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Wednesday, August 04, 2010

Galbraith: Expand Social Security and Medicare

Jamie Galbraith says the talk about cutting entitlements is all wrong. These programs should be expanded, not trimmed back:

James K. Galbraith Champions The Beast Manifesto, by James K. Galbraith: In the Great Crisis, the United States lost about eight million private jobs. ... Very few lost jobs have been replaced... Two million of the lost jobs are in construction, which faces a long slump. Three million were lost in manufacturing, which is down 40 percent since 2000, and those jobs likely won't ever return. Unemployment rates for Black, Asian, and Latino workers have all doubled. The average duration of unemployment has risen to an astonishing 35 weeks, with nearly half of all unemployed out of work for almost a year.
So: Jobs are Priority One. But very little is being done. And what little is done is hotly contested. Even extending unemployment insurance proved difficult—and UI, while necessary, is not a jobs program. ...
[E]conomists ... rightly argue... for stronger action—action that would increase public budget deficits now. ...[M]any argue that we must make cuts today, effective at a later time, to offset the "stimulus." Since the major programs which are authorized today for later effect are Social Security and Medicare, this translates to "cutting entitlements" in order to bring "long-term budget deficits under control." This is a pernicious idea...
So what are the real effects of cutting Social Security and Medicare?
Medicare pays doctors' bills for the old. It pays out at lower rates than does private insurance for working people. Cutting Medicare would mean two things: less health care for the elderly, and therefore more financial stress on their families. And more health care costs overall, as people substitute with private insurance for the public cuts. Both of these are very bad ideas.
Social Security pays to keep working people (and their dependents and survivors) out of poverty when they are old. It spreads its benefits to all who have worked, whether they have children who would otherwise support them or not. The payroll tax spreads the burden to all working people, whether they would otherwise be supporting elderly parents or not. Both of these transfers are fair, modest, and sustainable. Cutting Social Security would simply create more poor elderly—those who could not turn to their children—and more stressed working families—those with parents in need. Both of these are very also bad ideas.
In fact, the right response to the crisis is to expand, not cut, both Social Security and Medicare.
The reality is, we are never going to make up good new jobs for everyone who has been hit. (I'd love to be the next Harry-Hopkins-and-Harold-Ickes-combined, but I'm not going to get the job.) So let's face reality, and make some tough decisions about who we want to be jobless: the relatively old or the very young. Seen this way, it's an easy choice.
There are many older workers who've already worked hard jobs for many years. They would love to retire. But they don't, because early retirement on Social Security is very costly: you lose benefits every month over your entire future life, unless you hang on to the regular retirement age. We should give these people a break, and lower, not raise, the full-benefit Social Security retirement age—say, to 62 for the next three years. This would give millions a chance to get out, if they want to.
Similarly for Medicare. There are many older workers who have health needs, and who work on only because they can't afford to lose their employer-based insurance. Let them out! In the crisis, I proposed cutting the Medicare-eligibility age to 55 (and the Senate almost included this in the health care reform bill). It's still a good idea, but something more moderate, such as opening a three-year window for early exits, would be better than nothing.
Encouraging early retirements would mean that young people—just out of school, with fresh skills, good health, and high energy—would get the jobs they need now. They would not be stuck waiting, or spinning their wheels in school, for years and years. Meanwhile, the retirees, supported by Social Security and Medicare, would provide a continuing stable support to total demand, creating jobs for others as they get older.
This is the way the economy should work. When we have older people, we must care for them, and the best way to do that is to give them the resources to support themselves. There is no "burden problem" as our economy is plenty productive for the working population to support the elderly in modest comfort, particularly if we include some of our truly wealthy in the tax base.
Care for the elderly, energy, climate change, the Gulf of Mexico catastrophe, our decayed infrastructure, public health—these are real issues. Let's deal with them. The "long-term budget deficit" is a phony problem, ginned up by politicians, some economists, and the historic enemies of Social Security and Medicare on Wall Street. For God's sake, let's not sacrifice our most successful social programs to the hysteria we're hearing from them.

    Posted by on Wednesday, August 4, 2010 at 12:42 AM in Budget Deficit, Economics, Social Insurance | Permalink  Comments (136)


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