The Cycle | September 05, 2012
>>> officially eclipsed $16 trillion. that's the first time in history that's happened. mitt romney 's team sure wants to make you aware of that.
>> if we keep on adding to the debt, even in the midst of this recovery, that at some point people could lose confidence in the u.s. economy in a way that could actually lead to a double dip recession.
>> well, when politicians talk about getting our fiscal house in order, the conversation seems to lead to all sorts of scary sounding talk about social security and medicare being on the brink of collapse. our next guest says there's very little to all of those dire claims. in the guest spot is dean baker, the codirector of the center for economic and policy research . thanks for joining us. i wanted to take these maybe one by one with you because they are separate issues and often get conflated. social security and medicare . start with social security . and you can explain this. your basic point on this is, if we do nothing, this doesn't even become a problem for maybe another 25 years, and even then, the problem isn't nearly as great as people seem to think it is.
>> that's exactly right. the congressional budget office 's projections are that the program left alone, you pay all benefits through the year 203. that's when it first faces a shortfall. that the point in time, we'll still have plenty of money coming in. the money would be able to pay about 80% of scheduled benefits. now, we won't want to see people take a 20% cut in benefits. the question is how big a shortfall is that. the size of that shortfall would be less than what it costs for the iraq war . it's about less than 1% of gdp. not a trivial amount by any means. the point is we paid for the iraq war . it didn't deb state economy. one could argue we should have had the war. the point is, it didn't devastate the economy. it's 25 years out. we didn't take 25 years to raise the money needed to fight the iraq war . people that badly misled about the size of the problem facing social security , it's relatively distant. and really not that large in the scheme of things. we don't typically plan 25 years in advance for something like that.
>> let's look at medicare because this one gets framed as a more immediate crisis than social security . you hear right now the talking point, i get this from paul ryan and a lot of other republicans although i don't want to make this a democrat/republican thing and i certainly hear democrats and republicans making the same point all the time. the talking point i hear most frequently, right now it is on course to go bankrupt in 2024 . we need to address it right now. that bankruptcy claim though again, there's a lot of fine print there, isn't there?
>> there is. there's a huge amount of fine print . a couple conviction points about that. first off, the obama administration deserves a lot of credit. they reduced the projected shortfall in medicare by about 70%. now we still project a shortfall beginning in 2024 . that's not that large a shortfall. over time though, it is projected to be a very big cost to the government. and the issue here isn't something broken about medicare . it's our health care system . that's why it's very disingenuous to talk about medicare as though it's somehow the government program that's a problem. the real problem is that you're health care costs are hugely out of line with what everyone else in the world pays. if you compare our per person health care costs, it's about twice as much as what they pay in canada, germany, the uk. and we have very little to show for that in the way of outcomes. the problem is we have to fix our health care system . president obama tried to do that with the affordable care act . didn't go the far enough. i'm happy to say that, but it was a big step in the right direction. to act like they've been negligent ignores what went on in the last four years.
>> dean, willet me go back to social security for a minute. i remember reading a great piece in forbes by john t. harvey called why social security cannot go bankrupt. he makes some of the same points. he says it's not a pension fund into which you put your money when you're young and from which you draw when you're old. it's an immediate transfer from workers today to retirees today. that's what it has always been and that's what it has to be. there is no other way for it to work last year we remember president obama said unless we reached a deal to raise the debt ceiling, he say we may not have money in the coffers to get the money out. maybe i don't understand the algebra of this. . how is that will possibleful social security can't go bankrupt and we're flush enough that you wouldn't have the enough to send out checks in a month.
>> to be clear on this president obama was talking about we were hitting the debt ceiling, and this gets to a legal area that you know, i'm not a lawyer but i a lot of lawyers would disagree on this. the question is what checks go out if we're in ray debt ceiling where the government literally can't pay its bills. should social security checks go out under those circumstances or not, i don't have the an answer to that. i can't answer the law on that because basically, if we've hit the debt ceiling, if you interpret the law strictly, what it would mean is they're payments the government can't blake social security would be among those payments, you know, i can't say. snow principle, the money is there for social security but if we've hit the debt ceiling and the government can't make all its payments, i don't know whether the checks go out for social security or not.
>> another people are concerned about is the coming fiscal cliff. part of that is the expiration of the payroll tax cuts extended a couple of times. on the one hand, there's concern if you let that expire, that will be difficult for the economy to absorb. on the other hand, there's a concern if we get used to having this payroll tax cut, woo may not be appropriately funding social security . so should we extend the payroll tax cut again in january?
>> i have to say it's a really tough call for exactly the points you make. on the one hand, the economy desperately needs stimulus, putting more money in people's pocket, they're going to spend it. on the other hand, because you have such a political debate around this very important program, and in principle that money was being made up. so we did the last two years, we had the payroll tax cut. the money was made up dollar for dollar from money everyone general revenue. but we don't have an agreement. it's not as though everyone signed on that yes, we're going to pay a portion of social security taxes from general revenue. there's not been an greet on that. given the dynamics around the program, my own view is okay, let it go back. pay the tax rate . go back to 6.2% level and find some other way to get stimulus in the economy. hopefully we can get agreement on that.
>> do you think we have a moral imperative to be there for older people when they get sick and get to social security age?
>> absolutely. these are people overwhelmingly these are people spent their life working. something they've paid into and contributed to and the idea that people are going to hit 65 and we're going to laugh at them and say you guys were suckers, i don't think we're that sort of country. we're not those sort of people.
>> i don't think anyone thinks we are. i think fwron answer the question, we have a moral imperative to take care of our old people.