Friday, March 11, 2011

Social Security Isn't the Problem

Columnist Charles Krauthammer makes an impassioned case against President Obama's cavalier attitude to Social Security.

The new line from the White House is: no need to fix it because there is no problem. As Office of Management and Budget (OMB) director Jack Lew wrote in USA Today just a few weeks ago, the trust fund is solvent until 2037. Therefore, Social Security is now off the table in debt-reduction talks.

Well, yes. As Dr. Krauthammer tells us, there is no "trust fund." There are IOUs, special Treasury Bonds that pay interest to Social Security. To pay Social Security benefits in the future from the bonds in the "trust fund" the federal government will have to raise taxes or reduce spending in the future.

But the president is right. Social Security isn't the problem. Medicare and Medicaid are the problem. You can see that in the Congressional Budget Office's Long Term Outlook.

If you click the image you can get to the numbers. Social Security right now costs 4.9 percent of GDP. It will rise gradually to 6 percent of GDP in 2050. But Medicare and Medicaid are a horse of a different color. Right now they are 5.6 percent of GDP. No problem there. But they will rocket to 12.3 percent of GDP by 2050 and go up from there. There's no mystery about that. Medicare and Medicaid provide subsidies for health care. If you subsidize something you will get a bigger demand for it.

Of course, it would be nice to reduce Social Security and turn it into a genuine savings program. That would be doing the younger generation a favor, because it would mean that the older generation was actually saving money for retirement, creating the capital for the jobs for the young people. But it isn't the real problem. Government health care is the real problem.

No doubt that is why President Obama is making the government health care problem worse with ObamaCare. After all, what does he care? In either two years or six years he'll be a former president, with the privileges and perquisites of that office.

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