July 23, 2012 · 0 Comments
By Dean Baker:
I guess it’s childish name-calling time at the NYT. Hence Bill Keller tells readers that if you ask any “credible economist” you will get Keller’s preferred solution to the budget. At the top of the list is “entitlement reforms.”
For those who don’t know, “entitlement reforms” is Washington elite speak for cuts to Social Security and Medicare. They know that these programs are hugely popular, so the Washington elite crew use their little code word “entitlements,” since they know that “entitlements” don’t have nearly as much support. They also use “reform” since it sounds much nicer than “cuts.” Of course the point is to cut Social Security and Medicare; Keller is simply not honest enough to say this to readers.
Anyhow, let me just briefly explain why at least one non-credible economist doesn’t support the cuts to Social Security and Medicare that former Senator Alan Simpson and Morgan Stanley director Erskine Bowles proposed. (Keller wrongly referred to their plan as a being a plan approved by their commission. This is not true, to be approved as a commission proposal a plan would have required the support of 14 of the 18 members of the commission.)
The Bowles-Simpson plan would impose substantial cuts to Social Security benefits that would hit people already getting benefits. It would reduce the annual cost of living adjustment by 0.3 percent. This would lower the benefits that retirees receive by roughly 3 percent after 10 years, 6 percent after 20 years, and 9 percent after 30 years.
This will be a serious hit to tens of millions of seniors who rely on Social Security for half or more of their income. Given that the average Social Security check is $1,200 a month, it is a bit hard to accept that these people should be in the center of our gunsights when we turn to deficit reduction.
The plan would also increase the retirement age, beyond the increases already in current law. Us non-credible economists know that near retirees have almost nothing accumulated for retirement. The median wealth (including home equity) for those between the ages of 55 and 64 is about $170,000, roughly enough to pay off the mortgage on the median home. This means that the median household in this age group will be able to pay off their mortgage and then be entirely dependent on Social Security. Median wealth for those between the ages of 45 and 54 is about $70,000.
It’s difficult to see the logic of hitting these people even harder than they already have been by the collapse of the housing bubble. Furthermore, the increases in longevity that many Washington elite types like to tout went almost entirely to those at the top half of the income distribution.
The Bowles-Simpson plan also calls for raising the age of Medicare eligibility to 67. This is likely to be a nightmare, since the insurance market for those in their sixties is already a disaster. This of course will be another big hit to the standard of living of middle income seniors.
Of course economists who know economics know that the economy’s main problem now is a lack of demand. We should be talking about larger deficits, not smaller deficits. But, those in positions of authority retain their belief in a confidence fairy who will somehow rescue the economy if we impose enough pain on ordinary workers.
Insofar as we have concerns about the deficit over the longer term the obvious place to go would be more revenue from the wealthy starting with a Wall Street speculation tax. This was apparently never considered by the Bowles-Simpson commission, perhaps in part due to Mr. Bowles connection to Morgan Stanley.
The other obvious place to go is fixing the U.S. health care system. Our broken private sector health care system is the force behind the projections of exploding deficits in the long-run. If people like Keller and his credible economists were not such ardent protectionists it would be easy to find ways to get costs under control, but they don’t seem interested in doing anything that might harm the wealthy. But I guess that wouldn’t be credible.