Thursday, July 14, 2011

The AARP and the debt ceiling

Chapter 5 of Hayek's Road to Serfdom describes the difficulties of governing in a democracy when the government increasingly takes on more duties. Legislative compromising can lead to legislation that contains something for everyone, but pleases no one. It is very applicable to today, whether talking about health care reform or negotiating the debt ceiling.

The AARP is running ads urging seniors to call Congress and tell them to "cut waste and loopholes," instead of touching retirement benefits. This seems to be in response to President Obama's willingness to put entitlements on the negotiating table and to raise the retirement age from 65 to 67, something he was excoriated for from his Left.

The AARP ads propagate the myth that Americans unfortunately believe-- that the majority of government spending is on wasteful pork and fairly easy to solve. I posted this last semester.

Domestic discretionary spending is a small fraction of government spending. The yellow slice is set to increase dramatically as Baby Boomers retire and use more health care. Rising health care costs are what make the long-run deficits so large. As Dean Baker likes to point out, "If the U.S. paid the same amount per person for health care as (other countries) it would be looking at huge budget surpluses in the long-term, not deficits."

There is already belt-tightening by the federal government. An oft-overlooked fact is that since Obama took office, government employees have been losing their jobs at a steady clip: You could privatize the TSA, eliminate the Department of Education, and eliminate all earmarks, etc.-- you still wouldn't solve the debt problem purely due to entitlements.

The Republican plan to solve the problem is/was to eliminate Medicare and replace it with an insurance voucher program. But the GOP plan doesn't shift seniors off of Medicare until 2021, and those who are on before 2021 get to stay on for life. Worse, the plan claims to save $389 billion on Medicare before 2021 without saying how. So, the problem remains.

The Democratic plan to solve the problem is simply to enforce/strengthen the Affordable Care Act. According to Ramesh Ponnuru:
Heavy-handed bureaucratic cost- cutting. The Democratic plan is cutting payment rates so that Medicare becomes as lousy a program as Medicaid, with doctors refusing to participate in it. The Democratic plan is letting an unelected board decide which treatments won’t get funded.

Keith Hennessy points out that Obama's bipartisan deficit commission has further reforms that haven't been put on the table in recent negotiations.

(If Congress actually did nothing and let current laws on the books stand (including increasing the debt ceiling now), the budget would be balanced by 2019. But that includes a large amount of tax increases that no one is comfortable with. )

So, AARP, retiree benefits are the problem. The solution you give in your ad won't be nearly enough to solve it. Care to propose another? Or care to endorse one of the dozen or so that have been put on the table by various think tanks and commissions?

The Washington Post has created a tool for those urging no increase to the debt ceiling: You get to decide which programs get paid and which don't.


JDTapp said...

Third Way has a summary of the estimated costs of default.

dnosrub said...

Why does the retired get the entitlement problem? Congress needs to stop being bipartison and quit right fighting or we are ALL sinking