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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

May 13, 2009 at 10:05 AM

Re Social Security and Medicare: Take a deep breath

Top of the News: Yesterday’s report that Social Security will “run out of money” in 2037 and Medicare will “be broke” in 2017, earlier than expected, gave rise to much media hysteria. This will also be a political Rorscach test, with conservatives and liberals drawing their own conclusions.

Former Labor Secretary Robert Reich, who was a trustee of the Social Security and Medicare trust funds, has a sensible, calm bit of context on these periodic alarms. The big problem is Medicare, not Social Security.

The entitlement programs, amid a rising federal deficit and a struggling economy, do raise important questions. But can we address them politically and as a society? For example, Defense spending by some measures has exceeded Cold War highs. Yet nobody is talking about cutting it or pulling back on our global commitments.

Nobody paying attention would think privatizing Social Security is a good option. The “let ’em starve if they didn’t take care of themselves!” argument plays well on the screamer fringe (WHERE THEY WRITE COMMENTS IN CAPITAL LETTERS), but not in real life.

The delicate balance of a mixed economy that created the largest middle class in history is badly broken. The good jobs and pensions of my parents’ generation are largely gone or going. In many cases, they have been replaced by lesser opportunities, wages and retirement options.

Also, a tech-driven, global economy creates a wide gulf in incomes and the reward for skills. All this puts huge pressure on Social Security. At the same time, the richest investors and companies avoid taxes and have been able to make money dealing in money rather than in actually employing people to produce things.

As for Medicare and health costs, the problem is a consensus by policymakers, including President Obama and Democrats, to maintain a for-profit healthcare industry. Single-payer advocates have been barred from participating in Senate hearings. Medicare’s administrative costs are quite low. But it works in a private system that must deliver high profit margins. The U.S. remains the only advanced nation without a national healthcare system, and pays much more — 18 percent of GDP — than its peers and competitors.

There’s no free lunch. The trustees’ report should be a call to action. But what?

Midweek Bits: A fascinating story today in the New York Times about 735 cargo ships sitting empty off Singapore, a result in the collapse of trade between Asia and America.

That they are sitting there, near the factories of Asia, is testimony to how little America now produces in goods to sell to the world. (U.S. exports fell 2 percent in March; imports fell 1 percent).

— We’re “consumers,” hardly a flattering term for a nation that depends on citizens. And with maxed out credit cards, deflated 401(k)s and job losses, we may never be able to revive the “debt for stuff” business model that drove much trade over the past decade. More bad news on that front with today’s bleak retail report.

Meanwhile, I have watched for weeks as the city of Seattle has torn up perfectly good Fourth Avenue through Belltown to put down a concrete street. The retailers are suffering badly. Good thing we don’t depend on this city department for snow removal. Oh, wait…

–Calculated Risk has an instructive look at the relationship between the savings rate and personal consumption expenditures. Americans are saving more, finally. Does that mean that personal spending will inevitably trend down. If history is a guide: yes.

Today’s Econ Haiku:

Intel’s record fine

Shows anti-trust in action

Chip, meet the shoulder

Comments | More in Politics and the economy, Retail, Retirement, Trade

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