2008 March 28 Friday
Medicare Goes Into Deficit In 2008

The tallest female econ blogger (and smart and charming in person) Megan McArdle is appalled about Medicare spending.

Our nation's lack of action on Social Security is appalling. Not because it is going to bust the budget--it is going to become a very large, but still supportable, drain on resources. No, the reason it is appalling is that the structural incentives built into Social Security substantially depress labor force participation in a way that makes it harder to pay for Social Security, and especially health care.

But if Social Security appalls, Medicare quite stops the heart. We've seen this moment coming for twenty years and done nothing. Now it's here, folks: Medicare goes into deficit this year. For the first time, the general fund will be sending money to the entitlement programs, not the other way around. And that deficit will keep growing, and growing, and growing . . .

Megan is upset that George W. Bush has done so little about the approaching financial catastrophe. But if we'd had a Democrat in the White House the last 7 years I doubt the outcome would have been any better. The Democrats don't want to admit to the size of the problem because to do so brings up the possibility of scaling back the entitlements commitment. Well, the Democratic Party defines itself as the defender of necessary and justified and just totally beneficial entitlements spending. Megan acknowledges the assortment of forces that come together to cause this clusterfrack. Click thru and read about it.

The fact of the matter is that the currently old oppose reforms because they don't want to see their benefits cut or taxes raised. They figure they can get what they want and leave the bill for latter generations. Their voting power has been strong enough for enough years to assure that they get to shift huge costs onto later generations.

But I think the outlook for the entitlements programs is worse than most of the serious analysts believe. Rising energy costs could hold back economic growth for much of the next 10-15 years. The entitlements costs will then become a larger percentage of the overall pie as the absolute pie slices for Social Security and Medicare grow while the pie size stays the same.

Share |      By Randall Parker at 2008 March 28 11:48 PM  Economics Demographic

Bob Badour said at March 29, 2008 6:49 AM:

On the bright side, the next Democrat president may have to become a union-busting, government shrinking fiscal tightwad a la Bob Rae as the socialist premier of Ontario.

rdan said at March 29, 2008 9:27 AM:

Try going over the Angry Bear for a rational discussion on Social Security. You have to use numbers to come to some conclusion. BTW, the piece on Basra and Iraq was thoughtful. Looney left, rdan at Angry Bear. :)

kurt9 said at March 29, 2008 10:10 AM:

This is not as much of a problem as one supposes. The federal government has around $40T in assets (e.g. the feds own 85% of Arizona and Nevada) that can be liquidated over the next 30-40 years to pay for these entitlements. If these assets are sold off over this period of time (say, around $1T per year), both the medicare and social security obligations can be met without any increases in taxes, even if the economy remains flat. By 2040, SENS or some equivalent technology should make universal rejuvenation possible which, in turn, will make medicare and social security obsolete so that they can then be shut down.

The resultant society around 2040 will be a post-mortal society with a radically reduced federal government. This is a very, very desirable outcome that is worth working to create.

clayton said at March 29, 2008 10:34 AM:

Ever read Sharon Brownlee's book "overtreated why too much medicine is making us sicker and poorer"? Fascinating stuff it is.

Big Bill said at March 29, 2008 7:18 PM:

On the negative side, the next Democratic president will bust the unions by importing foreign replacement labor to drive wages down and increase destitution until people are desperate to do anything -- absolutely anything -- for a buck.

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