BCT Editorial – 5/29/11

This page was last updated on May 30, 2011.

Wasted effort; Editorial; Beaver County Times; May 29, 2011.

Below is a detailed critique of the subject editorial.

Ponzi scheme: “an investment swindle in which some early investors are paid off with money put up by later ones in order to encourage more and bigger risks.”

Pyramid scheme: “a usually illegal operation in which participants pay to join and profit mainly from payments made by subsequent participants.” – Both definitions are from The Merriam-Webster Dictionary.

“Years of anti-government propaganda have paid off for the right-wing — and much to the detriment of Social Security and Medicare.”

[RWC] Note the straw man; if you’re pro-limited government, you are “anti-government.”  You’ll see the same tactic used for illegal immigration and embryonic stem cell research.  That is, if you oppose illegal immigration or embryonic stem cell research, supporters of these policies claim you are anti-immigrant or anti-stem cell research.  The intent is to make people think your position is extreme, radical, et cetera.  People use this tactic when they know they can’t successfully debate your true position.

“A recent Associated Press-GFK poll found that most Americans don’t believe the two entitlement programs, which combined account for a third of government spending, have to be cut to help balance the federal budget.”

[RWC] As of our last passed federal budget (FY 2010), Medicaid, Medicare, and SS consumed about 43% of the total.  Add to that other “mandatory” spending and the interest on our debt, and the percentage jumps to about 61%.  We could eliminate all “discretionary” spending and national defense spending and we’d still be running a deficit.

“This unrealistic response, ironically, reflects the message that the right has been pounding away at for years — government is corrupt.”

[RWC] This sentence is a variation of the editorial’s leadoff sentence.

It’s interesting the Times blames the “unrealistic response” on Republicans.  You see, local lefties claim “There is no problem with Social Security” (here and here).

“That’s reflected in what a 74-year-old Tennessee woman, who is still working, told The AP.

“‘It’s more a matter of bungling, and a lack of oversight, and waste and fraud, and padding of the bureaucracy,’ she said.  ‘There is no reason why even Medicare, if it had been handled right, couldn’t have been solvent.’

“Her comments, which reflect those of many Americans, are way off base.”

[RWC] It’s true the woman’s belief “There is no reason why even Medicare, if it had been handled right, couldn’t have been solvent” is in error as you will read below.

“To start with, waste, fraud and abuse, where it does exist in government, is fairly minimal — and certainly not on the scale that most people believe it to be.  Eliminating waste, fraud and abuse would barely make a small dent in the federal government’s monumental budget woes.”

[RWC] Keep in mind the Times routinely uses leftyspeak.  Therefore, I don’t know what the editorial means by “waste, fraud and abuse, where it does exist in government, is fairly minimal.”  As a reminder, the Times has no problem with its own “small dent” proposals.

“Next, Medicare is a fairly efficient system.  However, it’s being whipsawed by rising health care costs and demographics, both of which are only going to worsen when the baby boom generation swamps it.”

[RWC] I have to give the Times credit.  This is the first time I heard a Ponzi/pyramid scheme referred to as “a fairly efficient system,” though I suppose it’s possible depending on the Times definition of “a fairly efficient system.”  I wonder if that’s how the Times referred to Bernard Madoff’s Ponzi scheme.

The editorial asserts Medicare is “being whipsawed by rising health care costs and demographics” but doesn’t tell us why.  For the “whipsawed by rising health care costs” portion of the comment, please read my paper entitled “Healthcare.”  For the “demographics” portion, please read my comments after the next paragraph.

According to the Medicare and Social Security Trustees in their 2011 report to Congress, SS went into deficit (benefits paid exceed SS taxes collected) in 2010, a full six years ahead of the 2008 projection, and will remain in deficit.  The report says “the Disability Insurance (DI) program satisfies neither the long-range nor short-range tests for financial adequacy.  DI costs have exceeded non-interest income since 2005 and trust fund exhaustion is projected for 2018; thus changes to improve the financial status of the DI program are needed soon.”  As for the overall SS “trust fund” (the equivalent of a stack of federal government “IOUs” for revenue already spent by the feds for other programs), it will be exhausted by 2036.

As for Medicare HI, the report says “The HI fund fails the test of short-range financial adequacy, as projected assets drop below one year’s projected expenditures early in 2011.  The fund also continues to fail the long-range test of close actuarial balance.  Medicare’s HI Trust Fund is expected to pay out more in hospital benefits and other expenditures than it receives in income in all future years.  The projected date of HI Trust Fund exhaustion is 2024, five years earlier than estimated in last year’s report, at which time dedicated revenues would be sufficient to pay 90 percent of HI costs.  The share of HI expenditures that can be financed with HI dedicated revenues is projected to decline slowly to 75 percent in 2045, and then to rise slowly, reaching 88 percent in 2085.”

If Medicare and SS were private-sector offerings, the people running them would have been in prison long ago.

“Keeping Medicare solvent is going to take a combination of increased revenue, spending restraint and, truth be told, more personal responsibility on the part of Americans for their health and well being.”

[RWC] Though I’m probably stating the obvious, “increased revenue” and “spending restraint” are euphemisms for increased tax rates and price controls/benefit cuts, respectively.  “[M]ore personal responsibility on the part of Americans for their health and well being” really means more government regulations on what/where we can eat.  We’ve already seen that move in laws/regulations to tax “sugary” drinks, to limit food salt content, ban smoking on private property, to determine acceptable locations for “fast food” restaurants, et cetera.

As for “increased revenue,” we’ve heard that many times since Medicare’s inception.  Let’s look at how the editorial’s proposals worked for Medicare’s older brother, Socialist Security.  Since 1950, Congress increased the SS tax rate 20 times!  Ignoring this year’s SS tax holiday, the current SS tax rate is 12.4%, 6.2 times its original 2%.  Further, the max taxed earnings cap increases every year by law and is now more than twice what it was in 1990 ($51,300).  In constant dollars, the original earnings cap of $3,000 in 1937 should be $46,106 today, not the $106,800 it is.  Medicare has no such limit.  The reason these changes fail to fix anything other than pushing back judgment day is, like Medicare, SS is a Ponzi scheme.  As designed from the beginning, Medicare and SS require an ever-growing Medicare/SS taxpaying population and a high multiple of current Medicare/SS taxpayers relative to current Medicare/SS beneficiaries, and/or ever-increasing Medicare/SS tax rates, and/or ever-decreasing benefits.  Any such system has failure built in.  “[B]aby boom generation” or not, Medicare and SS were doomed from the days they went into effect.

Normally, I’d think “spending restraint” would include spending cuts, but earlier the editorial told us spending cuts are an “unrealistic response.”  That leaves me to assume “spending restraint” means price controls (such as cutting doctor, hospital, etc. reimbursement rates) and/or benefit cuts.  Price controls never work (Among other things they result in lower supply of products and services.) and benefit cuts would only delay Medicare’s judgment day.  Any kid who took a high school economics class learned this.  If you need proof, take a spin through the emergency treatment area of Heritage Valley Beaver (formerly The Medical Center).  As recently as last fall/winter there were signs stating HVB doesn’t accept Medicaid.  HVB will only do what is required to stabilize a patient sufficiently to allow his safe transfer to a facility that accepts Medicaid.  This is one of the things that happens when doctors and other healthcare providers are not reimbursed adequately.  The Times itself provided an example in “In poor health.”

If you think the Ponzi-scheme design of Medicare and SS was an accident or an honest mistake, think again.  FDR addressed this in response to payroll tax critic Luther Gulick in 1941.  FDR said, “I guess you’re right on the economics, but those taxes were never a problem of economics.  They are politics all the way through.  We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and unemployment benefits.  With those taxes in there, no damn politician can ever scrap my social security program.”  The quote was cited by Arthur M. Schlesinger in “The Age of Roosevelt: The Coming of the New Deal,” Houghton Mifflin, 1988 American Heritage Library edition, pages 308-309.  In effect, the Ponzi/pyramid scheme was FDR’s “poison pill” to keep SS from ever being eliminated.

As for the “legal … right to collect their pensions …,” that turned out to be hooey.  As noted by the CATO Institute, SS benefits “are not guaranteed legally because workers have no contractual or property rights to any benefits whatsoever.  In two landmark cases, Flemming v. Nestor and Helvering v. Davis, the U.S. Supreme Court ruled that Social Security taxes are not contributions or savings, but simply taxes, and that Social Security benefits are simply a government spending program, no different than, say, farm price supports.  Congress and the president may change, reduce, or even eliminate benefits at any time.”

“If Social Security and Medicare are to be preserved, Americans must take a more realistic approach to what ails them.  The first step in doing that is to stop swallowing the waste, fraud and abuse propaganda that is poisoning the debate.”

© 2004-2011 Robert W. Cox, all rights reserved.