There is a lot of buzz about this Paul Krugman piece in The New York Times, where he argues that Medicare and Social Security are sustainable. This of course is a big talking point right now as the presidential race for 2024 is starting to shape up. Mike Pence even made it one of the very first things he talked about on Squawk Box yesterday, saying cuts to these programs need to be "on the table."
Now, you might think with our huge federal debt pile and soaring interest rates that it's obvious these entitlement programs are unsustainable. But I would put it a little differently. As I get older, and watch people in their 60s grapple with looming retirement, it's more and more clear to me how vital these programs truly are.
Maybe it didn't start that way, maybe we sort of hate this reality, but to state the very obvious, Social Security and Medicare are essential. Any tweaks that need to be made will have to be made in the background, without disturbing the programs' general premise. I cannot imagine that talking about "long-term personal savings accounts," like the former Vice President brought up yesterday, is going to be a winning strategy.
If it's true that we're going to have "a debt crisis over the next 25 years that is driven by entitlements," as Pence said, then we will need to actually see that crisis in order to trigger major changes. Because otherwise, this narrative has become a bit like the boy who cried wolf. And that is one of the points Krugman is making.
Back in 2009, for instance, the Congressional Budget Office forecast that Medicare spending as a percentage of GDP would rise from less than 4% to more than 10% by 2050. Which definitely seems alarming. But in the 2022 release, Medicare is still less than 4% of GDP, and is projected to remain below 6% through 2050.
Probably what people want is actually for Medicare to grow, because the biggest complaint about it is how expensive it still is, especially once you factor in the additional coverage that almost everybody needs. For instance, if you want a 90% chance of having all your premiums and prescription drug costs covered even using these programs, you would need around $100,000 saved by age 65, according to the EBRI.
Why have the Medicare spending projections come down so much? It could be several factors, from the 2010 Affordable Care Act (one of Krugman's big arguments), to better healthcare efficiency and technologies, to the higher mortality rates we've seen, especially post-Covid. Social Security, meanwhile, is seen growing from about 5% of GDP to only about 6.4% of GDP in the next three decades.
Here is the full CBO report, and I hope I get about a hundred replies to this telling me how I'm wrong and what I'm missing here. Or maybe my complacency itself is a sign the big debt crisis is finally about to begin.
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