We've sung the sad song of Secretary Paulson before. At a Washington press briefing yesterday, he confessed, referring to Social Security reform:

I'm getting a little bit tired of playing solitaire... I'm less optimistic now than I was several months ago... When I'm talking alone, there's no one that really pushes back hard.

Is he really talking to himself now?

Paulson may have thought he had negotiated a free policy hand for himself as Treasury Secretary, turning down earlier offers for the position before apparently getting assurances from President Bush that the post, hitherto seen as subordinated by the White House, would have "the proper kind of stature."

One idea for the Secretary: get a dog.

Two policy suggestions for him: get rid of the non-starter albatross that makes bipartisan reform talks impossible -- putting some of taxpayers Social Security contributions into private accounts. And: do the nation a favor by directing attention toward Medicare (projected insolvency date: 2019), not Social Security (projected insolvency date: 2041) -- that is what is driving up the costs of entitlements.

You'll probably find more people willing to talk to you. And not just because you have a dog.

The Social Security and Medicare Trustee report came out yesterday.

• See the report here.
• And CBPP's take.
• And CEPR's take.

The Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds (read: Social Security) released their annual report yesterday. It must be absolutely disturbing to prompt these remarks from Treasury Secretary Henry Paulson:

Without change, rising costs will drive government spending to unprecedented levels, consume nearly all projected federal revenues, and threaten America's future prosperity. I urge my friends in Congress to join me in a bipartisan effort to strengthen both programs for future retirees.

This year's Social Security report again demonstrates that the Social Security program is financially unsustainable and requires reform.

Oh, heavens! Unsustainable? What could be in the the trustees report that has Paulson proclaiming doom - DOOM! - is to befall the nation?

For the trust funds to remain solvent throughout the 75-year projection period, the combined payroll tax rate could be increased during the period in a manner equivalent to an immediate and permanent increase of 1.95 percentage points, benefits could be reduced during the period in a manner equivalent to an immediate and permanent reduction of 13.0 percent...or some combination of approaches could be adopted.

By raising FICA (payroll) taxes from 7.65% to 9.55, Social Security can be "fixed." Clearly not the calamity Paulson (or Robert Samuelson) would have you believe. In fact, the "entitlement crisis" that many inside and outside of the government bemoan does not exist. What we are facing is a problem with rapidly rising costs of health care.

Peter Orszag, speaking at a conference on budget issues held by the Committee for a Responsible Federal Budget, gets the real long-term fiscal problem (emph. mine).

...the floor was given to CBO director Peter Orszag, who made the following three points.

1) The long-term story here is not aging or entitlements, but health care costs that are spiraling out of control. "We do a disservice," he continued, "by uniting the health care issue with the aging issue," which represents a much less serious fiscal danger. Medicare, not Social Security, is what is driving up the costs of entitlements, and it is increasing so dramatically because of overall increases in the cost of health care, not because of our aging population.

2) Social Security is often spoken of as the easiest of the three major entitlement programs to fix, but this gets it backwards. When dealing with health care, there is an opportunity to eliminate waste and inefficiency without affecting health outcomes. On the other hand, Social Security is a cash-transfer program, so the only way to cut costs is to reduce benefits.

3) There is no crisis unique to Medicaid and Medicare. The problem is with systemic inefficiencies in the health care system, and so it follows that the solution is not to cut benefits, but to figure out a way to bring down costs.

Nobody at the conference disagreed with Orszag's math. Seriously- everyone agrees that health care prices and waste are the cause. So there's a new consensus of what's driving the long-term fiscal imbalance- health care, irrespective of demographics, and not Social Security.

There was plenty of disagreement on a) whether this health care imbalance was as important as other problems -such as the rather abstract "entitlement" or "budget" problem that seems to be derived from a fundamental aversion to government spending- and b) what policies would address the health care imbalance, and c) the political viability of the proposed solutions.

It's really a look behind the curtain, in terms of the fiscal policy establishment- check it out if you have the chance.

Writing for the commie-pinko Washington Monthly, Philip Longman, a fellow at the unabashedly socialist New America Foundation, has foreseen the end of the capitalist health care market and the coming of socialized medicine in America.

Capitalism and health care provision are incompatible, he suggests, as they result in waste and unnecessarily high prices that benefit the medical bourgeoisie at the expense of the patient. Profit-seeking doctors and hospitals offer health care services that do not improve health outcomes. Powerless and ignorant, patients have no choice but to purchase wasteful services.

The exorbitant cost of American medicine is rooted in the exploitation of patients. Its victims will not suffer this injustice long.

Seriously though, the anti-market critique of the U.S. health care delivery system (developed by Arnold Relman, Maggie Mahar, and others) is becoming mainstream. In my search to understand the issue, I haven't found anything else that better explains why the U.S. pays so much more for health care than other countries do, but does not get better health outcomes.

The health care delivery system is set up in a way that promotes ineffective procedures that waste money, while failing to encourage the provision of procedures that could save lives. Longman's article does a good job detailing the evidence and mechanism at work here. A reform to control medical costs (which also just happens to be one of the public's top domestic policy priority) would seem to have to address these root causes.

Rob Portman is in the Hill today, doing his best to spin the Congressional budget resolutions.

One of his comments stands out:

I'm disappointed that the budget pays for all that new spending with taxes, which I think will put at risk the very economic growth that has given us the increased revenues over the last few years to be able to reduce the deficit.

I'm not exactly sure what spending he's talking about. But anyway. The main point is that he's probably wrong about the macroeconomic affect of the tax cuts. Even the Bush Treasury Department doesn't think expired tax cuts will put long-term economic growth at risk. Why should anybody take Rob Portman's word over theirs?

Let's also not forget that economic growth in the last few years has not done wonders for the country. It's only been the wealthiest people who've done better. So the revenue from the expired tax cuts could be used to help regular people who otherwise wouldn't get much in this top-heavy economy.

For instance, some of the revenue could be used to reform the health care system so it doesn't cost people and the government so much money. This is a pocketbook and a budget issue, but it also has a lot to do with macroeconomics. People from all over the political and ideological spectrum, including Portman, warn that health care costs could harm the economy. They could drive up the deficit to unsustainable levels. And if health care spending takes up too much of our GDP, we'll have less money around to spend on more other things.

Health care reform is going to cost a lot up front. But unlike renewing most of the tax cuts, it might actually make a significant and positive impact on our economy.

Why are health care costs rising so fast?

In the long-term, that is the most important question before the fiscal policy community. The long-term budget imbalance threatens to do great harm to government programs and the economy, and rising health care costs account for ALL of the spending that outpaces revenues for the foreseeable future. Not Social Security, not entitlements, not an aging population- health care programs, driven by rising prices in the private market.

So what's going on with health care? Maggie Mahar has an answer- her post in a TPM Cafe discussion on health care is a must-read for anyone interested in the long-term budget problems.

The principle force driving up health care costs is waste in the health care delivery system, as opposed to the health insurance system. See this McKinsey & Company break down of excessive costs in the health care system.

Mahar points up a Dartmouth Medical School project that has been comparing health care expenditures to outcomes across the country for the last 25 years. They've found that quite often, more services are provided to zero benefit for patients, and sometimes increased treatment is associated with worse health outcomes.

Which raises the question: why would patients be paying for services that don't do them any good? Isn't that irrational?

It is, yes- but think about it. Patients generally don't know what treatment is best for them. They can't shop around very effectively. And when they are really sick, which is where most health care costs occur, they tend to spare no expense in treating themselves, even if they don't know whether what they are getting, or if they have to pay for it out of pocket. As a result, profit-motivated doctors can prescribe expensive but ineffective treatments all they want, consequence-free.

Market dynamics do not pertain to much of health care provision. The sooner we realize this, the sooner we'll get to work on actually making health care affordable and accessible- while preventing a fiscal and economic meltdown.

Craig excerpts an interesting article below that reminds us that there was once a time when the median wage tracked productivity- or, as I like to think, a time when people were paid what they earned.

It was the post-WW II era, from 1945 to 1973, the time modern liberals want to return the economy to. Society was more equal. CEOs were paid a fraction of what they're paid now, the minimum wage was higher, and strong unions extracted fair wages from stingy employers. What's more, productivity rate and GDP growth was high, despite (or maybe because?!?) high tax rates on the wealthy. Everything was gravy.

But this paper (via TAPPED) shows that all wasn't right in one important area: fiscal policy. The U.S. still spent about half as much of its GDP as European countries did on education, health, unemployment, family benefits, and other non-military types of spending. Take a look at this chart

As best I can tell, this chart doesn't take into account corporate or charitable spending on similar things. However, it seems unlikely that these actors could make up the wide gulf between US and European spending levels. It'd be worth checking out, regardless.

The point is that better labor market policies are necessary but insufficient remedies to inequality. Good redistributive fiscal policy has to be a part of the solution, too.

In an ongoing effort to define what exactly is so terrible about Robert Samuelson, fiscal policy columnist for Newsweek and the Washington Post, I present his latest "fun" column on the exploding behemoth of a entitlement crisis disaster. Mr. Samuelson now strikes a righteous, enlightened pose, and yet again fails to understand what is at issue.

St. Samuelson speaks of vitueless baby boomers whose retirement may cost more money:

First, a generational backlash is inevitable. It may not come as attacks on sunbathing retirees, but the idea that younger workers will meekly bear the huge tax increases needed to pay all boomers' promised benefits is delusional. The increases are too steep, and too many boomers—fairly wealthy and healthy—will seem undeserving.

To say that people who have worked hard all their life for their Social Security and Medicare benefits are undeserving is infuriating. What Samuelson cannot, and probably will not, ever grasp is that the vast majority of these extra costs are being generated not by babyboomer self-indulgence, not by greed, not by an aging society, but by the nation's dysfunctional health care system. This fact is not credibly disputed (See this Brookings paper for a good discussion of the issue).

Like any true saint, he recognizes his imperfections, too.

I was born in late 1945 and count myself a part of this failure. In our careless self-absorption, we are committing a political and economic crime against our children and perhaps—when they awaken to their victimization—even ourselves.

Indeed, Samuelson is very much responsible for the long-term budget problems. Occupying a position of immense power, yet oblivious to the dynamic driving the entitlement problem, Samuelson is helping to delay the implementation of systemic health care reform- the only way to resolve the long-term fiscal imbalance. Someone who understands the problem and isn't afraid to propose bold change could do the public a great service by taking Samuelson's place.

A just-released study found that a widely implemented, expensive technology to improve mammograms has been a resounding failure. The Chicago Tribune:

The study is the latest development in the debate over the usefulness of screening mammograms, which are recommended for all women over 40. Regular mammography has been shown to reduce breast cancer deaths, especially in women older than 50. But the test is imperfect -- it misses up to 20 percent of cancers and often catches things that are not cancer, requiring worrisome and expensive follow-up.

Attempts to refine the test have met with mixed results; none has been proved to save lives. The latest study suggests that expensive new technologies should be tested more thoroughly before they are put into widespread use, experts said.

The usage of expensive yet inefficient technologies like this helps account for our overpriced health care system.

State Medicaid administrators have been telling state children's health insurance programs (SCHIP) to back off outreach efforts, Inside CMS ($) reports today.

The crux of the issue is that when SCHIP programs do outreach, they tend to find and sign up children and adults not only for SCHIP, but for Medicaid, as well.

Medicaid is an entitlement program whose costs are determined largely by the number and type of participant. When more people sign up for Medicaid, it's mandated by law to provide services, and costs go up. (SCHIP is not an entitlement program. States can deny services to eligible children if they do not have enough resources available.)

States and the federal government split the cost of both SCHIP and Medicaid- 85 federal/15 state and 65 federal/35 state, respectively. So states are mandated to pay a lot more when people sign up for Medicaid- hence the resistance to SCHIP outreach that attracts new Medicaid participants.

With rising medical costs and smaller tax bases, states nationwide have been scaling down outreach, as many state administrators quoted in the article attested to.

"I don't think that states are doing the kind of out there, in-your-face campaigns that they were doing at the beginning of the program," said another state Medicaid official. "Hopefully, through the reauthorization process, some of these concerns can get addressed," the official told Inside CMS.

This may help explain why enrollment in SCHIP has not increased substantially in recent years, and perhaps why Medicaid costs did not increase this year. Recall also that states have been cutting Medicaid costs by requiring "proof of citizenship" documentation that low-income citizens often do not have. Is this arbitrary, unfair way of discouraging eligible Medicaid recipients really the way we want to control Medicaid costs?

If legislators design an expansion of the SCHIP program this year, they should consider how Medicaid cost concerns can influence SCHIP rolls. Otherwise, states may not vigorously pursue new SCHIP enrollees, and too many children will still lack proper health care.