The reporting on the release of the annual Social Security and Medicare trustees reports was better this year than in the past, but still not very informative. Most reports did not include the context that would have made the information understandable to most readers/viewers.
In the case of the Social Security report, there was less mention of the scary sounding multi-trillion dollar shortfall projections that are meaningless without being placed in any context. (The 75-year shortfall projected by the Congressional Budget Office [CBO] is equal to 0.4 percent of GDP over this period, approximately 40 percent of the size of the post September 11th boost to the defense budget.) Much of the reporting still portrayed the projected 2040 date of the trust fund's depletion (2052 according to CBO) as a looming crisis demanding prompt action, implying that Congress needs 34 year lead time to deal with a problem that was dealt with in 8 months back in 1983. Given the size and uncertainty surrounding the projected shortfall, it is difficult to make a serious case that action on Social Security is urgent.
In addition to distracting attention from more pressing problems, my concern over hasty action on Social Security stems from the widespread ignorance about the state of the program and its potential impact on future well-being. Even the trustees relatively pessimistic assessment of the future implies that real wages will be almost 50 percent higher by the 2040 projected depletion date (real wages will be almost 80 percent higher in the CBO projections). The idea that our children or grandchildren will impoverished by higher Social Security taxes is absurd on its face, but the public has been so scared by demagoguery on this issue, that tens of millions of people have precisely this fear. My preference is to defer action until the media has done its job of educating the public. If that takes 34 years -- that's okay by me.
Of course the real danger to future living standards is the projected increase in health care costs that is threatening the Medicare program and government budgets more generally. This is a private sector health care problem, not a problem with the Medicare program. The projected increases in health care costs imply that the annual cost of health care for workers between the ages of 55-64 will be almost $18,000 a year (in 2006 dollars) by 2026. This is a crisis that demands our attention. Unfortunately, this projected explosion in health care costs rarely is noted in the media, even as they report the dire implications for a program like Medicare.