My Views on Spending Cuts and Entitlements

December 29th, 2012 at 4:46 pm

A number of folks in recent weeks have question or criticized my views, both here at OTE and on TV, regarding endorsing spending cuts, including some targeted at the social insurance programs Medicare and Social Security.  So let me expand a bit on those views and what I believe is a balanced take on these highly charged issues right now.

First, I can’t be held accountable for what I say on TV—kidding!  But I would ask that folks don’t pull out one phrase or sentiment in one segment.  It’s true that one has to mind one’s words carefully on TV but you can go too far with that and say nothing.  So while I’m sure I lean too far over my skies at times on the airwaves, where you can’t edit yourself, I’d ask my critics to read what I write up here and to listen to more than one segment on more than one show before deciding where I stand.

On fiscal matters, while I’ve been a loud voice for avoiding austerity (including bemoaning the demise of the payroll tax break this very AM on MSNBC’s Alex Witt Show), I’ve also argued that we need to chart a course such that eventually our public debt starts growing less quickly than our GDP.

In this regard, I’m what you might call a cyclical deficit dove and structural deficit hawk.  In downturns, or any period like this with highly elevated unemployment, the most important fiscal question is whether our budget deficits are large and stimulative enough to offset the private sector contraction.  In periods of strong growth, the deficit should move toward primary balance, which by definition leads to a decline in the debt/GDP ratio.

I’m also a strong believer in an amply funded government sector that is able to respond to market failures, which guys like me see around many more corners than the typical economist, and structural budget deficits undermine our ability to respond as needed.

Of course, the question is how do we get there: through cutting spending or raising taxes?  The politics points strongly toward both—I don’t believe there’s a deal out there that achieves the goals outlined above without changes on both sides of the budget ledger.  But the economics points toward balance as well.

I’ve long and loudly advocated for new tax revenues and in fact have gone further than most.

But I think the mandatory side of budget—the part that funds the entitlements—must be on the table as well.  In fact, as I’ve stressed in many posts, we’ve already cut too deeply on the non-defense discretionary side, where programs to aid states, fund Head Start, support college access, even provide health services for vets, are already compromised (the defense side hasn’t been held harmless either but it has many more Congressional champions than the non-defense side).

Though they require a grain of salt (see end of this discussion), I generally believe the predictions that the growth of health care spending, private and public, will continue to outpace that of GDP.  That means an increasing share of GDP growth goes to paying for health care.  Some of that is inevitable given demographics, but most of it is due to excess health-care cost growth.  This must be dealt with or inefficient US-style health care (other advanced economies spend much less on health care) will crowd out other stuff we want and need.

At the same time, as I also incessantly stress, most retirees depend on Social Security and Medicare and can’t afford benefit cuts.  So that means that any cuts should a) come from squeezing out the known inefficiencies from the delivery side of health care system (our current system rewards providers for quantity over quality), b) not target economically vulnerable individuals.  As a rule, I’d avoid further raising eligibility ages in both programs.

So let us run these criteria by the ideas on the table.  The President’s $350 billion or so in mostly Medicare cuts (it’s harder to find cuts in Medicaid that meet the above conditions) are mostly from ‘a’ above, things like incentivizing efficient hospital care and using Medicare’s clout to bargain for cheaper drug prices in Part D.  But he also suggests increasing premiums on parts B and D on high income beneficiaries.

In fact, some of this is kind of baked in the cake with new taxes starting next year: an additional HI payroll tax of 0.9% on earnings above $250,000 and an ACA measure that taxes unearned income at 3.8% to support Medicare.  I suspect critics of means-testing entitlements feel better about that, but to me they’re pretty close and reasonable policy measures, IMHO.

As per Social Security, this post has a list of fixes to close the funding gap.  Clearly, in an era of much higher wage inequality, raising the maximum earnings threshold makes sense as a larger share of earnings is over the cap (why this fix has gotten lost in the recent debate is an important question for the program’s advocates).  I like the Domenici/Rivlen idea to gradually apply the payroll tax to employer-provided health care benefits.  Rather than means-testing, I’d support a lowering in the “bend-points” affecting the wealthiest beneficiaries, but we must be guided here by the fact that for a large majority of retirees, Social Security is their main source of income.  It’s true that Warren Buffet doesn’t need Social Security.  But that shouldn’t guide policy.

My views on the chained-CPI—a benefit cut—are here.  I support the change—it’s a more accurate measure of price growth (though a chained index for the elderly would be better), and I’m sure it’s coming, so I want to get something for it.  That ‘something’ is an offset from the benefit cut for poor, old elderly.  But I agree, and stress in the post, that there are reasons to be nervous about the change.

So, there you are.  I’m sure many disagree and I’m happy to have constructive arguments about all of the above.  There’s a lot of nuance here, I think, and I know—my bad—it sometimes gets lost on TV.  Often, I’m trying to emulate balance and compromise, which as both a Buddhist and policy wonk, I highly value and believe are very much missing in today’s debates.

But I know that I sometimes push them too far in ways that are inconsistent with my values and those of many of my readers and listeners.  Clearly, in trying to be too balanced, one can be imbalanced.  We are all works in progress.

Happy New Year, all!

 

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50 comments in reply to "My Views on Spending Cuts and Entitlements"

  1. David C says:

    The evidence is very strong that the reason for high US spending on healthcare is not too many procedures, tests, etc. It is simply that we pay far more for these procedures. See, for example, Austin Frakt at

    http://theincidentaleconomist.com/the-us-health-care-rip-off-an-argument-for-a-public-option/

    or Uwe Reinhart at

    http://content.healthaffairs.org/content/22/3/89.abstract


  2. foosion says:

    Today’s problem is overwhelmingly a slow economy and high unemployment. That we are even discussing spending cuts is absurd and will only exacerbate the problem. We should be focusing on the real issues. We need fiscal stimulus today.

    Look at interest rates. Is the market concerned about deficits or is the concern slow growth?

    Other than healthcare costs, we don’t have a long-run deficit problem. If we fix this, all is well. If we don’t fix this, have a major problem, whether healthcare is paid by the federal govt or individuals.

    As Atrios recently said “Republicans will inevitably see a balanced budget as an opportunity to give money to rich people (tax cuts and crony capitalism). The reward for liberals for this well done very important work? Tax cuts for rich people and unpaid for disastrous wars. Liberals should spend their time in office figuring out how to implement a sticky liberal agenda, one which is hard to dislodge, not figuring out how to create a pot of money for Republicans to steal when it is their turn.” Krugman wrote a post today on the subject.

    Regarding chained CPI, it is NOT a more accurate measure of cost of living increases for the elderly. Chained CPI is about 0.3% lower than CPI-W (the CPI for Social Security). The cost of living for the elderly is about 0.3% higher than CPI-W. Current practice does rough justice. Adopting chained CPI will make the cost of living adjustments for the elderly less accurate.

    It is only due to rising inequality that Social Security is even a possible problem. The income cap was set to capture 90% of national wages, but Greenspan, Reagan and O’Neill did not anticipate the degree of inequality we see today (the did anticipate demographics and life expectancy). Inequality means the target level captures less than 90%, so there might be a shortfall in a few decades. Raise the cap.


    • Alyosha says:

      All of your points are absolutely spot-on, but the first of them is especially important right now. Unfortunately, many liberal elites seem to specialize in parroting conservative frames. That is certainly Obama’s modus operandi, though I suppose it’s not surprising that he doesn’t focus on the unemployment disaster. In a sense, the Great Stimulus Pre-Compromise of ’09 was the catalyst for a perpetual motion machine of economic policy failure. Slow wage growth and spiraling inequality will keep austerity at the top of the agenda indefinitely.


    • Postkey says:

      There is an ‘interesting’ comment on “My Views on Spending Cuts and Entitlements”

      At http://bilbo.economicoutlook.net/blog/?p=22230


      • Andi says:

        Good article Postkey, I was going to put the link up myself. It’s not a personal attack article, but does highlight the fact Jared (like so many other progressive economists) allows his terms of reference to be set by a conservative neo-liberal framework.

        It’s frustrating because I love so many of your ideas Jared. But while we’re saddled with this demonstrably incorrect conservative idea that the Government has to be run like a household we won’t build the WITT society we’d like.


  3. Ron Vandegrift says:

    Thank you Jared,

    I would point out that there ought to be required co-payments to be made by Affordable Health Care recipients receiving healthcare, America is enraged by the takers of Government assistance programs. There should also be cuts in unemployment aid and SNAPS for non military recipients. The unemployment rate is coming down and aid should follow. We need to minimize our view of the overall effectiveness of what are considered stimulus dollars and view stimulus money as largely a gamble rather than a cure.

    Sincerely,
    Ron Vandegrift


  4. Nathan Becker says:

    The US already has an “amply funded government”. As a currency issuer, the US govt is NOT revenue constrained. Taxes do not fund anything at the federal level.


  5. Mark S says:

    Thank you Jared,

    TV is a terrible venue to capture the policy choices and their interactions.

    Given the ACA changes are just coming to bare, should we not hold off on more changes to the health care system….after all these budgets are for 10 years out.

    The companion to entitlement changes that you support are of course defense changes. IMO, we have heard virtually NO debate over these policy choices and my request would be for you to take this area on as well. (could you point to some reading on this issue?)

    The sequester will force the first real cuts in defense since the end of the cold war/Bush I. All in all, a progressive is sanguine about the cliff outcomes. (See Howard Dean) Where do you stand on this issue?

    I appreciate the macro economic considerations that each policy choice effects. Weaponized Keynesian Macro never seems to be acknowledged on any of these policy debates. Will cuts in defense expenditures have the same multiplier in the macro economic world as the Discretionary and Entitlement cuts on the books or forecast.
    Thanks
    Mark


  6. Bill B. says:

    When you say “poor,old elderly” re SS, obviously most SS benefits go to the elderly. That leaves finding a definition for “poor.” Is that govt-defined “poor”? Seems to me that most people over 65 have very reduced incomes, males have a median income of $25K per year, and females $15K. Two-thirds of the elderly rely for at least 70% of their income on SS. Even a “modest” decrease in benefits, say $50-100/mo. would hit this group hard. Do we really want, or need, to do this?

    This leaves aside that trying to means-test SS is probably a bad idea. One of the reasons it has worked so well for so long is that everyone gets benefits, so there is strong support for it among the populace, as opposed to programs exclusively for the poor. It was never meant to be a program only for the poor.


  7. Tom in MN says:

    Yes, everything should be on the table, but I think what you list are lots of trees that are in the way of the forest. Here is what I think the big picture is:

    In good times we can’t give tax cuts instead of paying off debt. We need to average a balanced budget over each economic cycle. As the richest country in the world, we can afford anything we want to do. Decide what we want to do and then set taxes to pay for it, not the other way around.

    And on the spending side we are way off from a first class country:

    We still have people without health insurance (yes we have to control costs, but that comes second to this).

    Our mental heath system is full of holes.

    We have a large number of children in poverty that go to bed hungry.

    We don’t seem to care about the homeless, which is mainly due to ignoring mental health issues.

    Our welfare system is not keeping people out of poverty and our unemployment insurance is too stingy.

    We have infant mortality rates that are a tragedy.

    We have an incredible number of people in jail and a stupid approach to drug use (mental health again).

    Our infrastructure and schools are crumbling.

    Global warming is being ignored and energy policy is weak at best.

    We have a defense for threats that no longer exist.

    But yes, by all means, let’s discuss chained CPI.


    • Alyosha says:

      Thanks for providing some much-needed perspective on the current debate. With the exception of the runup to the second Iraq War, I can’t recall a time when our public discourse has been so disconnected from reality.


  8. David Zimmerman says:

    First, full transparency, I’m one of the 1% in this country. What upsets me most about all the talk on our current deficit matters is this belief that the 1%, or more importantly, those making over $250,000, should be the only citizens in our vast country to be asked to fund the numerous misguided fiscal decisions of our politicians over the past several years. It’s always easy to say “yes” to more giveaways, but at some point it has to be paid for. Why shouldn’t EVERY citizen have to have some skin in the game. If so many of the entitlement benefits go to the large middle class, is it to much to ask for a nominal 2-3% increase in their marginal rates to help pay for the goodies? I don’t mind paying more than my fair share to fund our problems, but stop demonizing me while reaching into my pocket to grab more money. And to be fair, its not just the federal gov’t who wants a piece of me, it’s also our state and local governments. Go ask if a couple living in NYC making $250,000 per year feels like a “millionaire or billionaire”. Please Mr. President, start acting presidential and not a divider of ALL the people you were elected to govern.


    • JimZ says:

      $250,000 is FIVE times US annual median income.


      • David Z says:

        Fair point, but my effective federal income tax rate is over 30% (plus NJ also socks it to me) and being a tax professional, I’m knowledgable of thenfact that a family of 4 making $50k, to use your comparison, has an effective federal income tax rate of less than 5%. Is that fair when you also assume that those making over the mystical $250,000 amount also begin losing the benefit of personal exemptions, a haircut on their itemized deductions, no ability to take a tax deductible IRA contribution, no access to the child care credit, education tax credits and many other special tax considerations focused on the middle class. Don’t get me wrong, I’m thankful for my living and I’m willing to pay more than my fair share, but the average taxpayer has no idea of what the real burden is that is borne by the “wealthy.” More specifically, do they realize the value of what they get above and beyond a low effective tax rate?


        • JimZ says:

          Look at the trend in income/income shares of the highest (pick one – percentile, quintile, etc.) over the past 40 years compared with everyone else. We have the most unequal income shares in our history, and worse than any other advanced economy. Neoconservative policies have favored those with wealth and punished the working class to the extent that the gutting of the middle class is now causing economic harm. Federal income taxes have become drastically less progressive since the mid-1970’s. Income from capital sources are taxed at far lower rates than income from wages, not to mention the ease of hiding income in tax evasion zones around the world. in 2005 Congress passed a bankruptcy bill that harmed individuals while leaving huge loopholes for corporations. As a tax adviser surely you cannot with a straight face deny that there are so many tax loopholes for those with means not available to ordinary Americans that tax policies essentially transfer wealth upwards.


          • David Z says:

            Respectfully, you must define loophole. Also, people need to stop throwing everyone with a good income into the same bucket. Case in point, I grew up lower middle class, joined the military out of high school and served proudly for 8 years, earned my bachelor and master degrees at night and then went on to earn a very nice income because of that hard work. With an income over $1 million per year, please tell me what loopholes I seem to be missing as my effective federal income tax rate is 32%. Jim, respectfully, I consider myself an “ordinary” person who has worked hard to get to where I am from an income perspective. When will people stop making me feel bad for my hard earned success and stop convincing themselves I am able to “beat the tax man” by taking advantage of loopholes. While I recognize our tax system is confusing, out-dated, filled with special interest (that, incidentally, cater to all income levels depending on the benefit), we need to begin having a conversation that stops assuming that people like me are beating the system. I would love to walk people through my tax return so they can see that what they think is true is, in fact, not.


          • Tom says:

            I know people who grew up lower middle class, earned bachelors and masters degrees, are just as successful as David Z, and make less than $100000.

            Nobody expects those making over 250000 to pay for everything. However, they have done the best over the last 30 years, it is reasonable to ask a little more from them than from people on the edge of foreclosure.

            It would be reasonable to have a few more high income tax brackets, so we can have, for example, tax rate bumps at 750K, 1.5 million, 3 million, and 6 million. After all, we wouldn’t want people to have all their incentive to work destroyed just because they made 10 million one year.


    • Phil Perspective says:

      Go ask if a couple living in NYC making $250,000 per year feels like a “millionaire or billionaire”.

      What? Because they’ll whine because they can’t afford to send their kid to the Dalton School? Cry me a river!! I’m sorry. If a family can’t make ends meet on $250,000/yr, even in NYC, then they need their spending looked at.


      • David Z says:

        Phil, have you ever tried to live in NYC…..carrying school loans while paying the a high effective federal, state AND NYC tax rate. Your comment is what’s wrong with this debate in our country, you think you know something you don’t. Trust me, a family making $250k living in NYC given the cost of living and high tax rates isn’t sending their kids to a private school. Do you know what rents are in the City? And go back to my last post, at $250 k, they qualify for very little tax incentivized programs as the family making $50k. Check your facts please.


        • foosion says:

          Living in NYC is a choice. People live in NYC because they like it, derive value from it and, most likely, are earning much more than if they lived elsewhere. Of course it’s expensive, but to take the benefits and then whine that $250k isn’t enough is, well, whining.

          What’s really fun is to read the plight of those struggling to get by on $250k, then read about the greedy union workers and city workers living in the lap of luxury on $50k


        • Fred Donaldson says:

          Let’s see. You say you make a million dollars a year and live in New York. A great apartment goes for about $50,000 a year. You can eat on $20,000 ($400 a week), and you don’t need a car, because they have buses and trains.

          After taxes and expenses, you could probably save $400,000 a year, or $4 million in ten years, or $40 million in the 40 years the average guy works.

          However, the average guy can only save $100 a month, or $1,200 a year, so it wouldn’t take him 40 years to save $40 million, it would take 33,000 years. And you want to raise his taxes and you want more loopholes for yourself?


          • Fred Donaldson says:

            Hate to reply to myself, but someone said I overstated how much my New York friend could save, and that it would only be $16 million over 40 years, which would only take the average family 13,300 years to equal. My original remark included some minimal gains with compound interest, but the 13.3 centuries just assumes you put the money under the mattress.

            Vastly unequal wealth would seem to assure that at least somewhat unequal taxes are justified.

            Presented with the prospect of saving for 13 centuries versus 40 years, no wonder folks realize that the American dream is myth if the wealthy can’t even pay Clinton era tax rates.


      • urban legend says:

        Can we for once remember that tax rates apply to Taxable Income, and not to either Gross Income or Adjusted Gross Income? When we talk about people with $250,000 in Taxable Income, a garden-variety level of tax planning will mean a Gross Income around $400-450,000 a year. That’s what we mean when we talk about what people “make.” Cry me a river over even Manhattanites who feel stressed on income levels like that.

        Besides, we should not forget either that the household with $250,000 in Taxable Income will, in fact, see nothing but tax reductions — i.e., the reductions Obama wants to extend on incomes under $250,000. Everyone gets those reductions, even billionaires. The Obama proposal results in everyone — yes, everyone, even the biggest gazillionaires — getting a tax reduction compared to what otherwise will be applicable tax rates beginning 1/1/13. It’s not “households” that get taxed at certain rates, it’s income levels. Marginal rates. The marginal rates for everyone will go down on the first $250,000 of income.


    • Tom Goldsmith says:

      I’m one of the 99%. I would be happy to pay 2-3% more in taxes, but not until all of your income is treated for taxes purposes as mine is treated.

      And as for “give-aways,” less be clear that corporate subsidies, reduced tax rates on investment income, the sweet-heart economic development deals, and similar items are as much “give-aways” as food stamps or unemployment insurance.

      You’re not being demonized nearly as much as those who, often through no fault of their own, are trying to get by at minimum wage or trying to feed them selves on $5 or $6 a day in food stamps. They’re the ones who are called irresponsible, even when Wall Street largely crashed the entire economy.


  9. Bob Walling says:

    J.B.

    The main problem I have is that we need to focus on getting the economy up and running on all eight cylinders and get unemployment down under 5% (1). Once this is done and things start working again we can look at cleaning up the tax code, fixing/improving entitlements etc. We need to have a structural attachment to budgets etc that are tied to GDP and unemployment (much like the FED has recently proposed).

    (1) http://krugman.blogs.nytimes.com/2012/12/29/on-the-economics-and-politics-of-deficits/?pagewanted=all


  10. JimZ says:

    Jared, respectfully, (a) Social Security should not be on the table because it has nothing to do with the deficits, (b) chained-CPI is less-not more accurate for seniors, and it is seniors who will bear the large brunt of such an across the board policy change, (c) any reduction in the benefit itself (whether SS or Medicare) is addressing the issue at the wrong time in the worker’s life-cycle, i.e., any increased burden should occur when the individual is in the workforce, not when in retirement. Clearly, raising the wage cap and/or modestly increasing the FICA rate essentially sets the trust fund on a 75-year sustainable path, (d) America’s social security system is one of the least generous among the advanced economies (something like half of vaunted Germany’s as a % of GDP), so the momentum needs to be toward expanding not contracting the program, and (e) the constant nicking away at the program will eventually turn Social Security into a welfare program, to the severe detriment of the US’s overall social safety net.


    • Tom says:

      Anyone who is proposing chained cpi without proposing raising or eliminating the payroll tax cap isn’t interested in making SS stronger, they are trying to make it weaker.


      • Sharon says:

        This.

        It really is the height of “off topic” to talk about cuts in SS right now.

        I understand that the President wants an agreement that diffuses the debt ceiling bomb, and that the chained-CPI is a showy bit of business to bargain with, but there are other ways to get there.

        If the President wants a long-term fix for SS, as noted above, there are fixes that don’t hurt retirees.

        I wish that the President was as passionate about fixing unemployment as he is about the “deficit.”

        Jared, I’m a fan of your blogging and appreciate your clarity when you write about economic policy, but your advocacy of the C-CPI has been surprising and disappointing.


  11. Victoria Else says:

    The overall premise, that we should focus on the concept of “deficits,” is not in keeping with modern monetary thinking. Congress has mandated that the government must borrow or tax to fund programs, not God. That can be fixed in legislation, in favor of a system of managing the money supply to cover needed government spending. Furthermore, in chained CPI you are advocating for a downward-spiral in which the spending of the poor is reduced by benefit cuts, and then further reduced based on that reduction; that is how the “chaining” works.


  12. bmull says:

    Prove that Chained CPI is a more accurate estimate of inflation than CPI-W in the elderly. You can’t, so don’t say it like it’s a fact. Most beneficiaries have the sense that their COLAs don’t keep up with inflation.

    What Chained CPI has been proven to do is to average 0.3% lower than CPI-W over the long term. So let’s call it what it is: a cut.

    A Social Security cut, particularly one that is fairly regressive and includes regressive tax increases to boot, should not be “inevitable.” If we’re going to do Social Security reform, let’s raise the cap on Social Security withholdings just like Medicare. Don’t give a tax cut to people making $400,000 a year. I could list a dozen other ideas that are more fair than chained CPI and, unlike yourself, I’m not an economist.

    A sweetener consisting of a bump in benefits at age 80 or 85 does not begin to compensate needy seniors for the hit they would take under Chained CPI. I think your connections to the Obama administration and to CBPP have clouded your thinking on this.


  13. Ed Walker says:

    You say that Chained CPI is coming, and “you want to get something for it”. You should be explaining what it is that those of us who dumped gobs of money into the trust fund for decades to cover our own retirement are going to get for it.

    You and the rest of the elites are saying that it doesn’t matter to you what happens to those of us with rational expectations of certain payments. We are the fools and ignorant rubes who never should have trusted politicians, staffers or economists to stand by their words. We can’t expect the rich to pay and we can’t expect a government purchased by the rich to force the rich to pay.

    What does that say about the future of trust in government? Why would I bother to participate? The elites decide and the rest of us suffer. Thanks for the realpolitik lesson.


    • urban legend says:

      I think Jared’s position here is truly repulsive, and he should be ashamed of himself. It smacks totally of an insider’s job, a circling of the center-left DC policy establishment wagons, trying to soften those of us of the Obama base out here in the hinterlands to accept grudgingly what should be completely unacceptable as a matter of policy as well as politics. It is a matter of law that Social Security has nothing to do with the deficit. By law, there is no such thing as a “unified budget,” but everyone advocating any Social Security benefit reductions is pretending that it is not the fiction that it is. Social Security reductions for this reason alone should have been taken absolutely off the table from the beginning. The only reality here is the law, and the law says Social Security is completely separate from the Federal budget.

      What tips us off to the inside job is that Jared makes no attempt whatsoever to back up his bald assurance that chained-CPI is more accurate. What is the basis for this claim? Where are the other CPI-adjustments that are based on chained-CPI? I worked on hundreds of contracts with CPI adjustments: never once did anyone on either side propose a chained CPI. If it’s used nowhere else, why on earth would anyone with a sense of decency propose imposing its worst burdens on 95-year-old grandmothers? Meanwhile, the next generation will get a double whammy: not only will they be screwed out of a good chunk of their Social Security benefits, but many of therm will have to provide more financial help for their parents before they retire themselves.

      It’s going to happen so why fight it? Wasn’t that the same reasoning the Washington Post used for putting articles accurately debunking Saddam’s WMDs stories on page 47? This is what passes for progressivism today?


      • Fred Donaldson says:

        After watching Howard Dean and Obama opine on reforms to Medicare and Social Security this morning, I am more convinced than ever that the biggest scoundrels are the folks pretending to be your friends. Add to that Tom Brokaw ruminating that “entitlement reforms” to Medicare and Social Security are the most important problems in America today, makes me wonder how even the “greatest generation” can be fooled, or thinks we can be fooled.

        It comes back to employer financial responsibility to pay decent wages so that the public doesn’t have to provide food stamps and housing assistance in order to keep wage slaves alive for yet another day’s eight or ten or twelve hours of work. A decent minimum wage, like the $15.50 in other countries, would allow savings, expand the economy and take some of the cash out of corporate and private overseas accounts and into the pockets of the workers who daily break their backs to earn that money.


  14. R. Nemo says:

    We all know the truth no one will speak. As a PHD in sociology I know the terrain well! The elite are determined to roll back the social contract that was established from the New Deal to Reagan’s election. This is not a secret to anyone. The chained CPI is just another stealthy way to take away what is rightfully the property of the citizens of this country. The country belongs to the people, who create the wealth, not the capitalists who expropriate the wealth. Most economists serve the capitalist class. A few don’t. But there are not many. And most don’t even know why they think what they think. So good luck getting any social and economic justice out of this current system. Most who serve the elite are not exactly “wise men.”

    Also: I would rather give seniors more than the current cpi then less. In fact SS payments are way too low as it is. It is a moral shame on the richest country in the world. What a shameful new year we enter.


  15. R. Nemo says:

    I guess economists–the dreary science guys–wont post what sociologists think!

    So I will just quote Krugman–you know that Nobel laureate guy. If he is right, which I bet he is, you cannot be a structural defcit hawk anymore.

    Krugman: Soltas suggests, based on a more careful statistical analysis, that the structural budget deficit, including interest, is 2 percent of GDP or less. He also makes an interesting observation: the deficit has become more cyclically sensitive over time thanks to rising inequality. How so? More revenue comes from the wealthy — even though their tax rates have fallen — and their income is more volatile than that of ordinary workers.

    So, the whole deficit panic is fundamentally misplaced. And it’s especially galling if you look at what many of the same people now opining about the evils of deficits said back when we had a surplus. Remember, George W. Bush campaigned on the basis that the surplus of the late Clinton years meant that we needed to cut taxes — and Alan Greenspan provided crucial support, telling Congress that the biggest danger we faced was that we might pay off our debt too fast. Now Greenspan is helping groups like Fix the Debt.


    • PJR says:

      Moving to the chained CPI for Social Security benefits would not reduce by one penny the national (aka public) debt. There is no defensible reason to include Social Security in the fiscal cliff budget talks. Furthermore it is inappropriate to propose the chained CPI in these talks. The appropriateness of using the chained CPI (for Social Security benefits or anything else) depends on whether it is or is not a more accurate measure of inflation (for Social Security benefits or anything else), NOT whether it would reduce spending.


      • Jared Bernstein says:

        Nuh-uh–under every deal under consideration, the chained CPI is also applied to the tax code. That means the brackets, now indexed to the chained measure, would grow more slowly and a given rate of income growth would mean more households passing into higher brackets more quickly. Maybe raises $100 bn over 10 relative to CPI-U indexed brackets and more as time goes on.


        • LizinOregon says:

          Which just makes it a bigger blow to those already struggling to get by because now you have added a tax increase that will not apply to someone already in the highest bracket.


        • Sharon says:

          If the tax increase for the under $250,000 folks is the carrot, then why not just propose a stand-alone tax increase?

          At least that approach is more transparent. The administration can’t sneak this increase under the door. More and more people know how a chained-CPI affects income taxes.


        • PJR says:

          Agree, applying the chained CPI to tax brackets would reduce the national debt. (Not so for applying it to Social Security benefits.) But even for tax brackets, we open a Pandora’s Box once we decide to apply an inflation metric for its budget consequences rather than for its accuracy in measuring what we wish to measure. Also, my distinct impression is that we would not be discussing the chained CPI at all in the fiscal cliff negotiations were it not for the fact that conservatives proposed it purely as a way to cut Social Security benefits and in direct contradiction of what’s implied by the CPI-E.


        • urban legend says:

          Is it proposed that veterans benefits will be shifted to a chained-CPI? How about cost adjustments in defense contracts or government employee wages? Is the BLS in the process of shifting its official, top-line figure from the CPI-U to the Chained-CPI? If not, why not?

          If Chained-CPI is “more accurate,” why does BLS say that “[t]he CPI is generally the best measure for adjusting payments to consumers when the intent is to allow consumers to purchase at today’s prices, a market basket of goods and services equivalent to one that they could purchase in an earlier period,” or that the CPI-U is “[o]ur broadest and most comprehensive CPI”? Why does BLS take seriously critiques asserting that the CPI-U understate inflation as it does for ones asserting it overstates it?


  16. Ken M says:

    Your view on chained CPI doesn’t make logical sense. If you want a more accurate measure, then what you want is a chained elderly CPI. Given evidence that the current CPI is less than an elderly CPI, cutting it further by going to a chained CPI not specialized for the elderly is less accurate, not more accurate.

    Politically, it’s obvious that the impetus behind going to chained CPI is the desire to cut SS benefits by any means possible, not some technocratic impetus toward accuracy. While you may think you’re just pushing for the latter, the real political effect is that you’re just providing cover for the former. And you’re not even making sense. If you want to advocate a technically more accurate elderly CPI, advocate that, not a benefit cut disguised as a technocratic fix.


  17. lambert strether says:

    The actuarial soundness of Social Security is very important, and one way to increase it would be to gradually decrease life expectancy, so that claims on the system decrease in tandem. One obvious way to achieve that policy outcome would be to “nudge’ elders toward poor dietary practices, as for example Whiskas, Meow Mix, and so forth. I commend Professor Bernstein for his courage in putting these policy options forward — courage that is all the more evident from the fact that he himself need never feel their effects. That’s why we put trusted men like Professor Bernstein in the position of making the hard choices.


  18. Ken M says:

    and also, we need to hear more about why the whole current deficit discussion is a distraction, not just from our real problem (undercapacity economy, unemployment) but even from cutting the deficit, since the best way to cut the deficit is to get people back to work:
    http://www.businessinsider.com/closing-the-deficit-is-painless-2012-12
    The short-term deficit problem is unemployment. The long-term deficit problem is excessive growth of health care costs. We need to focus on fixing those. The rest is a distraction that is primarily driven by the desires to keep taxes low on the wealthy and cut government spending on everyone else. That’s the incredibly obvious political reality. Speaking to that reality is helping. Adopting the discourse of better technical fixes to cut the deficit now is not helping.


  19. Eric Jaffa says:

    RE “a chained index for the elderly would be better”

    We should consider fast medical inflation in calculating increases to Social Security.

    I guess that’s what you mean by “index for the elderly.”

    However, we shouldn’t assume that 84 year olds go comparison-shopping for health care.

    I guess that’s what you mean by “chained.”


  20. apetra says:

    House Republicans should pass a standalone bill that extends the debt limit by $200 billion, but dedicates the amount exclusively to interest and due principal on already outstanding national debt.

    Rejigger federal legislation spending priorities, if need be, in the same legislation, so the funds cannot be diverted to other discretionary spending.

    In one stroke, this takes the Democrats’ threat of default off the table. If Republicans do it right, and additionally protect the priority of current Social Security and Medicare, Democrats cannot scare seniors, either. If Democrats will not pass it in the Senate, or the President will not sign it — and heaven forbid take the country into default — they are the ones holding solvency hostage, and blame will fall on them.

    Also, Republicans should pass their legislative agenda in a second, standalone bill. Repeal Obamacare. Enact the Ryan entitlement reforms. End the EPA’s regulation of CO2 emissions and give the go-ahead to Keystone and fracking. Cut taxes by 5% across the board, while eliminating the deductibility of state and local taxes. Slash discretionary spending 20% across the board, including defence (which would have much less impact on national security with such a weak and misguided Commander in Chief). Authorize the additional (but much smaller) borrowing needed to fund this agenda, but no other.

    Lay the groundwork for new bipartisan commissions to discuss selective restoration of spending, or additional cuts and department eliminations, and a new healthcare program focused on the uninsured and opening a national market for healthcare consumers.

    Then, Mr. Boehner should take his caucus and leave town. Sell the program in the districts, in the streets, on the airwaves. If the Democrats default on the debt, shut down the government, debauch the currency, or otherwise act extra-constitutionally, the Republicans must fight them on all fronts.

    House Republicans won an amazing victory in 2010, the most dramatic change from one party to another since the 1940s. Remarkably, they repeated that victorious performance, in the most stunning and unexpected upset of 2012. (Obama’s victory not that surprising, and Senate Democrats won mainly on social issues).

    Democrats want to raise taxes, but want to raise spending even more.

    Republicans must stand for the principal of cutting taxes but cutting spending even more.


  21. Matthew G. Saroff says:

    It seems to me that a Chained CPI is a fraud for two reasons.

    First, the old CPI has been set to lower reported inflation below actual inflation for years, Greenspan has been lobbying for this since the late 1980s, at least.

    Second, and most important, is that an accurate reporting of CPI among the elderly would be higher rather than lower than the already under reporting standard CPI.

    As an aside, I would also note that the “Chained CPI” is pro cyclical: It makes social programs contract when poverty rises, and expand when poverty falls.


  22. Alyosha says:

    Jared,
    It sounds like the Eight Vicissitudes—in this case praise/blame or fame/disrepute—are causing you suffering. For me, such suffering is always a sure sign of the ascendance of my egoic self. When you view your own media appearances, what do you see shining forth: ego or Buddha-nature?

    Why not focus on the tremendous gratitude you must feel for the opportunity you’ve been granted to speak for the vast number of Americans who do not have a voice in elite policy determination? As you rightly point out, too much balance can lead to unbalance. We cannot become enthralled with one aspect of the dharma above the others. The peril of false equivalence in Washington is also widely recognized. Knowing that you will inevitably err, why not err on the side of the downtrodden, rather than the powerful?

    No one in our nation’s capital completely escapes the insidious corruption, but we are obligated to try mightily. When I lived in DC, I found that, when I deigned to notice, there was always a homeless person or low-wage service worker around to talk to and straighten out my priorities.


  23. Helen C says:

    Assistance programs? Try standing next to a young person at the bank presenting gov’t check for 4,000 or 5,000 dollars for a welfare entitlement in January and t
    then monthly ly for each child they have and the majority under 10! They all have cell pho-es, are dressed to the tee and don’t work! The more kids they have the more. Support they get. Their grocery baskets are
    full. They appear to.be the only ones able to a doctor for a sore tonal and they get their drugs paid for.

    I am alone on disability with small help from a little part time job ((10) hrs a week and I can’t pay a go-pay! Social security is constantly checking me.

    Talk about abuse. I wish someone would publish these wasteful money five-away where everyone can see them. The deficit would probably be reduced be 1/2..I wish, too, that congress would stop this melodrama every year.



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