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Tuesday, April 03, 2007

Maya MacGuineas on Budget Reform

I had a busy night last Wednesday because, in addition to seeing the Chinese Ambassador to the US speak, I also went to a talk by Maya MacGuineas of the New America Foundation.

She is a budget wonk (in a good way) and her talk was very interesting. One of the points that really struck a chord with me was about entitlement reform. [Disclaimer: The following views are mine and not Ms. MacGuineas'.] This is probably the area of the budget most in need of reform as the imminent increase in the cost of entitlement programs (and the interest on the foreign [hint: foreign = China - it always comes back to the Chinese, although Ms. MacGuineas was dubious as to whether or not the Chinese owning so much of our debt is actually dangerous. I vote yes.] owned debt that is used to fund them) will increase rapidly in the coming decades.

Social security was designed to be a safety net for individuals who were past the point where they could reasonably be expected to earn a wage to support themselves. At that time, that age was determined to be 65. In 1930, five years before social security was signed into law by FDR, the average US life expectancy was 58 for men and 62 for women and 5.5% of the population was 65 or older. Today, average US life expectancy is 78 and 11.5% of the population is over 65. In addition, the impending retirement of the "Baby Boomers" (or as I like to call them, "the Worstest Generation") is going to swell the percentage of individuals receiving social security even more. Furthermore, social security was meant to help those who could not help themselves. It was not meant as a way for everyone to plan their retirement around.

So, one of the most sensible (from looking at those numbers) and "politically poisonous" ideas (as Ms. MacGuineas termed them) would be a two-fold approach of, first, raising the age at which people can receive social security benefits and, second, to institute means testing as a way to ensure that people only get out of the system what they need. Social security was designed as a safety net, not a forced 401k.

While social security is a pressing problem, the larger issue is the Medicare/Medicaid monster that is waiting to consume the budget. Oddly, Medicaid is often a sacrificial lamb when it comes to budget cutting, particularly on the state level. (Apparently, taking money away from poor children who need it to see a doctor is more palatable than taking money away from senior citizens who may not necessarily need it.) One of the best ways to remedy the skyrocketing cost of this entitlement would be to spend more money on preventive care for all Americans. This would decrease the burden on the US medical system and should help keep costs down.

All in all, both the Congress and the President need to move quickly to keep entitlement programs from wrecking the budget and burying future generations in the debt because this generation was too complacent and comfortable with the status quo to take action.

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