In a letter to the Wall Street Journal earlier this week, Princeton health economist Uwe Reinhardt criticizes an earlier op/ed by health economist John C. Goodman and economist Laurence J. Kotlikoff. It was an interesting enough response that I think it worthwhile to quote a large part of it and give my thoughts after each.
Reinhardt: In their lugubrious "Medicare by the Scary Numbers" (op-ed, June 25), economists John C. Goodman and Laurence J. Kotlikoff project estimated unfunded Medicare liabilities, literally to the end of time, and then relate the resulting staggering sum--somewhere between $43 trillion to $100 trillion, depending on the assumptions baked into the forecast--to this year's U.S. GDP.
Comparisons like that are basically meaningless, but if one wants to scare folks, perhaps they work.
Henderson: Yes, I'm sure the comparison is meant to scare "folks." That, of course, doesn't mean that the numbers are false. Why exactly are they meaningless? One might think it's because Goodman and Kotlikoff are comparing a stock--the present value of unfunded Medicare liabilities--to a flow--U.S. GDP. That would be a reasonable criticism although I would still find the numbers scary. But that's not the criticism Reinhardt makes.
Reinhardt: Every future generation of leaders running the country on behalf of its citizens must decide how to slice up their GDP among those who produced that GDP, those too young to do so and those too old to do so.
Henderson: Reinhardt clearly has a different view of government from mine. Notice that he thinks that "leaders," by which it's clear that he means "politicians," will be "running the country." This is common nowadays. I long for the day that many more people take to heart the ideals that many of us Americans will celebrate tomorrow--the ideal of having politicians run a limited government and not a country.
Notice also Reinhardt's idea that government "slices" up GDP.
Reinhardt: To illustrate, in 2003 Congress passed and President Bush signed the Medicare Prescription Drug, Improvement and Modernization Act which promised Medicare beneficiaries heavily subsidized prescription drugs, from 2006 on to kingdom come, without providing a penny of financing for that promise. The implied unfunded liability is a good part of the liability whereof the authors write.
Henderson: Good point. Where is he going with this?
Reinhardt: But as I tell my Princeton students, there is no reason why they or yet other future generations should feel bound by this reckless and morally dubious legislation.
Henderson: Good for you, Uwe. Note, though, that this is a strong statement. I wonder if he would make the same statement about other parts of Medicare that were unfunded.
Reinhardt: They can change it if they wish, and I hope they do. Most probably our current leaders will not.
Henderson: Reinhardt makes it sound as if a future government can say, "Hesto, presto, it's changed." He's not taking seriously the political constraints that keep even a bad program in existence. And yet he seems to be aware of the constraints. Otherwise, why does he think it probable, as do I, that our current "leaders" will not change it?