• The fall is gonna kill you*

    I’m a day late to the game on this. Jared Bernstein, Dean Baker, and Paul Krugman have all already sounded the alarm as to Robert Samuelson’s piece declaring social security unrecognizable to FDR and a significant part of what’s going to bankrupt us. I can’t add anything to the excellent responses already mentioned in terms of facts.

    I can make charts, though. So  hopped on over to the CBO for their data on the long term budget outlook. Here’s how things look in the Alternative Fiscal Scenario, when Congress and the President do everything in their power to break the country:

    So what do we have here? Well, interest on the debt is horrific, because we extend tax cuts and refuse to do anything about health care spending, leading to increasing deficits. But I’d like you to notice two things. The first is that for all the complaints about discretionary spending (green), it’s pretty stable over the next 75 years. The second thing is social security. Does it look like it will be the thing that drives us off the cliff?


    But let’s say we wise up. We increase revenue, we stop with the doc fix nonsense, etc. Then we have the Extended Baseline. Please note that this involves no social security reforms at all:

    Interest is much better, because revenue is up and overall spending goes down. Still – discretionary spending stabilizes. And social security isn’t nearly the budget buster some would have us believe.

    We can stand on the edge of the cliff, look over the edge, and worry that social security is going to doom us. But that’s silly. It’s health care. That’s what’s gonna kill us.

    *Bonus points if you got the West Wing reference

    UPDATE: for the purists who demand that every slide have the same axes regardless of the message or content (yes, I’m having a frustrating day), here’s the first chart with the same y-axis:


    • Seems that’s a bit misleading on SS. B/c SS is constrained by its revenue intake as a pay as you go program. So in the future out years, SS spending is relatively flat based on payroll growth. However, the amount of benefits a retiree receives falls off a cliff.

      I’d like to see a graph that shows SS benefits as a percent of promised benefits vs. payable benefits (last time I saw SSA projections beneficiaries in about 50 years lose 1/3rd of their promised benefits). Future SS spending growth would look different if it had access to general revenues to pay promised benefits.

      I think the graph displays the difference between an entitlement that can only receive dedicated funding and one that has access to general revenues with no dedicated funding.

    • You are correct but Social Security is easy to cut without hurting the poor (defense also). It could be done by giving all workers the same benefit, say $700/ month. That may seem very low to many but some people get less than that now. Many people on SS only get about $600/month now. So if Government needs to cut spending, and I think that it will, SS is and defense seem to me to be the places to cut first.

    • For the love of God, when you present two charts, make the scale on the y axis the same. In the first chart it ends at 80, and in the second at 40. A quick visual inspection of your charts runs counter to the argument you are trying to make!

      • The two graphs should indeed use the same scale.

        • While I would normally agree, I want people to see the actual changes in the second graph. That’s hard to see in the first graph, as you need a much larger y-axis to accommodate the vast increase in interest spending.

          If I was trying to use this to say that there was more of a problem with SS in the second chart, then I would agree I’m using different axes misleadingly. The opposite is true. I think this is an exception to the usual rule you are strongly adhering to. But people can be free to differ.

          You all can also make your own charts! 🙂

    • Hoo:
      The only dedicated funding is the current taxes that pay current SS benefits.
      All those excess taxes that were supposed to be saved exclusively for SS beneficiaries in special nonmarketable Treasury securities… were loaned over the years to the Treasury to pay for other current expenses and lowered the deficits.
      Now, all that remains is not bonds that can be liquidated as in the private sector. All that remains is a hollow artifact, an accounting mechanism which details the amount of general revenues that can be used without an appropriation. It is the same way we pay all government expenditures.
      Since 2010, general revenues have been used to redeem Treasury interest due to the cash shortfalls. The result is an immediate budget expense and increase in the deficit.
      Don Levit

    • Things to consider:

      1) The extended baseline does indeed stop the doc fix nonsense by assuming that physician rates are cut as they would have been under SGR.

      2) From the report: “Spending for Social Security would be identical under CBO’s extended-baseline and alternative fiscal scenarios.”

      3) SS runs a surplus which it basically lends to the government for current spending (including tax cuts). The arguments by Baker at el rest on the idea that because the SS trust fund is owed this money that it will be paid with general revenue (plus interest!). Unless that money is actually there, Congress has to cut spending, increase revenue, or print more money. Wrapping yourself in that flag is basically bypassing the solvency question

    • at el = et al

    • This is beautiful.

      The 2nd graph must indicate what savings would look like if the “doc-fix” never happens–in other words, the dreaded 25-30% cuts to docs actually are allowed to happen.

      That means I will take big pay cuts, and not see my income reach my current levels until I retire at age 72 in 2032.

      This is what I worked my rear off for with 4 years of college, then 4 years of med school, then 3 years of residency (paid about $26,000 per year back then), and paid off huge education loans. Meanwhile my business education buddies from school only needed 4 years of college and expect me to provide their healthcare at reduced rates for the next 20 years.

      Gee, I guess I’ll tell my kids to go into business school instead of medical school. That must be where we will really save the money–fewer trained doctors.

    • Dear Aaron,

      I’m a little puzzled by this post.

      You seem to think that Samuelson is arguing that the projected Social Security shortfall is “a significant part of what’s going to bankrupt us.” Again, you say “We can . . . worry that social security is going to doom us. But that’s silly. It’s health care. That’s what’s gonna kill us.”

      Actually, reading Samuelson’s article, it’s clear that he makes no such claim, other than that repairing the shortfall will require “large deficits”, which is something that no one disputes. Yes, there are larger problems for the US deficit than Social Security, but I don’t see where Samuelson ever argues against this. In fact, I don’t see where he ever discusses the overall federal deficit at all. It just doesn’t come up — that’s not his point. And I was disappointed by the links to Krugman, Bernstein, and Baker. They were sloppily and lazily argued, with a fair amount of time devoted to ad hominem attacks. (I think Samuelson was less than precise, too, but he was much better than KB&B).

      The Incidental Economist is intended to feature reasoned, scholarly discussion. If you think Samuelson’s article merits discussion, then surely such discussion should focus on what he actually said. And if you disagree with him, you’ll actually do a better job of refuting him by sticking to his actual text.

      • Perhaps you need to read his piece again. He argues that demographics make social security unsustainable. That’s just not true. Medicare? Yes. But not SS.

        • Demographic trends are precisely why Social Security is unsustainable: in a pay-as-you-go pension system like SS, you need a high ratio of current workers to retirees to make the payroll contributions reasonable. Both the CBO and the Medicare trustees cite the reduction in this ratio as the primary driving force behind the coming shortfall. Samuelson was sloppy about other things, but on this issue he absolutely got it right.

          • To be precise, that should really have said “Social Security Trustees”, not “Medicare Trustees”.

    • Amazingly, Paul Ryan’s budget proposal has almost the exact same graphs, yet he interprets them totally differently (and wrongly).

      You can see the graph I’m thinking about here:

      The graph + quote I used in that post are a textbook example of what Paul Krugman calls the “the old Social Security bait and switch,” in which you combine the Social Security numbers (which are not scary) with the health care program numbers (which are scary), and use the scariness of the combined numbers to argue (wrongly) for reforming Social Security.

    • It’s interesting to me how many of the comments were about Social Security but few were about Medicare/Medicaid. Social Security taxes mostly pay for the program. Medicare taxes do not.

      Even if there is no SGR doc-fix, this will have a minimal impact on healthcare inflation. Physician fees make up about 19% of all healthcare costs, so to reduce the fees by 25% or so will make no more than a 5% overall impact. The U.S. still outspends the rest of the developed world on healthcare by nearly double.

      For our children to not be crushed by the debt of this generation, we must begin to face up to difficult medical economic truths. For example, prevention rarely saves money. For most interventions in healthcare, the axiom should be An Ounce of Prevention Costs a Ton of Money. We must stop buying $120,000 treatments that merely extend a life by a few months.

      I have written about the deep cultural problems and assumptions that are the true underlying causes of U.S. healthcare inflation. The book is called American HealthScare and is available on all the major book-selling websites and through my blog.