Cut Medicare and Social Security? What's the rush?


















The reason smart people and companies don't make bets on the distant future is precisely because it's unknowable. Try the following thought experiment: Instead of looking ahead 20 years, look back 20 years, and try to list all the events that have had immense, material effects on today's economy, but were unimaginable in 1992.

Here's my list: 9/11. The Afghan war. The Iraq war. The housing bubble. The crash of 2000. The crash of 2008. The crash of Lehman Bros. The iPod. The iPhone. The iPad. The founding of Google. Hurricane Andrew, Hurricane Katrina, Superstorm Sandy. Obamacare.

What are the chances that another such list will make the U.S. economy in 2033 look utterly different from what we imagine in 2012? I'd say 100%.

Forecasting healthcare costs may be even more of a mug's game. In a 2008 paper, economists Glenn Follette and Louise Sheiner of the Federal Reserve observed that the CBO unwisely projected healthcare costs into the future by assuming that the trends of the past simply would continue.

But the trends of the past had included an unprecedented expansion of public and private insurance coverage, which cut average out-of-pocket spending from 51% of total healthcare outlays in 1960 to 13% in 2005. That created an explosion in demand.

Could the trend continue? Plainly not. The Fed economists also noted that any trend pointing toward healthcare consuming 40% of GDP would have such destructive effect on the rest of the economy that personal behavior or political action would change it before reaching that point. The CBO now acknowledges that.

Healthcare reform has made such projections even more uncertain today, in part because the reform act includes numerous cost-limiting initiatives, the success of which can only be guessed at. That's an argument against taking such radical steps as raising the Medicare eligibility age, as some fiscal-cliff pundits advocate.

Leaving aside that doing so would drive up costsfor employers, states and Medicare participants themselves by more than it would save the federal government (the Kaiser Family Foundation crunched the numbers), it's far too early to know if it's even necessary.

One might argue that the uncertainty of economic forecasts means there's no point in economic planning at all. But there are good reasons for looking ahead, just not good reasons for thinking your vision of the future is 20/20.

And there's a big difference between making a congressional budget and making fundamental changes in programs as complex as Social Security and Medicare. The life span of a congressional budget is two years, max, because no Congress can bind its successors. But changes in Social Security and Medicare are forever. So when you hear that we have to do it now, stat! or we're doomed, take it for the snake oil that it is.
