Tags: Krugman | Social Security | Medicare | healthcare

Krugman: Long-Term Outlook for Social Security, Medicare 'Isn't All That Bad'

By    |   Tuesday, 04 June 2013 07:52 AM

Social Security and Medicare can be saved with just minor changes, says Nobel Prize-winning economist Paul Krugman.

"The truth is that the long-term outlook for Social Security and Medicare, while not great, actually isn’t all that bad," Krugman writes in his New York Times column.

"It’s time to stop obsessing about how we’ll pay benefits to retirees in 2035 and focus instead on how we’re going to provide jobs to unemployed Americans in the here and now."

Editor's Note:
Economist Warns: 50% Unemployment, 100% Inflation Possible

Social Security projects payments will increase from 5.1 percent to 6.2 percent of gross domestic product (GDP) in 2035, and then stabilize. "This means, by the way, that all the talk of Social Security going 'bankrupt' is nonsense; even if nothing at all is done, the system will be able to pay most of its scheduled benefits as far as the eye can see."

It does appear that there will eventually be a shortfall, he concedes. In response, Social Security critics argue that we must cut benefits now because we might, at some point in the future, have to cut benefits.

"What problem, exactly, are we solving here?" Krugman poses, questioning the logic of that argument.

Medicare projects its spending will increase from 3.6 percent now to 5.6 percent of GDP in 2035. That's a smaller increase than its previous estimate because healthcare costs are growing more slowly. That might be because of cost-saving measures in the Affordable Care Act, he says.

Because some cost-reducing measures have not kicked in yet, there's room for more saving, Krugman adds, noting that Americans pay far more for health procedures than do people in other advanced countries.

The combined cost of Social Security and Medicare will rise from about 3 percent of GDP from now to 2035 — a big, but not an economy-crushing, number, Krugman suggests. We could close that gap entirely with tax increases and still have one of the lowest overall tax rates in the advanced world.

Plenty of pundits have been saying Social Security and Medicare are unsustainable. They've also been saying we must slash spending or face a Greek-style fiscal crisis, he notes. "They were wrong about that, and they’re wrong about the longer run, too."

Experts agree that Obamacare is pushing down Medicare costs, according to USA Today.

Healthcare spending increased about 3 percent a year form 2009 to 2011, compared with an average of 6 percent a year the previous decade, Michael Chernew, a healthcare policy professor at Harvard Medical School, tells USA Today. Increasing healthcare costs might continue to slow, he adds.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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Social Security and Medicare can be saved with just minor changes, says Nobel Prize-winning economist Paul Krugman.
Krugman,Social Security,Medicare,healthcare
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2013-52-04
Tuesday, 04 June 2013 07:52 AM
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