Archives: 08/2010

The Social Security and Medicare ‘Trust Funds’ Are a … What’s the Word?

Yesterday’s New York Times editorialized:

It’s the time of year when the trustees of Medicare and Social Security release their annual reports on the programs’ financial health. And that means Americans are likely to be bathed in a fog of political rhetoric that makes it hard to sort out fact from fiction.

Here’s the bottom line…

The Times then proceeded to bathe its readers in fog:

According to the reports, the date of insolvency for Medicare’s hospital fund was pushed back, from 2017 to 2029, because of cost-saving measures in health reform. As for Social Security, without any changes, it will be able to pay full benefits until 2037 and partial benefits after that, the same estimate as in last year’s report, despite temporary setbacks from the recession…

A lot of attention will be paid to the finding in the Social Security report that payouts will exceed revenues in 2010 and 2011…That doesn’t endanger benefits, because any shortfall can be covered by the trust fund.

No.  It.  Can’t.  Because there are no funds in the Social Security “trust fund.”  There are no funds in the Medicare “trust fund.”  As Fortune magazine’s senior editor-at-large Allan Sloan explains in today’s Washington Post, those “trust funds” contain nothing but “funny money.”

In a 2006 blog post titled, “Sometimes, Governments Lie,” I offered the following proposition:

If the government knows that there are no assets in the Social Security and Medicare “trust funds,” and yet projects the interest earned on those non-assets and the date on which those non-assets will be exhausted, then the government is lying.

That still seems correct to me: the whole idea of the Social Security and Medicare “trust funds” is a lie.  An institutionalized, ritualized lie that the U.S. government tells the American people. Perpetuated by both political parties, and others with an interest in hiding the reality of these programs’ unfunded liabilities from voters.  One that many journalists uncritically repeat.

Bob Gates Against the World

Defense Secretary Robert Gates has again made headlines with a proposal to slow the growth of the Pentagon’s budget – already higher than at any point since World War II – by cutting overhead, waste and a top-heavy command structure.

The proposed shuttering of Joint Forces Command (Jif-Com) has elicited most of the press attention today, and prompted an impassioned plea from Virginia politicians, including Gov. Bob McDonnell, that the command remain open. Unhelpfully for Gov. McDonnell, outgoing Jif-Com head James Mattis (who will assume the title of CENTCOM), reportedly supports Gates’s decision.

But this isn’t the first time that opportunistic politicians have latched onto defense spending as a way to sprinkle economic benefits to their constituents, and at the expense of the rest of us. (In the same vein, Gates reportedly repeated his pledge to kill the entire DoD appropriation if it includes the unwanted C-17 and the alternate engine for the Joint Strike Fighter that some members of Congress continue to push.)

Leaving aside the predictable political wailings, the reforms that Gates proposed are neither revolutionary, nor particularly controversial to most objective observers. Politico’s Gordon Lubold and Jen DiMascio in their ever-helpful Morning Defense newsletter point out that “The cuts seemed to take several pages out of the Defense Business Board task force led by [Arnold] Punaro that recently recommended many of the same trims.” (For more on that report, see here.)

The true object of Gates latest round of economizing is to forestall calls for deeper cuts by a public frustrated by the high costs and dubious benefits of our military’s exertions over the years. Gates explained:

“What we need is modest, sustainable growth over a prolonged period of time that allows us to make sensible investment decisions and not have these giant increases and giant decreases that make efficiency and doing acquisition in a sensible way almost impossible.” (my emphasis)

But Gates either misapprehends or mischaracterizes the true source of the problem. U.S. military spending has grown for 13 years, 86 percent in inflation-adjusted dollars from 1998 to 2011. Claiming that uncertainty over future military spending impedes effective planning and creates waste ignores that relative certainty over ever-rising defense budgets has enabled the very waste and mismanagement that Gates now proposes to cure.

Gates also succumbs to (or, worse, propagates) the sort of threat inflation that has afflicted U.S. foreign policy for decades, and about which Ben Friedman and John Mueller have written much. Gates claims that the U.S. military needs to grow because the world is becoming “more dangerous.” More dangerous than what? The notion that a few hundred al Qaeda ragamuffins and their Taliban allies poses a greater threat to Americans than a nuclear-armed Soviet Union is absurd on its face, and yet we spend more on our military today than at the height of the Cold War.

This threat inflation distorts our strategic planning, and does more harm to our long-term security than too many high paid civilians in the Pentagon. Although Pentagon waste and excessive overhead is a problem, it isn’t the problem. The fact that we have too many flag officers doesn’t explain why the United States spends more on its military than every other country in the world. Rather, it is our overly ambitious foreign policy that needlessly wastes U.S. taxpayer resources around the world in quixotic enterprises to rebuild failed states, reform sclerotic political systems, hunt after terrorists, and otherwise defend other countries who should defend themselves.

Cuts in military spending – real cuts, not merely slowing the rate of growth – would impose some short-term pain on an overburdened military that has been used and misused by our political class since the end of the Cold War. A better solution would be to adopt a more restrained grand strategy, one dedicated to defending our security and advancing our interests, but that forced other countries to play a larger role in doing the same. Restraint would allow for a much smaller – and less expensive – U.S. military, and would result in no diminution of American security.

The Washington establishment is unlikely to embrace such a strategy any time soon, however, because it would impose some real constraints on both the military and on Congress, the latter of which continues to use the Pentagon’s budget as a vehicle for dispensing pork under the guise of making Americans safer.

Unhappily for Gates, but especially for our troops, cuts in military spending are likely to come without an attendant change in how our military is used.

Federal Employees Continue to Prosper

The Bureau of Economic Analysis has released its annual data on compensation levels by industry. The data show that the pay advantage enjoyed by federal civilian workers over private-sector workers continues to expand. This state of affairs is a thumb in the eye of the private sector, which continues to struggle with high unemployment. Many private sector employees have been forced to take pay and benefit cuts while continuing to fund generous federal employee compensation with their taxes.

Figure 1 looks at average wages. In 2009, the average wage for 1.95 million federal civilian workers was $81,258, which compared to an average $50,462 for the nation’s 101 million private sector workers (measured in full-time equivalents). The figure shows that the federal pay advantage (the gap between the lines) continued its steady increase over the past decade.

Figure 2 shows that the federal advantage is even more remarkable when worker benefits are included. In 2009, federal worker compensation averaged a whopping $123,049, which was more than double the private sector average of $61,051.

The disparity between average federal and private employee compensation has risen dramatically over the decade: from 66 percent in 2000 to 101 percent in 2009. Defenders of generous federal employee compensation point to the higher levels of education in the federal workforce. However, it’s doubtful that education accounts for the growing disparity between federal and private compensation.

Figure 3 shows that federal employees also enjoy much greater job security (data is from Table 18 here). In 2009, a private sector employee was more than three times more likely to be laid off or fired than a federal employee.

A good indicator of the adequacy of federal compensation is the quit rate. Figure 4 shows that in 2009, private sector employees quit at a rate that was more than eight times higher than federal employees (data is from Table 16 here). This indicates that federal employees recognize that the generous combination of wages, benefits, and job security is hard to match in the private sector, so they stay put.

Cato Unbound: The Digital Surveillance State

In the years since September 11, 2001, the secret digital surveillance state has grown enormously. Given heightened security measures, heightened anxiety, and cheaper-than-ever data collection and storage, such growth was perhaps inevitable.

But what are the proper limits on the secret collection of information? Where do our constitutionally guaranteed civil liberties stand in this new era? Do the federal government’s increased powers of surveillance even accomplish the security tasks at hand?

Constitutional lawyer and columnist Glenn Greenwald argues in this month’s Cato Unbound that the digital surveillance state is out of control. It’s also failed to deliver on its promises of greater security. Rather than helping to find the needle in the haystack, we have only made the haystack bigger.

Commenting on Greenwald’s essay will be Professor John Eastman, of Chapman University Law School; Paul Rosenzweig, now of the Heritage Foundation and formerly Deputy Assistant Secretary for Policy in the Department of Homeland Security; and the Cato Institute’s own Julian Sanchez, a prolific journalist on the interface of technology and civil liberties. Please stop by through the rest of this month for a discussion of one of our country’s most pressing issues in both civil liberties and national security.

Oh Shenandoah, I Long to See You…

…but I can’t because of Obama!

That takeoff of the lyrics from the famous folksong “Oh Shenandoah” are the impromptu creation of my wife, who this weekend was as appalled as I was when we packed the kids into the car, headed into the Shenandoah National Park, and were greeted by closed overlook after closed overlook accompanied by the sign pictured to the right.  Apparently, one project funded by the so-called “stimulus” includes simultaneously renovating – or at least cordoning off – every overlook north of the park’s Thornton Gap entrance without posting any clear warning that that’s the case as visitors decide whether to head north or south.

Even more upsetting was being subjected to pure propaganda in the park’s visitor guide, which reports the following on the page “Shenandoah Looks to the Future”:

Some of the treasured resources in Shenandoah National Park are being enhanced through the American Recovery and Reinvestment Act. On February 17, 2009, President Obama signed into law this unprecedented act to jumpstart a failing United States economy. The goal is to put Americans to work while investing in infrastructure for the future.

It’s bad enough to have to see “Recovery.gov” after “Recovery.gov” sign informing you that the views you actually came to see – and for which you paid a $15 entrance fee, I might add – have been put off limits. But is it really too much to ask that people be able to visit national parks without being subjected to propaganda clearly designed to glorify the highly debatable policies of a sitting – and likely to run for reelection – president?

I sure hope not, because no matter which part of the political spectrum you occupy, wouldn’t it be nice to be able to get away from politics for a while?

Did ObamaCare Get Medicare’s Price Controls Right?

Congress uses price controls to pay Medicare-participating providers.  Those providers invariably complain that Congress sets prices too low, but many are no doubt too high.

Congress chose to pay for ObamaCare’s new entitlement spending in part by ratcheting down many of those prices.  That suggests supporters either believe that Medicare’s controlled prices generally exceed the marginal value of the relevant services, or that those prices will begin to exceed marginal value as providers become more productive (i.e., as they learn to provide those services at a lower cost).

Neither assumption is necessarily wrong.  Producers operating under price controls nevertheless have an incentive to improve productivity.  When costs fall relative to prices, producers get to keep the difference.  Ambulatory surgical centers saw a windfall because Medicare took two decades to update those price controls for productivity gains.

Medicare’s chief actuary and many others doubt that providers will realize the productivity gains assumed by Congress.  If the assumed productivity gains do not occur, those price reductions would reduce Medicare enrollees’ access to care.  Medicare providers and enrollees would likely persuade Congress to block the price reductions.  Medicare spending and the federal debt would rise.

Yet even if those productivity gains do occur, ObamaCare’s price reductions would still reduce access compared to a world without them, therefore enrollees and providers may still persuade Congress to eliminate them.  Regardless of what happens with productivity, as Tom Daschle notes, the patient-provider pincer movement usually carries the day.

This is an inherent defect of Medicare not found in markets.  Competitive markets automatically translate productivity gains into lower prices for consumers.  Medicare protects providers at the expense of enrollees and taxpayers.

(Cross-posted at National Journal’s Health Care Expert Blog.)

What Do Prince and H.R. 1586 Have in Common?

Give up?

Both have adopted highly unconventional names in their lifetimes. In Prince’s case, it was the adoption of a symbol to protest Warner Brothers’ artistic and financial control of his output.

Following suit, H.R. 1586 has adopted the name, the “______Act of____,” apparently because of the haste with which the Senate wanted to pass the bill last week.

The Senate’s substitute amendment on this $26 billion spending bill had a placeholder bill name, and it could not take time to replace the placeholder. The House is expected to return this week and pass the Senate amendment, sending it to the president.

As reported on the WashingtonWatch.com blog and cnet news, this highly unconventional name may be what goes into law. With the Senate out of town until September, there is no chance to pass a correcting amendment in both houses. The constitution requires both to pass identical bills, so the House must take up the “______Act of____” and pass it as such.

If it does, the “law with no name” will stand as a lasting tribute to the inattention Congress gives its work. Spending billions of taxpayer dollars is a hurried and casual affair for our lawmakers.