Their earnings averaged just 25-50 percent of their earnings in the years before they filed for disability. This hardly suggests widespread fraud.
Disability is a large program. That means there will be some fraud. This is not news, except perhaps at CBS.
Perhaps the most remarkable part of this story is that the Sixty Minutes crew seems to think they are being tough for going after people on disability. Needless to say they are far too cowardly to say anything about the failure in Washington to push either stimulus or a lowered valued dollar to boost net exports, a failure that is costing the country $1 trillion a year in lost output.
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That’s the question that readers will inevitably ask after reading his column complaining that ideology is responsible for the government shutdown. Samuelson tells readers:
“A crucial difference between interest-group and ideological politics is what motivates people to join. For interest-group politics, the reason is simple — self-interest. People enjoy directly the fruits of their political involvement. Farmers get subsidies; Social Security recipients, checks. By contrast, the foot soldiers of ideological causes don’t usually enlist for tangible benefits for themselves but for a sense that they’re making the world a better place. Their reward is feeling good about themselves.
“I’ve called this “the politics of self-esteem” — and it profoundly alters politics. For starters, it suggests that you don’t just disagree with your adversaries; you also look down on them as morally inferior.”
Let’s see, does Robert Samuelson get direct tangible benefits when he harangues readers about the need to cut Social Security and Medicare because the country is projected to face a growing debt to GDP ratio in a decade or does this just make him feel good about himself?
That’s a tough one that we can leave folks to spend the day contemplating. But just to remind everyone of the facts of the situation, the projections, which incorporate little of the recent slowdown in health care costs (in other words, if the slowdown continues, we don’t have a problem) imply that the deficit will be somewhat larger in a decade than is consistent with a stable debt to GDP ratio.
If that projection proves accurate, there have been many times in the past in which the country has made far larger adjustments in its budget to deal with deficits (e.g. the Bush deficit reduction package in 1990 and the Clinton package in 1993), so it is hard to see why anyone would get so bent out of shape about the issue now. Since we are losing close to $1 trillion a year in lost output now and seeing millions of people have their lives ruined due to unemployment or underemployment, Samuelson’s deficit concerns seem a bit like obsessing over the need to repaint the kitchen when the house is on fire.
So, is he an ideologue?
That’s the question that readers will inevitably ask after reading his column complaining that ideology is responsible for the government shutdown. Samuelson tells readers:
“A crucial difference between interest-group and ideological politics is what motivates people to join. For interest-group politics, the reason is simple — self-interest. People enjoy directly the fruits of their political involvement. Farmers get subsidies; Social Security recipients, checks. By contrast, the foot soldiers of ideological causes don’t usually enlist for tangible benefits for themselves but for a sense that they’re making the world a better place. Their reward is feeling good about themselves.
“I’ve called this “the politics of self-esteem” — and it profoundly alters politics. For starters, it suggests that you don’t just disagree with your adversaries; you also look down on them as morally inferior.”
Let’s see, does Robert Samuelson get direct tangible benefits when he harangues readers about the need to cut Social Security and Medicare because the country is projected to face a growing debt to GDP ratio in a decade or does this just make him feel good about himself?
That’s a tough one that we can leave folks to spend the day contemplating. But just to remind everyone of the facts of the situation, the projections, which incorporate little of the recent slowdown in health care costs (in other words, if the slowdown continues, we don’t have a problem) imply that the deficit will be somewhat larger in a decade than is consistent with a stable debt to GDP ratio.
If that projection proves accurate, there have been many times in the past in which the country has made far larger adjustments in its budget to deal with deficits (e.g. the Bush deficit reduction package in 1990 and the Clinton package in 1993), so it is hard to see why anyone would get so bent out of shape about the issue now. Since we are losing close to $1 trillion a year in lost output now and seeing millions of people have their lives ruined due to unemployment or underemployment, Samuelson’s deficit concerns seem a bit like obsessing over the need to repaint the kitchen when the house is on fire.
So, is he an ideologue?
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There are a couple of other points worth making on the Sixty Minutes piece beyond what I said earlier. First, the numbers involved should be put in some context. The Sixty Minutes folks were warning us that if the Disability fund runs dry, “it’s your money and our money.” So we should know how much of our money is at stake.
According to the Social Security Trustees Report, spending on the disability program in 2013 will be $144.8 billion. If we go to CEPR’s incredibly spiffy responsible budget reporting calculator we find that this sum is equal to 4.2 percent of spending for the year.
Before you run off and spend this windfall, it is important to remember that the bulk of the people collecting disability would almost certainly even fit Senator Coburn’s definition of disabled. We have people with terminal cancer, people who were paralyzed in car crashes, and many other ailments that undoubtedly impose a real impediment to work.
Based on what we know from the University of Michigan study, it is unlikely that even 10 percent of those collecting disability would fit most people’s definition of bogus claims. But just to humor our disability bashing friends at Sixty Minutes, let’s say that it’s 20 percent. That means that we can knock down federal spending by 0.84 percent ($29.0 billion) if we just crack the whip. That’s not trivial, but not enough to allow too many big fiestas with the savings.
This brings up the second point. The bogus cases will never be so polite as to identify themselves as bogus cases. In order to weed out a higher percentage of the people who should not be getting benefits we will have to tighten restrictions and deny a large share of claims. This will mean denying more claims that should be approved.
In other words, we can undoubtedly whittle down the number of bogus claims that get approved, but the cost will be that more legitimate claims will be turned down as well. So the price of denying benefits to some people who might be making too big of a deal out of back pain may be to deny benefits to people who can barely walk due to a back injury.
If the judgment of the hearing officers were perfect we wouldn’t have this problem, but it’s not. The question that anyone who wants to go the crackdown route has to answer is how many genuinely disabled people are you prepared to deny benefits in order to weed out a bogus applicant? Unfortunately, Sixty Minutes did not ask this question.
There are a couple of other points worth making on the Sixty Minutes piece beyond what I said earlier. First, the numbers involved should be put in some context. The Sixty Minutes folks were warning us that if the Disability fund runs dry, “it’s your money and our money.” So we should know how much of our money is at stake.
According to the Social Security Trustees Report, spending on the disability program in 2013 will be $144.8 billion. If we go to CEPR’s incredibly spiffy responsible budget reporting calculator we find that this sum is equal to 4.2 percent of spending for the year.
Before you run off and spend this windfall, it is important to remember that the bulk of the people collecting disability would almost certainly even fit Senator Coburn’s definition of disabled. We have people with terminal cancer, people who were paralyzed in car crashes, and many other ailments that undoubtedly impose a real impediment to work.
Based on what we know from the University of Michigan study, it is unlikely that even 10 percent of those collecting disability would fit most people’s definition of bogus claims. But just to humor our disability bashing friends at Sixty Minutes, let’s say that it’s 20 percent. That means that we can knock down federal spending by 0.84 percent ($29.0 billion) if we just crack the whip. That’s not trivial, but not enough to allow too many big fiestas with the savings.
This brings up the second point. The bogus cases will never be so polite as to identify themselves as bogus cases. In order to weed out a higher percentage of the people who should not be getting benefits we will have to tighten restrictions and deny a large share of claims. This will mean denying more claims that should be approved.
In other words, we can undoubtedly whittle down the number of bogus claims that get approved, but the cost will be that more legitimate claims will be turned down as well. So the price of denying benefits to some people who might be making too big of a deal out of back pain may be to deny benefits to people who can barely walk due to a back injury.
If the judgment of the hearing officers were perfect we wouldn’t have this problem, but it’s not. The question that anyone who wants to go the crackdown route has to answer is how many genuinely disabled people are you prepared to deny benefits in order to weed out a bogus applicant? Unfortunately, Sixty Minutes did not ask this question.
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