System Failures

Robert Pear writes in the New York Times that the recession is draining Social Security and Medicare of funds faster than expected. If current trends continue, Medicare will be out of money by 2017 and Social Security by 2037.

The situation with Medicare is especially bad news, coming at a time when we’re finally on the edge of maybe enacting real health care reform. Medicare’s situation will be more ammunition the Right will use to protect the private health insurance industry.

My fear is that we’re looking at cascading system failures. Everything is breaking down at once, and we can’t fix this until we’ve fixed that, but because that is failing we lack the resources to address several other things, etc. Government may not have been drowned in the bathtub, but it lacks the strength to stand up and dry itself off.

It may be that it’s too late to pull the nation out of the pit it’s in, and that hardships are going to continue to pile up for the next few years. That’s a possibility I think we have to face.

I haven’t seen much discussion on the blogosphere about this yet. For the past couple of years discussion of the looming shortfalls of Social Security in particular were actively shouted down as a right-wing talking point and not a real problem. However, it always has been a real problem; just not a problem that a health economy and some tweaking of the income cap couldn’t fix in time to avoid disaster. Now, not so easy.

Well, if you find any commentary that sheds light on this situation, please let me know.

32 thoughts on “System Failures

  1. “just not a problem that a health economy and some tweaking of the income cap couldn’t fix in time to avoid disaster. Now, not so easy. ”

    So…Advancing the date when Social Security will need to either be supplemented or retiree benefits must be reduced from 2042 to 2037 “changed everything” for you, Huh Maha?

    You’re falling for the righties bullshit…

  2. And, BTW…Social Security won’t be “out of money” in 2037…At that date the trust fund will still be able to pay 75% of current benefits – forever…

  3. Hi Maha.

    Although this might not be exactly what you’re looking for, the following informative and entertaining must read essay is one of the best on the topic of “system failure:”

    Closing the Collapse Gap

    I’m a big fan of the author, Dmitry Orlov, and recently bought his book, Reinventing Collapse.

  4. You’re falling for the righties bullshit…

    You’re falling for the lefties’ bullshit, D.R. We’re not in crisis mode on Social Security, but to say there is no problem at all is a denial of reality. And I don’t think most people would consider cutting their benefits by 75 percent (probably more, given inflation) is an acceptable solution. No, it’s not the first item on the list of things we have to deal with, but it does have to be dealt with eventually.

  5. Dichotomy.

    DR Marvel says: “…trust fund will still be able to pay 75% of current benefits…”

    Maha says: “…people would consider cutting their benefits by 75 percent … is an acceptable solution.”

    I see a major difference between “cut TO 75%” (of existing levels) and “cut BY 75%” (which would imply 25% of existing levels).

  6. I believe the stated policy of St. Ronnies time was to break the bank for social programs or “starve the beast” as they called it. Well, less than 30 years later they seem to be coming closer to their goal.
    I think if the income cap was entirely eliminated, the overall tax rate could be lowered and provide a bit of a stimulus and insure the viability of So.Sec. into the forseeable future.
    BTW It is not cutting the benefits by 75% but to 75%. A bit of a difference.

  7. “cutting their benefits by 75 percent ”

    You really ought’a learn to read, Maha…

    Social Security will NOT “run out of money”…Nor will benefits be cut “BY” 75%…

    The SS trust fund, as it now is, will be able to pay &5% percent of current benefits for as long as we can see into the future…

    If it needs additional funding (Hooray for that, as I’m drawing “Rockin’ Chair Money now) Then let’s roll up our collective sleeves and raise that fucking cap…Like was done back in Reagan’s day…

    What we got here…Is successful mis-communication…Same thing as “Fayl-yuh to commun’cate”…

  8. I once took over management of a small business that had been limping along in faliure mode for quite a few years. I evaluated the situation and realized they had been in the cascade you referred to, trying to chnage one thing at a time. I sat the owner down and told him he had reached the point where he could no longer try to fix one thing at a time; he needed to implement a plan that would fix everything at once – a master plan. Two years later he had a going concern and I moved on to something else.

  9. D.R. — I don’t do numbers. My point is that Social Security is going to run short eventually, and while it isn’t an immanent problem it is a problem that must be dealt with eventually, and we ought to be able to admit this without hysterical accusations of being brainwashed by right-wing alpha rays. So settle down and stop being hysterical.

  10. Michael Lind had a piece about this on Salon yesterday. And Robert Reich has a Salon post today. I’ve only skimmed both, but both seem to think that this is pretty much status quo for Social Security.

    I agree with Barbara – the system as presently operated is not sustainable over the long run, but it’s not an immediate crisis by a long shot.

  11. Maha, I don’t see any reason for panic; as several commenters have noted removing the cap on FICA (even with a lower rate) would provide all the revenue we’d need to keep SS and Medicare going indefinitely.

  12. Maha, I don’t see any reason for panic; as several commenters have noted removing the cap on FICA (even with a lower rate) would provide all the revenue we’d need to keep SS and Medicare going indefinitely.

    Regarding Social Security, isn’t that exactly what I wrote? However, I’m not so sure about Medicare.

  13. The problems with Medicare are yet another reason to implement single payer. There is waste in the Medicare system, but it is due to the “private” portions –something the Republican congresses implemented to give private insurers a piece of the action.

    They set up part D to insure drug company profits by not allowing the government to bargain with pharmaceutical companies, and to insure private insurance company profits by filtering the program through them.

    They also put in an option to the system (Medicare Advantage Plans) to have private insurers enroll patietns into subsidized HMOs and PPOs, which cost the government more per patient than straight Medicare with no real increase in benefits.

    Adding these additional layers of administration only increases costs, and does not benefit patients in any way.

    If we took all the money spent per year for medical care in the US (almost $7000 per person), and invested it into single payer, we could still cover all the uninsured plus all the currently insured at a benefit level (monetary) greater than any other nation.

    BTW, I find that it’s only folks with good insurance who complain about health care rationing and socialized medicine. Those with tenuous or no coverage would be thrilled to have guaranteed care.

  14. Oh I got “guaranteed care” allright…And I earned it the Hard Way…

    If I get sick enough to see a doctor (and that’s very sick), I can present myself at the nearest V.A. medical facility and hope they don’t “transport” me to death like they did my brother-in-law…

    And as long as I pass the “means test”, it’s all for FREE!


  15. We seem to keep ignoring that the “lock box” isn’t cash in the bank; rather it is a debt obligation – surplus FICA taxes buy the equivalent of bonds which are repaid by future general revenues of the US.

    Social Security needs “lock box” funds sometime in the next decade. Cutting benefits is a non-starter (although adjusting high end benefits down while increase low end benefits seems progressive to me). Raising individual and corporate income taxes will be needed. I’d really like to see actuarial analysis of adding a $500,000 – $2,000,000 marginal rate of 42%, and a marginal rate of 55% above $2,000,000. I think that’s a reasonable ball park for increased rates – use that money, defense budget cuts to repay Trust Fund money.

  16. Others upstream mentioned it, but Robert Reich blogged about this recently. It turns out he was a trustee for both systems, and so his opinion is worth reading. He says SS has only a minor problem, which can be easily fixed a number of ways. Medicare OTOH is a huge problem, which is tied to the escalating cost of health care.

  17. Fred Clark debunks the SocSec problem pretty well. Medicare (as I said here) is a separate issue unaddressed in Fred’s post. Getting health care costs down would remedy much of its problems, which is why Obama’s reforms are so necessary and why single-payer would be even better.

  18. Dr Marv, I was a bit ticked by your attitude. If you are retired – on a fixed income and your SS benefirs get cut by 25%, it’s a disaster. And Medicare is a bigger problem and a real one, not just a righie talking point. So let’s not blow it off.

    IMO, the GOP wanted to starve these programs into extinction, and the ‘socialist’ label is a piss-poor & ineffective attempt to argue against solutions that are bound to cost business & the high income folks more withholding. On the other hand, I suspect that with us boomers aging, the old-fart vote is becoming a larger segment of the electoarate. No party is going to win on a policy of screwing the elderly but that’s where the GOP is headed.

  19. Thanks Maha. As a 20 something who was shouted down constantly on this issue I appreciate it. I was and am perfectly happy to demagogue lack of crisis into ‘perfectly fine’ if it keeps SS from being invested in stocks, but the program needs help and it needs help in the near future.

    Maybe right now 75% of benefits seems like it’s solid but how many people struggle to survive on SS as it is now? In the future those who draw it will have started from a bigger hole (such as increased school debt).

  20. Maha, take a look at Slacktivist. Fred has an interesting take on the “problem” of Social Security.

  21. theres nothing wrong with ss. as long as you keep listing to people whio say there is you are in trouble. the rightwing faction of our government is constantly saying the same things you are . if you can keep the politicians greedy hands out of it it would be fine

  22. Yes, I have heard some commentary that sheds light on this and according to that commentary this is hysteria and hype. It must be remembered that many want to kill social security but preferably privatize it then milk it for some % of one hell of a lot of money.

    The key to understanding this is that Social Security is not paid entirely from the reserves but from both reserves and current payment.

    The medicare report suggests that the trust fund, which is actually a surplus and is a giant bulge or accumulation (The idea behind that legislation was to double tax the baby boomers who needed to pay for both their and their parents retirement) that was created as a result fo the reforms spearheaded by Daniel Patrick Moynihan and Alan Greenspan from 79-83 and signed into law by Reagan to substantially increased social security taxes, will run out of money.

    Firstly this doesn’t mean that Social Security checks cannot be written.
    When the baby boomers are dead and the trust fund is gone then SS can go back to working on a pay as you go basis. This is not a disaster but if nothing is done then there will need to be a 13% cut in benefits.

    Hysteria prevails when people run around like chickens with their heads cut off crying that SS is going to run out of money — not the case at all. The trust fund will run out of money.

    But something can be done. So what exactly are the implications if this does not mean, as some claim, that Social Security is running out of money?

    2009 Annual Report of the Social Security and Medicare Board of Trustees states that “Social security could be brought into actuarial balance over the next 75 years with changes equivalent to an immediate 16% increase in the payroll tax from a rate of 12.4% to 14.5%.” Employer and employee each pay 1/2 so this would represent a 1% increase. Only the first 100k of income are taxed for SS. Another option not mentioned is to increase the cap for taxing.

    So this 1% increase gives Social Security an infinite horizon. This is a far cry from the henny-penny, sky-is-falling reports that came out in the last few days.

    So why wasn’t this reported? Because it does not sound so hysterical.

    As for medicare, as I hear it the problem goes away with elimination of the time bomb stuck into it by Reagan that forbids the government from negotiating with drug companies for the best prices…one of the main reasons why some of our parents had to purchase drugs made by the same companies mail-order from Canada.

    Who says those we elected to high office are putting our causes up front? And with the media to help them maintain a high level of hysteria it is no wonder most Americans cannot think straight on these matters.

    Credit where credit is due…most of this came from a listen to Thom Hartmann this a.m. I went back and listened to the podcast to get all the points straight…

  23. Hartmann added that the resaon why they are going after Social Security with this campaign of hysteria is that Social Security is single payer poverty insurance (i.e. becoming disabled, an orphan, widowed or retired) and if it were to be know that with minor tweaking that it would be perpetually solvent then this might look good for a single payer health system.

    They are hysterical that the government might be an insurer and they do not want us to have a medical system like social security where if they lifted the cap just a little it would be solvent forever. So they are going after Social Security now, casting it as a failure and hoping to build on that when the real battle comes.

    The fight ahead is going to be a doozie with conservatives sharpening their knives and Dems like Schumer offering half measures to appease the insurance companies. To these people I just hope we all say “NO!” loudly and in unison.

  24. [H]ow many people struggle to survive on SS as it is now?

    I should retire in 13 years; not that I actually will. Already I’m being told, constantly, by my employer and the “good” folks who market 401k plans, that SS is and was meant only to supplement the old-fashioned pension and the newfangled and deeply flawed 401k. Consider the source, of course. Too many people really do struggle to survive on just SS, because that’s all they ever had. Plus, we now have at least a half generation whose 401k funds just vanished, never to be seen again. So, yes, 75 percent of “bad” is “worse than bad.”

    The burning question for me is, where there’s hysteria and hype, what does this administration have to gain by promoting it? I’m sure the righties have their own answer, but I’d rather hear a reasonable one.

  25. The burning question for me is, where there’s hysteria and hype, what does this administration have to gain by promoting it? I’m sure the righties have their own answer, but I’d rather hear a reasonable one.

    Doesn’t the answer seem clear?

    If Social Security cannot be cast as a failure, many might think that this single payer healthcare looks awful good. If that happens, not only have corporate rightees lost the ability to take a % off the top of Social Security (Bush tried his darndest but Americans didn’t buy it) but they will backslide when the government competes with private insurers doing it not-for-profit.

    And as the rightees say “We all know that if the corporations lose then so does the average joe” so single payer healthcare would actually be bad for America and even those who might think they are benefitting from it.

    So Joanr16, which part of this is not plausible to you??

  26. sorry re-read what does this administration have to gain by promoting it?

    That depends what it is. Hysteria or SS. I did not take from any of this that they hysterian and near mis-representation was from the Obama administration but rather rightees and reporting that could have dealt with the hard cold facts with less one-sided interpretation and near-distortion.

  27. Seems to me there’s a lot of hysteria going on here, and it’s not coming from the Obama Administration. As I said in the post, those of us on the Left cannot speak of any flaw or problem whatsoever in the Social Security system, however minor or fixable, without being rabidly attacked as a pawn of the Right.

    Please, cut it out. It’s annoying.

    I don’t think the news stories about Social Security are terribly significant, but Medicare is another matter, and one we do need to be able to talk about reasonably.

  28. No wonder we’re in such deep economic kaka. Anyone who thinks he can predict what a ‘fund’ will be worth or not worth 26 years from now is obviously smoking something.

  29. Well, donchaknow that sending half of taxpayers money to fund The War Machine is obviously a higher priority than taking care of its own citizenry? When the US spends a disproportionate amount of taxpayers money to the military… well, you gotta cut corners somewhere…

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