Brad DeLong’s “Statement on Social Security Reform”

Everything you need to know about the current state of the Social Security “reform” discussion.

In a longish and somewhat technical open letter to the Democratic Policy Committee, economist Brad DeLong lays out the current state of the Social Security argument. Must reading.

Did nobody inside the White House bother to run the numbers? Did nobody care? This breaks my heart–for in yet another of my hearts-of-hearts, I am a technocrat who believes in administrative competence, and think that the President of the United States should not be sent out to make speeches that only an underbriefed fool would write because of the nonsensical things that they say.

Until the center of policy making and implementation in this administration is moved outside the White House to someplace else where people seriously concerned with the substantive design and implementation of policy, nothing the White House proposes–nothing, no matter how good it sounds at first–can be expected to turn out to be anything other than a large pile of mud.

US report acknowledges peak-oil threat

“Expedient” solutions to peak oil…

I’d like to call your attention to a disturbing article by Adam Porter, who has covered the peak-oil beat for the BBC, US report acknowledges peak-oil threat. This story has gotten essentially no mainstream coverage.

The subject of the piece is a report from major government contractor SAIC for the US Department of Energy.

“World oil peaking is going to happen,” the report says. Only the “timing is uncertain”.

The effects of any oil peak are similarly not ignored. Specifically, the impact on the economy of the United States. “The development of the US economy and lifestyle has been fundamentally shaped by the availability of abundant, low-cost oil. Oil scarcity and several-fold oil price increases due to world oil production peaking could have dramatic impacts . . . the economic loss to the United States could be measured on a trillion-dollar scale,” the report says.

The authors of the report also dismiss the power of the markets to solve any oil peak. They call for the intervention of governments. But also they rather worryingly point to a need to exclude public debate and environmental concerns from the process. They say this is needed to speed up decision-making.

“Intervention by governments will be required, because the economic and social implications of oil peaking would otherwise be chaotic. But the process will not be easy. Expediency may require major changes to . . . lengthy environmental reviews and lengthy public involvement.”

And what kind of “expedient” solution does the report envision? Here’s a clue: the report mentions “coal” 65 times; “oil shale” 17 time; “nuclear” six times. “Solar” or “wind”? Twice. “Climate change” or “global warming”? Not even once.

If America Is Richer, Why Are Its Families So Much Less Secure?

If America Is Richer, Why Are Its Families So Much Less Secure? Los Angeles Times reporter Peter G. Gosselin’s three-part series.

Los Angeles Times reporter Peter G. Gosselin has spent the last year examining an American paradox: Why so many families report being financially less secure even as the nation has grown more prosperous. The answer lies in a quarter-century-long shift of economic risks from the broad shoulders of business and government to the backs of working families. Safety nets that once protected Americans from economic turbulence — safeguards like unemployment compensation and employer loyalty — have eroded or vanished. Familes are more vulnerable to sudden shifts in the economy than any time since the Great Depression. The result is a daunting “New Deal” for many working Americans — one that compels them to cope, largely on their own, with financial forces far beyond their control.

As Kevin Drum says,

So do it: click the link. Believe me, this story is well worth the 20 or 30 minutes it takes to read, and if there’s any justice you’ll be seeing this series on a list of Pulitzer nominees in a few months. It’s what print journalism was born to do.

Go read. And if you have a blog yourself, pass it along.

The Best Care Anywhere

When it comes to health care, it’s a government bureaucracy that’s setting the standard for maintaining best practices while reducing costs, and it’s the private sector that’s lagging in quality.

In my last post, I mentioned Paul Krugman’s mention of Phillip Longman’s Washington Monthly article on the remarkable turnaround of the Veterans’ Health Administration system.

But when it comes to health care, it’s a government bureaucracy that’s setting the standard for maintaining best practices while reducing costs, and it’s the private sector that’s lagging in quality. That unexpected reality needs examining if we’re to have any hope of understanding what’s wrong with America’s health-care system and how to fix it. It turns out that precisely because the VHA is a big, government-run system that has nearly a lifetime relationship with its patients, it has incentives for investing in quality and keeping its patients well—incentives that are lacking in for-profit medicine.

One reason is that the market incentives in our privatized health care system are dysfunctional. For example,

Or suppose an HMO decides to invest in improving the quality of its diabetic care anyway. Then not only will it risk seeing the return on that investment go to a competitor, but it will also face another danger as well. What happens if word gets out that this HMO is the best place to go if you have diabetes? Then more and more costly diabetic patients will enroll there, requiring more premium increases, while its competitors enjoy a comparatively large supply of low-cost, healthier patients. That’s why, Casalino says, you never see a billboard with an HMO advertising how good it is at treating one disease or another. Instead, HMO advertisements generally show only healthy families.

And cost?

The [VHA] system runs circles around Medicare in both cost and quality. Unlike Medicare, it’s allowed by law to negotiate for deep drug discounts, and does. Unlike Medicare, it provides long-term nursing home care. And it demonstrably delivers some of the best, if not the best, quality health care in the United States with amazing efficiency. Between 1999 and 2003, the number of patients enrolled in the VHA system increased by 70 percent, yet funding (not adjusted for inflation) increased by only 41 percent. So the VHA has not only become the health care industry’s best quality performer, it has done so while spending less and less on each patient.

Longman concludes,

As the health-care crisis worsens, and as more become aware of how dangerous and unscientific most of the U.S. health-care system is, maybe we will find a way to get our minds around these strange truths. Many Americans still believe that the U.S. health-care system is the best in the world, and that its only major problems are that it costs too much and leaves too many people uninsured. But the fact remains that Americans live shorter lives, with more disabilities, than people in countries that spend barely half as much per person on health care. Pouring more money into the current system won’t change that. Nor will making the current system even more fragmented and driven by short-term profit motives. But learning from the lesson offered by the veterans health system could point the way to an all-American solution.

Longman is skeptical of our ability to move directly to universal health care, where a VHA-style system would work well. Instead, he argues for an expansion of the VHA to cover more people.

I hope he’s wrong about universal health care.

America’s Senior Moment

Paul Krugman on demographics, Social Security, and health care.

In the March 10 NYRB, economist Paul Krugman uses a review of The Coming Generational Storm: What You Need to Know About America’s Economic Future, by Laurence J. Kotlikoff and Scott Burns, to address demographics, Social Security, and health care.

Krugman’s a dandy writer, but he’s never been at his best in the cramped confines of his NY Times columns. The NRYB format–nearly 6,000 words here–lets Krugman stretch out, and the results are well worth the longer read.

Let’s sneak a peek at Krugman’s wrap-up.

Unless something very unexpected happens, Kotlikoff and Burns’s vision of an America that in 2030 has an older population than Florida today will come to pass. It’s also quite possible that the state of the nation will be as bad as they suggest in their opening account. But one won’t be the result of the other, and in a perverse way exaggerating the demographic challenge makes that grim future more likely.

Here’s how the debate is really playing out, in four easy steps:

1. Talking heads and other opinion leaders perceive the issue of an aging population not as it is—a middle-sized problem that can be dealt with through ordinary changes in taxing and spending—but as an immense problem that requires changing everything. This perception is, alas, fueled by books like The Coming Generational Storm, which blur the distinction between the costs imposed by an aging population and the expense of paying for medical advances.

2. Because the demographic problem is perceived as being much bigger than it really is, the spotlight is off the gross irresponsibility of current fiscal policy. As you may have noticed, right now everyone is talking about Social Security, and nobody is talking about the stunning shift from budget surplus to budget deficit since Bush took office.

3. The focus on Social Security— the one part of the federal budget that is actually being run responsibly—is, in practice, offering the architects of our budget deficit an opportunity to do even more damage.

4. Finally, we’re not having a serious national discussion about the bigger problem of paying for health care, and we probably can’t in today’s ideological climate.

Krugman has long since come over to the universal health care side.

Systems that provide universal coverage, like those of France or Canada, are much cheaper to run than our market-based system, yet they yield better results with respect to life expectancy and infant mortality. Or if you don’t trust foreign examples, consider the remarkable renaissance of the Veterans’ Administration hospital system, described in an important article by Phillip Longman in the February Washington Monthly: he shows that the VA system’s centralization of information and control over resources allow it to provide better care at lower costs than any private system.

Longman’s article is online as well. Read ’em both.

Raising the retirement age

Why not? Because we don’t want to.

One of the solutions tossed about for the Social Security “crisis” is to raise the retirement age–or to raise it more quickly; it’s already headed up to 67.

Kevin Drum says no:

So why not work longer and retire later?

Answer: because we don’t want to. Sure, we could continue inexorably raising the retirement age, ensuring that no matter how much richer we get and no matter how many medical advances we make, we’re still working til we drop. We could do that, but we don’t want to. Most of us like the idea that we’ll have more years of “active retirement” (i.e., “free of chronic functional impairment”) than we did 60 years ago.

And guess what? We can.

I’m convinced.

If I had to pick from the other solutions on the table, I’d eliminate the cap on FICA wages, with a caveat: to the extent that Social Security is overfunded (as it would be if the economy grows more quickly than the Social Security Administration projects in its intermediate model), raise the floor on FICA wages. That is, exempt the first $10,000 (replace with the appropriate amount) of wages from the FICA tax.

That way we don’t create a permanent Social Security Trust Fund surplus to be siphoned off in income tax cuts.

Update: Nathan Newman (among others) points to a new SSA actuarial memo that shows that removing the cap would indeed fix the shortfall under the Administration’s 2004 intermediate assumptions.

Update 3/2: Nathan Newman responds to Mark Schmitt’s objection to raising the cap.

Schwarzenegger vs. Gerrymander

In a NY Times op-ed, Steven Hill suggests that, based on reent experience in Arizona and on California demographics, Scharzenegger’s plan to reform California’s political districting is not likely to produce the beneficial results we’re being promised.

So Governor Schwarzenegger’s plan, while well intentioned, is bound to fail. The old ways of thinking about redistricting and its impact no longer apply in California – nor in many other states. Shifting demographics have outstripped the abilities of the mapmakers to encourage competitiveness.

A nonpartisan redistricting commission may make a few more legislative seats more competitive. And it certainly would have the salutary effect of changing the public perception that incumbents have a hand in rigging their own district lines. But such tinkering is not likely to change much else. It will not “blow up the boxes” of state government, as Mr. Schwarzenegger has said he wishes to do.

Hill, a senior analyst with the Center for Voting and Democracy, advocates the use of proportional representation to elect representatives from multi-member districts, thereby giving representation to smaller voting blocs.

We can’t change where people choose to live, but we can begin using some type of proportional representation system. For example, California could use a system like that in Peoria, Ill., for municipal elections. Instead of electing 40 state senators from 40 districts, voters in 10 districts could elect four senators each. Any candidate who won at least a quarter of the vote would earn a seat. These districts would be far more likely to be bipartisan, even electing some urban Republicans and rural Democrats.

This makes sense, and gives a voice to many more voters than our current system does, gerrymandered or no.

But while we’re at it, let’s have one more reform: expand California’s legislature. A drawback to multi-member districts is that the resulting districts are geographically larger than they are now, and California’s Senate and Assembly districts are already far too large for effective local representation.

So yes, let’s move to multi-member districts, but at the same time let’s double or triple the number of seats in the state legislature.