The Final Insult
Hell hath no fury like a scammer foiled. The card shark caught
marking the deck, the auto dealer caught resetting a used car's
odometer, is rarely contrite. On the contrary, they're usually angry,
and they lash out at their intended marks, crying hypocrisy.
By PAUL KRUGMAN
Published: May 9, 2005
And so it is with those who would privatize Social Security. They
didn't get away with scare tactics, or claims to offer something for
nothing. Now they're accusing their opponents of coddling the rich and
not caring about the poor.
Well, why not? It's no more outrageous than other arguments
they've tried. Remember the claim that Social Security is bad for black
Before I take on this final insult to our intelligence, let me
deal with a fundamental misconception: the idea that President Bush's
plan would somehow protect future Social Security benefits.
If the plan really would do that, it would be worth discussing.
It's possible - not certain, but possible - that 40 or 50 years from
now Social Security won't have enough money coming in to pay full
benefits. (If the economy grows as fast over the next 50 years as it
did over the past half-century, Social Security will do just fine.) So
there's a case for making small sacrifices now to avoid bigger
But Mr. Bush isn't calling for small sacrifices now. Instead,
he's calling for zero sacrifice now, but big benefit cuts decades from
now - which is exactly what he says will happen if we do nothing. Let
me repeat that: to avert the danger of future cuts in benefits, Mr.
Bush wants us to commit now to, um, future cuts in benefits.
This accomplishes nothing, except, possibly, to ensure that
benefit cuts take place even if they aren't necessary.
Now, about the image of Mr. Bush as friend to the poor: keep your eye
on the changing definitions of "middle income" and "wealthy."
In last fall's debates, Mr. Bush asserted that "most of the tax
cuts went to low- and middle-income Americans." Since most of the cuts
went to the top 10 percent of the population and more than a third went
to people making more than $200,000 a year, Mr. Bush's definition
of middle income apparently reaches pretty high.
But defenders of Mr. Bush's Social Security plan now portray
benefit cuts for anyone making more than $20,000 a year, cuts that will
have their biggest percentage impact on the retirement income of people
making about $60,000 a year, as cuts for the wealthy.
These are people who denounced you as a class warrior if you
wanted to tax Paris Hilton's inheritance. Now they say that they're
brave populists, because they want to cut the income of retired office
Let's consider the Bush tax cuts and the Bush benefit cuts as a
package. Who gains? Who loses?
Suppose you're a full-time Wal-Mart employee, earning $17,000 a
year. You probably didn't get any tax cut. But Mr. Bush says,
generously, that he won't cut your Social Security benefits.
Suppose you're earning $60,000 a year. On average, Mr. Bush cut
taxes for workers like you by about $1,000 per year. But by 2045 the
Bush Social Security plan would cut benefits for workers like you by
about $6,500 per year. Not a very good deal.
Suppose, finally, that you're making $1 million a year. You received a
tax cut worth about $50,000 per year. By 2045 the Bush plan would
reduce benefits for people like you by about $9,400 per year. We have a
I'm not being unfair. In fact, I've weighted the scales heavily
in Mr. Bush's favor, because the tax cuts will cost much more than the
benefit cuts would save. Repealing Mr. Bush's tax cuts would yield
enough revenue to call off his proposed benefit cuts, and still leave
$8 trillion in change.
The point is that the privatizers consider four years of
policies that relentlessly favored the wealthy a fait accompli, not
subject to reconsideration. Now that tax cuts have busted the budget,
they want us to accept large cuts in Social Security benefits as
inevitable. But they demand that we praise Mr. Bush's sense of social
justice, because he proposes bigger benefit cuts for the middle class
than for the poor.
Sorry, but no. Mr. Bush likes to play dress-up, but his Robin
Hood costume just doesn't fit.
A Serious Drug Problem
There was a brief flurry of outrage when Congress passed the
2003 Medicare bill. The news media reported on the scandalous vote in
the House of Representatives: Republican leaders violated parliamentary
procedure, twisted arms and perhaps engaged in bribery to persuade
skeptical lawmakers to change their votes in a session literally held
in the dead of night.
By Paul Krugman
Friday 06 May 2005
Later, the media reported on another scandal: it turned out that
the administration had deceived Congress about the bill's likely cost.
But the real scandal is what's in the legislation. It's an
object lesson in how special interests hold America's health care
The new Medicare law subsidizes private health plans, which have
repeatedly failed to deliver promised cost savings. It creates an
unnecessary layer of middlemen by requiring that the drug benefit be
administered by private insurers. The biggest giveaway is to Big
Pharma: the law specifically prohibits Medicare from using its
purchasing power to negotiate lower drug prices.
Outside the United States, almost every government bargains over
drug prices. And it works: the Congressional Budget Office says that
foreign drug prices are 35 to 55 percent below U.S. levels. Even within
the United States, Veterans Affairs is able to negotiate discounts of
50 percent or more, far larger than those the Medicare actuary expects
the elderly to receive under the new plan.
After the drug bill's passage, Jacob Hacker and Theodore Marmor
of Yale University estimated that a sensible bill could have delivered
twice as much coverage for the same price.
Needless to say, apologists for the law insist that the
prohibition on price negotiations had nothing to do with catering to
special interests - that it was a matter of principle, of preserving
incentives to innovate. How can we refute this defense?
One way is to challenge claims that the pharmaceutical industry
needs high prices to innovate. In her book "The Truth About the Drug
Companies," Marcia Angell, the former editor in chief of The New
England Journal of Medicine, shows convincingly that drug companies
spend far more on marketing than they do on research - and that much of
the marketing is designed to sell "me, too" drugs, which are no better
than the cheaper drugs they replace. It should be possible to pay less
for medicine, yet encourage more real innovation.
Another answer is to point to the haste with which key players
in the drug bill's passage cashed in - making the claims that they
wrote a pharma-friendly Medicare bill out of genuine concern for the
public's welfare look ludicrous.
Let's look at just two examples.
Billy Tauzin, who shepherded the drug bill through when he was a
member of Congress, now heads the Pharmaceutical Research and
Manufacturers of America, the all-powerful industry lobby group, for an
estimated $2 million a year. In his new job, he's making novel
arguments against allowing Americans to buy cheaper drugs from Canada:
Al Qaeda, he suggests, might use fake Viagra tablets to get anthrax
into this country.
Meanwhile, Thomas Scully, the former Medicare administrator -
who threatened to fire Medicare's chief actuary if he gave Congress the
real numbers on the drug bill's cost - was granted a special waiver
from the ethics rules. This allowed him to negotiate for a future
health industry lobbying job at the very same time he was pushing the
If all this sounds like a story of a corrupt deal created by a
corrupt system, it is. And it was a very expensive deal indeed.
According to the Medicare trustees, the fiscal gap over the next 75
years created by the 2003 law - not the financing gap for Medicare as a
whole, just the additional gap created by legislation passed 18 months
ago - will be $8.7 trillion.
That's about three times the amount President Bush proposes to
save by cutting middle-class Social Security benefits.
In fact, I have a suggestion for Mr. Bush. One way to prove that
he's really sincere about addressing long-run fiscal problems, that his
calls for benefit cuts aren't just part of an ideological agenda, would
be to put Social Security aside for a while and fix his own Medicare
program. Oh, never mind.
Nonetheless, someone will eventually have to take on the health
care special interests. Who might do that? I'll write about that in the
next installment of this series.