Saturday, May 28, 2011

Dean Baker Spots a Bit of Blindness

Upton Sinclair diagnosed the problem with the Washington Post long before Dean Baker spotted the problem. From Wikiquote: It is difficult to get a man to understand something, when his salary depends upon his not understanding it!

Here is the problem that Dean Baker spotted in the Washington Post coverage on the entitlement debate:
Hey Stupid Seniors! The Post Says a 9 Percent Cut In Social Security Benefits Won't Hurt

It's amazing what you can learn reading the Washington Post. Today it's lead editorial told readers that reducing the annual cost of living adjustment for Social Security by 0.3 percentage points won't hurt. This would come as news to most seniors who rely on Social Security for most of their income.

This 0.3 percentage point cut is cumulative. After a person has been retired for 10 years benefits would be roughly 3 percent lower than would otherwise be the case. Benefits would be almost 6 percent lower after 20 years, and almost 9 percent lower after 30 years, when most beneficiaries will be in their 90s.

The poverty rate is highest for the oldest seniors, most of whom are women living alone. Most people think cutting benefits for this group by 9 percent would hurt, thankfully we have the Washington Post to tell us otherwise.

(This is a newspaper that has run front page stories warning that raising taxes by less than 1 percent [of income] on people earning $300,000 a year would inflict real pain.)

The rationale for the benefit cut is the use of an alternative measure of inflation, the chained consumer price index, that assumes substantial substitution between consumption items in response to prices changes. The Post asserts that this index is a more accurate measure of inflation.

Actually, the Bureau of Labor Statistics has an experimental elderly index that measures the rate of change in the basket of goods and services consumed by people over age 62. This index shows that the inflation rate experienced by the elderly increases by an average of 0.3 percentage points more than the overall CPI to which Social Security benefits are indexed.

While this is an experimental index that does not track the actual purchasing patterns of the elderly (e.g. examining the specific retail outlets where they shop and the items they purchase), those who are interested in an accurate cost of living adjustment would advocate a fuller elderly index. Those who want to cut Social Security benefits advocate using the chained consumer price index, which we know will show a lower measured rate of inflation.
Go read Baker's original post to get the embedded links.

When I read this bit about how the Washington Post's editors see "entitlements" I'm reminded of the scene in the film Titanic where the rich and leisured "gentlemen" elbow the women and children out of the way so that they can get into the lifeboats and get away from the sinking ship. These "gentlemen" mouth an ethic of a "higher morality" but when push comes to shove, they are only to eager to throw the elderly under the bus so they can afford to upgrade their 400 foot yacht next year for the 600 foot version.

And... here is Dean Baker's post on "privatizing" health care benefits:
David Brooks Calls for Improved Defenses Against Martians and Cutting Medicare

It's pretty brave of the NYT to routinely feature a columnist who is completely out of touch with reality. David Brooks has another tirade today in which he lays out his, "Medicare Survival Guide."

Brooks is very upset that the Democrats won the special congressional election in New York by telling people that the Republicans want to end Medicare. Apparently, Mr. Brooks has not read the Medicare plan that was put forward by Representative Ryan and approved by the House with the support of all but 4 Republicans. This plan replaced the current Medicare system with a voucher, which seniors would use to buy health care insurance. That certainly sounds like ending Medicare. It would be interesting to know what Mr. Brooks would consider ending Medicare.

According to the Congressional Budget Office's assessment of the Ryan plan, it would increase the cost of buying Medicare equivalent policies by $34 trillion (5 times the projected Social Security shortfall) over the program's 75-year planning horizon. Adding in the $5 trillion in costs shifted from the government, the Ryan plan would increase the cost to beneficiaries of buying Medicare equivalent policies by $39 trillion.

In pushing the defense plan against Martian attacks Ryan tells the Republicans:

"They need to lay out the facts showing that Medicare is unstable and on a path to collapse, as Representative Paul Ryan is doing."

Actually, this is not what the facts show. The projections in the Medicare Trustees report, as well as the CBO baseline budget, show that the program faces a relatively modest long-term shortfall. The amount of money needed to balance the program over its 75-year planning horizon is less than 0.3 percent of GDP, approximately one-fifth of the increase in the rate annual defense spending between 2000 and 2011.

There are important issues as to whether the assumptions underlying these projections will prove accurate, importantly limiting the increase in doctors' compensation under Medicare. However, this is a question of whether Congress will adhere to the current law, not a need to change the law.

The Brooks piece also contains the wonderful line:

"Many Democrats don’t want to go down in history as the people who did nothing while bankruptcy loomed."

Actually, they already will go down in history that way. Apparently no one told Brooks about the economic downturn. (He has probably been too busy preparing the defense against Martians.)

The Democrats, like their Republican counterparts, completely ignored the run-up in the housing bubble. The collapse of this bubble is likely to cost the country more than $5 trillion in lost output. It is also the reason for the large deficits that concern Brooks so much. Unless the Democrats can ensure that people like Brooks write the story, they are destined to go down in history as people who did nothing while economic disaster (I have no idea what Brooks means by "bankruptcy" and most likely he doesn't either) loomed.
Again, go read the original to get the embedded links.

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