Paul Krugman: Entitlements on the back of an envelope

[Wetzelbill]

An informative post from Krugs's blog. -WB

February 23, 2009, 10:03 am

Entitlements on the back of an envelope

Today’s “fiscal responsibility” summit, which was originally much feared as a Trojan Horse for Social Security cuts, has apparently been downgraded into relative obscurity. But I thought it might nonetheless be worth talking briefly about the math of the entitlements issue.

Usually this is done with fairly elaborate projections, but I think the essence can be explained with a back-of-the-envelope calculation. So here goes.

Right now, the federal government spends about 9 percent of GDP on the three biggies, Social Security, Medicare and Medicaid, with the total roughly evenly divided between retirement and medical care.

We have an aging population, which will tend to increase the share of GDP spent on these programs. Looking ahead to circa 2050, we’ll go from about 3 workers per retiree to 2. This would, other things equal, raise spending on the programs by about 4 percentage points of GDP. (Not 4.5, because only part of Medicaid is age-related). That is, we’d spend 6.75 percent of GDP on retirement, 6.25 percent on health care.

Now, 4 percent of GDP is a lot, but not catastrophic: remember, the share of GDP spent by the government currently is 10 percentage points or more higher in a number of wealthy countries than it is here.


http://krugman.blogs.nytimes.com/2009/02/23/entitlements-on-the-back-of-an-envelope/

[maxsolomon]

1. what % of GDP is spent on defense?

and by defense, i mean offense.

CUT THE DOD.

[Common Sense Party]

9. 4%+

From Wikipedia:

The United States spends 4.06% of its GDP on its military (considering only basic Department of Defense budget spending, while complete military spending is higher by more than 50% due to additional DoD funding and funding of other federal military departments), more than France's 2.6% and less than Saudi Arabia's 10%.<7> This is historically low for the United States since it peaked in 1944 at 37.8% of GDP (it reached the lowest point of 3.0% in 1999-2001). Even during the peak of the Vietnam War the percentage reached a high of 9.4% in 1968.<8>

http://en.wikipedia.org/wiki/Military_budget_of_the_United_States

[many a good man]

17. Say it in Oreos

It is more comprehensible that way.



Thanks, Ben! http://www.truemajority.org/oreos/

[Prophet 451]

16. Too much

Depending on how you define it, the US military budget is somewhere between $620 billion and a trillion dollars a year. Even taking the lowest figure, that's more than the entirety of the rest of the world combined. Just the increase between 2006 and 2007 was greater than the entire combined military budgets of the next eight big spenders. This is the most disproportionate build-up of military power since the fall of Rome and most of it is being spent on weapons designed for large-scale ground wars that yopu're unlikely to ever fight.

Oh, and current combined cost of Medicare, Medicaid and private insurance: around $2.3 trillion annually. Cost to cover the entire US population under the French model (generally regarded as the best on the world): around $900 billion, less than half what you currently pay.

Granted, it would cost an ungodly amount of money to set up but unlike the banks, you only need to spend that money once, it's over and done with and you have a gleaming new healthcare system to show for the cash.

[lumberjack_jeff]

2. Exactly right.

"What makes the projections you actually see so scary is the assumption that “excess cost growth” in health care will continue — that is, health spending per person will continue to rise at close to 2 percent faster than GDP per capita. This means, circa 2050, that health care costs will be roughly double what pure demography would predict, adding another 6 plus percentage points to the entitlements projection. Looking beyond that, demography adds very little — it’s all health care.

So if excess cost growth in health care can be brought under control, the entitlement problem is manageable. If not, even savage cuts in Social Security will make little difference."

The main economic problem we face is health care inflation. Some say we can't afford a major government-run health care initiative, when the truth is we can't afford to keep doing what we're doing.

[Wetzelbill]

4. definitely

Just like how Greenspan and Lindsey Graham are talking about nationalizing banks, one of these days the health care crisis will get so bad that you'll start seeing Republicans saying something similar about health care. They'll only do it decades too late unless Dems can somehow fix the system up before it comes to that.

[Metta]

3. Yup. Missle defense, DOD fraud, corporate welfare. Lots of room to cut wasteful spending.

And put some people in jail for crimes, as good measure.

[Enthusiast]

5. I agree, Metta

But Missile Defense, DOD fraud and corporate welfare are sacred cows. Even the fraud part is a sacred cow.

[CrispyQ]

6. "...fraud is part of the sacred cow."

Damn straight. The system is so corrupt it's mind numbing.

[Metta]

8. Too true. When the foxes guard the hen house, we get entrenched fraud. They should be in jail.

:toast:

[Enthusiast]

10. I'm already disappointed

that banking-financial regulations have not been strengthened. And the procurement goings on in the Pentagon are rife with corruption. I don't think we should worry about Social Security until these issues are addressed.

[Metta]

14. I agree. Plus, no need to worry about s.s. Just take the 90K salary cap off.

So everyone pays. That should fix it.

[bvar22]

15. ....and confiscate their "off-shore" accounts and other loot.

!

[Enthusiast]

18. Wouldn't you love to see

what is in those accounts.

[Common Sense Party]

7. Yes, the big three are perhaps 9% of GDP today, but 42% of the

federal budget.

Krugman's projections into the future don't really match what the OMB and GAO and the former comptroller general have been saying about entitlement growth, either.

[Kurovski]

11. K&R. (nt)

[Blackhatjack]

12. "if excess cost growth in health care(is) brought under control,..entitlement problem is manageable"

Pretty much says it all.

[Wetzelbill]

13. kick