Asymmetrical Information

The reason no one is interested in offering a solution for Medicare's future funding crisis is that any solution will be deeply, deeply unpopular. Pretty simple, I'd say. My impression is also that a lot of the criticism of the Bush's prescription drug benefit was that it was extraordinarily inefficient, generosity levels aside. I didn't do enough reading to determine if this is in fact the case, but it seems like a criticism that can coexist peacefully with "Medicare is doomed."

I'll agree that saying "but what about Medicare" is not really a winning argument; but I would like to see more people pry into exactly how the administration views the Social Security Trust Fund. If it doesn't really have an existence distinct from the General Fund, what reason is there for maintaining the separate Social Security tax structure at all? Or at a level where it runs a surplus?

One reason I can think of that "adding a large number of new people to the government's rolls" for healthcare would be the addition of all the young unmarried men added to the system who would pay into it, but not use it.

Not that I agree with the philosophy behind that or that I think it would actually work, mind you...it's just a reason, is all.

instead of focusing on the trees (ooh ... ted kennedy has another bad idea), we should probably be focusing on the forest: what is an efficient way to PAY for delivery of medical services.

(let's avoid, for now, arguments about nationalization of health care services.)

and to answer Jane's question: adding large numbers of young healthy individuals to the govt's rolls will reduce the AVERAGE per-patient cost. (really, was that so hard?)

you want to eliminate medicare and medicaid because the govt is so incompetent? Fine. Just require that every insurance company insure every applicant at the same price. Eliminating price competition will force the ins. cos. to compete on service, and will eliminate the incredible free-rider problem we have in our current system.

Francis

The Social Security trust fund runs a surplus in the same way that I run a bake shop i.e. not at all. The money is gone.

It's simple. If your uncle borrows X dollars from you, which you are going to have to pay out to someone else, then you need your cousin to pay you back. So your uncle better have the money. Except "Uncle Sam" "borrowed" it to cover current programs, and left a i.o.u. Now, what are they going to do, rob a bank when they have to pay it back? Please.

SS is a specific redistribution scheme from workers to retired. Otherwise it would be merely another redistribution scheme which would inevitable degenerate into from rich to poor; from responsible to irresponsible.

SS will be sold by Bush when he starts explaining that right now it goes from blacks, to whites -- since blacks die younger. (Perhaps allowing cigarette ads back on TV could save SS now?)

Adding more people to the Medicare rolls might be a solution to the revenue side, but it does nothing to the cost side except increase them. All of the (IMHO illusory) cost reducing benefits promised by single-payer advocates are already in effect in Medicare, yet Medicare is nonetheless spiralling out of control.

"you want to eliminate medicare and medicaid because the govt is so incompetent? Fine. Just require that every insurance company insure every applicant at the same price. Eliminating price competition will force the ins. cos. to compete on service, and will eliminate the incredible free-rider problem we have in our current system."

The free-rider problem comes, in part, from the fact that group health plans tend to charge the entire group the same rate. Let insurance companies freely charge according to risk (and quit using employers as middlemen), and the free rider problem is diminished (it'll never go away as long as hospitals are required to provide treatment regardless of ability to pay)

"and to answer Jane's question: adding large numbers of young healthy individuals to the govt's rolls will reduce the AVERAGE per-patient cost. (really, was that so hard?)"

And what difference does that make? In the one case, younger workers have to pay to treat old people. In the other case, those same younger workers have to pay to treat old people and a whole herd of younger people as well. Per-worker costs go up.

"instead of focusing on the trees (ooh ... ted kennedy has another bad idea), we should probably be focusing on the forest: what is an efficient way to PAY for delivery of medical services. "

In US dollars, without the involvement of the government or our employers. Works for everything else...

Ken: there is a reason that insurance in all its forms has traditionally been one of the most closely regulated industries. Insurance companies only want customers who don't make claims. (Also note, please, the inherent conflict in an investor-owned [as opposed to mutal] insurance co, between the fiduciary duty to shareholders and the duty to claimants.) Since ins. cos. deny claims far too often, customers go to the govt to demand regulatory oversight.

more to the point, you haven't addressed the point on how best to pay for medical services. As a taxpayer, i pay for medical care (a) out of pocket; (b) with federal tax dollars; (c) with state tax dollars; and (d) with local tax dollars. The current system is INEFFICIENT. And the inefficiencies are, literally, killing people.

cost-side control -- how, Jane, do you plan on rationing health care? Should people over 70 not get hip replacement surgery?

Francis

"and to answer Jane's question: adding large numbers of young healthy individuals to the govt's rolls will reduce the AVERAGE per-patient cost. (really, was that so hard?)"

That's an excellent point. Maybe we should add basic vetrinary care for our pets. That would lower per patient cost even further.

When you add up all of the medical care that is paid for out of tax dollars these days -- Medicare, Medicaid, federal, state and local employees, military and dependents, veterans, inmates in the prison system, use of pretax dollars to pay for private health insurance, and indirect payments (eg, the health insurance of the private road-paving company paid out of government purchases) -- you get something estimated to be between 60 and 65% of all payments. Almost two-thirds of health care is already paid for by the government(s).

While folding all of that into Medicare may not be more efficient, I remain unconvinced that there are no possible efficiencies from scale and simplification. Some programs (VA) negotiate for bulk drug discounts, some don't. Insurance companies will not compete as fiercely for a rural county with 200 employees as they will for an urban county with 20,000.

One oddity is that having proclaimed that Medicare is a total catastrophe, not one person I've seen make this argument has displayed the faintest whiff of interest in doing anything about it; indeed, as far as I can tell, most were among the chorus castigating George Bush for making the prescription drug benefit insufficiently generous.

That's not an oddity, that's the MO of the modern liberal: argue one thing when it suits you, but feel free to contradict it when that suits you.

Consider that liberal politicians and pundits are constantly arguing that Social Security must be preserved as-is, because solutions such as means testing, lowering benefits, or raising the retirement age would cheat seniors out of the amount "owed" to them. Instead, these same folks argue, the system should be kept solvent by raising taxes on the rich (oh, sorry, it's not raising taxes, it's merely rolling back cuts, since as we all know Bill Clinton's rates are a universal baseline that US tax rates must be measured against until the end of time). But how can you maintain the ridiculous illusion that this is some sort of savings plan ("they earned it!"), if Bill Gates, Daddy Warbucks, and your local business owner all need to chip in and bail it out?

I say eliminate the payroll tax (both OASDI and HI) altogether, and pay for these programs out of general tax revenue. Then people can see these programs for exactly what they are.

"Uncle Sam" has done the "borrow money, spend it on other programs, and leave an I.O.U." with many, many organizations other than the Social Security Trust Fund - to the tune of nearly four and a half trillion dollars. Should the holders of that debt also not count on getting their money back? Think very carefully before you answer.

There's an interesting article in today's Washington Post on the problems with Tennessee's TennCare program here:
http://www.washingtonpost.com/wp-dyn/articles/A16471-2005Jan17.html

"more to the point, you haven't addressed the point on how best to pay for medical services. As a taxpayer, i pay for medical care (a) out of pocket; (b) with federal tax dollars; (c) with state tax dollars; and (d) with local tax dollars. The current system is INEFFICIENT."

Yes it is. So how about we do something else? "Everyone buys his own care out of pocket or through his own privately chosen insurance company" counts as "something else", and it's not like it's never been successfully tried elsewhere in our society.

"Ken: there is a reason that insurance in all its forms has traditionally been one of the most closely regulated industries. Insurance companies only want customers who don't make claims."

Insurance companies want customers who pay them more than they pay out in claims. If they never pay claims, they'll have a hard time getting customers.

Higher risk customers are more expensive to insure. When selling something more expensive, the sensible thing to do is to sell it at a higher price. Forbidding them to do that means that the more expensive thing won't be sold at all (and that's when you get the situation where insurance companies "don't want" high risk customers. They would - if they could charge such customers a fair price for what they were buying)

"(Also note, please, the inherent conflict in an investor-owned [as opposed to mutal] insurance co, between the fiduciary duty to shareholders and the duty to claimants.) "

If that's an inherent conflict, then you see inherent conflicts in every business transaction. Every vendor would be in great shape if they could somehow be paid by their customers without delivering the goods. In a free market, that's not the way it works - customers can go elsewhere.

In our health care system, though, customers usually have to switch jobs to switch insurance companies. That's completely retarded - my employer shouldn't be buying me a health plan any more than he should be buying my groceries. And of course, any "single-payer" health plan would make it impossible for customers to go elsewhere.

So, yes, our current system has horrible inefficiencies. But not because of the free market.

Jake, this comes up every single time we discuss Social Security, and I can't believe the people who say it actually mean it. Do you really not understand the difference between, say, IBM buying corporate debt for its pension fund, and IBM taking the money out of its pension fund, spending it, and then writing the pension fund a big fat IOU? (Think carefully . . . your HR department may be listening.) Would you expect exactly the same result from

a) Investing your savings in corporate bonds
b) Spending your savings, and writing yourself a "Jake McGuire" bond?

Do you think you can comfortably retire on option B?

"cost-side control -- how, Jane, do you plan on rationing health care? Should people over 70 not get hip replacement surgery?"

Sure, they should be able to buy a hip replacement surgery any time they deem it useful.

Oh, you mean should other people be required to buy them hip replacement surgeries? That's a different question altogether...

So far all of the comments have concentrated completely on the demand side of the equation. Frankly, I think both sides of the equation need some attention. To all of you who believe that optimal efficiency can be achieved in the healthcare system solely by removing subsidies to consumers, a little actual evidence would be nice.

I agree Medicare is a greater problem now than Social Security and I am cautiously optimistic that after the election a number of GOP Congressmen have at least talked about redoing the $534 Billion Medicare Prescription drug (which is still better than the $700-900 Billion one that House and Senate Democrats wanted instead). However to give them some credit they at least introduced the concept of means testing to Medicare via the prescription drug benefit and health care savings accounts. What they ought to also do is change the competition from a regional basis to individual companies and open it up to more providers.

Also while I generally support the two proposed changes to Social Security (letting workers invest a portion of their FICA and changing from wage to price indexing), I would rather that we also adopted some form of means testing and phase in a higher retirement age*. Both of these two changes could be done to both Medicare and Social Security which enables us to fix two large problems at once. Bush to his credit was pretty clear that he would not rule out raising the retirement age and the Medicare prescription drug benefit** has been a first step towards introducing means-testing.

* With some sort of safety-net feature (e.g. the disability portion of OASDI, Medicaid, etc.) for those workers who are physically incapable of working to the new retirement age.

** As well as Kerry’s campaign rhetoric regarding rolling back tax cuts for the “really wealthy.” After all if Democrats are going to argue that the “really wealthy” (people earning more than $100,000 per year) don’t deserve to keep more of their own money, they cannot logically justify allowing them have more of someone else’s money by receiving Medicare and Social Security benefits.

Medicare that's going to drive our nation into bankruptcy. I find this interesting, and not merely because it has an odd "why should I patch up this broken leg when the patient's just going to die of something else eventually" sort of flavour.

Except Jane its more like "why are you putting a patch on that broken leg & treating the gun shot wound to his chest when his bad cholestrol is 2% above the where it should be!" Also you have to admit it is a legitimate point. The Republicans control Congress and Bush controls the White House. In that time we have a huge general deficit plus Medicare has been pushed even deeper into a deficit that will hit much sooner than Social Security. After doing this damage, we are expected to jump to CRISES MODE!!!!!!!!! because SS may be in small trouble half a century from now.

Jake, this comes up every single time we discuss Social Security, and I can't believe the people who say it actually mean it. Do you really not understand the difference between, say, IBM buying corporate debt for its pension fund, and IBM taking the money out of its pension fund, spending it, and then writing the pension fund a big fat IOU? (Think carefully . . . your HR department may be listening.) Would you expect exactly the same result from

I have thought carefully about this; you do not understand the difference between a company and a gov't. A company only has its own assets to pay its debts. A gov't has no assets at all, only the ability to tax. What the Trust Fund does, indirectly, is put money back into the economy by reducing the deficit & the debt held by the public. This is the most sensible way for a gov't to prepare itself for a large upcoming expense.

http://TheEverWiseBoonton.blogspot.com

And every time you use the IBM example I can't understand why you think IBM and its pension fund are the same thing. They're not. Look at the airline industry. US Airways (though bankrupt) is still flying, last I checked. Its pensions, though, have been taken over by PBGC. United is trying to terminate its employee pensions and it is not (deliberately) trying to commit suicide...

Now, I agree, that it would be an abuse of IBM's position as the administrator of its pension to invest in IBM corporate debt. But the reason that's a problem is that companies that borrow from their pensions (or elsewhere) to finance continuing operations have a much higher probability of ceasing those operations, leaving the employees expecting their pension high and dry. Do you honestly believe the US government is at risk of ceasing operations? And, if the US government does cease operations, why do you think stock market investments will be any safer than Treasuries?

I'll also note that if you look at the trust fund reports from the late seventies and early eighties (see URL) there is more than one example of the trust fund redeeming assets to pay current benefits (note the years in which the trust fund assets went down). There are even more examples of the trust fund not reinvesting the interest earned on trust fund bonds and instead using that to pay current benefits. Since you assert that the trust fund holds no real assets: Where did that money come from? Did the trustees just wave their magic wand? And if it wasn't magic, why do you expect that mechanism to fail in the future?

I have indeed written myself a "Jake Bond" in the past. Or I've reduced my 401(k) contribution or spent my savings while unemployed and then saved more than I ordinarily would once I got my job back to replenish those savings, which is more or less the same thing.

But fine; let's assume that the government bonds held in the Social Security Trust Fund are worthless. What's the rationale for payroll taxes being higher than needed to pay current benefits, or indeed the rationale for having payroll taxes separate from income taxes at all?

If SS is de facto pay-as-you-go, as its savings are being flushed down the toilet, why not make it de jure pay-as-you-go and let our existing private account mechanisms take up the slack (401(k), 403(b), 457, various flavors of IRA)?

If SS is de facto pay-as-you-go, as its savings are being flushed down the toilet, why not make it de jure pay-as-you-go and let our existing private account mechanisms take up the slack (401(k), 403(b), 457, various flavors of IRA)?

A pay as you go system will generate returns roughly equal to GDP growth and will be financially stable basically forever (or at least as long as the GDP is growing in the long run). The Trust Fund is basically functioning as a way to increase returns to future retirees by reducing debt held by the public today. In effect, it is like paying down your credit card in January so you can book a nice vacation the following December.

Boonton, that would be nice if it were true, but it has been true for only three years out of the twenty the trust fund has been in effect. Congress seems to shovel any revenue that comes its way out the door as quickly as possible.

Jake, I couldn't agree with you more. SS should be funded out of the general fund, FICA should be abolished (and normal tax rates raised appropriately), and the fiction that SS is a pension, rather than a benefit dependant on the whims of our legislators, should be stripped away once and for all.

Of course, there's considerable political opposition to this, most violently from the AARP who does not want the sacred "pension" status of SS changed in the public mind.

Ravi, the money came from tax funds, just as it would have if there had been no "trust fund". An "asset" that has absolutely no ability, now or in the future, to generate one additional dollar of income, is not an asset in any normal sense of the word.

An honest question here. Let's say we go to a pure individual system. Everyone buys their own health insurance policy. Let's say I do that. Let's say I get very ill a year from now. What, exactly, is to prevent the insurance company from jacking my premiums up so high the next year as to essentially kick me off of their policy, leaving me to die or go bankrupt? That's the stumbling block I always come to when I consider a completely free market for health insurance without government or employers serving as the middle man.

In a completely free market, it would seem to me that insurance companies would not sell policies to old people or people with persistent or severe health problems. Or if they did, you'd have to make a whole lot of money to afford them.

I am not a proponent of universal coverage, but neither am I willing to leave a cancer patient out in the cold either. Someone help we this quandry. Explain to me why a totally free market is a good idea in this instance.

The present medical insurance system is neither a free market, nor is it really insurance.

1) Not a free market:

Partly because it's hemmed in by thousands of state and federal regulations, but mainly because it's purchased by employers, not by the people who will be using it. My plan is selected by some corporate official in Tampa - maybe there will be doctors up here in rural Michigan who will be "in network", but maybe not. It's the same plan for engineers and assembly line workers, for young and old, for healthy and sickly. And most of all, if I think the service sucks, I can't change to another one - except by finding another job.

2) It's not really insurance:

Insurance is when you pool risks of unlikely but very expensive events. That is, your house probably won't burn down, but it would cost you $200,000 (say) if it does, and you can't afford to absorb a loss like that. So an insurance company collects a few hundred dollars a year from you and thousands of other people like you, and puts it in the bank until someone's house does burn down. Of course, they'll adjust the rates so that on average, they collect more than they pay out - they've got to make some money for themselves. And they've got to have the cash to pay someone to estimate the damage, and to catch those who try to defraud the system with arson or inflated claims.

"Major Medical" coverage, that pays only for extremely expensive hospital procedures, is insurance in this sense. When you get cancer and need $100,000 in therapy, that's not a problem. You're getting your own and lots of other people's contributions back. The insurance company might have to collect $150,000 for every $100,000 they pay out, because they've got to do a whole lot of paperwork and sort out the real claims from false ones, prices that were raised just for them, and unnecessary operations, but that's OK. It doesn't seem to be possible to run the system much more efficiently than this, and the benefits coming when you need them outweigh the cost the rest of the time.

However, that's not most of what your (and your employer's) group medical "insurance" goes for, in the typical plan. It pays for annual checkups, for office visits for cold and flu, for bandaging your kids when they fall down, and if you've got an especially "good" plan, maybe for drugs that you are taking every day forever. All of these expenses are normal and predictable. What you get by putting an insurance company in the loop is something like a 50% markup.

You may think you are also getting the price of services driven down by the bargaining power of big HMO's. Sometimes that works. But first I've got to find a doctor around here that's willing to work with that HMO, and then I've got to hope that the HMO will actually allow the doctor to treat me. Or I pay for it myself, which I could have done in the first place for all these normal and predictable expenses.

And sometimes it works just the opposite. My dentist will give me a 10% discount for paying directly rather than burdening her office with insurance paperwork and making them wait to be paid. And I don't have to deal with paperwork either.

As for universal health care, I'll note:

So far as I know, every other developed nation both spends a smaller percentage of their GDP on health care and provides universal, basic health benefits to all their residents. I agree that the quality of that basic benefit is not the same as the best private plans one could buy in the US, but most (all?) of those systems allow individuals to buy additional (or more prompt) services privately - either directly or through insurance. I don't understand why a similar setup wouldn't well serve those dissatisfied with a universal benefit in the US.

Now I agree one could theoretically argue that other developed nations are just amazingly more efficient a providing health care and they would have massively better health care than the US if they just eliminated their universal coverage (and freed health care from the government's grip), but I don't understand why that argument passes the laugh test.

As for potential cost-saving mechanisms (not meant to be complete or exhaustive, just suggestive):

- Universal care means there are better incentives (and better opportunities) for preventative care (and there is, I understand, a consensus that preventative care is the most cost-effective health care) - lowering long-run costs (and/or improving long-run outcomes). Along these lines, there is an interesting anecdote about the diabetes and the VA vs. private health plans: The VA has an incentive to spend money early to reduce the long-run risk of diabetes because they are stuck with a patient for life, while a private insurer has little or no incentive to invest in that prevention because by the time the patient is making claims (n years later) they are (almost certainly) going to be insured by someone else.

- Ending the cost-shifting nonsense for the uninsured at emergency rooms has some benefit. More generally, reducing the number of payers and eliminating the risk of non-payment for any health care that is part of the universal benefit should simplify the administrative operations of most health care providers.

- Damages for medical malpractice will be smaller since a significant fraction of many awards (and the motivation for many lawsuits) comes from the recognition that the damaged individual will be unable to purchase heath insurance on the open market (because of the alleged malpractice).

- Greater overall economic efficiency because business will see a more accurate marginal cost of adding an employee (rather than seeing an inflated marginal cost for the health insurance they buy that does not account for the positive externalities of the reduced emergency room and Medicaid burdens). Employees will also be freer to leave inappropriate jobs or start new companies because they won't have to worry about losing their health insurance.

Jane, finally we find something to agree on! I agree that the funds used to redeem those bonds came from the rest of the government - meaning that taxes had to be raised, spending had to be cut or money had to be borrowed. You don't support the tax increases, spending cuts, or borrowing required to redeem the bonds in the Social Security trust fund and I do (though I will admit to a preference for reducing the government's borrowing in the near term so that the budget constraint faced in the future is less of a problem).

I think your position has 14th amendment problems (note the linked URL to the Treasury website that counts Intragovernmental Holdings as part of the public debt) or at least requires amending or repealing the law that says funds collected for Social Security cannot be used for anything else (do you support that?), but those are separate arguments.

Boonton, that would be nice if it were true, but it has been true for only three years out of the twenty the trust fund has been in effect. Congress seems to shovel any revenue that comes its way out the door as quickly as possible.

Really? Are you sure about that? I've done the regressions and I didn't find any relationship between spending as a % of GDP or the SS surplus. In fact, since most spending is on automatic pilot it isn't unreasonable to assume that the relationship goes in the opposite direction.

We are still back to:

A + B = Gov't Budget...

A is in surplus and B is in deficit. Yet you keep insisting A is the problem.

Ravi, the money came from tax funds, just as it would have if there had been no "trust fund". An "asset" that has absolutely no ability, now or in the future, to generate one additional dollar of income, is not an asset in any normal sense of the word.

Let's keep in mind the distinction between a gov't and a corporation. If the gov't knows it will have an expense of $1000 due in the future can it save for it? What if it reduces its debt by $1000 today?

"An honest question here. Let's say we go to a pure individual system. Everyone buys their own health insurance policy. Let's say I do that. Let's say I get very ill a year from now. What, exactly, is to prevent the insurance company from jacking my premiums up so high the next year as to essentially kick me off of their policy, leaving me to die or go bankrupt?"

I don't know. If your house burns down next year, what's to prevent your insurance company from jacking up those premiums so high as to essentially leave you homeless?

(For that matter, what's to stop them doing that right now?)

One of the nice things about the free market is that people make money by selling solutions to problems. Without the market, "that's just the way it is" tends to be the answer for all time, depending on what worked at the time the regulations were written.

If the regulators don't stop them, insurance companies would willingly write plans that essentially cover you for not only the initial manifestation of an illness, but also the complications and increased risks spawned by that illness over time. Especially if they know that the other guy could do it without having to ask permission. And you wouldn't even have to switch jobs to get it.

"That's the stumbling block I always come to when I consider a completely free market for health insurance without government or employers serving as the middle man."

Employers serving as a middle man don't really help here. While some with expensive health problems get a windfall because they're already "on board" and have a ready pool of fellow workers to pay the bills, others with expensive health problems need to get a job, and would like to be able to get paid without having his employer on the hook for all his health problems, since that maximizes his chances of finding employers willing to hire him period.

And if the government is middleman, everything you do in your personal life impacts your risk of health problems and the pocketbook of all your fellow citizens. Which means that either you get to run up their tab with impunity, or they impose massive lifelong parental guidance on you.

"In a completely free market, it would seem to me that insurance companies would not sell policies to old people or people with persistent or severe health problems. Or if they did, you'd have to make a whole lot of money to afford them."

Yeah, and homeowners' policies are kind of hard to get when a hurricane is on its way. But in a free market, you can get your insurance before trouble shows up, and shop for a policy that covers you long term.

"I am not a proponent of universal coverage, but neither am I willing to leave a cancer patient out in the cold either."

Some cancer patients will be left out in the cold whether we're willing or not, and will continue to be left out in the cold until better treatments are invented that actually work for all of them.

Now it appears that most people are quite willing to leave some cancer patients out in the cold and slow down the development of treatments rather than let people do without parental guidance preventing them from using untested, experimental treatments....

"Someone help we this quandry. Explain to me why a totally free market is a good idea in this instance."

Because it removes inefficiencies, and maximizes the rate at which currently incurable diseases become curable. Since we're all doomed to succumb to an incurable disease before we get much past the age of 100, it's in all of our interest to speed this process up as much as possible.

It's amazing how much confusion the SS trust fund causes. The government has to raise enough revenue through taxes and new public debt to cover its expenditures. The SS trust fund changes that reality not at all.

Each year SS expenditures increase and if revenues don't increase then other expenses have to be cut. Again the trust fund doesn't change that reality.

The point about paying down current debt helping to defray future expenses relates to the payroll tax - not the trust fund. And it would be true of any tax - payroll or otherwise. All the trust fund does is keep score between payroll taxes and ss benefits paid. The score may be interesting but it doesn't help pay the bills. In other words, SS may be solvent* 35 years from now but that solvency won't make it one bit easier to pay benefits. (*if you count non-negotiable debt that can't be enforced in court)

Health insurance: I've said it before - why are the only options employer-provided and individually purchased medical insurance. Why can't I buy group health insurance through a church, club, professional association, or business association. Why can't the local flower shop offer its employees group health insurance through the NFIB rather than incredibly expensive small group plans? It is no magic bullet but expanding ERISA to allow association health plans would give millions of small business employees and independent contractors and their families access to affordable health insurance. That would be a good thing right?

Everyone is going to die.

Most everyone will get sick to some degree before they die.

No one really wants to set the precedent of rationing care on ANY basis (ability to pay, availability of health insurance, medical review board, limiting emergency room access) because they know they will someday need it, possibly beyond their ability to pay.

Health care is a finite resource.

Demand for health care is infinite, since we all want to live forever in perfect health.

So health care is always going to get rationed in some way.

Our current system is a workable kludge for doing this - but current trends are for us to do more and more 'triage by bureaucracy'.

I predict that free care for illegal aliens and the indigent is on the chopping block - because the citizenry doesn't want more expensive (or unavailable) health care if the cost is supporting these populations.

When that choice becomes clear, it will be the start of wrangling that makes the current controversy look like a kid's game, I think.

I'm not saying this is a good idea - it is what I think will happen. I'd pay money to be wrong...but let's see what the next 20 years brings.

I'll bow to the person who can implement even a reasonable fix, and prostrate myself to anyone who can pull off a good one!

"No one really wants to set the precedent of rationing care on ANY basis (ability to pay, availability of health insurance, medical review board, limiting emergency room access) because they know they will someday need it, possibly beyond their ability to pay."

Rationing on ability to pay is far superior to any other method, for the simple reason that it maximizes the reward for finding better and cheaper ways to do things, and speeds up the process of technological advancement that is our only real hope for actually solving our most pressing health care issues.

Rob asks:

Health insurance: I've said it before - why are the only options employer-provided and individually purchased medical insurance. Why can't I buy group health insurance through a church, club, professional association, or business association. Why can't the local flower shop offer its employees group health insurance through the NFIB rather than incredibly expensive small group plans? It is no magic bullet but expanding ERISA to allow association health plans would give millions of small business employees and independent contractors and their families access to affordable health insurance. That would be a good thing right?

To his credit Bush did raise the issue in both his presidential campaigns and has said he wants it to be part of health care reform in his second term and supports allowing trade associations to join together to purchase policies which is similar to the proposal you’ve raised. I support it but think it should not be limited to just trade associations (although that will probably be the majority of cases) and would expand it to clubs, religious institutions, or pretty much any lawful private group. I don’t see any reason why if we went to trade associations that it wouldn’t be expanded (either in the initial legislation or at a future date) for other private groups as well.

There's a severe asymmetrical information problem with individual health insurance plans. The last time I bought one, I did so only because it was the start of the motorcycle racing season - I'm basically healthy and so wasn't going to buy one without a specific need. I also know that companies won't provide coverage for a preexisting condition for which you received treatment in the previous six months (unless you have continuous coverage), I schedule my checkups and employment and COBRA accordingly.

Ken -

You may be right that rationing based on ability to pay is the superior system - and I suspect you are - I just don't think it is going to happen.

One way to get closer, maybe, and address some of the insurance availability concerns mentioned above, would be to make it illegal for an employer to offer health insurance.

The practice came out of WWII, I think, as a way to attract workers when wages were frozen and the labor market was tight. It was cheap, then - most medical care we take for granted today was not even invented then.

For instance, transplant costs never impacted your group's cost basis, since there were no transplants. Today, one heart transplant in your group - and just watch the insurance rate fun!

Now, the practice distorts employment and insurance decision making in unforeseen ways.

Rob, I'm going to insist on more than your say-so. A legal citation would be preferred. On what basis do you think a Social Security trustee could not win a court case against the government if the government refused to redeem a trust fund bond? (and I'm not even considering the political crisis that would ensue)

I will note that I have already provided a web page from the US treasury that counts Intergovernmental Holdings (which includes the Social Security trust fund) as part of the public debt of the United States.

I'll add in a quote from the 14th Amendment:
"The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."

I'm not asserting that the General Fund's problems are small or easy to fix. And I'm not asserting that the trust fund is a magic money-making machine. Clearly we have been spending too much and/or taxing too little for a long, long time. But those problems have nothing to do with Social Security.

You might think that the easiest way to bring taxes and spending into like would be to cut Social Security benefits, but I think there are moral, legal and political problems with that approach.

Note that there was one brush with rationing based on the ability to pay in the 80s. Hospital emergency rooms were starting to turn away (or transfer) emergency patients who could not afford to pay - a practice called "patient dumping". In response, in 1986 Congress passed EMTALA, which made this practice illegal (see URL).

Ken, you might be right that rationing ALL health care based on the ability to pay is a more efficient system, but I think most people (myself included) do not think it is a moral system. I'll also note a practical complication in an emergency situation - someone may have insurance, but it may be difficult to verify (say they are hurt badly enough to be unconscious and do not have identification or a health insurance card on them - maybe they forgot it or it was damaged in an accident). Are you comfortable with the idea that some people like that might die because a hospital ER couldn't verify their ability to pay in time? I'm not. If nothing else, there is always some (hopefully small) chance I might be one of them.

And, as we have already seen, once you impose an obligation to provide emergency care, the problem builds... It's not like the uninsured don't get any health care - they just get a lot more of it in emergency rooms where it is more expensive and less cost-effective. And the rest of us (through higher insurance rates, taxes and other cross-subsidies) end up with the bill.

Jane,

There are plenty of incosnistencies on both sides. Just think of the GDP estimates used for the SS projections and compare them with the expected returns of the private plans. As George Will said in This Week on Sunday if the US economy grows as slow as the SSA administratiopn projects for 75 yeasr SS is the least of our problems. And if the private plans do return the 6%-7% some of its defenders claim SS has no problems.

But inconsistencies aside I think the numbers are clear and you would agree that Medicare is the bigger issue.

Boonton & Ravi:

If I understand correctly you both are saying that the trust fund's investment in Treasuries is different from IBM's issuing IBM bonds to its pension program because the government can use tax revenue to pay off the trust fund.

If this is the case why have a trust fund at all? Either way -- trust fund or no trust fund -- the government will have to raise taxes by the same amount to meet its obligations.

Example. I know that any time I like I can force my little brother to give me a dollar. Going into the store I see a thing I want to have that costs a dollar.

Option A: I go to my little brother and ask him to lend me a dollar I will pay back tomorrow. He gives me the dollar and the next day I confront him and take another dollar to repay the first (after all, I can also repay my debts from taking from my little brother).

Option B: I take a dollar from my brother with no promise to repay it.

Either way my little brother is out a dollar and the timing of the cash flows is the same. Only in option A I made a false promise.

The uncomfortable fact is that capital cannot be saved over the typical 40 year career. It can only be invested and renewed and there is no investing and renewing in the trust fund,

If I understand correctly you both are saying that the trust fund's investment in Treasuries is different from IBM's issuing IBM bonds to its pension program because the government can use tax revenue to pay off the trust fund.

If this is the case why have a trust fund at all? Either way -- trust fund or no trust fund -- the government will have to raise taxes by the same amount to meet its obligations.

Example. I know that any time I like I can force my little brother to give me a dollar. Going into the store I see a thing I want to have that costs a dollar.

The gov't's ability to tax is limited by the underlying economy. In your example, you can only get a $1 from your little brother if he has a $1. So its in your interest to see that he does his chores so you mom will pay him his $5 allowance.

The analogy I would use for the gov't in this case is a fisherman, not a company. When you fish you are taking a fraction of what the lake produces. What if you catch too many fish? Well you could bring them home and put them in your back yard pool and try to breed them. But a better answer would be to toss them back and trust the lake to do its job. This is why I don't think the trust fund should try investing in stocks, bonds or even other nation's bonds. So in theory I would say the trust fund should not run a surplus but only take what it needs for current benefits.

The one deviation from this analogy I would make is if the gov't has any debt of its own. When the gov't borrows at, say, 6% what it is doing is taking money out of the economy. This is fine as long as the gov't spends that money in such a way as to cause the economy to grow 6% or more (at which time it can recoup the interest costs in the form of higher tax revenue). If gov't cannot spend the money in a way that it can be sure will result in such growth, the sensible thing is to pay the debt off (or at least reduce the deficit so you're not adding to your debt as fast).

So if the gov't had some large expense in the future, the most logical way for it to prepare for it would be to reduce debt today...even if it plans to just borrow it again in the future. If I have a $1000 credit card balance and I want to do a nice vacation in a year it makes more sense for me to pay down the credit card and then charge it up in a year rather than to let the balance stay at a $1000 and put my money in the stock market hoping to outrun the interest on my credit card and get enough profit to finance my vacation.

I would say the best thing to do with the surplus is indeed to 'invest' it in Treasuries and reduce borrowing today. If you trust the market then this would put money into the economy where it presumably will grow and in 20, 30, 40 years the economy will be that much better able to handle the borrowing or taxing that is needed. (If you want to stick with the fish analogy, if you are expecting a huge fishing event in a year then it makes sense to help the lake by stocking it with extra fish for breeding rather than trying to breed fish in your pool and release them a week before the event). If you say the fund should buy 'real' assets like stocks, bonds and so on you're really implying that the gov't can use its borrowing power to create a free lunch. In other words, it can borrow at 6% buy a stock index fund and in 30 years earn 9% & pay back the loan and earn profit without ever taking a penny from taxpayers!!!! If this was true why stop with social security? The gov't should borrow every dollar it can and use the profits to eliminate all taxes and provide unlimited gov't spending on health, defense , education and so on.

RULE 1 in economics: If in your reasoning you stumble upon a free lunch then you know there's a serious problem in your logic!

I don't know. If your house burns down next year, what's to prevent your insurance company from jacking up those premiums so high as to essentially leave you homeless?

(For that matter, what's to stop them doing that right now?)

Nothing except for the fact that it would be poor business. Typically housefires are random. A person who had one in a year is not usually more likely to have another one next year. Illness is different...so are auto accidents. Insurance works when both customer and company are ignorant of the future. the more you know of the future the less insurance works unless its mandated. One of those rare instances where knowledge can end up hurting rather than helping.

Yeah, and homeowners' policies are kind of hard to get when a hurricane is on its way. But in a free market, you can get your insurance before trouble shows up, and shop for a policy that covers you long term.

Indeed but unfortunately it is too easy to know the future. Insurance companies already know enough to make it so that premiums rise quickly as you get older (and I'd bet they would be even higher for seniors if Medicare was gone). Genetic profiling opens up the door to even more refinement making it almost impossible for those who need insurance to afford it compared to those who don't.

Homeowners insurance is a poor analogy in this case.

Boonton: There was no free lunch in my example. The little brother pays ... in your example the government would earn its return on the backs of those it crowds out of the stock market (each share can only be owned by one person at a time, if the government owns it, someone else does not). No free lunch anywhere.

I suppose no free lunch exists in your example of simply taking a dollar from your little brother each week. On the other hand suppose your brother gets paid $5 every two weeks. Because he's a bit of a spendthrift you take $2 from when he gets paid and return $2 after week 1 thereby forcing him to space out his consumption. That would be very analogous to the forced savings aspect of social security.

Ravi,

I'll confess to speaking too casually. Yes you are right that if an administration simply refused to pay then the trustees could attempt to enforce repayment. Since repayment could mean not paying other lawful obligations I don't know how successful that court order would be.

But I was referring imprecisely to the fact that Congress holds the purse strings and can rewrite the rules under which SS operates at anytime. Yes that would be politically charged but so are the alternatives at that point. The government's legal obligation to pay will last only as long as there is the will to pay - at which point Congress will rewrite the rules. I should have spelled that out.

My question for you is: how would our policy options be different if there were no ss trust funds?

"I would say the best thing to do with the surplus is indeed to 'invest' it in Treasuries and reduce borrowing today."
This is based on an enormous assumption that goes directly against everything we've observed from Washington - that putting the "trust fund" into Treasuries will somehow reduce borrowing. That might be true if government spending were fixed, but the basic rule for our politicians of both parties is "if it's there, spend it (plus a bit extra)". Remember the last budget under Clinton? Even the Republicans spent like crazy, because there was a fake surplus. And the Democrats are worse, because they're making two directly contradictory claims: that there were budget surpluses under Clinton, and that the "trust fund" is real.

"the government would earn its return on the backs of those it crowds out of the stock market (each share can only be owned by one person at a time, if the government owns it, someone else does not)"

This assumes that the number of shares is fixed, but it's not. Companies will issue new securities, more companies will go public (unless Sarbanes-Oxley scares them off) and total investment will increase. At the aggregate level, if retirement funds are actually saved and invested, then total output in the future will be higher and thus the economy will be better able to support future retirees. The alternative - we write IOUs to ourselves, politicians conveniently ignore the money we owe ourselves through some accounting gimmicks, and the politicians run out and buy votes for themselves at our, and our children's, expense.

The current system is "screw the grandkids". Anyone complaining about the "transition costs" to a real retirement system is really saying that they don't want their generation to get stuck with any of the costs - we plan to pass it on to our children and grandchildren, whereas doing something today might force us to pay a share. Our grandparents did it to us, so why shouldn't we do it to our grandchildren? Screw 'em. They don't vote yet, so why not?

What I'm still surprised at from Teddy Kennedy's Sunday morning talk show appearance is how he said that there's really no problem at all with the current social security system because, when the time comes, we can easily just cut benefits by 25%. If Bush proposed cutting benefits today by 25%, Kennedy wouldn't shrug it off as no big deal. But future cuts are OK, because they would only screw our grandchildren.

"I would say the best thing to do with the surplus is indeed to 'invest' it in Treasuries and reduce borrowing today." This is based on an enormous assumption that goes directly against everything we've observed from Washington - that putting the "trust fund" into Treasuries will somehow reduce borrowing. That might be true if government spending were fixed, but the basic rule for our politicians of both parties is "if it's there, spend it (plus a bit extra)". Remember the last budget under Clinton? Even the Republicans spent like crazy, because there was a fake surplus. And the Democrats are worse, because they're making two directly contradictory claims: that there were budget surpluses under Clinton, and that the "trust fund" is real.

This is the ATM theory of gov't. You know when you think you have like $100 in your account and you go make a $20 withdrawl and the balance says $180. So you realize you had more than you thought and decide to take another $40 out and have fun with it.

The gov't doesn't operate like this. It doens't sit down and say 'we have $1.1T to spend, ohhh wait, here's another 0.2T let's spend 1.4T!'. Spending decisions for the most part happen totally independent of revenue. If you look at tax revenue as a % of GDP for the past few years you'll see it has been dropping to record lows yet spending goes up.

Most spending and taxing is on autopilot. When the economy goes bad people start collecting unemployment, taking SS benefits early, and so on driving up spending while revenue falls. When the economy does good the opposite happens. Back in Econ 101 these things were called 'automatic stabalizers'.

One reason I can think of that "adding a large number of new people to the government's rolls" for healthcare would be the addition of all the young unmarried men added to the system who would pay into it, but not use it.

While I'm recently married, I am still a young male, and I'm fairly certain that I'm already paying into Medicare without using Medicare. Specifically, I'm paying into Medicare 1.45% of my income every paycheck. As we all are.

Healthcare reform - Simple & easy

1. Establish a dedicated tax to provide a universal healthcare voucher.

2. Each person gets a voucher which they can use to:

a. Buy health insurance.

b. Buy healthcare directly

c. Redeem for cash against employer provided health insurance.

d. Donate to other individuals or to charity.

3. Insurance companies, in order to accept the voucher, agree to equalize premiums & accept all applicants....with some reasonable variations.

4. Those who do not use their vouchers will be automatically insured by a competitive bid. If those people get sick and are unable to pay the bill the insurance company will pick it up.

Advantages:

1. voluntary - you are free to buy your own health insurance with your own money. You are free to buy coverage over and above what the voucher pays for or you can buy health services directly from doctors as a 'cash patient'.

2. trade offs are easy to understand - If society wants to provide for a larger 'basic' coverage then it has to accept a higher tax. if it wants lower taxes it must cut the voucher.

3. market is essential to the plan - Insurance companies and healthcare providers must compete in terms of both price and quality.

4. universal coverage without single payer.

Jane: "SS should be funded out of the general fund, FICA should be abolished (and normal tax rates raised appropriately), and the fiction that SS is a pension, rather than a benefit dependant on the whims of our legislators, should be stripped away once and for all."

Well said. I'm actually nervous about a government-run system of private accounts because of the probability of counterproductive and politically motivated micromanagement. (e.g. suppose one of the most popular choices for private accounts is an S&P 500 index fund; that creates pressure on government to grant favors to S&P companies at the expense of others). My preferred reform is simply to abolish FICA and means-test benefits, and it's amusing to listen to liberals fervently defend regressive payroll taxes and entitlement benefits for the rich.

The SS tax is slightly regressive but the benefits are progressive. Bill Gates will hardly be making a killing when he starts collecting his first SS check.

I find it ironic that Jane would advocate rolling SS into the general fund. She frets that the trust funds purpose in generating savings is being undermined by also causing larger deficits in the general fund than would otherwise have been. Yet rolling everything together makes it virtually impossible to distinguish how much any particular program is contributing or taking from the Treasury.

I find [the argument that we should leave Social Security alone because Medicare will be an even bigger problem] interesting, and not merely because it has an odd "why should I patch up this broken leg when the patient's just going to die of something else eventually" sort of flavour.

I agree, except for the fact that changing Social Security to a forced-savings model doesn't do anything to patch up the patient's leg. We soon won't have the money to pay for Social Security and Medicare and agricultural subsidies and an endless war on an existential condition and another endless war in Iraq and all the other things the government wants to do. The private accounts approach basically amounts to cutting taxes and forcing people to use the money they save only for certain things. When the problem we're facing is the government not having enough money, you don't have to think very hard to realize that cutting taxes is not the solution.

Elliot,

The money social security collects in taxes will never be less than 70% of benefits it promises to pay out. At the moment it is decreasing the deficit by running a surplus, and it is only fair to expect that money to go back into SS afterwards.

There is no reason in theory that SS cannot remain stable for an infinite time period and there is good reason to think that the projections being used to generate this 'crises in half a century' are unduly pessimistic. Whether or not agricultural subsidies and Medicare is properly funded for the next 50 years is really a different problem from Social Security.

There is no reason in theory that SS cannot remain stable for an infinite time period

If the number of retirees grows faster than the number of workers, then you have a funding problem.

Indeed which is actually why the program should be indexed to lifespans.

Actually you would want to index to the ratio of birth/death rates (just deaths doesn't help if fewer and fewer people are being born).

However, that's just cleaning up the details.

More importantly, you just said that we should index SS. The use of should implies that you believe there is some need to change the system.

What, pray tell, is this need if "there is no reason in theory that SS cannot remain stable for an infinite time period?"

Hey, there's a change that's guaranteed to work.

Rewrite the law so that the number of beneficiaries of SS and Medicare is a fixed percentage of the population. The n oldest people get the benefits, while everyone else pays.

That'll stay stable until the end of time. Of course the retirement age might keep going up for a while...

Actually it looks like the increase in lifespans is slowing down & the next 75 years will not be as good as the last (Arnold Kling suspects the opposite) so indexing to lifespans may not be necessary.

Your asking a good question & I should clarify. The simple model of what SS does is stable. In that simple model the gov't taxes some portion of the income from the young and gives it to the old. Income grows at a fixed rate & the ratio of young to old remains constant.

In theory if you tax a certain portion of GDP and give it to the old this system will be stable forever and will provide the young with a return equal to the increase in GDP when their children enter the workforce.

In real life we have to admit that the sytem will periodically require tweaking to keep it on course. Hence tools like wage & price indexes should be designed to keep the system in line with its simple theoretical structure.

At this point we have evidence that maybe a slight tweak would be merited. That's about it. Naturally if some really dramatic thing happened, like a medical discovery that increased lifespans to 1000 yrs, then we'd need a major tweak...but such an event would be quite a tweak in its own right...

Actuaries may be boring but they seem to be pretty good at predicting population age groups. Look at the NY Times Sunday Magazine piece:

In 1934, when Franklin Roosevelt formed the Committee on Economic Security to design what was in effect the first federal safety net, the committee hired three actuaries to stargaze into the future. The actuaries predicted that the proportion of Americans over 65 -- then only 5.4 percent -- would rise to 12.65 percent in 1990, meaning that retiree costs would soar. They were just a tad high; the actual figure would be 12.49 percent.

It would seem that there really is no excuse for ratios to be a surprise.

"The gov't doesn't operate like this. It doens't sit down and say 'we have $1.1T to spend, ohhh wait, here's another 0.2T let's spend 1.4T!'."

You're saying that politicians don't like to buy votes with other people's money? Again, my counter-example to your claim is the last budget under Clinton, where spending rose by a high percentage simply because surpluses were supposedly there. Politicians on both sides of the aisle admitted later that they got carried away.

Can you say "pork barrel"?

Rob, I think the Social Security trust fund *politically* constrains our policy options: if a future government decides it does not want to honor the obligation implied by the trust fund balances it must repeal the portion of the law that says taxes collected for Social Security must be used for Social Security benefits (and then it must face the voters, of course). Calling the trust fund balances meaningless without simultaneously advocating for an end to the dedicated Social Security tax is dishonest, I think. And since ending the (legal) dedication of the Social Security tax is already a political non-starter today (notice that none of the Social Security reform proposals on the table today include that), let alone benefit cuts (have you noticed how the private account proposals have already started drifting to smaller and smaller benefit cuts - even though such proposals *worsen* the actuarial gap?) and there will only be more people collecting or close to collecting Social Security benefits tomorrow, I think that we should all admit that the trust fund balances will be redeemed (since there won't be the political will to repudiate them) and that the key priority is to get the government's fiscal situation is good enough shape that redeeming those balances is not too burdensome. Actually, getting the governments fiscal house in order is a priority, regardless, with a structural general fund deficit of 5% of GDP (for 2004 according to the latest CBO estimates) we have problems that are much more immediate than Social Security.

You're saying that politicians don't like to buy votes with other people's money?

of course they do, but budgets are not infinite, are they? Therefore other dynamics have to keep them in check...otherwise the Clinton administration would have looked like the bush admin.

My contention is that the bulk of the budget is on auto-pilot. Whatever happens with the 'discretionary' portion which may be effected by surpluses, the fact remains that most spending happens without anyone really deciding to spend. When the economy goes sour the Congress doesn't vote on every Jon, Dick and Harry who applies for unemployment or opt to take SS benefits early. Likewise when the economy booms Congress doesn't have to raise taxes, since tax rates are a % of income revenue automatically goes up.

I ran multiple regressions on revenue and spending as a % of GDP and I did not find a positive relationship.

Ann wrote:

The current system is "screw the grandkids". Anyone complaining about the "transition costs" to a real retirement system is really saying that they don't want their generation to get stuck with any of the costs - we plan to pass it on to our children and grandchildren, whereas doing something today might force us to pay a share. Our grandparents did it to us, so why shouldn't we do it to our grandchildren? Screw 'em. They don't vote yet, so why not?
What I'm still surprised at from Teddy Kennedy's Sunday morning talk show appearance is how he said that there's really no problem at all with the current social security system because, when the time comes, we can easily just cut benefits by 25%. If Bush proposed cutting benefits today by 25%, Kennedy wouldn't shrug it off as no big deal. But future cuts are OK, because they would only screw our grandchildren.

Ann:

A quick response to your post from yesterday morning. The government buying stock would crowd out private investors and the market would not respond by issuing new stock. The government would not be using its own funds to purchase the shares, rather it would be using those of taxpayers. That means for every dollar it takes taxpayers would have one less dollar to spend on stocks themselves, meaning that demand for stocks would be unchanged. To the extent that taxpayers would have consumed the dollars rather than buying shares the sales, profits and values of existing companies are reduced by the amount taxed. Again, there is no free lunch here.

I'm in the UK, I have the NHS as my "universal" health provider.

The NHS is rubbish, costs a fortune and the staff are rude! It's also a killer.

If Americans want universal healthcare (healthcare funded by threatening people with jail) then they should move closer to Castro.

When you have a NHS, what you really get is that your level of service varies hugely depending on the beurocrat (Local), and you cannot choose someone else (due to crowding effects).
When premiums are seperated from risk, then in effect you encourage people to not look after their own health as "da nhs will pay" (Illness Encouraging).
People are spending other peoples wealth and as Tax cannot be 100% therefore the money is limited, the service is then rationed by making people wait .
Some people like the idea that everyone waits the same amount of time, however people who are wealth creators spend more time off work under this scheme, so it's wealth destroying.

The NHS is the worst healthcare funded in the worst way.

If you could opt out of paying for the NHS then you wouldn't beleive how many people in the UK would never go to MRSA'R'Us ever again!

Rob,

What do you think the effect would be if the NHS was reformed into a voucher system where individuals would buy their healthcare from a free market of providers and pay with a combination of their own funds and their share of what was NHS funds?

DCPI -

Certainly there's no free lunch. My point was that if overall savings and investment increased, then the economy in the future would be better able to support large numbers of retirees. You're arguing that there would be no net increase in corporate investment, only a one-for-one shift from private to government stock ownership.

If there's no net change in the amount invested in the market, then there won't be much of an effect. My forecast would be that there would be a net shift from holding Treasury securities to investing in corporations, and that this would pressure the government to reduce spending, leading to more productive overall investment. But it's also entirely possible that the government won't reduce borrowing or spending.

If the gov't is borrowing money to fund private accounts then any increase in buying stock or corporate bonds in the private account would be offset by the increase in Treasury securities at the other end.

In the end, if the market really works, all rates of returns are really equal. The only cause for different returns is different levels of risk. Stocks are not some type of hyper-charged savings account that pays 9% while bank accounts only pay 1%. Stock returns have a large distribution meaning that there will be a large number of people making less than 9% (even negative returns) as well as many making more. Bank accounts, by contrast, will all cluster around the guaranteed rate of return.

If anyone need any reliable and accurate dog food information, I would reccommend http://www.dogfood.mypetdogs.com

On this....

***I find this interesting, and not merely because it has an odd "why should I patch up this broken leg when the patient's just going to die of something else eventually" sort of flavour. ***

Wrong analogy. "Fixing" SS while ignoring Medicare, the deficits, the debt and the dollar is like remodeling the bathroom while the roof, kitchen and fromt porch are on fire.

Comments are Closed.