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Sunday, August 12, 2012
Current Affairs ... Economics/Business ... Politics ...

As all the world knows, Mitt Romney now has a running mate, Congressman Paul Ryan. Ryan, of course, is noted as the GOP point-man for fixing the federal debt crisis (or crisis-to-be; right now we’re getting by, lenders still want to loan money to Uncle Sam . . . but at some point, we could get into a jam like Greece, Italy and Spain are in with their unpayable sovereign debt and shrinking economies). And Ryan’s key target is the complex of federal entitlements, including the two biggest ones, Social Security and Medicaid. I haven’t seen all the details of the Ryan plan, but I understand that he wants drastic cuts in benefit levels for the average citizen, with no exemptions for Baby Boomer foggies like me who are counting on these programs for a comfortable but not lavish old age.

Of course, the big problem is the “Great Recession” that we are still not out of, despite the official declaration that the Recession ended in late 2009. The problem is that the economy is still growing much slower than it could and should. That has caused an appreciable net loss of national potential wealth, the wealth that these entitlement programs were counting on to stay afloat. So yes, it does seem reasonable to say that everyone has to share some of the pain, given that the pain is now unavoidable.

What I don’t like about Ryan and his cronies is that they seize on a real financial problem (which most leaders in the Democratic Party don’t want to talk about) and propose solutions that pin the burden not on those most responsible for causing the underlying problem, but instead go after those who are most politically vulnerable. I.e., people like me. I wasn’t speculating on mortgage-backed securities in 2006 or issuing credit default swaps or taking repo positions on European sovereign debt. But because the people and institutions that did these things have lots of funds and thus political clout (“too big to fail”), they are mostly insulated from taking responsibility. So that leaves average people like me (and probably yourself) whose pockets are prime for picking by conservative political pocket-pickers like Congressman Ryan.

Again, I can accept the idea that the country has undergone something bad, and that I can’t be fully insulated from the consequences. Personally, I could accept a 3 or 4% reduction in my Social Security levels relative to what I would get under the current rules. I believe that such a reduction would be fair; before the Great Recession started in 2008, I didn’t hear any dire predictions about current Social Security and Medicare liabilities threatening to turn us into a weak, impoverished nation. (There was discussion of Social Security problems starting back in the late 90s, but those problems seemed “fixable” back then.) It seems to me that the main problem is the loss of what was otherwise expected to go into the piggybank, because of the recession.

It has been estimated that the overall “growth loss” cost of the Great Recession is around $4 trillion or 30% of one-year’s worth of GDP, maybe around 4% average loss for about 7 years (we probably won’t be back to “full steam” with our economy until about 2015). If I live to collect Social Security benefits for 20 years and I get 3% less, then I’m taking about 60% of one full year less in total. So I’ve made up twice my share of a gap of 30% of one year. I don’t want to lose anything on the Medicare side, but my excess contribution from a 3% Social Security decrease can make up the gap for Medicare, given that the average cost per year of Medicare benefits is roughly equal (a little less, actually) to a year’s Social Security payment for a person like me. OK, so add another point for the pre-existing problems with Social Security, and make it 4%.

Well, bring it on, Congressman Ryan. “We’d all love to see the plan”, as John Lennon sang in “Revolution”. If you want to reduce my Social Security by more than 4% and cut my Medicare benefits at the same time, then you are obviously coming after me because I seem like an easy political target, from a class of people who can make up for the fair share you don’t want to collect from those you favor. Yes indeed, I’m talking about the rich, the 1%. Ryan and his putative boss, Governor Romney, say that the rich need to be left alone or else they won’t create jobs and growth for our future. Hey, whatever happened to patriotism? Why shouldn’t we expect a little more patriotism from the rich?

Good luck, Mr. Ryan. We owe you gratitude for bringing up an unpleasant topic, i.e. the problem of the burgeoning entitlement obligations and corresponding debt of our government. But anyone who does the math and who believes in fairly-shared national sacrifice does NOT own you a vote.

[PS — yes, I know that the Ryan Plan currently promises that people now over age 55 will get their full Social Security and Medicare, without any changes . . . but the Ryan Plan has become the Romney Plan, and Mr. Romney is not exactly famous for taking a position and sticking to it . . . these guys want me to entrust my old age to them?]

◊   posted by Jim G @ 12:22 pm      

  1. Jim, Usually, I have some disagreement with you on something or something tangential that comes to mind that’s related to the topic. This time, regarding Romney’s VP Ryan, there very little I disagree with you about.

    The ONE thing I DO disagree with you is that I intensely (note that word) do NOT want ANY decrease in my social security–not even what you say you are willing to settle for. I live on a pension, and the social security I get is so minimal as to barely allow me to collect it; but better money comes in than it goes out, and the pittance I get from social security DOES pay this or that, and that is most useful. So, I say again: I do NOT want a decrease in my social security. That is about the only disagreement I have with you on any of this.

    And I guess I DO have a tangential comment or two: I remember very clearly when, I think it was in Reagan’s time, the pols in Washington said (I paraphrase), “We need some money to pay off some bills. Oh, there’s tons of money in the social security account; let’s use that.” I remember vividly thinking at that time, oh, oh, that’s trouble. And here we are…big trouble with social security.

    I heard today, albeit from someone speaking strongly against the GOP, that with Ryan’s economic plan Romney would pay 1% in tax (!!! 1% !???!) and ALL those who get social security would have a major decrease in their “entitlement”.

    That’s another thing that truly annoys me–the use of the words “social security” with “entitlement”. Somehow I really do NOT see social security as an “entitlement”. After all, isn’t the idea of social security–at least when social security was originally set up and when I originally started working somewhat similar to that of a fully funded pension: That is, I put in my share, perhaps employers put in a share or not; the money is used by the gov’t in a fiduciary manner to accumulate to earn further money to fully fund those who will use it as retirement. That was how social security started–until, as I say above, someone looked around for a pile of money and said, oh, how about using THAT?

    Tangentially, yet another thing that truly annoys me: When I pay my income taxes most of the pittance of social security I actually get is taxed again; that’s a tax on something that’s already been taxed. I don’t think there are too many of the 1% group who have a situation where money already taxed is taxed a second time.

    Ryan looks good, is personable, is young…. But that’s about all I can say for him. I say again, if Obama doesn’t get in for a second term, it will be enough to make me want to move to Canada. MCS

    Comment by Mary S. — August 12, 2012 @ 1:35 pm

  2. All of this is coming at a time when companies and some state governments are rolling back their pension benefits. and with declining pension benefits, people are counting on social security more than ever. if the government can afford to provide extremely low tax rates for the very wealthy, it definitely can fully fund social security.

    And let The Ryan-Romney ticket demagogue Medicare as they have been doing lately. That is their MO. But Romney is a liar. How can anyone really believe that Ryan-Romney wants to save entitlement programs? just read for yourself what they say about the role of government.

    Comment by Zreebs — August 14, 2012 @ 6:37 am

  3. Good point, Steve, as always. I was willing to give up a bit on Soc Sec income for the good of the nation, but Ryan and the GOP vultures want to tear into my health care (along with that of millions of others). They promise that they won’t bother me ’cause I’m over 55, but I trust ‘etch-a-sketch’ Mitt with sticking to his promises for maybe a few months, a year or two tops.

    Actually, as I’ve said here before, I believe that vouchers CAN be a part of the solution to the health care cost crisis, if properly designed and coupled with government-enforced safeguards and market information support. Vouchers could help apply the power of market forces in an area that is now mostly devoid of it. And if properly designed, they can also protect the public policy interest of universal coverage and non-discrimination against the sick.

    But vouchers require work on the part of the consumer, i.e. time spent in doing research on potential vendors who would take your voucher, and the average Medicare recipient may not be in the best position to implement a huge social-economic experiment; after 60, esp. after 70, your mind, your eyes, your memory, etc. just ain’t what they used to be.

    IMHO, it would make much more sense to institute a voucher system (with proper protections) for working age people, as a replacement for the current system of employer-provided health coverage. Then people could get used to using vouchers effectively while in their prime years. Under that scenario, it would be more reasonable to expect them to continue using vouchers into their old age. But to use Medicare as the vanguard for such social engineering — there’s a bit of Germany 1940 in that.

    Just some .02, from a fellow economist-at-heart. Thanks for stopping by, Steve!

    Comment by Jim G — August 16, 2012 @ 8:24 pm

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