The New York Times decided to have a special dialogue around a letter to the editor that called on President Obama to take “decisive action” on the economy. Remarkably, only one item on the list of decisive actions, investing in infrastructure, would have any positive impact on jobs and even this would be limited. While investing in infrastructure is a very good idea, there are not very many people who can be usefully employed on infrastructure projects in the next two years.
It takes time to plan a project and many projects, like building high-speed rail, are only going to be built over many years. This means that even the most aggressive infrastructure program will only have a limited impact on jobs in the rest of 2011, 2012, and even 2013. If we want to see substantial reductions in unemployment over the next two years we will need more decisive action than this.
The rest of the items in the letter all involve reducing the deficit. While some of the proposals are very reasonable, like ending the war in Afghanistan and raising taxes on the wealthy, these will certainly not help create jobs. The list also contains two profoundly silly proposals, means-testing Social Security and raising the age of Medicare eligibility to 67.
The idea of cutting Social Security is especially off base since the latest projections from the Congressional Budget Office show that the program is fully funded through the year 2038 with no changes whatsoever. Even after this date, the program would always be able to pay more than 80 percent of scheduled benefits. Given the overall health of the program, proposals for cuts are effectively taking away benefits that people have already paid for.
In addition to the fact that such cuts would be unnecessary and arguably unfair it also is worth noting that means-testing is an especially bad way to make cuts. While investment banker Peter Peterson likes to go around the country boasting that he doesn’t need his Social Security, the reality is that there are very few rich elderly people like Mr. Peterson. In order to have any noticeable impact on the program’s finances, a means test would have to hit very middle-income people — people with incomes in the neighborhood of $40,000 a year. Even then the impact would be very limited. To have a major impact on the program’s expenses, it would probably necessary to move the means test down to people with incomes around $30,000 a year. This would not fit most people’s definition of rich.
The proposal to raise the age of Medicare eligibility is also incredibly misguided. It is extremely expensive for seniors to get health care insurance. Many workers struggle to stay on jobs until age 65 when they can first qualify for Medicare. This proposal would push the bar out two years. Those who lose their jobs or can’t find jobs will generally not be able to afford insurance, which could easily exceed $20,000 a year for those with even minor preexisting conditions.
Rather than looking to reduce benefits the more obvious way to go with Medicare is to reduce the cost of care. The United States pays more than twice as much per person for its health care as the average for other wealthy countries. If we could get our costs down to those of other countries, we would be facing huge long-run budget surpluses, not deficits. One way to get lower costs would be to allow Medicare beneficiaries to buy into the more efficient health care systems in other countries. The enormous potential savings could be split between the government and the beneficiary.
It is perverse that the New York Times thinks it is reasonable to have major cuts to programs that affect retirees or near retirees. These people were especially hard hit by the collapse of the housing bubble. Many of them saw most of their life’s savings disappear as their house price plummeted. Insofar as we need revenue (which we clearly do not now), the most obvious place would be to tax the people who profited most from the bubble, the Wall Street crew.
A tax on financial speculation could easily raise more than $100 billion a year. Congress could also instruct the Federal Reserve Board to hold onto the $3 trillion in assets that it has acquired as part of its quantitative easing program. This could save the government more than $100 billion a year in interest payments later in the decade. In short, it is not difficult to find money for people who are not afraid of going after the rich and powerful.
Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, including False Profits: Recovering from the Bubble Economy. This article was first published in CEPR’s Beat the Press blog on 12 August 2011 under a Creative Commons license.