That’s what Gary King and Samir Soneji tell us in a NYT column this morning. The gist of the piece is that the authors have assessed trends in mortality rates from a variety of factors and concluded that the Social Security Administration is underestimating life expectancy. Therefore the program will cost more than is projected, meaning that the long-term funding gap is larger than projected.
Before dealing with the scary prospect of living longer let’s first address some trivia. The piece tells readers:
“For the first time in more than a quarter-century, Social Security ran a deficit in 2010: It spent $49 billion dollars more in benefits than it received in revenues, and drew from its trust funds to cover the shortfall.”
That’s not exactly right. The program spent more than it received in payroll taxes, but Social Security also earned more than $117 billion in interest on the government bonds in the trust fund. This means that the program actually had an annual surplus and the trust fund grew in 2010.
But let’s get to the crisis of living longer. Based on their projections of life expectancy, King and Soneji calculate that in 2031 Social Security will cost about 0.65 percentage points more than the trustees currently project measured as a share of taxable payroll. This comes to 0.25 percentage points measured as a share of GDP.
Should we be scared by this? Well, the amount is certainly not trivial, but the increase in defense spending associated with the wars in Iraq and Afghanistan came to 1.7 percent of GDP. So, we have dealt with much bigger expenses without too much disruption to the economy. So if King and Soneji’s projections prove accurate, Social Security will not exactly be breaking the bank.
However there is a bit more to the story. They only dealt with the impact of improving health on life expectancy. There are other ways in which better health can be expected to affect the finances of the program. For example, the disability portion of the program currently accounts for almost 18 percent of the program’s cost. If better health reduced disability rates then this could go a substantial portion of the way toward offsetting the higher costs associated with a longer period of retirement.
The second way in which better health could affect Social Security projections is by allowing people to work later into their life. A substantial portion of retirees are forced to retire due to poor health. If these people were in better health, many workers might put in more years of work before retirement, thereby improving the finances of the program by increasing tax collections.
Better health might also mean slower growth in health care costs. One drain on the Social Security system is the money paid to workers in the form of employer provided health insurance. This money, which has been a rapidly growing share of compensation, is not subject to the Social Security tax. If better health reduces the rate of growth of health care costs, a larger portion of compensation may be subject to the payroll tax, which would also improve the program’s finances.
Finally, improved health would likely reduce the cost of other government programs like Medicare. This could means that we will be paying out more money in Social Security to retirees but paying less for their Medicare and Medicaid expenses.
All these effects may not be entirely a wash, meaning that our longer lives will mean more net expenditures from the government, but we would want to look at all these factors before we hit the panic button.
That’s what Gary King and Samir Soneji tell us in a NYT column this morning. The gist of the piece is that the authors have assessed trends in mortality rates from a variety of factors and concluded that the Social Security Administration is underestimating life expectancy. Therefore the program will cost more than is projected, meaning that the long-term funding gap is larger than projected.
Before dealing with the scary prospect of living longer let’s first address some trivia. The piece tells readers:
“For the first time in more than a quarter-century, Social Security ran a deficit in 2010: It spent $49 billion dollars more in benefits than it received in revenues, and drew from its trust funds to cover the shortfall.”
That’s not exactly right. The program spent more than it received in payroll taxes, but Social Security also earned more than $117 billion in interest on the government bonds in the trust fund. This means that the program actually had an annual surplus and the trust fund grew in 2010.
But let’s get to the crisis of living longer. Based on their projections of life expectancy, King and Soneji calculate that in 2031 Social Security will cost about 0.65 percentage points more than the trustees currently project measured as a share of taxable payroll. This comes to 0.25 percentage points measured as a share of GDP.
Should we be scared by this? Well, the amount is certainly not trivial, but the increase in defense spending associated with the wars in Iraq and Afghanistan came to 1.7 percent of GDP. So, we have dealt with much bigger expenses without too much disruption to the economy. So if King and Soneji’s projections prove accurate, Social Security will not exactly be breaking the bank.
However there is a bit more to the story. They only dealt with the impact of improving health on life expectancy. There are other ways in which better health can be expected to affect the finances of the program. For example, the disability portion of the program currently accounts for almost 18 percent of the program’s cost. If better health reduced disability rates then this could go a substantial portion of the way toward offsetting the higher costs associated with a longer period of retirement.
The second way in which better health could affect Social Security projections is by allowing people to work later into their life. A substantial portion of retirees are forced to retire due to poor health. If these people were in better health, many workers might put in more years of work before retirement, thereby improving the finances of the program by increasing tax collections.
Better health might also mean slower growth in health care costs. One drain on the Social Security system is the money paid to workers in the form of employer provided health insurance. This money, which has been a rapidly growing share of compensation, is not subject to the Social Security tax. If better health reduces the rate of growth of health care costs, a larger portion of compensation may be subject to the payroll tax, which would also improve the program’s finances.
Finally, improved health would likely reduce the cost of other government programs like Medicare. This could means that we will be paying out more money in Social Security to retirees but paying less for their Medicare and Medicaid expenses.
All these effects may not be entirely a wash, meaning that our longer lives will mean more net expenditures from the government, but we would want to look at all these factors before we hit the panic button.
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The Washington Post rightly noted the increase of 30,000 jobs in the construction industry as one of the bright spots in the December jobs report. As the piece points out, construction was one of the largest sources of job loss in the downturn and presumably a substantial portion of the job growth in the recovery will also be construction.
However the link between construction employment and actual construction is not nearly as close as would be expected. Housing starts peaked at just under 2.1 million in 2005, just before the top of the bubble. By the beginning of 2007, starts had dropped by close to one-third to just 1.4 million at an annual rate. Yet construction employment had barely changed over this period. Similarly, since 2010 housing starts have increased by more than 20 percent, yet employment has been virtually flat.
Residential specialty trade contractors
Source: Bureau of Labor Statistics.
Residential building
Source: Bureau of Labor Statistics.
This pattern can be explained by the fact that many of the workers in the residential construction sector are undocumented workers who are likely not showing up on employers’ payrolls. This could explain why there was a large drop in housing starts as the bubble driven construction boom began to fade in 2006 and 2007, with no corresponding decline in employment. It would also explain why the uptick in housing starts the last two years has not led to any substantial increase in the number of construction jobs reported in the establishment survey. Essentially the data in the establishment survey are only giving us part of the employment picture in the residential construction sector.
The Washington Post rightly noted the increase of 30,000 jobs in the construction industry as one of the bright spots in the December jobs report. As the piece points out, construction was one of the largest sources of job loss in the downturn and presumably a substantial portion of the job growth in the recovery will also be construction.
However the link between construction employment and actual construction is not nearly as close as would be expected. Housing starts peaked at just under 2.1 million in 2005, just before the top of the bubble. By the beginning of 2007, starts had dropped by close to one-third to just 1.4 million at an annual rate. Yet construction employment had barely changed over this period. Similarly, since 2010 housing starts have increased by more than 20 percent, yet employment has been virtually flat.
Residential specialty trade contractors
Source: Bureau of Labor Statistics.
Residential building
Source: Bureau of Labor Statistics.
This pattern can be explained by the fact that many of the workers in the residential construction sector are undocumented workers who are likely not showing up on employers’ payrolls. This could explain why there was a large drop in housing starts as the bubble driven construction boom began to fade in 2006 and 2007, with no corresponding decline in employment. It would also explain why the uptick in housing starts the last two years has not led to any substantial increase in the number of construction jobs reported in the establishment survey. Essentially the data in the establishment survey are only giving us part of the employment picture in the residential construction sector.
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At a time where the most obvious conflict over resources has been the enormous upward redistribution to the top 1 percent, the Los Angeles Times is working to promote conflict based on age. A piece on the budget battle was centered around the claim that the Republicans base of support is disproportionately older people who depend on Social Security and Medicare whose interests are pitted against those of younger voters who support the Democrats:
“At its core, the debate over the size of government and how to pay for it pits the interests of the huge baby boom generation, now mostly in their 50s and 60s, against the needs of the even larger cohort in their teens and 20s. With limited government money to spend, how much should go to paying medical bills for retirees versus subsidizing college loans, job training and healthcare for young families with children?”
In fact, the government is not up against any resource limits as the markets keep trying to tell people by lending the government vast amounts of money at extremely low interest rates. If the economy were near full employment, then the deficit would be less than 2.0 percent of GDP, a level that can be sustained forever.
Over the longer term deficits are projected to be a problem, but this is because of the projected explosion in health care costs, not the aging of the population. If U.S. per person health care costs were comparable to those in any other wealthy country we would be looking at long-term budget surpluses, not deficits. This suggests that there is a conflict between the interests of the public at large and the health care providers (e.g. the drug, insurance and medical supply companies and high paid medical specialists), but not between generations.
Finally, it is important to note that the cuts that have been proposed for Social Security and Medicare, such as raising the normal retirement age or the age of eligibility for Medicare would primarily hit the young, not people currently receiving benefits from these programs. Polls have shown that seniors often support these programs because they want to ensure that their children and grandchildren get the same benefits that they enjoy, not out of a selfish impulse to protect what they have.
At a time where the most obvious conflict over resources has been the enormous upward redistribution to the top 1 percent, the Los Angeles Times is working to promote conflict based on age. A piece on the budget battle was centered around the claim that the Republicans base of support is disproportionately older people who depend on Social Security and Medicare whose interests are pitted against those of younger voters who support the Democrats:
“At its core, the debate over the size of government and how to pay for it pits the interests of the huge baby boom generation, now mostly in their 50s and 60s, against the needs of the even larger cohort in their teens and 20s. With limited government money to spend, how much should go to paying medical bills for retirees versus subsidizing college loans, job training and healthcare for young families with children?”
In fact, the government is not up against any resource limits as the markets keep trying to tell people by lending the government vast amounts of money at extremely low interest rates. If the economy were near full employment, then the deficit would be less than 2.0 percent of GDP, a level that can be sustained forever.
Over the longer term deficits are projected to be a problem, but this is because of the projected explosion in health care costs, not the aging of the population. If U.S. per person health care costs were comparable to those in any other wealthy country we would be looking at long-term budget surpluses, not deficits. This suggests that there is a conflict between the interests of the public at large and the health care providers (e.g. the drug, insurance and medical supply companies and high paid medical specialists), but not between generations.
Finally, it is important to note that the cuts that have been proposed for Social Security and Medicare, such as raising the normal retirement age or the age of eligibility for Medicare would primarily hit the young, not people currently receiving benefits from these programs. Polls have shown that seniors often support these programs because they want to ensure that their children and grandchildren get the same benefits that they enjoy, not out of a selfish impulse to protect what they have.
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For some reason no one appears to be asking this obvious question in the context of Al Jazeera’s purchase of the Current TV station. According to the news reports, Al Jazeera does not intend to keep much, if any, of Current TV’s programming. That means it is willing to pay $500 million simply to be carried by the large cable providers. That implies that these providers have extraordinary market power. This should be raising lots of questions at the Federal Communications Commission.
For some reason no one appears to be asking this obvious question in the context of Al Jazeera’s purchase of the Current TV station. According to the news reports, Al Jazeera does not intend to keep much, if any, of Current TV’s programming. That means it is willing to pay $500 million simply to be carried by the large cable providers. That implies that these providers have extraordinary market power. This should be raising lots of questions at the Federal Communications Commission.
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What the hell is wrong with the NYT, are they working for the Campaign to Fix the Debt? The plan for Social Security and Medicare is for cuts, as in reduce spending, as in pay out fewer dollars, not random “changes” that could lead to either more or less spending. How does the term “changes” appear in this paragraph:
“That opening bid [in further budget negotiations] should restart talks with Congress on an overarching agreement that would lock in deficit reduction through additional revenue, changes to entitlement programs and more spending cuts, to be worked out by the relevant committees in Congress.”
Newspapers are supposed to be informing their readers, not trying to make their friends’ agenda more palatable. There is no excuse for the word “changes” to appear in this article.
What the hell is wrong with the NYT, are they working for the Campaign to Fix the Debt? The plan for Social Security and Medicare is for cuts, as in reduce spending, as in pay out fewer dollars, not random “changes” that could lead to either more or less spending. How does the term “changes” appear in this paragraph:
“That opening bid [in further budget negotiations] should restart talks with Congress on an overarching agreement that would lock in deficit reduction through additional revenue, changes to entitlement programs and more spending cuts, to be worked out by the relevant committees in Congress.”
Newspapers are supposed to be informing their readers, not trying to make their friends’ agenda more palatable. There is no excuse for the word “changes” to appear in this article.
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The Washington Post is continuing its drumbeat for deficit reduction devoting an entire article to the views of the business lobby without ever presenting the possibility that their claims may not be accurate. In fact the piece explicitly endorsed the business perspective wrongly warning readers in the first sentence that the deficit deal “won’t unlock investment.”
This assertion can easily be shown to be wrong since fans of Commerce Department data know that investment is not “locked.” In fact, equipment and software investment is almost back to its pre-recession share of GDP. This is quite impressive since many sectors of the economy still have large amounts of excess capacity.
Source: Bureau of Economic Analysis.
The relatively strong pace of investment suggests that there is nothing to be “unlocked” by the sort of budget agreement the Post would like to see. It is of course advantageous to proponents of such a deal to have the public believe that there would be a flood of investment if Congress pushed the spending cuts they wanted.
The Washington Post is continuing its drumbeat for deficit reduction devoting an entire article to the views of the business lobby without ever presenting the possibility that their claims may not be accurate. In fact the piece explicitly endorsed the business perspective wrongly warning readers in the first sentence that the deficit deal “won’t unlock investment.”
This assertion can easily be shown to be wrong since fans of Commerce Department data know that investment is not “locked.” In fact, equipment and software investment is almost back to its pre-recession share of GDP. This is quite impressive since many sectors of the economy still have large amounts of excess capacity.
Source: Bureau of Economic Analysis.
The relatively strong pace of investment suggests that there is nothing to be “unlocked” by the sort of budget agreement the Post would like to see. It is of course advantageous to proponents of such a deal to have the public believe that there would be a flood of investment if Congress pushed the spending cuts they wanted.
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In an analysis of the fiscal cliff deal David Leonhardt told readers that:
“Having won this round, Democrats still have compromises to offer Republicans in the next one, like changes to Social Security.”
Actually Democrats, or at least progressive Democrats, are not concerned about “changes” to Social Security, they would be very happy with an increase in benefits, especially for lower income retirees. Democrats are worried about “cuts” to Social Security. It is amazing that the NYT refuses to make this fact clear to its readers.
This piece also inaccurately asserts that:
“In the 2008 campaign, Mr. Obama said that his top priority as president would be to “create bottom-up economic growth” and reduce inequality. He has governed as such.”
This is at best debatable. President Obama bailed out the big Wall Street banks, allowing them to get trillions of dollars in loans at below market interest rates. This massive subsidy allowed many of the richest people in the country to preserve their wealth when market forces left to themselves almost certainly would have put most of the major banks out of business.
Obama has also refused to make a reduction in the value of the dollar a top goal in trade policy. A lower valued dollar would create millions of new manufacturing jobs by making U.S. goods more competitive in the world economy. This would provide a strong boost to labor demand and wages.
Obama has also pushed trade agreements that have a main goal of increasing patent and copyright protections. This will lead to more rents going to drug companies, software companies and the entertainment industry, raising prices for consumers. He also has done nothing to reduce the protectionist barriers that allow doctors in the United States to earn twice as much as their counterparts in other wealthy countries, pushing up health care costs to consumers by $80 billion a year.
Of course President Obama has also embraced the absurd claim that reducing the deficit is a top priority, abandoning the route of economic stimulus, even though he knows that the large current deficits are entirely the result of the economic downturn caused by the collapse of the housing bubble.
Looking at a longer list of Obama administration policies, it is very difficult to support the claim that he has governed in a way that promotes the middle class.
In an analysis of the fiscal cliff deal David Leonhardt told readers that:
“Having won this round, Democrats still have compromises to offer Republicans in the next one, like changes to Social Security.”
Actually Democrats, or at least progressive Democrats, are not concerned about “changes” to Social Security, they would be very happy with an increase in benefits, especially for lower income retirees. Democrats are worried about “cuts” to Social Security. It is amazing that the NYT refuses to make this fact clear to its readers.
This piece also inaccurately asserts that:
“In the 2008 campaign, Mr. Obama said that his top priority as president would be to “create bottom-up economic growth” and reduce inequality. He has governed as such.”
This is at best debatable. President Obama bailed out the big Wall Street banks, allowing them to get trillions of dollars in loans at below market interest rates. This massive subsidy allowed many of the richest people in the country to preserve their wealth when market forces left to themselves almost certainly would have put most of the major banks out of business.
Obama has also refused to make a reduction in the value of the dollar a top goal in trade policy. A lower valued dollar would create millions of new manufacturing jobs by making U.S. goods more competitive in the world economy. This would provide a strong boost to labor demand and wages.
Obama has also pushed trade agreements that have a main goal of increasing patent and copyright protections. This will lead to more rents going to drug companies, software companies and the entertainment industry, raising prices for consumers. He also has done nothing to reduce the protectionist barriers that allow doctors in the United States to earn twice as much as their counterparts in other wealthy countries, pushing up health care costs to consumers by $80 billion a year.
Of course President Obama has also embraced the absurd claim that reducing the deficit is a top priority, abandoning the route of economic stimulus, even though he knows that the large current deficits are entirely the result of the economic downturn caused by the collapse of the housing bubble.
Looking at a longer list of Obama administration policies, it is very difficult to support the claim that he has governed in a way that promotes the middle class.
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Yes, it is so frustrating that President Obama keeps missing the opportunity to whack the elderly. Of course fans of arithmetic know that the story of projected long-term budget deficits is the broken U.S. health care system. If we paid the same amount per person for our care as people in other wealthy countries we would be looking at long-term surpluses, not deficits. And, if we can’t fix our health care system because groups like the pharmaceutical industry and the doctors are too powerful, we could always go the route of trade to take advantage of lower costs elsewhere. Unfortunately, public policy is dominated by protectionists like Samuelson, who obstruct such trade. But these political obstacles do not change the truth. The budget problem is health care, health care and health care.
Yes, it is so frustrating that President Obama keeps missing the opportunity to whack the elderly. Of course fans of arithmetic know that the story of projected long-term budget deficits is the broken U.S. health care system. If we paid the same amount per person for our care as people in other wealthy countries we would be looking at long-term surpluses, not deficits. And, if we can’t fix our health care system because groups like the pharmaceutical industry and the doctors are too powerful, we could always go the route of trade to take advantage of lower costs elsewhere. Unfortunately, public policy is dominated by protectionists like Samuelson, who obstruct such trade. But these political obstacles do not change the truth. The budget problem is health care, health care and health care.
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Those who hoped that one of the new year’s resolutions at the Post would be more honest budget reporting would be disappointed by today’s paper. While this budget piece starts off well with a headline about taming the threat from the debt ceiling and high unemployment, the expression “tame the debt” appears twice on the second page. While it does note that the projected rise in health care costs is a major cause of the projected deficits, it does not note that it is really the only cause. It also would have been helpful to point out that the only reason for the large deficits that we are now seeing is the economic downturn caused by the collapse of the housing bubble.
Those who hoped that one of the new year’s resolutions at the Post would be more honest budget reporting would be disappointed by today’s paper. While this budget piece starts off well with a headline about taming the threat from the debt ceiling and high unemployment, the expression “tame the debt” appears twice on the second page. While it does note that the projected rise in health care costs is a major cause of the projected deficits, it does not note that it is really the only cause. It also would have been helpful to point out that the only reason for the large deficits that we are now seeing is the economic downturn caused by the collapse of the housing bubble.
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