And So It Begins

Via EconLog comes this frightening fact from the WSJ:

This year, for the first time in recent memory, Social Security and Medicare combined will spend more than the programs take in. This will require a transfer from the Treasury of 3.6% of federal income tax receipts. That figure will grow rapidly. In just 15 years, in the early stages of the baby boomers' retirement, we will be transferring more than 25% of federal income tax revenues to cover the funding needs of Social Security and all parts of Medicare. By 2030, more than half of all federal income tax revenues will be required to pay projected benefits of these programs under current law. By 2040, the figure will be two-thirds, and by 2069, funding shortfalls will exhaust all federal income tax revenues...

As Don pointed out today, this is just a transfer (and of paper), so it might be better to look at the actual effects on productivity. Suppose that benefits don't get cut (because of the political power of the elderly). With less tax money being spent on workers, they get a little less value for their time, so they work less. If tax levels remain the same but are simply spent differently, the effect is small (its not like they were getting much value from those taxes anyay). If taxes are increased, this has a much greater effect.

Then there's health care. As we've already seen, Medicare pays more for the same services than private plans. And like anyone spending other people's money, they are likely to choose procedures with far less efficiency than individuals. This reduces the much-needed incentive for medical cost-cutting.

Yeah, its a transfer, but its a distortion-increasing one, and that's a bad thing.

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:wall: - Josh


- Josh

"With less tax money being

"With less tax money being spent on workers, they get a little less
value for their time, so the work less."

Pardon me...but what? I'd like to see the mechanism of tax expenditures on work effort. The government spends more money on me (how would I know, do they send me a detailed report of their expenditures) so therefore....I work harder?

Regarding Medicare:

It isn't an insurance plan, so comparing it to an insurance plan is a bit misleading. Medicare is a plan that will pay for your medical problems provided you are the right age. There is no issue with moral hazard and adverse selection. Hence it will always be more expensive than the typical health care plan.

This is a pretty big bright

This is a pretty big bright red herring.

I mean, the Iraq war is costing more than it is bringing in.

"the Iraq war is costing

"the Iraq war is costing more than it is bringing in."

If it breaks the monopoly pricing structure of the OPEC cartel, it could be cost efficient(at least at the microcosmic level).