The Case for Making Zero Changes to Social Security and Medicare

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Sept. 28 2011 11:41 AM

Stop Obsessing Over Entitlement Reform

Why Jeff Madrick will argue against the proposition "Grandma's benefits imperil Junior's future" at the Oct. 4 Slate/Intelligence Squared U.S. debate.

Jeff Madrick.
Jeff Madrick will talk benefit entitlements Oct. 4 during an Intelligence Squared debate

Read more about the Oct. 4 Intelligence Squared U.S. debate on whether "Grandma's benefits imperil Junior's future," buy tickets, and see who else is debating.

In the 1970s, Jeff Madrick read Milton Friedman's Capitalism and Freedom. It enraged him. "[Friedman] argued that markets can solve most problems, and all we need is individual responsibility," says Madrick. "It's clear in studying economics that markets do not solve all or even most social problems." But Madrick, the editor of Challenge magazine and a former economics columnist for the New York Times, parlayed his furor into action: He's now the author of several books and numerous articles that argue in part that we can't rely on market forces to take care of the sick and the elderly. That's why on Oct. 4, he'll dispute the proposition "Grandma's benefits imperil Junior's future" at the live Slate/Intelligence Squared U.S. debate.

"I still have one parent alive," he explains. "I know how necessary [social benefits] are, and what a great American achievement they have been." I caught up with Madrick earlier this week for a conversation about why we should worry about Medicare but not Social Security, and the real causes of the deficit crisis. Excerpts from the interview are below.

Slate: Why do you believe it's necessary to maintain entitlements as they are, i.e., no benefit slashing?

Jeff Madrick: Entitlements are central to modern America and a decent society. They're central to making capitalism and a free market economy work. Back in the 1950s, a very high proportion of the elderly were poor. Now they are not. People didn't get health care. Now they do. Without sounding too self-serving, I am interested in a decent society. And entitlement programs are central to a decent society.

Slate:Of course, old people today are no longer poor because of Social Security. But recently, GOP presidential contender and Texas Gov. Rick Perry called it a "Ponzi scheme." And last month, the economist Laurence Kotlikoff said this in an interview with NPR: "We've got 78 million baby boomers who are poised to collect, in about 15 to 20 years, about $40,000 per person. Multiply 78 million by $40,000–you're talking about more than $3 trillion a year just to give to a portion of the population. That's an enormous bill overhanging our heads, and Congress isn't focused on it." But you've written that Social Security will be only a small contributor to the future budget gap. Are Kotlikoff's worries unfounded?

Madrick: Yes, his worries are entirely unfounded. He's been exaggerating this issue forever. Here's the simple arithmetic according to the Congressional Budget Office forecast. The benefits for Social Security now come to nearly 5 percent of gross domestic product. The worst they will ever get when the entire baby boom retires is 6 percent of GDP. Now if you take one percentage point of GDP, which is now $15 trillion, so 10 percent is $1.5 trillion, and 1 percent is $150 billion, that's the increase. It sounds like a lot of money, but it comes from only 1 percent of GDP. People have to get that very clear in their heads. Medicare and Medicaid will rise much more rapidly as a proportion of GDP.

Slate: So why all this alarmist rhetoric about Social Security reform?

Madrick: I don't know. I can see getting upset about Medicare and Medicaid, but I don't understand the issues about Social Security. I don't want to speculate on the motives of these people. I think they should be asked, however, whether they would profit personally if we privatized social security. That is to say, have people buy private accounts from Wall Street as opposed to guarantee benefits from the government. I'm not saying all of them are motivated by self-interest, but I'd like to ask them that.

Slate: Let's go back to Medicare and Medicaid. You and your debate partner, former DNC Chairman and Vermont Gov. Howard Dean, are both vocal about reforming the entire health care apparatus, and not simply Medicare and Medicaid. What would you suggest we do to reform the health care system?

Madrick: My favorite plan is a form of Medicare for all, not just those 65 and over, with more controls over drug costs and provider reimbursement. In fact, I have little doubt that alone could save America. Rising health care costs are our biggest domestic problem, not Medicare and Medicaid per se. And I wish the people who talk about cutting back entitlements would put some of their vigorous effort and intelligence towards solving the health care problem.

Slate:What do people most commonly misunderstand about entitlement reforms?

Madrick: There are a lot of implications that somehow Social Security and Medicare actually caused our current budget deficit, which is not remotely the case.

Slate:So what are the causes of the deficit?

Madrick: The Bush tax cuts, the Great Recession, and the wars [in Afghanistan and Iraq]—those are the main contributors to the deficit problems we now have. We have to separate that issue, which is what's alarming everybody, from the long-term issues. They're very different.

Slate:As you've said, the cost of health care is rising every year. If we aren't able to overhaul the health care system, will we inevitably need to ration health care and treatments in the future?

Madrick: Let's not forget, health care is rationed now. Anybody who thinks that everybody gets all the health care they want is not living in this world. No. 2, we spend much too much money on what is commonly called "heroic" health care practices, one major test after another. Much of this is done late in life, and I think that whole system has to be reviewed. Hospitals and doctors make too much money performing these tests. Do we keep some people alive much too long? Or should we give people the choice to die more readily earlier? I think the idea of performing tests to keep people alive a few more days has to be examined.

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