Tuesday, April 19, 2005

Question: What is the difference between squirrels and members of Congress? Answer: Squirrels make provision for the future.

It has long been thought that one of the mental attributes that sets man apart from the lower beasts is his capacity to mentally abstract himself from the moment and contemplate the middle- and long-term future. (As consolation for being given that gift, man was also uniquely given the capacity to laugh.) But if the current responses to fixing Social Security and Medicare by senators and congressmen — both Republican and Democrat — are any indication, we might want to consider electing squirrels to Congress rather than humans.

There is a building consensus in Washington that any meaningful rectification of Social Security’s finances is dead for at least the next year or two. I am not quite prepared to join that consensus yet, but I understand why smart people think that way.

Democrats are wandering around Washington proudly bragging that they have never been more united than they are now to kill any Republican-supported Social Security proposal. They note with pride that they are ahead of where the Republicans were in 1993 in their successful project to kill Hillary Care.

To the extent that they have a policy argument, it is that Social Security is not in any trouble that a modest little tax increase can’t solve, and that President Bush has his priorities wrong — he should be solving the problems of Medicare first. As the unfunded Social Security liability is $3.7 trillion (over 70 years), the little tax increase would, by definition be at least $3.7 trillion.

As the Democrats sincerely believe that regular, big tax increases are good for the country, I will concede the possibility that they are in good faith when they propose the world’s largest tax increase as a cure for Social Security. But that can’t happen until there is a Democratic president and are at least 60 Democrats in the Senate, as almost all Republicans would oppose such a tax increase.

Given that they are at only 45 senators, with a good chance of losing more in the next election, the Democratic leadership has to know that its policy of total opposition and total obstruction to any Bush bill on Social Security is, in effect, a formula for inaction for many years to come.

So, absent fairly prompt reform, the baby boomers will have to be satisfied with only 72 cents on the dollar of promised Social Security monthly payments. That is all the existing law promises when the revenues fall short.

The Republicans (except for the president and a few others) cast equally slender profiles in courage on Social Security. Give it to the Republicans, like good squirrels they are providing for their own future re-elections, by refusing to support or fight for the financial retirement future of the general population. There is admittedly some risk to about one in 10 Republican members of the House that they might lose re-election if they support an unpopular bill. But even many members in safe districts are taking no chances in supporting reform.

Of course, if Social Security was the only financial threat lurking just over the horizon, even late efforts to fix it could be plausible, if more painful (the later we wait, the more painful the cure will be when it is forced on us). But over precisely the same time period that we have to come up with the money or benefit cuts to keep Social Security solvent, we also have to do the same for Medicare.

If the Social Security financial wave that will hit us is a scary 25-foot wave of water, the Medicare wave will be something the wrathful Old Testament God would send if he was in an apocalyptic mood. Think in terms of Noah — or worse.

According to the Medicare trustees’ report last month, Medicare costs currently consume the equivalent of 8.7 percent of all federal tax revenues. That number goes up to 32.8 percent by 2025 and an unbelievable but true 90 percent of all revenues by 2075. Calculated another way, the unfunded liability of Medicare by 2075 will be a little over $60 trillion — that’s T as in totally insane.

Any way it is calculated , it can’t be afforded. Medicare is not only challenged by all the same demographic forces that are hitting Social Security, but also by the fact that demand for health care is going up, on average, about 3 percent more than the gross domestic product every year.

That is to say our demand for health care goes up much faster than our collective capacity as a nation to be productive. Currently Americans spend, from all sources, about 15 percent of our gross domestic product on health care (public and private). If current trends continue, that will increase to an impossible 79 percent by 2075. In other words, there will be little left for everything else in American life — public and private shelter, food, transportation, education, clothes, capital investment, the military — all other economic activity.

Neither the British, nor the Germans, nor the Canadians nor us have the slightest clue how to maintain funding for the levels of health care their populations assume will be available to them through their retirements.

Those politicians who say solve Medicare before Social Security are in effect saying don’t solve Social Security. If we don’t have the political will to solve the easier problem of Social Security, my advice to boomers as they get older is — don’t get sick.

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