October 06, 2014
It might help editorial page editor Fred Hiatt understand how the budget works. He is appalled because “reactionary defenders” of Social Security think that seniors should be able to get the benefits they paid for. (I wonder if it’s reactionary to think that Peter Peterson type billionaires should be able to get the interest on the government bonds that they paid for.)
Anyhow, the basis for Hiatt’s fury is that John Podesta, now a top advisor to President Obama, is boasting about entitlements having been brought under control. To Hiatt this is outrageous.
“Federal debt has reached 74 percent of the economy’s annual output (GDP), ‘a higher percentage than at any point in U.S. history except a brief period around World War II,’ the CBO says, ‘and almost twice the percentage at the end of 2008.’ With no change in policy, that percentage will hold steady or decline a bit for a couple of years and then start rising again, to a dangerous 78 percent by 2024 and an insupportable 106 percent by 2039.”
Yep, the debt is much higher today than in 2008, so what? Millions of people lost their jobs due to the collapse of the economy. The deficits of the last six years created demand that would not otherwise have been there. It led to more growth and put people back to work. To those in the real world, people losing their jobs and losing their homes, would be the big story. This means kids growing up with unemployed parents and maybe hustling from house to house or even living on the street. But hey, Fred Hiatt wants us to worry about the deficit in 2039.
Just to be clear, the gloom and doom story is all Hiatt’s not CBO’s, although some readers may be confused by the presentation. There is no obvious negative consequence to a debt to GDP ratio of 74 percent, although readers can get that Fred Hiatt doesn’t like it. Nor is there any obvious negative consequence to a debt to GDP of 78 percent by 2024, even if Fred Hiatt calls it “dangerous.”
And the assertion that a debt to GDP ratio of 106 percent is insupportable is just Fred Hiatt’s invention. There are many countries that have much higher debt to GDP ratios today (Japan’s is more than twice as high) and continue to pay very low interest rates on long-term debt. In other words, Fred Hiatt is just like the little kid who who is worried about the monster under his bed when the lights are turned off. Undoubtedly it is very real to him, but when you turn on the lights you can see there is nothing there.
It’s worth making a couple of other points about Hiatt’s little tirade. First the scenarios assuming “no change in policy” for a quarter century are more than a little bizarre. We have never gone a quarter century or even five years with “no change in policy.” We probably will want to raise taxes somewhere in the next quarter century. We don’t have to do that now or even plan for it now. The country has very real problems and need not be bothered by this silliness.
As far as Social Security, if Hiatt could get a copy of the Trustees report he would see that under the law the program can only pay out benefits based on what has been paid in as taxes (this year and prior years, including interest). While this can vary in any given year (right now we are collecting more in revenue than we pay out in taxes), over the program’s life it is only authorized to pay benefits if it has collected the revenue in Social Security taxes.
This means that Social Security does not affect the rest of the budget unless Hiatt thinks that we should tell people that we are taxing them for Social Security and then use the money for wars in Iraq or elsewhere. That may sound like good fiscal policy at the Washington Post, but probably won’t sell well elsewhere.
Finally, the reason that Medicare costs so much is because we pay our doctors, drug companies and other medical providers far more than they would get in other wealthy countries. If we think of Medicare as an excessive entitlement, the beneficiaries of the excess are the doctors and drug companies, not our seniors. They do not get better medical care than seniors in other countries. (The Post may not want to mention the overpayments to drug companies since they advertise in the paper.)
Note: References to “John Hiatt” corrected. Thanks to Reg Gilbert and Robert Salzberg and apologies to John.
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