are Social Security and Medicare/Medicaid sustainable?

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  • #19266
    ronmicle
    Member

    Everything I’ve read on LRC and Mises.org have led to believe that these programs are not sustainable and that they are in fact bleeding America dry. But I was reading Glenn Greenwald’s latest column about the VP debate when I read a point about these programs that I had never heard before. He quotes NYT economic reporter David Cay Johnson:

    “Which federal program took in more than it spent last year, added $95 billion to its surplus and lifted 20 million Americans of all ages out of poverty?

    “Why, social security, of course, which ended 2011 with a $2.7 trillion surplus.

    “That surplus is almost twice the $1.4 trillion collected in personal and corporate income taxes last year. And it is projected to go on growing until 2021, the year the youngest Baby Boomers turn 67 and qualify for full old-age benefits.

    “So why all the talk about social security ‘going broke?’ … The reason is that the people who want to kill social security have for years worked hard to persuade the young that the social security taxes they pay to support today’s gray hairs will do nothing for them when their own hair turns gray.

    “That narrative has become the conventional wisdom because it is easily reduced to a headline or sound bite. The facts, which require more nuance and detail, show that, with a few fixes, Social Security can be safe for as long as we want.”

    Is it true that SS has a nearly $3 trillion surplus? I can see SS having a surplus because they are probably way more workers now than retirees, but that trend won’t continue.

    #19267
    derosa8
    Member

    Interesting comment. People responding usually bring up the massive amount of unfunded liabilities at this point. But this author would probably retort that if we keep running surpluses, we can handle all liabilities because the bills don’t all come due at once.

    #19268
    Jason Jewell
    Participant

    According to this story, Social Security began running a deficit last year with no prospect for surpluses in the future: http://blog.heritage.org/2012/10/03/social-security-runs-permanent-deficits-benefit-cuts-loom/

    #19269
    negligible91
    Member

    I was confused about what some of these progressives have been saying as well. Where they go wrong is when they start discussing the surplus. The surplus is a myth. Extra income above expenditures for SS is used to buy bonds from the federal government. The government then spends this money and owes it to SS. In other words, these are IOU’s. So while it’s true that SS maintains a ‘surplus’, non-interest income is over time playing a smaller and smaller role in its overall expenditures, while interest income is playing a larger and larger role. And this interest income comes from the federal government, which will have to raise the money from the market. It cannot do this sustainably.

    Here’s Robert Wenzel on the subject:
    http://www.economicpolicyjournal.com/2012/10/glenn-greenwalds-problem-with-math-and.html

    #19270
    negligible91
    Member

    To elaborate, when I say the government will “have to raise the money from the market,” I mean that it will have to rely on others buying bonds.

    So in other words, in order to pay back what it’s borrowed from SS, it will have to borrow more from other people. It’s like paying back what you owe to one credit card by charging it on another credit card. And since the interest income SS needs to pay its expenditures is expanding, SS is on the fast track to its own demise. There is absolutely no way the federal government will be able to borrow all that money. Its taxes are already less than its expenditures, and printing that amount of money would lead to inflation like we’ve never seen before.

    #19271
    ronmicle
    Member

    Thanks for the links. So as I understand it, SS is running surpluses for the time being due to favorable demographics, but that money isn’t being stored in a vault for later. It is being spent right now for other uses, with the government essentially owing taxpayers an IOU plus interest.

    I knew something had to be wrong with Greenwald’s assertion. I trust him on most foreign policy matters, but economics is a different story.

    #19272
    ehamersly
    Member

    Actually if I understand it correctly myself, it’s worse than that. Someone correct me if my understanding is off.

    The EPJ article says “Social Security incoming tax cash flow is less than outflow to SS recipients…”, so the favorable demographics are already gone.
    If SS were run privately by Charles Ponzi, he’d have been headed to jail starting in 2010 or so.

    The SS interest sounds like interest paid on the “surplus” money taken from SS years ago (going back decades). So that “interest” was paid back in the form of yet another “interest-earning” IOU.

    Since the money going out is already greater than that coming in, the tip of the growing “IOU” iceberg is starting to be paid. But that payment is only going to increase, the rest of the budget is also moving in the wrong direction, and interest rates paid on our growing debt can only rise…

    #19273
    gutzmank
    Participant
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