Hands Off!

by Don Boudreaux on May 30, 2011

in Health, Not from the Onion, Other People's Money

This blog post at The Economist is on older Americans’ hostility to proposed cuts in Medicare.  The post is entitled “Keeping government hands off their benefits.”

The head aches, spins, and becomes dizzy at the confusion evidenced by this title – a title that, alas, seems to describe reasonably accurately the attitude of Medicare advocates: ‘Don’t mess with my Medicare!’

But I can’t help but ask: how can government possibly keep its hands off of Americans’ Medicare benefits given that it’s the very hands of government – and only those hands – that create Medicare benefits to begin with?  The process by which $$ is taken from Mr. and Ms. Young and given as Medicare benefits to Mr. and Ms. Elder necessarily involves the hands of government.  If government kept its hands off of Medicare benefits no such benefits would exist in the first place.

So I say, indeed – government hands off of Medicare!

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{ 173 comments }

purplefox May 30, 2011 at 4:36 pm

Some of the “hands off my Medicare” crows hates Obamacare because they’re afraid they’ll have to pay more out of pocket. Or maybe it’s because it’s just not fair that some people get “free” medical care.

Chucklehead June 1, 2011 at 2:04 am

The problem is the perception of prepaid insurance, which is how these programs are sold. The reality is that they are managed as ponzi schemes,but the victims (current recipients) are not in a income earning position to have alternatives.
The reality is until medical consumers are price sensitive, there will only be increasing costs, because a market of scarcity doesn’t function with unlimited resources.

Scott G May 30, 2011 at 5:13 pm

I like this post. It brings up an important topic and does a great job at pointing out how Medicare benefits are created.

Of course it doesn’t tell the complete story: politicians have made “promises” to provide benefits to those that have paid into the Medicare system. It doesn’t matter if the promises are legally binding or not. The expectation of getting the benefits is what matters.

For example, my parents want to get their benefits and I never argue with them about that. I want them to have their Medicare benefits. I want them to get their money back (either in case or in benefits).

The feeling that these benefits are owned by retirees is too strong to counter.

I believe that Milton Friedman once said that the government should provide the Social Security benefits to people who have paid into the system. I agree. I want the politicians to live up to that promise because I know that will be the day when people will suffer enough to realize the failure of government. Without this pain, not enough people will realize it.

Young people need to be prepared for the day when they are asked to do the impossible – pay for the medical care of their parents. I’m not saying they should agree to pay for it – I’m just saying they should be prepared (whether it be to leave the country, pay up, or fight back).

Fred Bauer May 31, 2011 at 12:42 am

Or more to the point: if the government makes me buy a cheeseburger for $50 dollars, I better be the one to eat it!

John Dewey May 31, 2011 at 1:58 pm

** Like **

vikingvista May 31, 2011 at 2:41 pm

Or more to the point: if the government makes me buy a unicorn burger for $50, I better be eating a unicorn burger. A lot of people are owed a large payoff from Bernie Madoff, as well.

Retirees feel they own the benefits. But what they own, is nothing. They are victims wishing to push their victim hood upon others.

FreddyB May 31, 2011 at 7:30 pm

Good point, but I don’t want to risk offending the Harry Potter fans.

vikingvista May 31, 2011 at 7:49 pm

That’s wise. They are a spooky crowd.

Matt May 30, 2011 at 5:27 pm

I Agree with Scott. Promises were made that people built their lives around, whether they wanted to or not. The government should honor those promises by giving at minimum the nominal value of Social Security, Medicare, etc. back to those who have paid into it (which would still be a loss). This may not be possible, considering the scale of promises made, but every attempt to fulfill promises should be made. Then the programs should be eliminated.

What it sounds to me like is happening is that people will be convinced that they should be paying into these defunct systems with no expectation of getting anything back if they are above a certain level of income, which means such programs morph into mere taxes. Social Security was never meant to be a tax. Medicare is a little more fuzzy about this, but SS was explicitly sold as not being a tax. It seems they are using this “hands off my medicare or SS” argument to morph the programs into an explicit tax system by telling people of higher means that they shouldn’t expect anything from them. It is not a contradiction to want what was taken back, and at the same time what the programs to be eliminated. In fact, that would be ideal.

Scott G May 30, 2011 at 5:37 pm

“What it sounds to me like is happening is that people will be convinced that they should be paying into these defunct systems with no expectation of getting anything back if they are above a certain level of income, which means such programs morph into mere taxes.”

Great point Matt. It sounds like a way forward then would be to get people to know sooner rather than later that “Ms. Young is going to be paying for Ms. Elder and not getting anything in return.” But that’s exactly what Don said, it seems his post was better than I thought.

But I didn’t see this the first time reading Don’s post. Either I’m too slow or Don skipped a step in explaining what you and I said in our comments.

Hari MIchaelson May 30, 2011 at 7:15 pm

@ Scott G and Matt

This line of thinking is statist moral sophistry. The baby boomers are not “getting their money back.” Their money is gone already stolen and spent. They are getting another person’s money.

Your reasoning goes is very twisted. The government stole money from baby boomers in the form of soc. security and medicare 40 years ago; therefore, it is only right that it should steal it from young people??

It isn’t the fault of young people that other generations believed the government. You are literally punishing the only group of individuals that have no culpability in the scenario. The government is a bunch of lying thieves. The baby boomers widely supported social security and medicare. They believed the band of liars and most have not been prudent with their retirement savings so…

LET’S PUNISH YOUNG PEOPLE!! The only group that wasn’t involved at all.

Besides the evil thievery that this condones, you are also missing the practical situation. No matter what the case, the younger generation will end up taking care of the older. The government has seen to that. Instead of letting young individuals freely care for their aging parents and grandparents you believe that we should force them to. Of course this will lead to he same travesty of the commons that we already have and further reduce any incentive that young people have to produce and work.

Furthermore you ignore the obvious mechanism by which the government will swindle the baby boomers…inflation. Every single baby boomer will get every penny promised. Of course those pennies will be made of plastic because copper and zinc are way to valuable. This will be the worst possible scenario because it will destroy any hope of the producing class to prosper.

So don’t worry. The government will keep its promises. The baby boomers, now voting for maintenance and expansion of medicare and social security, will get every cent they were promised and deserve, and they will get it good and hard.

Scott G May 30, 2011 at 8:21 pm

Wow, that’s the first time my thinking has been called, “statist moral sophistry.” Maybe you’re right; even though I think of myself of as a voluntarist, maybe I’ve not yet wiped out all of the statism within me. I’m open to suggestions. I want rid myself of this statist cancer.

What do you recommend that I say or do in the future to be more in line with a solution that you advocate?

Hari MIchaelson May 30, 2011 at 9:02 pm

OK, I may have been too harsh with the statist moral sophistry line. I think its just important to keep it in perspective. No one paid into social security or medicare. Their money was stolen. By using words like “paid into” and “get back” there is an underlying implication that this is like “paying into” your own private retirement fund then “getting it back” as you retire. That’s not the case here. Your parents were swindled (if they believed the government) or just stolen from by the US. They didn’t pay into anything. If they do receive benefits its not getting back from their investment. Its receiving money stolen from a younger generation.

Ultimately, if you’re parents haven’t taken the measures of supporting themselves, in spite of the government, then you will have to do it. Either through taxes, price inflation, or the good old fashion way, hard work and love.

Josh S May 31, 2011 at 7:05 am

I say cut ‘em off without one thin dime. There’s nothing moral or right about voting yourself large benefits at the expense of unborn generations. That younger generation is coming of age where they get to decide whether they’re going to accept the burden placed on them by their parents, or whether they’re going to try to pass it down their children.

John Dewey May 31, 2011 at 10:08 am

Hari Michaelson,

I don’t say this very much at Cafe Hayek, but the tone of your arguments really pisses me off. Let me address a couple of them:

“The government stole money from baby boomers in the form of soc. security and medicare 40 years ago”

No. The government has confiscated the money of baby boomers 40 years ago, 30 years ago, 20 years ago, 10 years ago, and even today. Some baby boomers will be paying Medicare taxes for at least another 22 years.

” The baby boomers widely supported social security and medicare.”

Do you have any evidence to support this assertion? I only have anecdotal evidence. Three decades ago, when I was 30, most baby boomers I knew believed we would get nothing from social security and medicare. We were just as angry about this fraud as you are today. And then Congress voted to raise social security taxes to even higher levels. At that point, we were led to believe – by not just politicians but even by economists – that levels of funding would be sufficient to pay for our retirement, including medical benefits.

“They believed the band of liars and most have not been prudent with their retirement savings so”

For a few years in the 1980s and 1990s, baby boomers did believe the mass media and many respected economists who repeatedly told us that the funds would be sufficient.

“therefore, it is only right that it should steal it from young people??”

The educated boomers did realize they were paying for the retirement and medical care of their grandparents and their great grandparents. Yes, it was stealing from the young to pay for the care of the elderly. But it was and is an obligation to our parents and grandparents which was overwhelmingly approved by elected representatives.

You may not wish to pay for the medical care and retirement of generations which preceded you. I did not wish so either. But the majority of voters in this nation continue to see things differently.

If your generation has the votes, please go ahead and cut off some or all medical benefits and retirement pay which we were promised. I’m not worried. I know you don’t have the votes.

Please do not accuse my generation of thievery or of ignorance. Many of us have argued for privatization of social security and elimination of medicare for years. Now that we’ve been unsuccessful in that effort, do not expect us to magically be the one generation to suddenly sacrifice when all before us have not and all before us will not.

Hari MIchaelson May 31, 2011 at 11:47 am

@John Dewey,

The reason that I specified baby boomers is because they are the generation that is currently voting for medicare and social security to continue. Let me say that I don’t apply this to every boomer, really just the ones that vote. Boomers at the end of their generation will never receive any benefits, and practically they part of my generation (at least when it comes to the welfare situation). I used 40 years ago because that is approximately when the govt. started stealing from the boomers. I did not mean to imply that it was only 40 years ago.

There are of course many boomers who are neither thieves nor ignorant. However, if you voted for social security and medicare, you are a thief. I will grant that may not even apply to a majority of boomers (though I doubt it). But to say your generation as a whole is not ignorant is ridiculous. How many boomers have saved as if they would receive no social security or medicare? When my generation can’t even come close providing for roughly 90 years of government theft and debt, how many boomers will be able to support themselves? 5%? 10% I doubt much more than that. Part of the reason so many are adamant about the survival of these programs is that their 401k’s and IRA’s (both government created programs) are losing money like crazy.

Your final couple of paragraphs is the sort of nonsense that makes me use this combative tone.

First, on voting. The proceeding generation procreated more and created more boomers, so you now have the right to vote yourselves my generation’s property. Why don’t you just vote us into slavery? Might as well, its really not different. After all you have more votes, so you must be right. Voting is after all the end all be all of right and just action.

“do not expect us to magically be the one generation to suddenly sacrifice when all before us have not and all before us will not.”

This argument is ridiculous. Apparently because preceding generations stole from you and didn’t pay the consequences, you are now entitled to the property of younger generations. This is the most absurd logic. Your generation was ripped off. That doesn’t mean you are morally allowed to then rip other generations off.

Voting doesn’t even matter. You can’t vote for a different reality. You can’t vote economic laws into nonexistence. Vote does not suspend the laws of the universe. You’re not going to get the money even if you get the votes. The government will default outright (not likely) or through inflation. Your generation will pay the piper one way or another. Of course by continuing these programs all you’re really doing is further confusing the economic situation. This means that young people aren’t able to correctly invest their time and money for future productivity, and the individuals reliant on the welfare state will be even worse off than if they just cancelled social security and medicare.

John Dewey May 31, 2011 at 12:09 pm

Hari Michealson: “Boomers at the end of their generation will never receive any benefits”

Not sure if you are referring to Medicare or Social Security. Assuming no change in the taxation rate, Social Security will have enough funds to continue paying about 75% of forecast benefits through at least the end of the 21st century. The big decision to be made is how that 75% will be divvied up.

IMO, this nation will move to a 100% public health care system some time in the next three decades. I do not favor such a system, but I think it very likely. Once that happens, Medicare funding becomes a non-issue.

Hari Michaelson: “However, if you voted for social security and medicare, you are a thief. “

The only Boomers who actually “voted” for social security and medicare are those who were members of Congress.

Do you mean that those who told their Congressment to vote for continuing to fund social security and medicare are thieves? If that’s what you mean, then I disagree with you. They are no more thieves than those who told elected officals to use their taxes to fund an army or to use their taxes to fund a highway system or to use their taxes to fund a court system.

Hari Michaelson: “You’re not going to get the money even if you get the votes.”

Yes, we are. It may not be as much money as we have been promised, but we collectively are going to be supported in retirement. Some of us, such as me, are going to get very little due to means-testing. But most of my Boomer siblings are going to get enough to live on.

Hari MIchaelson May 31, 2011 at 2:14 pm

@John Dewey

“Social Security will have enough funds to continue paying about 75% of forecast benefits through at least the end of the 21st century. ”

I’m not sure what statistics you are using. But I will bet you $1,000 social security does not pay out 75% of benefits in real terms over the 21st century. Your generation will actually get 100% of benefits, it just won’t buy anything because the FED will have devalued the currency in order to pay off the debt of the welfare warfare state.

And this 75% number is nonsense. Its based on fictional government accounting that doesn’t remotely reflect reality. Social Security is not funded at all. It has a bunch of I.O.U.s that aren’t worth the paper their printed on. It doesn’t reflect real inflation, and it pretends that the parabolic rise in health care costs won’t have any effect on medicare costs and therefore social security costs. It also assumes that our entire degenerate welfare/warfare state will some how maintain the productivity increases that we’ve stolen from Asia for the past 2 decades.

And if you voted for congress to steal money from people for any reason you are a thief. Army, roads, courts, it doesn’t matter. If you use violence (the government) to appropriate someone’s money you are a thief. I agree it doesn’t just apply to people who voted on medicare or soc security.

You are right you may get enough to live on…but virtually every person in this country gets enough to live on. You can live off of food stamps and government housing, but I’m pretty sure if that happened everyone would say they weren’t getting their benefits.

Three decades from now?? This country is in 3 different wars (at least), and is pushing 100 trillion dollars in future obligations. Look at the welfare states in Europe. We don’t have three decades. We’ll be lucky if we have one decade.

John Dewey May 31, 2011 at 2:42 pm

Hari Michaelson: “Social Security is not funded at all. It has a bunch of I.O.U.s that aren’t worth the paper their printed on.”

I think what you mean is that future benefits are not funded. But that is not exactly true.

For fiscal year 2010, receipts of the Old-Age, Survivors, and Disability Insurance program covered 94% of expenditures:

Receipts: $661 billion
Expenditures: $702 billion

That was the first time since 1983 that the Social Security program was underfunded by FICA receipts.

Hari Michaelson: “it pretends that the parabolic rise in health care costs won’t have any effect on medicare costs and therefore social security costs.”

Please explain how medicare costs will have an effect on Social Security costs.

Hari MIchaelson May 31, 2011 at 3:06 pm

@John Dewey

Social security costs were are poorly worded description. I meant it in terms of servicing debt.

All government debt affects other government debt. The same way your VISA debt affects your MasterCard debt. If you have a bunch of VISA debt, and then you rack up more and more Master Card debt, VISA becomes less and less likely to receive its money. As medicare costs skyrocket(along with everything else), more and more of the government receipts will have to go towards medicare.

The idea that they are separate is a government con job. The politicians use it to make Americans feel better about the completely bankrupt government.

Debt is debt. It doesn’t matter if you chop it up and call it treasuries, social security receipts, medicare, or medicaid. Look at Greece, Ireland, Spain, Portugal. All of these countries have huge debt problems that are affecting their welfare programs similar to social security and medicare.

Gil May 31, 2011 at 12:38 am

How it is that you only see “theft”? A traditional family saw parents have many children so their children will care for them if they make it to feeble old age. American youths are having to pay tax for the grumpy old Baby Boomers? So? The Baby Boomers (and few previous generations) took the U.S.A. from the equivalent of Third World nation to the wealthiest economy in the world. In other words the youths are inheriting one of the best economies and living standard of the world and heaven forbid they have to pay taxes. Shock and horror!

Hari Michaelson May 31, 2011 at 7:46 am

Give me a break. “The Baby Boomers (and few previous generations) took the U.S.A. from the equivalent of Third World nation to the wealthiest economy in the world.” The US had the wealthiest economy in the world 40 years before the baby boomers even existed.

Inheriting one of the best economies? You mean a country that is so in debt that it is guaranteed to be unable to pay off its obligation. A country in which the currency is being rapidly devalued destroying any savings?

And its theft (no need for quotations) because they don’t have a choice.

nailheadtom May 31, 2011 at 8:13 am

A Raleigh Super Course bicycle sold in 1973 for $168. That translates to $851 in current dollars. The purchasing power of US currency is less than one fifth of what it was just 38 years ago.

Jim May 31, 2011 at 5:21 pm

@nailheadtom

But so what? Russ, Don, and countless others on this blog love to remind people that today is the best time in history to be alive. If the real value of money matter, wouldn’t we all be better off having lived many years ago when the dollar was worth more?

vikingvista May 31, 2011 at 2:47 pm

You are mostly right, except for your blame of “those who believed in government”. You put way too much validity in the results of democracy. Those who have been made to pay into the system are all victims. But you can stop feeling sorry for them the minute they demand the victimization of others. Those who demand their social security and Medicare loot, as far as I am concerned, can be the first to loose it.

Immorality is rampant in this country. Our nation is descending into a den of iniquity. Socialism tests people’s character, and an alarming number of people have failed the test.

John Dewey May 31, 2011 at 2:46 pm

Hari Michaelson: “And if you voted for congress to steal money from people for any reason you are a thief.”

If by “steal money”, you mean vote to tax households and businesses, then you are incorrect. You would not be a thief in the United States for such a vote. Perhaps in some nation in your imagination, but not in the United States.

vikingvista May 31, 2011 at 2:49 pm

And Charles Manson was not a murderer, true. But what should a good person think of those who have taken the side of thieves?

John Dewey May 31, 2011 at 3:18 pm

Not sure what you mean, viking.

You and Hari – and perhaps even Professor Boudreaux – may wish to view taxation and thievery as synonyms. But, if you do, please know that most of the English-speaking world does not share your definitions.

Not sure what you mean by “good person”, either. Does that mean only those persons who agree with your definitions?

vikingvista May 31, 2011 at 3:40 pm

It is the construction of the concepts that matter, not mistaken viewpoints. The involuntary taking of another’s property is theft. That fact is not altered by the opinion of the thief or his beneficiaries.

If you want to qualify it as “legal theft”, fine. Since the law is the single most common way of violating people’s rights, I have come to find issues of legality of little intellectual importance.

Gil May 31, 2011 at 11:28 pm

Is it okay to steal from a thief? Usually theives tend act as though it’s their property now and would defend it against other thieves?

Dr. T May 30, 2011 at 8:35 pm

“Promises were made that people built their lives around…”

Then they were fools for believing politicians who lie almost every time they speak. When my wife and I got married almost 26 years ago, we began our retirement planning. Assumption #1: We would get absolutely no Social Security or Medicare benefits. Either the programs would have gone bankrupt, or they would use means tests to exclude those who actually saved for retirement. We determined that we would need a total of two million dollars in our IRAs by 2022, our expected retirement year, to have enough money for living expenses, acute medical care, and possible nursing home care.

John Dewey May 31, 2011 at 10:15 am

Dr T,

It was not just politicians who told the masses that social security was solvent. The mass media and “respected economists” have repeated that message thousands of times over the past 25 years.

Many baby boomers made the same assessment that you made about the retirement funds solvency, and many of us have saved just as you have. But many did not have the mental ability to understand what was happening to them. They relied on their elected officials, on the mass media, on academics, on economists to make that assessment for them. I do not believe them to be fools for believing the message that was repeatedly gven to them.

vikingvista May 31, 2011 at 2:53 pm

Who do you think should be looted to pay back the victims of Bernie Madoff? Did they not reasonably adjust their lives around his government-regulated promises? Why should they have to suffer, when there are burly men with guns who can steal money from others to relieve them of that suffering?

John Dewey May 31, 2011 at 3:24 pm

Sorry, but I do not view Social Security and Medicare as fraud. So I do not understand why you wish to compare these government programs with Bernie Madoff’s fraud.

I do not see taxation of incomes by elected representatives as “burly men with guns who can steal money”. I don’t like the Supreme Court’s interpretation of the Constitution which enabled taxation of incomes. But the fact that I’m living here means that I have accepted it.

Hari MIchaelson May 31, 2011 at 3:29 pm

@John Dewey

There are murders in this country everyday. Does the fact that you live here mean you accept them?

And why does “elected representatives” matter? If they were unelected would that be different. I didn’t elect any of them, so do I get to opt out?

vikingvista May 31, 2011 at 3:58 pm

“Sorry, but I do not view Social Security and Medicare as fraud. So I do not understand why you wish to compare these government programs with Bernie Madoff’s fraud.”

You are right that SS and MC are hard to compare to Madoff’s fraud–because SS and MC are offences orders of magnitude worse.

It is an advantage that intelligent people can see through the fraud of SS and MC, which was more difficult in the Madoff case. This asymmetry, however, is more than offset by the forced participation that Madoff lacked. But SS and MC are frauds nonetheless, since what they promise is an impossibility. Their promises will not happen, because they cannot happen. They are a lie. And many (dimwitted or wishful thinking) people believe that lie. The definition of fraud (save for legality) as well as pyramiding of benefits in an attempt to meet those promises in the short run, meet the definition of a Ponzi scheme.

“I do not see taxation of incomes by elected representatives as “burly men with guns who can steal money”. I don’t like the Supreme Court’s interpretation of the Constitution which enabled taxation of incomes. But the fact that I’m living here means that I have accepted it.”"

Whether or not you accept it, is a personal matter for you. But you ought to at least be aware, that your acceptance is irrelevant. It may make you feel better that it coincides with your choice, but it never was your choice. And in case you disagree, the burly men with guns are in place to make you comply.

Come on John. You have a right to exist, and your existence cannot be separated from the space you occupy. The space you occupy is a necessary fact, not a vote for anything. For instance, I didn’t vote for the abduction of the 6 year-old half a mile from my home, nor did I vote for the creation of the palace of a high school built in the district in which I live, or the sushi restaurant in my neighborhood.

If you want to know if I approve of something, then ask me, and I will tell you. It is a truly absurd presumption that you can deduce my opinions from my GPS coordinates

If you think Nancy Pelosi, or some other elected thug or bureaucrat, is the rightful owner of the space you occupy, I’d like to see your argument. I hope your conclusion is not the brutish one that those with the power to do something have the right to do something.

John Dewey May 31, 2011 at 4:00 pm

“There are murders in this country everyday. Does the fact that you live here mean you accept them?”

No, I do not “accept” murders. But you miss the point I made.

It is the law allowing taxation which I accept. It is also the law allowing capital punishment of murderers which I accept. So yes, living here means that on balance I accept the laws about taxation and the laws about murders. That doesn’t mean I will not try to get the laws on taxation changed.

John Dewey May 31, 2011 at 4:12 pm

viking: “But SS and MC are frauds nonetheless, since what they promise is an impossibility. “

I see the two programs very differently.

Social Security can and has been adjusted to account for changes in life expectancy and changes in population growth. I expect it to be adjusted again. That projected SS benefits have and will be adjusted downward does not constitute fraud.

I have worked for an airline where salaries and wages for all workers were adjusted downward to reflect a changed environment. I didn’t view that adjustment as fraud.

Medicare is different from SS in that our future benefits have not been specified. For that reason, I cannot agree that what was promised is an impossibility.

John Dewey May 31, 2011 at 4:16 pm

viking: ” It is a truly absurd presumption that you can deduce my opinions from my GPS coordinates “

I never said anything about you, did I? I said that the fact that I am living here means that I have accepted taxation of income. By that I simply meant that the benefits of living in the U.S. exceed the cost of paying taxes which is imposed on me. As I commented to Hari, that doesn’t mean I am not trying to change the tax laws.

vikingvista May 31, 2011 at 4:27 pm

John,

Agents of the government, your representative thugs and overseers of those government programs, have been making promises for years. Yes, the programs will be adjusted somehow, because the laws of physics demand it. But voters and beneficiaries will be incensed, because those changes, are not what their representatives have been promising. They will be incensed, because they will be victims of fraud.

Even without knowing your private employer, I can almost guarantee that they promised nothing more than what they provided you, unless they have been involved in a lawsuit on the matter. That is most definitely not the case with government. One is fraud, the other is not.

The ONLY possible argument against SS and MC being fraud is simply this–the government never gave anyone a choice. There was no choice regarding the costs, and there was no choice regarding the benefits. The government simply unilaterally decides what it will take from you and what it will give to you. A dark alley mugger may promise to pay you back one day, but it really makes no difference to you what he says, only what he threatens to do to you if you do not pay. As a completely impotent passive party, perhaps you cannot be considered a victim of fraud, only of theft and extortion.

vikingvista May 31, 2011 at 4:47 pm

“I never said anything about you, did I?”

I took your assertion that your geographic location can deduce your political beliefs to mean that is true of other people. I’m sorry for the presumption if I was wrong. I will, of course, not doubt anything you want about your own beliefs.

Of course, it is a matter of fact, that your approval of government action, for whatever reason, and however you manifest it, is of no concern to the government, but only to you.

And perhaps you also will not doubt me when I say that I do not in any way condone, sanction, or approve of the government or most of its laws or even the CotUS–and my latitude and longitude in no way are a guarantee of my acceptance of anything to do with the government.

John Dewey May 31, 2011 at 4:49 pm

viking: “But voters and beneficiaries will be incensed, because those changes, are not what their representatives have been promising. They will be incensed, because they will be victims of fraud. “

I disagree. In 1983, everyone born after 1937 had their retirement age increased. They were many of us who were disappointed, but I wouldn’t describe us as “incensed”. I do not remember anyone saying they were victims of fraud.

The changes required for making SS sustainable are really not very great. The main one is to simply get workers to understand that there benefits cannot grow faster than inflation.

Medicare is a more serious problem. People are going to be angry. But I don’t agree that they are going to be victims of fraud. I don’t think politicians have promised specific levels of Medicare benefits.

Hari MIchaelson May 31, 2011 at 5:40 pm

John,

Of course social security can be sustained. Raise the retirement age to 100, and you won’t have a problem. Of course you ignore the reason there is a problem in the first place. Once you give the government an inch they will take a light year. If the government had simply put the social security money away in an account it would still be there, but that’s not the nature of government. Government is violence not prudence.

I also want to make clear that I don’t think this is a generation versus generation issue. In my opinion the only people who will benefit from the continuance of the current programs are the politicians and people who die in the next 5 – 10 years. Our government will have a massive default of most of its obligations in that time period. It will either be outright or through inflation.

For older people, who have not prepared for that situation, the best thing is for it to stop now. The sooner it happens, the sooner we can correct the economic mistakes. Retirees will be much better off if their kids and grandchildren have the ability to make wealth producing choices. Otherwise, retirees won’t get their benefits and the rest of their families will also be broke.

This is the nature of evil actions such as theft. It has consequences for everyone.

The option you proscribe will leave the politicians in charge. This will not end well for anyone but the politicians.

vikingvista May 31, 2011 at 5:50 pm

“I disagree. In 1983, everyone born after 1937 had their retirement age increased. They were many of us who were disappointed, but I wouldn’t describe us as “incensed”. I do not remember anyone saying they were victims of fraud.”

Interestingly, and unfortunately, people almost never take to the streets in this country when their government lies to them. Perhaps that will be as true in the future regarding SS as it was in 1983. But unlike in 1983, voter rage won’t be able to be sublimated by income tax rate cuts or massive payoffs in the form of outrageous COLA increases.

“The changes required for making SS sustainable are really not very great. The main one is to simply get workers to understand that there benefits cannot grow faster than inflation.”

True. Americans have routinely accepted more than the level of victimization necessary to temporarily adjust the current SS shortfall. But it is a mistake for you to think that real benefits will not have to eventually be cut. SS is not as far along an unsustainable trajectory as MC, but it is nevertheless on one.

“Medicare is a more serious problem. People are going to be angry. But I don’t agree that they are going to be victims of fraud. I don’t think politicians have promised specific levels of Medicare benefits.”

You are mistaken:

http://reid.senate.gov/

I don’t have time to mine all the lawmaker’s lies, but my recollection of recent news led me to Reid’s website. Sure enough, right on his front page he has a video assuring people that benefits do not have to be cut, and costs to beneficiaries do not have to increase (as long as the government stays in charge of it).

A person lied to may not feel lied to. I cannot account for feelings. I only know of the lies.

FreddyB May 31, 2011 at 7:45 pm

There’s a bigger problem, however, and that is that if Social Security stays 100% solvent it will still only pay a fraction of a private retirement with similar risks. It’s like Sex Panther Savings: 75% percent of time you get 33% of your money. Every time! Now let’s see if we can make this granny purr…

persiflage May 30, 2011 at 9:02 pm

That’s 100% right about SS not being a tax. It’s called FICA – the Federal Insurance Contributions Act. There is no “T” in the acronym FICA, nor is there mention of social security “tax” in the Act. Money witheld for SS are contributions to an old age insurance plan – simply put, insurance premiums.

SS is an old age insurance system whose benefit payments are established by formula, i.e., primarily the magnitude of the contributions you make into the system and for how long.

To sever the connection between the contributions made and the magnitude of the benefit recieved – that would rip the scab right off that wounded system, and expose it as “just another government transfer payment.”

WhiskeyJim May 30, 2011 at 9:38 pm

But SS is a tax. That you consider it an insurance ‘fund’ is a fraud.

Now if you had been paying 12% of your wages all these years into a real private insurance company, you would retire in comfort; in fact if you had done so since you began working, you would likely retire wealthy.

SS on the other hand is a tax. The money is spent. There never was a ‘plan.’ It was never invested. It is a Ponzi scheme, like all taxes.

Randy May 31, 2011 at 7:23 am

Agreed. Social Security and Medicare are taxes and the insurance/investment propaganda is a fraud. The idea isn’t to take care of old people, but to ensure that the vast majority of the population must keep working until well into old age. I am convinced that most of us would retire a decade sooner if these tax programs did not exist.

John Dewey May 31, 2011 at 4:28 pm

WhiskeyJim,

I agree that SS provides a terrible investment return. In hindsight, we can see that almost all Americans would have been better off had their FICA taxes been given to a private insurance company.

I do not agree that SS is a Ponzi scheme. There was never an attempt to deliberately mislead. Social Security is exactly what it said it was; a transfer of funds from workers to retirees. The plan has been followed, with adjustments to reflect changing demographics. SS will be adjusted again by our elected representatives.

vidyohs May 31, 2011 at 6:23 pm

Arghhh, oh com’on John Dewey! Never an attempt to deliberately mislead! How insane is a statement like that for you to make in view of the fact that the SSAct does not require anyone to apply for a SS card, an SSN, which means there is no requirement to participate.

It is a voluntary program that was deliberately and forcefully distorted to mislead your parents into thinking it was mandatory.

Now that the coerced compliance with a voluntary program has been so complete that conventional wisdom tells everyone, you included, that it is mandatory, is what I would call deliberate misleading.

BTW, when I sit here with irrefutable proof that what I say is true, in the form of a letter from the SSAdministration telling me the truth, do not bother to come back at me with conventional wisdom arguments.

The SS program is voluntary.

vikingvista May 31, 2011 at 6:40 pm

vid,

Are you saying that if you have employees on your payroll, you can be exempt from sending FICA payments to the SSA?

vidyohs May 31, 2011 at 7:11 pm

@VV
I am saying that since I learned the truth, unfortunately not soon enough to make a difference in my life other than saving some few dollars before I became an independent contract and business owner; but, as I said I learned the truth so the SS is just another program in which I do not participate.

Now if an employee of mine, your hypothetical, also knew the truth and did not want to participate, the answer would be yes. I would not withhold for him. The choice would be his, not mine.

Knowing what I know, if the government came knocking I would just tell them to point us to the law that requires it, and show them my letter.

I can not be charged with a crime where no crime exists.

vikingvista May 31, 2011 at 7:18 pm

“I can not be charged with a crime where no crime exists.”

Good heavens, vid, this is extraordinarily naive. You may be entirely correct about SS law, but be careful. It is simply not the case that the innocent have nothing to fear. Rather than knowing and following the law, you would be safer to know and follow the interests of the state.

WhiskeyJim June 2, 2011 at 1:23 pm

@John Dewey

It is irrelevant whether there was intent to defraud. It is a Ponzi scheme pure and simple. And there are good reasons they are illegal in markets.

Ponzi schemes must be fixed, regardless of original intent. But like vidyohs, I highly doubt whether people did not realize what they were building. Ponzi schemes are as old as mother time, and people have been hanged from the village square for them for almost as long.

Josh S May 31, 2011 at 7:06 am

I can call my left shoe a mallard duck; doesn’t make it quack.

Hari Michaelson May 31, 2011 at 7:47 am

Like

J Cortez May 31, 2011 at 9:16 am

persiflage,

With respect, any money that is taken from people by force is a tax.

vikingvista May 31, 2011 at 2:59 pm

When a government takes money for you against your will, it is a ALWAYS tax. It doesn’t matter what they spend it on, or what pretty little politically-motivated name they give it.

As a completely separate matter, insurance companies do not take money against your will. They price risk according to expected losses and the market for coverage. “Insurance” as defined by the voluntary actions of free individuals is quite different from “insurance” as defined by the coercive actions of a government.

vikingvista May 31, 2011 at 4:49 pm

“from you”, not “for you”

yet another Dave May 31, 2011 at 1:10 pm

Social Security was never meant to be a tax.

Absolutely false! Social Security was always a tax, regardless of what lies were told to dupe people into supporting it.

Social Security and medicare should be eliminated (insert plan to transition present recipients here). But, as John Dewey correctly points out, those who are on the benefit end of this wealth transfer have the votes to keep the pilferage going. It makes no difference that you or I don’t like that – it is one of the “features” of democracy that people can vote themselves other people’s money.

vikingvista May 31, 2011 at 3:02 pm

Yes, SS and MC are best explained that way. It is a fact of life that when looters have the power to loot, then loot they will. And government is the greatest such power known to man.

Dennis May 30, 2011 at 5:27 pm

Medicare is also a primary reason why health care is expensive in our country.

Hari MIchaelson May 30, 2011 at 7:20 pm

True, medicare is a big reason, but let’s also include the licensing laws that restrict the supply medical care available via allowing only government approved doctors, nurses, PAs, hospitals, x-ray techs, scrub techs, tools, procedures, etc.

Hari Michaelson May 30, 2011 at 8:08 pm

And let’s not forget the government’s invasion of voluntary contracts and its twisted civil court system.

Dr. T May 30, 2011 at 8:51 pm

Licensure is not the cause of too few physicians. The cause is the federal government that decided in the late 1980s that the USA had too many physicians and far too many specialist physicians. Medical schools get big portions of their budgets from the federal government, so when the feds said NO to increasing medical school class sizes, the schools went along. Universities that tried to open new medical schools were pressured against doing so by threats to their existing federal funds.

Medical internships and residencies are almost all funded by the federal government through Medicare. In the 1990s, the federal government reduced the numbers of funded slots for medical specialties (surgery, oncology, cardiology, pulmonology, neurology, endocrinology, gastroenterology, rheumatology, nephrology, pathology, radiology, etc.) and gave some of those slots to internal medicine, pediatrics, and obstetrics & gynecology. Thus, in a time when medicine has grown extremely complex, the numbers of specialists are decreased which leads to longer wait times and higher charges or to substandard care from a generalist.

The federal government also has greatly restricted the numbers of foreign medical graduates allowed to train in the USA under H-1 visas. This restriction hit big city hospitals the hardest. They needed to hire more full-time physicians (ER physicians, hospitalists, and intensivists) which reduced the pool of office-based physicians.

Despite the facts that the health care situation today differs greatly from the 1980s and that the population has increased by 50%, the federal government still follow a policy of restricting the numbers of physicians. Bad policies never die; they continually get reinforced.

Hari MIchaelson May 30, 2011 at 8:54 pm

Sorry for the bad communication. I sort of lump all physician limiting legislation under licensure including medical schools which need a type of license to practice. You are of course right. I agree.

BZ May 31, 2011 at 2:57 pm

Dr. T,

I believe everything you said is correct, and yet I still believe licensing is the problem. Your argument (which again, I believe 100%) concludes that government PLANNING of specialists has been flawed. Such is the nature of all government planning — ask Hayek why. However, I would still *guess* that specialization would have taken a different tact without licensing restrictions. Consider that in many states it takes 12 years (school, more school, residency, etc) to have the right to proscribe antibiotics for something common like strep or an ear infection in kids. That’s nuts. Ditto for delivering babies. Without licensing, we would likely have short, cheaper programs for “flu doctors” or mid-wives where they presently are not allowed.

Submitted for your consideration,
- Bo

Hari MIchaelson May 31, 2011 at 3:30 pm

BZ,

I couldn’t agree more.

WhiskeyJim June 2, 2011 at 1:34 pm

Duplicate this concern for diagnosis and treatment regulation.

There are not just government imposed supply constraints.

There are government imposed efficiency constraints.

Gil May 31, 2011 at 12:40 am

One big reason healthcare is expensive is that doctors can do more nowadays. For example, better technology means cancers can be detected earlier and once untreatable cancers are now treatable. Unfortunately another reason is medical liability.

Rob May 30, 2011 at 5:50 pm

Don,

The post by The Economist highlights a political reality. You point out, and rightly so, that the logic of this reality is based on faulty premises; however, I am sure you will agree that there is not much in politics that is logical. Nevertheless, I think one has to come to terms with the fact that the majority of people in this country like Medicare and Social Security in their current forms. The recent special election in New York seems to highlight this point. Those of us who advocate market solutions are, sadly, very much a minority.

A major part of the problem seems to be that a lot of Americans are simply lazy and do not what to have to do the leg work necessary to secure optimal outcomes in a market-based system. Researching health-care alternatives is time consuming and many prefer one choice….the government choice. Sadly, it seems like it will take nothing short of a failure of Greek proportions to finally clue people in to the fact that the current system is unsustainable. To understand why, simply consider how many Libertarians feel about climate change…..it’s a non-issue because human ingenuity will find ways to overcome any harsh consequences. We shouldn’t forget though that it will take the emergence of those harsh consequences to spur said innovation…..the same will be true for health care and the government spending.

vidyohs May 30, 2011 at 6:24 pm

Don, confusing people with facts is maybe the most cruel thing you can do.

Sanjeev Sabhlok May 30, 2011 at 6:26 pm

Rob, as you rightly said, “the majority of people in this country like Medicare and Social Security in their current forms. ”

There is a natural incentive in democracy for the majority to reward politicians who promise them the moon. That’s why Fabian socialists have been so successful in winning and retaining power, and classical liberals so unsuccessful. Note that Fabian socialists (progressives) exist on both sides of the political mainstream in USA (and elsewhere), as Glen Beck has aptly pointed out.

You are being over-optimistic when you say: “it will take nothing short of a failure of Greek proportions to finally clue people in to the fact that the current system is unsustainable.”

When things go pear shaped, all that is needed is to print more money. Simple! Once all that money becomes worthless, there will be some pain, but hey! it is the future generations who will experience it. What’s your problem?

This is a fundamental flaw in democracy. The genuine self-interest of the majorities will trumps the wisdom of the few. Soon after the new dollar is introduced, the Keyensians and Fabian socialists will get voted back once again and a new version of social security will invariably be started.

Everyone knows what’s coming. But everyone believes he or she can take advantage of the system, with the losses being borne by his brother.

kyle8 May 30, 2011 at 9:55 pm

I hope you are wrong, but fear that you are right.

DF Sayers May 30, 2011 at 9:55 pm

Free-market ideology is ever persistent on both sides of the aisle. There is absolutely no politician calling for worker management of industries or factories, however. Wherever workers have any control, their congressional representatives try to maintain some control, whether republican or democrat. This is not an expansion of power, mind you; the net reduction in unionized labor, the deemphasis of NLRB power, and the persistant attacks on paid entitlements (via CPI manipulation) all cause the worker’s share of state-supplied power to weaken.

And among all the research I’ve done on this issue, it is Clinton whose polices were not only most liberal (deregulation, free market reforms, CPI manipulation) but also the most antagonistic to workers – including overseas workers via the NED.

People love to hate on Reagan but he really stopped his neoliberal reforms a couple years after they started. Clinton, on the other hand, was instrumental in completely destroying policies brought about in the depression to break up the Morgan banking money-trust (at the behest of Chase and Nat’l City Bank).

Methinks1776 May 31, 2011 at 8:42 am

Regulations began increasing under Bush I and continued to increase under Clinton. That’s not what I call “liberal” in the sense you’re using it.

Dean Sayers May 31, 2011 at 10:31 am

Derivatives have generally been unregulated. So have securitizations. Read this discussion on how Glass-Steagall was deregulated primarily throughout Clinton’s administration.

When there is a net shift to less regulated financial transactions, the level of regulation falls. This is true for everything from Clinton’s NAFTA to Greenspan’s liberal policies towards securitization and investment/commercial banking. Simply saying otherwise (“Regulations began increasing under Bush I and continued to increase under Clinton”) doesn’t change anything. It sounds (hilariously) like you think the regulation dynamic was different under Reagan, which is bizarre, since he had far less liberal policies than following presidents.So if you think regulation has expanded, you’re dead-wrong about Reagan being markedly liberal about the issue.

Hari MIchaelson May 31, 2011 at 11:59 am

@Sayers

Your “regulation” is an all encompassing word that can’t really describe the situation. Yes, the government “deregulated” certain financial transactions, but these mostly only applied to big banks that had government influence. I wouldn’t say pumping up a housing bubble then allowing Goldman Sachs and J.P. Morgan to make a killing derivative swaps is deregulation. Furthermore, You can’t really say that there has been a net shift toward deregulation when Greenspan was regulating the price of money to bizarre unnatural levels. The situation is much more akin to the government allowing a few specific groups to steal a boat load of money from the people through legislation that is now named deregulation.

You do make a good point about Reagan though. Reagan was a charlatan who was really for big government.

Dean Sayers May 31, 2011 at 12:58 pm

“The situation is much more akin to the government allowing a few specific groups to steal a boat load of money from the people through legislation that is now named deregulation.”

Maybe that is more accurate, but it doesn’t mean its not “deregulation.” Deregulation is basically allowing the markets to determine policy rather than the public. You don’t seriously think that big banks would stop colluding to give preferential loans, etc, given a totally “free” market, do you? Even Mises, with his arguments about how the introduction of fiduciary media benefits the first owners against those who are “last” to get the funds, would have to agree to just how lucrative that model of inflation is.

yet another Dave May 31, 2011 at 1:36 pm

Deregulation is basically allowing the markets to determine policy rather than the public.

So you imagine that regulation allows the public to determine policy????
Surely you realize “the public” is not a sentient being and therefore cannot determine anything, right? In reality, regulation allows a few politically connected individuals to set policy. Since it is inevitable that those few will act in their own interests, regulation sounds like a recipe for trouble to me.

Dean Sayers May 31, 2011 at 2:15 pm

“So you imagine that regulation allows the public to determine policy????”

Not exactly. In fact, as I remark above, it was largely Chase and some other players – who helped fund antisemitic propaganda – that were largely responsible for the Glass-Steagall legislation. The legislation sought to break up a large monopoly (“house” of Morgan) that was instrumental in the economic instability that helped create the depression – indeed, its president was considered to be the one most responsible party in the stock market crash.

But it was done at the behest of significant economic powers. So we have the free market creating a highly centralized (meaning less competitive) condition for finance, and the state, acting in the interests of other capitalists, breaking them up. The nation in turn opened up international markets in order to appease the latter set of firms, which were capital-intensive and far more productive than firms which were on Morgan’s side.

“Surely you realize “the public” is not a sentient being and therefore cannot determine anything, right? In reality, regulation allows a few politically connected individuals to set policy. Since it is inevitable that those few will act in their own interests, regulation sounds like a recipe for trouble to me.

Well in our example above, state input via deregulation created a less centralized, more competitive market.

Of course a thriving civil society would far help the US, and increase the rate of public input. The fact that public input is not a singe entity doesn’t change its meaning or value – simply put, it means more democratization of policy-creation and implementation. I’d hope to expand civil society as the primary way to truly fix the economy on a near-permanent basis, but in the short-term, it is massive centralization of power that needs to be fought.

Methinks1776 May 31, 2011 at 2:16 pm

What planet are you on? Derivatives are highly regulated. OTC derivatives are difficult to regulate because they’re structured (not standardized). The whole point of structured finance is to find custom solutions, which obviously can’t be standardized and regulated. Exchange traded derivatives are highly regulated. Although, the regulators don’t understand the simplest things about the simplest derivatives. Maybe this is what you mean by “unregulated”?

One of the glass-steagall provisions was removed. The important provisions – the ones that don’t allow deposit institutions to gamble with depositors money – remained unchanged.

Finally, what you’re describing on the whole is not deregulation, as in “removing regulations”. It is REregulation – as in “changing how things are regulated”. I’ve been in the financial industry for decades and haven’t noticed any deregulation at all. I have noticed a lot of reregulation and entirely new regulation added to the old mess of unintelligible crap.

Hari Michaelson May 31, 2011 at 8:51 pm

@Dean Sayers

“You don’t seriously think that big banks would stop colluding to give preferential loans, etc, given a totally “free” market, do you?”

I think big banks are a creation of government intervention. I don’t think there is any real difference from goldman sachs and the government.

I think that in a truly free market, with free money, big banks wouldn’t exist.

Dan May 30, 2011 at 6:57 pm

Fear……… Fear of the ‘what if?’……… What if I need the security that govt provides? What if I am without in older age? Those very programs have allowed for complacency and not preparing for retirement properly.

Hari MIchaelson May 30, 2011 at 7:17 pm

Don,

A simple, elegant post. Good job.

DF Sayers May 30, 2011 at 9:47 pm

Government isn’t the only actor that creates Medicare benefits. Lobbying efforts and fear of class antagonism also helped to create the system. And workers choosing to stay in the US (and enter into most wage-labor agreements, which include medicare) and pay into the benefit also fund Medicare.

The market should, so the saying goes, transfer labor overseas in defiance of the medicare system if it were ‘irrational.’ But labor instead enters the US at a higher rate. What does that tell you?

Gil May 31, 2011 at 12:31 am

Then again American can take “medical holidays”.

yet another Dave May 31, 2011 at 6:48 pm

Government isn’t the only actor that creates Medicare benefits.

Since MC is a government program created and defined exclusively by government legislation, this statement is obviously and clearly false.

Lobbying efforts and fear of class antagonism also helped to create the system.

Wrong again – these are the mechanisms used by some to influence the only entity that actually can or did “create the system” so the results are more to their liking. Again, MC is 100% a product of government action. That is one of many reasons governments should not have the power to do such things.

kyle8 May 30, 2011 at 9:50 pm

Those who see the need to reform this system have been woefully inadequate to the task of framing the debate. Inevitably the debate always comes down to taking something from poor seniors.

But the reality is that Medicare, Medicaid, and SS. represent a massive wealth transfer from the poorest section of the public, young working families, to the richest segment of the public. After all people over 60 hold most of the private wealth.

W.E. Heasley May 31, 2011 at 5:46 am

Excellent post and excellent comments. In summation, the post and comments are revisiting the 1800‘s. That is:

The state is the great fiction by which everybody seeks to live at the expense of everybody else. – Frederic Bastiat

WSmith May 31, 2011 at 6:16 am

In my case the Social Security program has cut my investment income by roughly the amount it has reduced my insurance premium. However, as you mention this apparently net zero effect to me has been accomplished by imposing hundreds of billions of dollars in ” handling costs.”

WSmith May 31, 2011 at 6:23 am

Reflecting on my earlier comment, there may be a free lunch, but I have had to leave a very large tip.

Josh S May 31, 2011 at 7:02 am

I don’t understand the “I paid into the system” argument. I pay into lots of systems that I get nothing back from, like Harry Reid’s cowboy poetry system, the public school system, the food stamp system, the crop subsidy system, and the system of paying interest on USTs. I don’t expect anything in return; why should free money for old people be any different?

Randy May 31, 2011 at 7:25 am

Like

John Dewey May 31, 2011 at 10:21 am

“why should free money for old people be any different?”

Because old people have the votes. Furthermore, those of us who have been sacrificing to support the grenerations who came before us have no guilt about voting to force succeeding generations to do likewise.

Randy May 31, 2011 at 11:09 am

I’m going to have to ask you not to speak for me on that one John.

Personally, I don’t blame my elders for initiating a bad idea. I consider them to be dupes, not bad people. And I certainly won’t blame my children for ending a bad idea. They are no longer dupes. The facts are in. I think they should end it. And I won’t do a thing to stop them if they decide to end it.

John Dewey May 31, 2011 at 11:38 am

OK. I should have written:

“Many of us who have been sacrificing to support the grenerations who came before us have no guilt about voting to force succeeding generations to do likewise.’,/em>

I agree that both Social Security and Medicare are bad ideas. Where I think we disagree is who should bear the burden of ending those bad ideas. Many younger folks seem to believe that Baby Boomers alone should bear that burden. I believe otherwise.

I think you are mistaken if you believe that all your elders were dupes with respect to Social Security and Medicare. Many saw it all along as a Ponzi scheme. But the votes were never there to change it.

I believe it is simple to criticize in hindsight those voters and elected officials who once believed that Social Security and Medicare were sustainable. But please remember that economists such as Alan Greenspan and Alice Rivlin had given the programs their blessing. Thirty years ago these were respected economists.

J Cortez May 31, 2011 at 9:45 am

I am bothered by the existence of Medicare and SS for the usual reasons, but also because of the generational issues. And by that I mean, younger people like myself, know that aside from the moral issues these programs will be bankrupt or are going to be reduced to the point of meaninglessness by the time we reach the age it comes into effect (which will no doubt be raised to stop the flood of money already going out.) The combination of the efficacy of the program as well as the moral issues of forced taxation for these systems are a problems I think nobody sensible can ignore. When older people hear the term ponzi scheme they get annoyed, but I don’t see what else you can call these.

When I talk about this with my parents or others their age, they get very defensive and angry when it’s pointed out how bad these programs are the younger you are. The sad thing for me is when told that if these programs didn’t exist, they would be taken care of by their own children, they laugh as if it could or would never happen. Their notion that complete strangers that take money at the point of a gun are somehow more willing and more caring than family is very hurtful.

Usually, these discussions devolve into arguments and end up going nowhere. It’s a generational schism and it’s getting worse. The problem with programs like this is that they create a large society of dependent people that become more dependent as time passes. This dependence creates a need for ever greater and more numerous programs that create more dependents. The wealth of the US is quite large and there’s a long way to go before insolvency but you can’t go on forever grabbing other people’s money.

John Dewey May 31, 2011 at 10:27 am

J Cortez,

You cannot expect any single generation to be the one to suddenly sacrifice.

For most of their lives, your parents were forced to pay over 15% of their income to support preceding generations. As I see it, they are completely justified in expecting your generation and your children’s generation to do likewise.

You may believe that your generation would voluntarily provide living expenses and medical care for your parent’s generation and for your grandparent’s generation. Like your parents, I would laugh at such naive thinking. Thank heavens we at least have the votes to force you to do so.

Randy May 31, 2011 at 11:24 am

The point that no single generation should have to sacrifice is a good one. But then, we know enough about how this thing works now to know that sooner or later there will be such a generation. So why not ours?

Personally, I think that it should just be turned into a needs based system – immediately. In this way, those who have been manipulated into dependancy will not be forced to do without, but the system will become immediately solvent. At which point the tax burden can be reduced to a size commenserate with the actual need. It will become what it always should have been – a welfare system – in which the needy are subject to the judgement of the productive.

As for those who believe they have a right to collect… well, I don’t think anyone has a right to collect from their children – and especially not even from some socialized concept of “our children”.

John Dewey May 31, 2011 at 11:51 am

“But then, we know enough about how this thing works now to know that sooner or later there will be such a generation”

I do not believe that is true. My argument was that no single generation should have to shoulder all the burden. It is very easy to structure a sustainable retirement system by which the shortfall burden is shared between existing retirees, soon-to-be retirees, and the younger generations.

Please understand that I would absolutely favor a private system if we could start all over. But we will not do that as long as retirees and near-retirees have the majority of votes.

You apparently believe that the Boomer generation alone should sacrifice for the benefit of all future generations. I assume you are a Boomer yourself. I think I can say with confidence that few of your generation would be willing to make such a sacrifice. And, along with our parents, we have the votes.

ettubloge May 31, 2011 at 12:44 pm

Granting people benevolent motivation, if prior generations were duped by the promise of financial security in old age, what does that say about their intelligence? If they did not recognize the inherent theft to future generations in this Ponzi scheme, what does that say of their moral depth? This is giving them the benefit of the doubt.

All decisions require risk analysis. Do my expectations match the true risks? And if I gues wrong, who should pay the price. If you answer that the subsequent generations, you are a user or moocher.

John Dewey May 31, 2011 at 1:56 pm

Social Security is a pay-as-you-go system, but it is not a Ponzi Scheme. A Ponzi Scheme requires ever increasing numbers of investors. Social Security does not. Social Security would be completely sustainable if Congress did not persist in increasing the real level of benefits and if life expectancy did not continue rising.

Not sure why you believe your generation is more intelligent than those which preceded it. You do have the benefit of knowledge which preceding generations did not have – ie, increased life expectancy, reduced fertility rates, immigration restrictions, medical care cost increases. But I think it is naive to assume that – given the same set of circumstances and knowledge – your generation would have made different choices than those made by your grandparents and great-grandparents.

vikingvista May 31, 2011 at 3:08 pm

It is the fact that benefits exceed inputs that makes it a Ponzi scheme. If it is not a Ponzi scheme, it is only because Ponzi himself was powerless to force anyone to play his game.

John Dewey May 31, 2011 at 3:43 pm

viking: “It is the fact that benefits exceed inputs that makes it a Ponzi scheme.”

I disagree. That benefits temporarily exceed inputs does not make Social Security a Ponzi scheme.

In a Ponzi scheme, investors are intentionally misled about the source of benefits. That was never the case with Social Security. Social Security is exactly what it is claimed to be: a transfer of payments from workers to retirees.

A Ponzi scheme will ultimately fail because the number of potential investors are eventually exhausted. Social Security can and will be adjusted so that benefits do not exceed inputs over the long run. A growing pool of contributors is not required for Social Security to meet its obligations.

vikingvista May 31, 2011 at 4:04 pm

“In a Ponzi scheme, investors are intentionally misled about the source of benefits.”

Does it really matter specifically what they were misled about? I don’t think so. What matters is that they are mislead into believing the likelihood of a particular return, while also promised benefits require a growing base if contributers. The benefits that have already been promised for SS and MC, and are promised again and again everyday by government representatives, are impossible. They are a lie. They are a fraud. They would be possible if there was a sufficiently growing base of contributors, but the fact is that there is not. That is the ultimate conclusion of any Ponzi scheme, including SS and MC.

John Dewey May 31, 2011 at 4:38 pm

,em>vikingvista: “Does it really matter specifically what they were misled about?”

Yes. It is not a Ponzi scheme if the perpetrator did not attempt to mislead.

vikingvista: “What matters is that they are mislead into believing the likelihood of a particular return, while also promised benefits require a growing base if contributers. “

As I stated earlier, my employer once promised all workers a certain level of pay. Once the environment changed and those salaries could not be sustained, they were lowered. There was no fraud on the part of my employer.

Social Security was built on one set of assumptions which has proven to be incorrect. So the benefits will be adjusted very soon just as they were adjusted in 1983.

As far as I can determine, a specified level of Medicare benefits have never been promised for the long run. Medicare reimbursement rates have been rduced. Medicare premiums have been increased. I expect both to be adjusted very soon. So I cannot agree that government representatives promised benefits that Medicare cannot deliver,

vikingvista May 31, 2011 at 5:19 pm

vikingvista: Does it really matter specifically what they were misled about?

John: Yes. It is not a Ponzi scheme if the perpetrator did not attempt to mislead.

Your response is clearly a non sequitur. This isn’t like you.

vikingvista: What matters is that they are mislead into believing the likelihood of a particular return, while also promised benefits require a growing base if contributers.

John: As I stated earlier, my employer once promised all workers a certain level of pay. Once the environment changed and those salaries could not be sustained, they were lowered. There was no fraud on the part of my employer.

I have had many jobs myself, and have known many many people who have had jobs. But except for those who have worked for the government, I have never known anyone who had a job with income guarantees or expectations like yours. I have never had an employer who said that in spite of the company’s ever growing losses, and projected astronomical losses, everyone’s employment and pay can continue as is. It’s a big world, and I can’t possibly account for every exception, but this is one worthy of note, and possibly litigation.

“Social Security was built on one set of assumptions which has proven to be incorrect. So the benefits will be adjusted very soon just as they were adjusted in 1983.

As far as I can determine, a specified level of Medicare benefits have never been promised for the long run. Medicare reimbursement rates have been rduced. Medicare premiums have been increased. I expect both to be adjusted very soon. So I cannot agree that government representatives promised benefits that Medicare cannot deliver,”

Once again, John, since I believe that we are all bound by the laws of physics, I agree that the programs will be adjusted, and of course they have been adjusted. They will be adjusted, because there simply is no other possibility.

I am glad if you can find a politician or bureaucrat who didn’t promise something regarding Medicare, but there plenty of lawmakers who tell us that benefits do not have to be reduced, and that costs do not have to increase for the beneficiaries. Politicians tell voters that, and voters give them their money and their votes. But those claims are not just wrong, they are lies. It is a foregone conclusion, that there is no possible way for those claims to be met. They will not be met. You can disregard as a cliche’ the fact that politicians lie, but it is nevertheless a fact. Government fraud is an everyday fact.

John Dewey May 31, 2011 at 5:33 pm

viking: “Your response is clearly a non sequitur. This isn’t like you.”

Sorry, I misread your comment.

FYI, I don’t really care whether you think one of my comments “isn’t like me”, or rather, isn’t like the perception you have of me.

vikingvista May 31, 2011 at 5:55 pm

“FYI, I don’t really care whether you think one of my comments “isn’t like me”, or rather, isn’t like the perception you have of me.”

No problem. Since you don’t care, I’ll follow the evidence and change my perception of you instead to someone given to non sequiturs.

Hari MIchaelson May 31, 2011 at 3:46 pm

The first people to receive social security never paid a dime. It’s never been pay as you go.

John Dewey May 31, 2011 at 3:51 pm

Perhaps you do not understand what is meant by the words “pay as you go”.

vikingvista May 31, 2011 at 4:08 pm

It is interesting that you think changing a program to impose greater and greater amounts of looting of innocent citizens somehow constitutes a legitimate pay as you go program. However, even in that you are wrong. There is no amount of taxation that can pay for the promised benefits of MC. Even in that twisted notion of pay as you go, MC does not qualify. Promises will be broken.

John Dewey May 31, 2011 at 6:00 pm

Viking,

Not sure what you mean by “legitimate” pay-as-you-go program.

Also, my pay-as-you-go statement was not about Medicare:

Social Security is a pay-as-you-go system.”

Your response was to tell my I am wrong about Medicare:

Viking: “However, even in that you are wrong. There is no amount of taxation that can pay for the promised benefits of MC. Even in that twisted notion of pay as you go, MC does not qualify. “

So, please explain. How does your assertion about Medicare apply to my statement that SS is pay-as-you-go?

vikingvista May 31, 2011 at 6:17 pm

Well John, if you do not think that Medicare is also a pay-as-you-go program, as you envision the term, then I wholeheartedly apologize for this unwarranted presumption.

However, my point still holds. It is interesting that you think imposing greater and greater looting of innocent citizens–for SS–is appropriately labelled a “pay-as-you-go” program. I say “interesting”, only because I take you as a peaceful person (I know, you don’t care what I think), and gentle-sounding euphemisms for violent manipulations are interesting when not uttered by government thugs, as they more commonly are.

John Dewey May 31, 2011 at 6:34 pm

VikingVista,

Social insurance programs are broadly classified in two ways:

funded – in which an individual’s contributions are accumulated and paid out later when the contributor becomes eligible

Pay-as-you-go (aka PAYGO) – in which contributions to the system pay the expenses of the current recipients

There are other meanings for the term “Pay-as-you-go”. But with respect to social insurance, the one I just provided is correct.

I would prefer that all U.S. workers be covered by a funded system. But I do not want to see three generations of retirees lose all benefits in the transition from a pay-as-you-go system to a funded system.

John Dewey May 31, 2011 at 6:45 pm

viking: “Well John, if you do not think that Medicare is also a pay-as-you-go program”

Well, Vikingvista, I never said

“I do not think that Medicare is also a pay-as-you-go program”

I said that my pay-as-you-go comments were about SS, so why are you using Medicare to try and prove I am wrong about SS?

Medicare is also a pay-as-you-go social insurance program.

vikingvista May 31, 2011 at 6:52 pm

John,

I understood pay-as-you-go (PAYG) to be different than PAYGO, but it doesn’t matter. It seems that your choice of euphemism was merely an attempt correctly reflect the government’s own euphemism. I can hardly fault you for that.

vikingvista May 31, 2011 at 6:53 pm

“I said that my pay-as-you-go comments were about SS, so why are you using Medicare to try and prove I am wrong about SS?”

John,

I responded to this, but pretend that I did not if you like.

John Dewey May 31, 2011 at 7:10 pm

viking: “I understood pay-as-you-go (PAYG) to be different than PAYGO,”

As I understand it,

PAYG stands for “pay as you go tax”

PAYGO, with respect to pensions and social insurance. stands for “Pay as you go system”, exactly as I described above.

I was referring to the Social Security system when I said that

,em>”Social Security is a pay-as-you-go system”

Randy May 31, 2011 at 12:48 pm

I agree that few in my generation would be willing to make such a sacrifice, nor can I say that I would look forward to it. So we will have to be forced into it – forced by plan or forced by crash. By plan does seem preferable, but many will surely view any plan as a crash.

Perhaps the best place to start is with the objective. I think the objective should be to turn Social Security and Medicare into needs based systems. This could be achieved incrementally. And starting now seems like a good idea.

Randy May 31, 2011 at 12:50 pm

This was supposed to be a reply to John Dewey.

John Dewey May 31, 2011 at 1:40 pm

Randy,

Perhaps you misunderstand me. I am not arguing that Boomers are unwilling to sacrifice. I am arguing that our generation will not accept being the only generation to participate in that sacrifice.

With respect to Social Security, I disagree with the argument that the program will crash. By law, Social Security will only be able to pay out what it takes in once the IOU’s are completely used up. So there is no reason to expect a failure of Social Security. Furthermore, the projected revenue from FICA wll be enough to provide benefits at about the same real level as are currently being provided. What future recipients will be forced to accept are the increases in excess of inflation which past recipients have enjoyed for decades.

Medicare is abother matter, of course, I have not read of any plan other than privatization which can be fiscally sound. IMO, American voters will accept 100% public health care before they accept privatization of Medicare. That’s not my preference, but I think that’s where we’re headed.

Hari MIchaelson May 31, 2011 at 3:43 pm

This whole “only generation to sacrifice” card is simple emotional rhetoric used to distract from the real situation. Let’s see if it works as an actual justification…

Oh, look. Over in Yemen the government is killing innocent people. There’s no need for just one group of people to shoulder the sacrifice, let’s send some young American girls over there so they can “share in the sacrifice.”

By the way, a sacrifice must be freely given. It’s not a sacrifice if you don’t choose it.

The reason the boomers preach shared sacrifice and such nonsense is because if the government actually did the only moral action, which is to stop these programs, then the boomers would bear the burden.

When they say let’s share the sacrifice, what they are really saying is let’s keep this ponzi scheme going until my generation dies and then you guys get the mess. They are saying, let’s keep practicing unethical and immoral actions so that someone else faces the consequences.

John Dewey May 31, 2011 at 3:50 pm

hari michaelson: “if the government actually did the only moral action, which is to stop these programs, then the boomers would bear the burden. “

As I see it, stopping these programs cold is not a “moral action”. I do not think you or anyone else will be able to convince a majority of the U.S. that Social Security and Medicare should be stopped cold. Phased out? Yes, Americans might go for that.

Hari MIchaelson May 31, 2011 at 4:55 pm

Phased out? Yeah right. That will never happen. Neither will they do the just thing and end them. They will depreciate the currency to reduce the debt burden. This is, of course, the worst possible option.

A “majority of Americans” used to think slavery was fine. Just because the majority believes something doesn’t make it right. Though I grant you it does make it likely in this case.

I don’t see how stopping the coerced appropriation of individuals’ property is not a “moral action.” If a gangster steals money from people, and, in order to reduce his risk, promises they will get it back in 50 years. You don’t say that the moral thing to do 50 years later is steal from someone else.

This whole argument boils down to, “I got screwed, therefore so should you.”

vikingvista May 31, 2011 at 6:31 pm

“I am arguing that our generation will not accept being the only generation to participate in that sacrifice.”

It is interesting that if the person next to you is being forced to sacrifice, you must first ask him what generation he is in before you know if it is acceptable.

John Dewey May 31, 2011 at 6:40 pm

vikingvista: “you must first ask him what generation he is in before you know if it is acceptable.”

What? I have no idea what you are meaning or how it applies to anything I have written.

Let’s see if I can restate the comment to which you replied:

Boomers in general are willing to shoulder some part of the burden in order to eliminate SS and MC, or to convert those programs to something sustainable. But Boomers are not willing to sit back and take on the total burden of those changes.

vikingvista May 31, 2011 at 7:03 pm

“I am arguing that our generation will not accept being the only generation to participate in that sacrifice.”

…was your original statement. Which is consistent with your clarification:

“Boomers are not willing to sit back and take on the total burden of those changes.”

It is an interesting example of the collective fallacy. You may be right about the idiocy of boomers, and perhaps you personally don’t agree with this utterly irrational notion. I meant the proverbial “you”.

The reason is this: a certain set of individuals are forced to sacrifice. If you (or not to offend your sensibilities, I) am one of those people, what difference does it matter if I was selected randomly, because my hair is a certain color, or because I was born in a certain time frame? The harm to me is identical. I have no special affinity for strangers in my generation or with my hair color. My father is not in my generation, and I care a great deal more about what happens to him than to anyone in my generation. I am much more likely to react emotionally to a sacrifice imposed on my father than one imposed upon someone in my generation.

John Dewey May 31, 2011 at 7:38 pm

I really don’t understand what you are arguing. My response was to J Cortez and to Randy who seemed to be arguing that SS and Medicare should be ended immediately. Ending the program immediately would force Boomers and their parents to sacrifice in a way that their children would not. Those children would be able to invest for retirement the 15% SS and MC taxes which would not be needed for those programs. But the Boomers and their parents would suddenly lose the benefits from the program they had funded all their working lives.

My reaction to such a proposal is that my generation is not going to shoulder the entire burden of ending SS and MC. If younger folks want to work out a compromise – where SS and MC are phased out – then perhaps enough Boomers will go along.

What you seem to be ignoring is that I am proposing sharing the burden of ending MC and SS across several generations.

vikingvista May 31, 2011 at 8:04 pm

“What you seem to be ignoring is that I am proposing sharing the burden of ending MC and SS across several generations.”

John,

I have no doubt–in fact I know for a fact–that there are people who think like that. But more rational folks simply want to personally suffer less (or benefit more)–or wish the same for their loved ones.

If you are saying that first targeting a set of people for sacrifice (by hair color or shoe size or generation or some other irrelevant criteria), and then later telling those people that they will sacrifice less than expected because other victims will be added to the pool, will result in those initially targeted being less resistant, then you are probably right. It seems victims don’t blush at pushing their victimization onto others. That is to say, people too often turn on the innocent, rather than on their victimizers.

If you are saying that targeting the same number of victims, but changing the criteria by which they are selected will result in them being less resistant, I am skeptical. I am skeptical, because I don’t think victims really care much for the reasons of their victimizers. But then, I am often disappointed by people’s irrational group identifications.

whotrustedus May 31, 2011 at 5:00 pm

For me, SS & Medicare, while both big entitlement programs, are completely different animals. SS is a pension system. We can argue about who pays for whom or whether it is an insurance scheme or whether it is generational transfer system or whatever. But it is simple. People pay $$ in; people get $$ out. While I wish SS didn’t exist or that it would go away or it would be privatized or whatever, I think that is wishful thinking on my part. SS can be “fixed” reasonably easily: raise the retirement age; means test benefits; limit benefits increases, etc. We’re still left with a big transfer system that is I & others regard with disdain but it could be sustainable with some or all of the above.

Medicare is different. With Medicare, Medicaid, and all of the government regulation of health care & insurance, we have this gigantic fiscal monster. Patients using Medicare, Medicaid, and tightly regulated private insurance all of think of much of their medical care as free. So they overuse it. And all of the providers, knowing that they will mostly be paid whatever they bill, have little incentive to innovate. As such, medical costs are just growing & growing, taking a bigger & bigger % of our GDP. And it is not easily fixable as long it is a primarily a 3rd party payment system. There are no defined fixes like raising retirement ages. Means testing benefits may be the only politically palatable fix that it is possible. (And given the voting clout of older voters, even that is probably doubtful.) As such, as long as we keep 3rd party pay, and just argue over who pays what for what, costs are going to continue skyrocket.

I’m still a working stiff. I have not received a raise in years. But I know my employer pays more for my family’s heath insurance every year because of government regulations & incentives. And because everyone in my family is healthy, most of those premium payments are a waste for us. I’d much rather my employer just give me those $$ directly. I’ll pay my day to day medical expenses out of pocket & buy catastrophic coverage to cover the big expenses. Just like I do with my car & my house. If somehow most of us would get our medical care under such a scheme, we all know that costs would plummet. We’d all become cost conscious and providers would trip over each other to provide us cost effective care.

John Dewey May 31, 2011 at 5:24 pm

Whotrustedus,

Glad to see that someone else recognizes how SS and Medicare are so different. Like you, I would prefer that SS be privatized. But I also believe it will not be, and that it can fairly easily be preserved with minor changes.

I think we might disagree on the value of employer-provided health insurance. I am convinced that my employer is able to use group buying power and negotiate a better deal on my behalf. More importantly, I will not be refused coverage due to my medical condition.

Hari MIchaelson May 31, 2011 at 5:51 pm

They’re not different. They are government promises to steal the wealth of the people. They are simply different ways for the government to placate you as its stealing your money. When you describe them as different all you are doing is repeating the words of lying politicians. If they changed the name of medicare to “buying the vote of old people with the wealth of young people” would that change anything? Its just rearranging the deck chairs.

@whotrustedus

Social security is not a pension plan. You can opt out of you pension plan by changing jobs. I can’t switch out of social security. Also means testing is not fixing it, its stealing more money from the people who are better off. Increasing the retirement age, means testing; these aren’t “fixes” these are government defaults dressed up as something else. You’re basically saying let’s default on half our promises and then lie and call it something else so we don’t piss off the voters.

whotrustedus May 31, 2011 at 8:25 pm

@Hari,

Mostly semantics here. I agree with everything you are saying. I agree that they are indeed both government promises to take money from one group and give it another. I’m just as aggravated about both of them as you are. I was making an attempt to distinguish their financial impacts. With SS, the impacts are clean & simple. Money comes from one group (those under 65-ish) and that same money, with a bit of rent taken by the government to run the program goes to another (those over 65-ish). With Medicare, on the other hand, the transfer is not so clean. The government takes money from one group (those under 65-ish) then kind of sort of gives it to another group (those older 65) who then give to to the medical industry. The real recipients of Medicare, Medicaid, and government imposed private insurance schemes, are medical providers. They are the ones that get the rent from our overpriced medical scheme.

Hari Michaelson May 31, 2011 at 9:06 pm

I’m not sure you can’t say the same thing for social security. How many real estate agents in Florida benefit from the social security wealth transfer? Also I don’t think you can really calculate the effects of social security. What would the country look like if everyone didn’t retire at 65? Probably way to different to imagine or calculate. I do agree that medicare is a “larger” problem. You just have to look at the numbers.

I just think that it the picture becomes hazy when you talk about them being different. They may be different in degree but not in kind. I would say the government just has a better scam with medicare that allows them to pay off their favored interests to a greater degree. It’s like the difference between taxes and inflation. Both are theft, but inflation is far more effective at concealing its nature.

vikingvista May 31, 2011 at 6:34 pm

What is it about being an employer that makes one uniquely suited to the purchase of group policies?

Hari MIchaelson May 31, 2011 at 6:42 pm

@viking

There are government tax breaks. Another government scheme to funnel money into stock markets and to Goldman Sachs and Co.

vikingvista May 31, 2011 at 7:06 pm

Hari,

Yes. That is THE reason employers provide those benefits. But it is the tax break (or rather the fact that the government imposes a tax on those who do NOT use their employer) that here determines suitability, not the characteristics of being an employer.

John Dewey May 31, 2011 at 7:22 pm

vikingvista: “That is THE reason employers provide those benefits”

I disagree. Insurance companies began marketing group insurance plans to employers before such benefits were tax-deductible. The better question is:

“Why would insurance companies prefer to sell group policies to employers?”

Answer: to overcome adverse selection.

As economist Melissa Thomasson has noted:

“The success of Blue Cross and Blue Shield showed just how easily adverse selection problems could be overcome: by focusing on providing health insurance only to groups of employed workers. This would allow commercial insurance companies to avoid adverse selection because they would insure relatively young, healthy people who did not individually seek health insurance. “

vikingvista May 31, 2011 at 7:41 pm

John,

Interesting point. BC/BS did offer group policies to employers before WWII.

But do you have any numbers on how widespread it was? It is my understanding that not only were employer-provided plans uncommon, health insurance itself was uncommon. It is unclear to me that employer-provided insurance would be at all commonplace today without the tax exemption.

whotrustedus May 31, 2011 at 8:40 pm

What I’ve read is that medical insurance started in the 30s by Baylor College hospital (hence BC) as a hedge against the declining revenues due to the depression. They started marketing to teachers and eventually expanded to other employers. At first, it was pretty simple. pay xx$ and get yy hospital days in a year, or something like that. It was a good business but not pervasive. But it took off in the 40s during WWII as a way for employers to get around the federal imposed wage & price controls of the time. At that point, the tax break didn’t really matter. As the country thrived after the war, the tax status of these benefits was murky. In 1954, the IRS decreed that health care benefits were tax deductible. From there, employer provided health insurance thrived. then folks started retiring and many of them did not have any employer provided coverage. So in 1965, we got Medicare. The rest is history.

John Dewey June 1, 2011 at 4:40 am

The health insurance industry was in its infancy before WWII wage controls and before employer-provided health insurance was made tax-deductible. But it was growing. We cannot know whether the employer-provided model would have been the predominant form in the anbsence of government incentives. But we do know that insurance companies prefer employer-provided plans in order to overcome adverse selection. And we know that some employers believe that by providing health insurance benefits, they will reduce some causes for employee absenteeism.

vikingvista June 1, 2011 at 3:17 pm

All good points, John.

We also know that employees tend to prefer to spend their own money, particularly if the employer has nothing to offer that the employees cannot buy on their own. A choice is always more valuable than no choice, c.p.

We also know that insurance companies all have application procedures to screen customers and appropriately price premiums for profit. They ask things like, “Are you currently employed?”

Also, tying valuable insurance services to an employer creates a barrier to leaving an employer. The cost of unemployment is made higher, which is likely reflected in lower incomes.

Group policies also have the disadvantage to low risk customers of cost-shifting. This makes an employer offering a group plan potentially less competitive for such employees, since total compensation would be less than from an employer who allows those employees to find their own insurance (without tax penalty).

It isn’t clear what incentives would dominate. I’m suspect there would be some employers offering plans. Without the heavy hand of government “guiding” us, it would probably be just the kind of pseudochaos of dynamic choices that central planners hate so much.

John Dewey May 31, 2011 at 6:58 pm

I’m not sure emplyers are “uniquely” suited to the purchase of group policies. But I think that employers have a much greater interest in the health and welfare of a particular worker than would, say, the Loyal Order of the Moose. My employer needs me to be on the job, and to be free from concerns about how to pay for medical bills.

vikingvista May 31, 2011 at 7:13 pm

It’s an interesting thought. I think that if the tax benefit were removed, you would find that particular incentive to be surprisingly lacking.

The reason it would be lacking, is the demands of the employee. Employees tend to want the money ASAP, rather than benefits or promises, provided the employee has the option of purchasing those things on his own. There are reasons to want to separate your source of income from everything else. And more choice is richer than less choice.

And there is little reason (short of government interference) why groups specializing in insurance groups couldn’t form to satisfy a market need if it arose; and perform as well (or as badly) as employers.

John Dewey May 31, 2011 at 7:27 pm

vikingvista: “I think that if the tax benefit were removed, you would find that particular incentive to be surprisingly lacking.”

I can’t speak for all employers. I’m near-positive I would have still provided health insurance benefits for my full-time employees even if I received no tax deduction. My investment in their on-the-job training was just too great to risk them being unable to function.

vikingvista May 31, 2011 at 7:43 pm

“I’m near-positive I would have still provided health insurance benefits for my full-time employees even if I received no tax deduction.”

Even if your competitors won over the better employees by instead allowing their employees to keep and spend that income as the individual employees wished?

Hari Michaelson May 31, 2011 at 8:20 pm

Does your employer provide you with fire insurance? car insurance? life insurance? You are correct that the cost of health care plays a part in how much they must pay you before you turn elsewhere, but it doesn’t make sense why you would want them to organize a health insurance group for you. Unless they are in the health insurance business, (i’m just assuming not) one would assume you would be better off taking the cash then getting in with a more specialized group that is better able than you to negotiate terms etc. Especially since your health insurance is tied to them, the employer, you now face losing health insurance if you quit or they fire you. This process of tying insurance to jobs gives employers HUGE negotiating power over employees. That power is purely a government creation.

vikingvista May 31, 2011 at 9:18 pm

Hari,

Very good point. Sometimes life insurance and disability insurance are provided. I’m not familiar with the details of tax deductible benefits, but I suspect that if fire-insurance et. al. were deductible benefits, you’d see most employers offering them.

Economiser May 31, 2011 at 9:45 pm

My employer requires that I have health insurance as a condition of employment. They don’t require that I get it through them.

It’s amazing how the market solves problems (like John Dewey’s).

Hari Michaelson May 31, 2011 at 10:24 pm

Viking,

Thank you. Yeah, the “inherent group advantage” that many employee insurance proponents tout is really nonsense. If health care is best provided through employee groups why not groceries? Or electricity? Or gas? or any other product or service that people buy.

It should also be noted that there is additional insurance that is specifically tied to work. Surgeons can get insurance on their ability to operate. This isn’t disability insurance. It is an additional insurance for high earning individuals, and it is not provided by government mandate. Amazing that health insurance needs to be tied to employers but insurance on your ability to work does not.

I would also like to say that I’ve very much enjoyed your comments on this post. A great number of points. Keep it up!

John Dewey June 1, 2011 at 4:51 am

Hari: “If health care is best provided through employee groups why not groceries? Or electricity? Or gas? or any other product or service that people buy. ”

Two reasons why health insurance is different:

1. Health insurance suffers the risk of adverse selection. The other goods you listed do not. Employer-provided health insurance eliminates the problem of adverse selection.

2. Health insurance is much more complex than almost any other good purchased by households. Employers – particularly large employers – can provide expertise in the purchase of health insurance which might otherwise not be available to households.

Hari MIchaelson June 1, 2011 at 1:16 pm

@John Dewey

Sorry John,
Adverse selection applies to any type of insurance. There is no reason that health insurance should be different than flood insurance. Young people don’t need health insurance. People living in a desert don’t need flood insurance. The reason health insurance is different is because it isn’t insurance; its collective socialism of health care. Every person is going to die. This is guaranteed. Statistically 100% of these people will use health care in their lifetime. This isn’t insurance its a wealth transfer, so adverse selection isn’t really a problem unless the government is involved.

Furthermore this whole “health insurance is complex, so you need your employer to help you” is not an argument. Why does your employer have expertise in this? Why not go to an insurance expert? or a Health care expert? or an medical administrative expert? Surely if your employer has so much more advantage in expertise why not go to them for help with your car maintenance, or your child’s education, or what cell phone plan you need?

And as you type into your internet browser, remember you can always Google it. I’m serious. I’m in medical school, and any time there is confusion, we look up the answer on the net. This idea that people are too stupid to understand something is patronizing, and it is also the explanation for the program’s existence in the first place. People are too stupid to prepare for retirement and for their unhealthy years so we overlords must do it for them.

vikingvista June 1, 2011 at 4:23 pm

John,

Not only does the complexity position never work in these arguments, but health insurance really is not very complex at all. I have health insurance that I shopped for and purchased online, and I have an AV receiver for my entertainment system. Both have “instructions”, but I find the AVR to be much MUCH *MUCH* more complicated. My health insurance is very simple.

And I dare say, I put my life in the hands of a machine every day (my car) which has a level of complexity I can barely even begin to imagine–and will never fully understand. It seems to work out, even though my employer doesn’t make my auto purchase choices for me.

Economiser May 31, 2011 at 5:45 pm

Agree with nearly all of this. One quibble is that, absent government involvement, the percentage of GDP that medical care takes up is irrelevant.

If the transactions are all private, the percentage of GDP attributable to medical care is no more relevant than the percentage of GDP attributable to video games (growing at an alarming rate!) or the percentage of GDP attributable to those blue jeans with holes in them. It’s a personal tradeoff like everything else in economics.

If you want a laugh, the next time you see a left-leaning economic protectionist complain about the unsustainable rise of health care costs, remind him or her that nearly all of those health care dollars go to other Americans instead of foreigners, so as a good American they should be supporting increasing health care costs. Economic illiteracy is fun!

Ghengis Khak May 31, 2011 at 6:08 pm

Serious question – why stop at protectionism? Could you not apply similar reasoning to those who favor aggregate demand driven “stimulus” of the Keynesian variety?

Economiser May 31, 2011 at 6:49 pm

You could, certainly. I chose protectionism because the contradiction is highly apparent.

Aggregate demand is a crock (pardon my French).

SheetWise June 1, 2011 at 12:49 am

“Why does this magnificent applied science which saves work and makes life easier bring us so little happiness? The simple answer runs: Because we have not yet learned to make sensible use of it.

Albert Einstein, 1931

Thank God the world has changed! We now have the Internet. What will we do with it? Our politicians have lied to us for decades with impunity because they controlled our channels of communication and everyone politely agreed not to call the other liars.

They don’t own it any longer. This argument isn’t going to go anywhere except downhill until everyone can look at it and objectively and acknowledge that we were lied to. They lied to us — for their own benefit. The left, the right, the independents — I don’t recall any of them carrying a torch for the truth when it mattered. If we can ALL get over the fact that we were lied to, maybe we can get somewhere.

Let’s start there. It was a lie. Let’s all agree.

Do people who paid into these programs deserve compensation? Yes. These government officials kept meticulous records — they just didn’t know how to hold onto money. While SS is broke, I’ll bet my bottom dollar that they can tell you how much you have in you account — to the penny. Not only that, they can tell you your annual contributions. In that way, they’re a lot like Bernie Madeoff — they lied to you, and they can print you a statement for your account, but they’ve already spent your money. We need to find a way that we can all get cashed out.

So … we were lied to, and people deserve to be made whole, what do we do? Continue the Ponzi scheme and hope it gets better?

How about … we pay them. Let’s take each individuals total contributions, add imputed interest, deduct benefits received, and write a check. BTW – a large percentage of retirees don’t even need SS income, they’ve taken care of themselves. That actually solves a lot of the problem. They’re still due what they’ve paid — plus interest — but they’ll be easier to work with.

The Federal government (us, who lied to us) owns 20+% of the land in this country. To those who don’t need cash, we can offer land. Think of what a few hundred miles of shoreline on Lake Powell and Lake Mead would bring in — and it wouldn’t even dent the total of the shoreline. Southeast Alaska would bring in a fortune. Why should the government hold it? They bought it with “our” money.

The government (us) admit that we lied to ourselves, the people who knew better are put in prison, government bonds are issued to cover all SS accounts, federal lands are freed up for development, and all workers get an immediate 15+% increase in take home income.

Sounds like it might end the housing crisis as well.

persiflage June 1, 2011 at 9:18 pm

While the federal government may effectively be cash-flow-bankrupt, it is very far from being asset-bankrupt. It has spent the last several hundred years accumulating a hoard of assets – land, water rights, mineral rights, expensive office buildings in costly neighborhoods, vehicles, furnishings, computers, aircraft, dockyards, satellites, etc….a huge store of wealth. Liquidation of some of that accumulated swag might make the transition out of these unsustainable programs less painful for those caught by the necessity of the transition. An argument can be made that a future permanently-smaller government won’t be needing all that vast accumulation of stuff.

If I had just debts to pay, but no cash flow, to honor my debts I would sell stuff. The feds need to sell stuff.

SheetWise June 2, 2011 at 1:06 pm

“The feds need to sell stuff.”

Well said. They also need to realign the public expectation.

ettubloge June 1, 2011 at 12:34 pm

What would that extra 15% income do? If anyone has ever done the back of the envelope calulations, even the lowest paid employees would amass significant estates (if the money were saved and invested). If not saved, they could probably do a good job deciding for themselves what their needs or wants are. And do not forget Bastiat and the broader benefits of such a “new” world.

vikingvista June 1, 2011 at 3:49 pm

Maybe someone can post a link to an article that went through the calcs. A $50K/yr wage earner, if I remember my own calculations correctly, would wind up, after purchasing life and disability insurance, with approximately $400K in savings, assuming 43-year average historical nominal S&P growth. I think results were similar assuming linear income growth from $30K to $100K, but I can’t remember.

But I do remember that if you earned more than the wage base for almost all of your working life, you’d likely be looking at over $1 million at age 65.

And of course, at any given moment, the accumulated assets would be yours, unlike with SS. THAT is worth a lot.

You also have to account for the fact that private retirement savings are 100% tax deferred (up to the allowed limits) whereas SS taxes are themselves half-taxed.

SheetWise June 1, 2011 at 6:36 pm

You’ve really missed the point. There are no assets, other than those held by the “people” … There are no metrics, equations, or calculations that will make sense out of nonsense. Give it up — aggregates are meaningless for obvious reasons.

I don’t care what people earn, pay, buy, invest in — or how those investments perform. Period.

“You also have to account for the fact that private retirement savings are 100% tax deferred (up to the allowed limits) whereas SS taxes are themselves half-taxed.”

Please give it up. If SS taxes are half-taxed, then your thinking is half-fast.

vikingvista June 2, 2011 at 12:18 am

Polishing off that bottle of Crown Royal tonight?

People want to, or should, know what their personal financial loss is due to the social security system. It is pretty straight forward to calculate, as I outlined. You compare the benefits people expect to get from social security, to the benefits they would get if they kept those funds and invested them in a typical private account.

And it is a matter well-known law that your IRA and 401(k) contributions are 100% tax deferred, but that half of your 15.3% FICA is taxed at your marginal income tax rate. Both are taxed as income as they are drawn upon in retirement. You need to know this to compute your opportunity cost (or gain, as the case may be). Every now and then some accountant publishes an example in some minor publication.

No point missed. It is exactly what ettubloge was asking. Nor do you have to care about how much you and other are being ripped off, but thank you for telling me. Even if SS were a tremendous boon to nearly everyone involved, it would still be involuntary and therefore wrong. But it is useful to let people know that it isn’t a boon at all.

vikingvista June 2, 2011 at 12:33 pm

I meant to refer to the 12.4% social security portion of FICA.

SheetWise June 2, 2011 at 12:37 pm

“Polishing off that bottle of Crown Royal tonight?”

Actually, I was “consulting” with Jack Daniels — not surprised you noticed. He offered poor advice.

“No point missed.”

Correct. You didn’t miss the point. I have such a distaste for tax law and tax accounting that I reflexively pounce on strategies to “fix” bad law that rely on current law. Your calculations appear to be correct, and would be a great improvement — but I’d like to see the tax issue removed from the equation. Fiddling with who pays what and when is still social engineering — and I abhor it. You were describing a solution within the arena, and I would like to dismantle the arena.

We are, and have been, in basic agreement on these issues. I apologize for my disparaging comments — and I intend to have some words with Mr. Daniels as well.

vikingvista June 2, 2011 at 8:27 pm

My only solution is to completely end the SS system (as well as any and all other forms of offensive compulsion, public or private–my solution for everything political) ASAP. I was merely quantifying the typical financial loss imposed on individuals by the SS system.

Give Hennessy a try. He never lets me down.

SheetWise June 2, 2011 at 11:37 pm

“My only solution is to completely end the SS system”

I agree. My “solution” was to cash everyone out and end the lie that we have “accounts” — this would obviously shift a lot of people into other safety-net programs, and we could begin the debate from there — without the entitlement.

As an alternative, I would even accept the government requiring that 15% of income was spent on housing or investment that could not be withdrawn until retirement, and even then could only be withdrawn into an annuity. This would at least provide people with an asset they would have available in retirement.

I am good friends with Hennessy, and have been for many years — but I occasionally step out.

Nemoknada June 3, 2011 at 5:11 pm

I think there’s a lot of overreaction here. How many here agree with DB that improvements in technology will prevent weather-related deaths in the next 20 years from exceeding those in the past 20 years, EVEN IF climate change is real and the weather gets appreciably worse? Remember, Don is not arguing that climate change is not real, not man-made, or not potentially weather-worsening. He is simply betting that we will cope.

But the same people who buy Don’s arguments about a dynamic response to the demands of geography assume a static response to the demands of demography. Medicine is going to get cheaper as platforms improve. More and more of our people, rendered unemployable in manufacturing and construction by foreign competition and robots, will become healthcare providers, satisfying growing demand without putting upward pressure on wages. New technologies will push service decisions down the skill tree. Better prevention will lower costs. Cures will replace maintenance.

The Government will print whatever money it takes to pay for this, and, mirabile dictu, there won’t be any significant inflation because the resources being tapped won’t be scarce by the time we get around to tapping them. This glass is absolutely, completely, half-filled.

SheetWise June 3, 2011 at 10:16 pm

“The Government will print whatever money it takes to pay for this, and, mirabile dictu, there won’t be any significant inflation because the resources being tapped won’t be scarce by the time we get around to tapping them. This glass is absolutely, completely, half-filled.”

I want to smoke what you’re smoking.

Nemoknada June 4, 2011 at 12:00 am

“I want to smoke what you’re smoking.”

Can’t help you there, but you can read what I’m reading. Google on “post scarcity economy” and knock yourself out. Then look into Ray Kurzweill’s singularity.

Things are changing very fast; static economics just can’t keep up. Like the Great One says, you have to skate to where the puck is going to be.

SheetWise June 4, 2011 at 4:47 pm

Good luck ever seeing the puck where you’re skating.

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