Tuesday, July 16, 2013

The Problem with Social Security and Medicare

Projections based on high rates of endless growth are delusional. Those who embrace these projections are equally delusional.


I regularly receive rants that accuse me of a "blind spot" regarding Social Security and Medicare. The j'accuse trots out projections that the program is solvent until 2037 (or whatever, i.e. the distant future). Then they accuse me of ignoring the real cause of our national bankruptcy, defense spending (every "progressive's" single-agenda cause of all our problems).
The ranters clearly count themselves among the "progressive true defenders of the poor and the working class" and critics like me as "enemies of the people," heartless Libertarians or worse.

Meanwhile, the latest Summary Report of the Social Security and Medicare Boards of Trustees concludes with this warning:
The drawdown of Social Security and HI Trust Fund reserves and the general revenue transfers into SMI will result in mounting pressure on the Federal budget. In fact, pressure is already evident. For the seventh consecutive year, the Social Security Act requires that the Trustees issue a “Medicare funding warning” because projected non-dedicated sources of revenues primarily general revenues are expected to continue to account for more than 45 percent of Medicare’s outlays in 2013, a threshold breached for the first time in fiscal year 2010.Lawmakers should address the financial challenges facing Social Security and Medicare as soon as possible. Taking action sooner rather than later will leave more options and more time available to phase in changes so that the public has adequate time to prepare.
Allow me to take the ranters' points one at a time.

1. I reject all ideological labels and boxes. My views do not align with any ideology. I am regularly accused of being right-wing, liberal, Marxist, Libertarian, all in the same week. I know this is frustrating to everyone with a desperate need to label others in order to dismiss them, but your labels mis-state my views.

2. There are few fiercer critics of unproductive defense spending on such programs as the F-35 or the Imperial Project than me. Here are a few of the dozens of entries I've written on these topics:


The United States of Delusion (January 4, 2013)



How Empires Fall (April 17, 2013)

3. I do not object to social spending programs; what I object to is bogus accounting, delusion being fobbed off as reality, waste, fraud, embezzlement, profiteering, saddling future generations with unpayable debts and misleading projections that ignore real-world trends. There is a difference between blindly accepting what amounts to officially sanctioned lies about social programs' sustainability and supporting sustainable social spending.

Ironically, perhaps, I am just the sort of low-lifetime-income worker Social Security is designed to benefit. If there is anyone who supports a sustainable Social Security program, it's me.

The problem with Social Security is three-fold:

1. The so-called Trust Fund is an accounting illusion. The "safe, guaranteed" non-marketable bonds are merely markers for actual Treasury bonds which must be sold, and interest must be paid on. Social Security is as totally dependent on Federal borrowing as the Pentagon or any other program.

The brutal truth is the system is facing flat or declining revenues while its vast army of beneficiaries will rise from an already monumental 53 million. That's significantly larger than the entire population of Spain (46.5 million) and will soon equal that of Italy (60 million) or Great Britain (62 million).

Social Security is entirely dependent on the Treasury's sale of new bonds for its solvency. If interest rates spike and/or global buyers become wary of Treasury bonds, costs for borrowing will skyrocket, crowding out all other Federal spending.

Being dependent on Treasury borrowing, Social Security will be as impacted as any other program.

2. The demographics of the Baby Boom retiring and the skyrocketing cost of those getting lifetime disability payments from Social Security.

3. The projections of solvency are pie-in-the-sky fantasies in the End of Work. Government projections never predict a recession, much less a depression, and they always project growth rates from the last bubble into infinity, as if a bubble economy can expand forever.

Meanwhile, back in reality, the number of fulltime jobs is stagnant and almost 40 million workers earn less than $10,000 a year. Recent trends suggest that fulltime jobs are being axed in favor of part-time positions and flex-time contract labor. At least some of this dynamic relates to the soaring cost of sickcare, a.k.a. ObamaCare.

No government agency ever forecasts a recession or a systemic decline in fulltime jobs. How accurate have the Trustees' projections been?

In 2010, the SSA Trustees had estimated $41 billion deficit (excluding interest income) and reality turned out to be $76 billion--almost double their guesstimate. Their estimate of total revenues was too rich by $50 billion as well.

If the SSA blew the estimate for the fiscal year ending in October this badly in August of the same year, what faith can we plausibly place in their estimates of what will happen in 2025 and 2037? The SSA numbers published in the August 2010 report estimated that outlays would not exceed revenues (excluding interest income) until 2015--yet outlays already exceeded income by a staggering $76 billion in 2010.

The projections are ungrounded in reality, and this cripples our collective ability to deal with brewing crises in some non-ad hoc fashion.

I have explained all this is great detail many times:





4. I do not object to social spending on healthcare. What I object to is a system that fails to provide health while squandering 40% of expenditures on paper-shuffling, profiteering and fraud, and a government program (Medicare) of which an estimated 40% of expenditures are squandered on outright fraudulent claims, counterproductive tests, drugs and procedures, unproductive defensive medicine and blatant profiteering.

To cite another example of the distortions which end up costing the nation twice as much for health care (as a percentage of GDP) as competing developed countries such as Australia and Japan: Pittsburgh has almost as many MRI machines as the nation of Canada. 
According to local media reports, Western Pennsylvania has about 140 MRI machines, while the 32 million residents of Canada share 151 MRI machines. And the machines are getting a lot of use: the number of CT and MRI scans (scans other than old-fashioned X rays) tripled from 85 to 234 per thousand insured people since 1999.
While proponents are quick to note that scans are cheaper than the alternative diagnostic procedures, one firm's research found that a doctor who owns his own machine is four times as likely to order a scan as a doctor who doesn't. 
As if that wasn't enough to highlight the self-serving nature of "fee for service" cartels, MRI scanner manufacturer General Electric waged a two-year lobbying campaign to roll back cuts in Medicare reimbursements for scans. While the effort proved unsuccessful due to the intense political pressure to reduce soaring Medicare costs, some critics claim that providers simply made up the reduced reimbursements by increasing the number of tests administered. 
The only solution that actually addresses the systemic problem is to get rid of the entire fee-for-service structure and break up the cartels. Healthcare must be reconnected to diet, nutrition, fitness, lifestyle and community, and to education and emotional well-being. 
The odds of any of this happening are essentially zero, and so we can safely predict that sickcare will bankrupt the nation (with a helping hand from the Pentagon) within a few years.
While healthcare costs are rising around the developed world due to the demographics of aging and more treatment options, the U.S. sickcare system costs twice as much as our competitors' systems. In other words, we know that 50% of our sickcare costs are inefficiency, waste and fraud because other nations provide universal healthcare for half of what the U.S. spends per person.







Attacking critics who have taken the time to study the data and trends is not going to magically make these programs sustainable or fix what's broken. Placing one's faith in government projections that always forecast high rates of endless growth (because "growth" fixes everything) is embracing delusion.

Reality trumps accounting trickery and delusional projections every time. Let's see how accurate all the government agency projections (including the SSA Trustees) turn out in September 2015, at the end of fiscal year 2015. 



Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

go to print edition1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economy

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

Kindle edition: $9.95       print edition: $24 on Amazon.com
To receive a 20% discount on the print edition: $19.20 (retail $24), follow the link, open a Createspace account and enter discount code SJRGPLAB. (This is the only way I can offer a discount.)



Thank you, William M. ($50), for your superbly generous contribution to this site -- I am greatly honored by your support and readership.Thank you, Dog's Health ($5), for your most generous contribution to this site -- I am greatly honored by your support and readership.

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