My latest column at the Christian Science Monitor:
America’s fiscal challenges are often portrayed as a conflict between hawks and doves. The real battle, however, is between foxes and hedgehogs.
“The fox knows many things, but the hedgehog knows one big thing,” wrote the ancient Greek poet Archilochus. Both foxes and hedgehogs play important roles in the policy ecosystem in normal times. In times of great change, however, society needs more foxes and fewer hedgehogs. More citizens and leaders who can adapt to new conditions, and fewer who want to preserve the status quo.
That’s where we find ourselves today. Despite all the anguish over a debt limit deal, America’s fiscal outlook remains daunting. Little progress has been made on our largest budget challenges. Despite bipartisan efforts, prospects for a grand fiscal bargain remain dim.
One reason is that fiscal hedgehogs still have the upper paw on key issues.
Consider entitlements. Everyone knows that entitlement spending is our No. 1 long-term budget challenge. Because of an aging population and rising health-care costs, spending on Social Security and federal health programs will explode. The Congressional Budget Office estimates that over the next 25 years spending on these programs will rise from roughly 10 percent of the economy to almost 17 percent. Accommodating that growth would require substantial cuts in other government programs, much higher tax revenues, or unsustainable deficits and debt.
The challenge is to find ways to keep the core benefits of these programs while reining in costs. This is where entitlement hedgehogs and foxes part company.
The hedgehogs know one big thing: These programs provide major benefits. Social Security, for example, has dramatically reduced poverty among seniors and provides essential income to millions of retirees.
Inspired by that one big thing, hedgehogs oppose any benefit reductions, such as increasing the eligibility age or trimming benefits to reflect increased longevity.
Entitlement foxes have a more nuanced view. They recognize, like the hedgehogs, the value of the guaranteed retirement income that Social Security provides. But they also know that the number of retirees receiving benefits is growing faster than the number of workers paying payroll taxes. They know that Americans are living longer but retiring earlier. They know, in short, that the future will be different from the past and that the program needs to evolve to remain sustainable. Foxes are thus open to ideas like raising the eligibility age or changing the benefit formula.
A similar dichotomy exists with taxes. Revenue hedgehogs know one big thing: Taxes place a burden on taxpayers and the economy. Thus, they oppose all tax increases, even efforts to reduce the many tax breaks that complicate our tax code.
Revenue foxes see things differently. They recognize the burden that taxes place on taxpayers and the economy. But they also know that tax increases are not all created equal. Higher tax rates, for example, are usually worse for the economy than cutting back on tax breaks. Indeed, cutting tax breaks sometimes frees taxpayers to make decisions based on real economic considerations rather than taxes, thus strengthening the economy. That’s why revenue foxes support eliminating many tax breaks.
Fiscal hedgehogs will never embrace such changes. To make progress, we need more fiscal foxes.
>>Because of an aging population and rising health-care costs, spending on Social Security and federal health programs will explode. The Congressional Budget Office estimates that over the next 25 years spending on these programs will rise from roughly 10 percent of the economy to almost 17 percent.>>
It’s highly misleading to include Social Security with health programs.
Social Security has dedicated funding, so it doesn’t hit the budget, can pay full benefits for the next 25 years and 80% thereafter. The gap is relatively small as a percentage of GDP. We could easily fill the gap with an amount equal to the cost of the Bush tax cuts on income over $250,000 or the cost of our wars or by raising the limit on income subject to Social Security taxes.
When Social Security was revised by the Greenspan commission, they made predictions about aging, lifespan, funding, etc. The only reason their fix might fall a bit short 25 years from now is that they assumed 90% of national income would be captured under the limit on income subject to SS. Due to rising inequality, only 83% of income is subject to the cap, so funding is lower than assumed. In other words, more upper income earning is escaping SS than anticipated because upper income earners are keeping a larger share of the national pie
It’s also highly misleading to talk about federal health programs.
The problem is healthcare costs, not the federal programs. Healthcare costs are exploding. Federal programs are rising slower than private. The CBO found (when examining the Ryan budget) that shifting costs from the Federal govt to seniors would increase national healthcare spending.
We have to get healthcare spending under control, not shift the burden onto seniors. It doesn’t help the average person to save $1 in taxes and spend an additional $1.10 (number for illustration) in healthcare or insurance.
This entire argument is nonsensical in an economy predicated on fiat currency. We can simply print more than enough money to pay for any program. We could print enough “dollars”, though they are most likely only electronic credits, to pay off our national debt tomorrow.
The entire global economy is merely a facade based on confidence and ponzi schemes. When merely swapping paper and electronic credits between corporations and proxies is considered investment, then certainly we can solve debt problems by creating more fiat debt.
Don’t be constrained by your education, try to understand the world. When they educated you, they taught what not to think, as well as what to think. Perhaps the answers lie in the realm forbidden. Seek knowledge, don’t hide from it.