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Wednesday, December 07, 2005

The WSJ Jumps on Greenspan's Entitlement Cutting Bandwagon

Joining the outcry over the deficit always makes me wonder if, as collective concern for our fiscal situation grows, it will lead to an excuse to cut programs chosen mainly for political reasons rather than from any rational economic basis. But those who are interested in cutting government entitlement programs do not seem shy about saying so, nor about using the budget as an excuse to push these policies. Here's the Wall Street Journal proclaiming that the mainstream media got it wrong in saying that Greenspan's recent speech on the deficit was a call for an increase in taxes. The editorial points out that what he was said was spending should be cut, Medicare and Social Security in particular, tax increases should be avoided:

What Greenspan Really Said, Editorial, WSJ:  So has Alan Greenspan become a tax-raiser in the autumn of his chairmanship of the Federal Reserve? That's what much of the coverage of his speech Friday would have you believe. But actually reading the speech leaves a very different impression. ... [I]t was not the current $300 billion budget deficit he was mostly concerned about. It is the much larger problem of entitlements, specifically benefits promised under Social Security and Medicare. ... As Mr. Greenspan noted Friday, that means either raising taxes (a lot) or cutting spending (a lot). ...

"tax increases of sufficient dimension to deal with our looming fiscal problems arguably pose significant risks to economic growth and the revenue base." Those risks are great enough "to warrant aiming, if at all possible, to close the fiscal gap primarily, if not wholly, from the outlay side."

Translated from the Greenspan-ese: Cut spending. ... Our government has made promises it cannot meet. Without changes in Congressional spending or entitlement reform -- or both -- those promises will eventually be broken. It's a vital point, if only the media had covered it.

The recent post Greenspan: Social Security and Medicare Must Be Cut to Solve the Budget Deficit Problem agrees that Greenspan called for the deficit to be made up wholly with spending cuts if possible. The problem is, it's not possible (and more tax cuts won't help). There are places to make cuts in spending, but the idea that a shortfall of this magnitude can be made up by expenditure cuts alone is wishful thinking - it's not politically possible. And even if it were possible, it still isn't be the best approach to closing the budget gap.

Social Security has always been a diversion. Bringing medical costs under control is the real issue and this can be accomplished by reducing the number of people receiving benefits, reducing the average benefit level, or reducing the cost of the benefit (i.e. lowering medical costs leaving the level of service as is). I would much prefer we try to reduce the cost of providing care before further reducing the number of people receiving care or reducing the quality of care received. If our costs are higher and our care no better than other countries, we need to rethink out approach to this problem.

The economy can be divided into four sectors, households, businesses, government, and the foreign sector. This is what you hear:

  • Households: Increasingly burdened with higher medical costs, coverage is falling.
  • Businesses: Failing under the burden of high employee medical costs, losing competiveness.
  • Government: Faced with the burden of high future Medicare costs.
  • Foreign sector: Better medical care at a lower cost in many countries.

Yet how to provide universal medical coverage at a lower cost is not at the top of the national agenda or even a serious part of the political conversation.

    Posted by on Wednesday, December 7, 2005 at 01:39 AM in Budget Deficit, Economics, Health Care, Social Security, Taxes | Permalink  TrackBack (0)  Comments (8)


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