December 30, 2011
To his credit, in his column today Robert Samuelson apologized for a mistake in an earlier column. In the prior column he claimed that if Keynes saw the level of indebtedness of countries today, he would not be arguing that governments should be running deficits to stimulate the economy. The problem is that the level of indebtedness in the UK, where Keynes was writing, was far larger in the 30s than the level of indebtedness currently faced by the United States and every other wealthy country, except Japan.
However, he makes up for this apology by making several new mistakes or misrepresentations. In the former category he repeats what he said in the prior column:
“I was arguing that today’s highly indebted governments have less leeway to adopt massive ‘Keynesian’ stimulus programs of spending increases or tax cuts without triggering a backlash from bond markets — higher interest rates that undermine the stimulus. I still believe that’s true; the evidence is Greece, Ireland, Portugal, Spain and Italy.”
Spain certainly cannot belong on this list since it was not and is not heavily indebted. It was running budget surpluses before the crisis and even now its debt to GDP ratio is still under 70 percent. Ireland also had surpluses and low debt before the crisis, but had its debt surge as a result of assuming the debt of private banks that it rescued.
Samuelson again refuses to note the fact that these countries are in a fundamentally different situation than the United States because they are on the euro and therefore do not issue their own currency. Countries with greater debt burdens, like the UK and Japan, pay far lower interest rates than these euro zone countries. This presumably has something to do with the fact that they have central banks that can buy up their debt if there is a panic in the market.
In arguing for cuts to Social Security and Medicare, Samuelson continues to ignore the fact that retirees pay for these benefits. Older people get a disproportionate share of government spending just as rich people do. In the latter case the reason is that rich people own a disproportionate share of government bonds and therefore get a disproportionate share of the interest paid out by the government each year. It would make as much sense to say that we should cut interest payments to rich people because the money could be better spent on children as it does to say that we should cut Social Security benefits to wealthier beneficiaries. The point is the same in both cases: they paid for these income flows.
Also Samuelson pulls a cheap trick in trying to make his case by telling readers that:
“among the richest fifth, Social Security accounts for slightly less than a fifth of total income.”
This is true only because it refers to an average for the top quintile. This average includes the incomes of people like Peter Peterson and Warren Buffet. Ninety percent of Social Security benefits go to individuals with non-Social Security income of less than $40,000 a year. Eliminating the Social Security of people like Peter Peterson will not affect the program in any visible way. The only way to achieve notablyesavings is by reducing benefits for people who by any definition are very middle class. (Remember, for tax purposes people are not rich until their income crosses $200,000 a year.)
The main source of the country’s projected long-term budget problems is Medicare and Medicaid. The costs of these programs are driven by our broken health care system. We pay more than twice as much per person for health care in the United States as people in other wealthy countries with little to show in the way of outcomes.
This is not a problem of seniors getting too much in benefits. It is a problem of paying too much for the health care that they and others receive. The answer to this problem is to fix the health care system, not to deny care for seniors. (One obvious route is to rely on increasing trade in health care services, but unfortunately hard-core protectionists dominate public debate so this is rarely even raised as an issue.)
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