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Paul Krugman on Social Security, the Decline of the Dollar and Healthcare

StoryDecember 21, 2004
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    New York Times columnist and Princeton economics professor, Paul Krugman discusses President Bush’s Social Security plan, the devaluation of the dollar and the healthcare debate. [includes rush transcript]

    The Bush press conference yesterday wasn’t only on international issues. Several reporters questioned the president on what many see as one of the premiere domestic issues now facing the country: social security. But while reporters asked many questions, the president’s answers were, well, evasive. As one analyst put it, Bush seemed intent on staking out an explicit, principled position in favor of dodging the question. Here is one of the exchanges Bush had with reporters when asked about his social security plan.

    • President Bush, news conference, December 20, 2004.

    That was President Bush, well, not answering a question on Social Security. We are joined now by New York Times columnist Paul Krugman. He has been writing a lot on this issue. One of his latest columns is called “Buying into Failure,” where he accuses the Bush administration of trying to convert Social Security into a giant 401(k).

    • Paul Krugman, New York Times columnist and Professor of Economics at Princeton University. His latest book “The Great Unraveling: Losing Our Way In The New Century” is a collection of his New York Times columns.

    AMY GOODMAN: As we turn now to more extensively look at President Bush’s news conference yesterday, the Bush news conference wasn’t only on international issues. Several reporters questioned the president on what many see as one of the premier domestic issues now facing the country. Social Security. But while reporters asked many questions, the president’s answers were, well, evasive. As one analyst put it, Bush seemed intent on staking a principled position while dodging the question. Here is one of the exchanges Bush had with reporters when asked about the Social Security plan.

    REPORTER: Thank you, Mr. President. You have made Social Security reform the top of your domestic agenda for a second term. You have been talking extensively about the benefits of private accounts, but by most estimations, private accounts may leave something for young workers at the end, but wouldn’t do much to solve the overall financial problem with social security. I’m just wondering, as you promote the private accounts, why aren’t you talking about the tough measures that need to be taken to preserve Social Security such as increase the retirement age, cutting benefits or means testing for Social Security?

    GEORGE W. BUSH: I appreciate the question. Let me put the Social Security issue in proper perspective. It is a very important issue, but it’s not the only issue–very important issue, we’ll be dealing with. I expect the Congress to bring forth meaningful tort reform. I want the legal system reformed in a way that we can — we are competitive in the world. I will be talking about the budget, of course. There’s a lot of concern in the financial markets about our deficits, short-term and long-term deficits. The long-term deficit is caused by some of the entitlement programs, the unfunded liabilities inherent in the entitlement programs. I will push on an education agenda. No doubt in my mind that the “No Child Left Behind” Act is meaningful, a real reform having real results. And I look forward to strengthening “No Child Left Behind.” Immigration reform is also very important agenda item as we move forward. But Social Security, as well, is a big item. I campaigned on it, as you are painfully aware, since you had to suffer through many of my speeches. I didn’t duck the issue like others have done in the past. I said this is a vital issue, and we need to work together to solve it. Now, the temptation is going to be, by well-meaning people such as yourself, John, and others here as we run up to the issue, to get me to negotiate with myself in public to say, you know, what’s this mean, Mr. President? What’s that mean? I’m not going to do that. I don’t get to write the law. I’ll propose a solution at the appropriate time, but the law will be written in the halls of Congress. I will negotiate with them, with the members of Congress, and they will want me to start playing my hand. Will you accept this, will you not accept that, why don’t you do this hard thing, why don’t you do that. I recognize, this is going to be a decision that requires difficult choices, John. Inherent in your question I do recognize that, you bet I do. Otherwise, it would have been done. So, I am just — I just want to condition you. I’m not doing a very good job, because the other day in the Oval Office, when the press pool came in, I was asked about this — the series of questions — a question on Social Security with these different aspects to it. And I said, I’m not going to negotiate with myself. I will negotiate at the appropriate time with the law writers. So, thank you for trying. The principles I laid out in the course of the campaign and the principles we laid out in the recent economic summit are still the principles I believe in. That is, nothing will change for those near our Social Security payroll. You were the one that asked me whether the payroll tax, if I’m not mistaken, will not go up. And I know there’s the big definition about what that means. Well, again, I will repeat — don’t bother to ask me. Or, you can ask me. I can’t tell you what to ask. That’s not the holiday spirit. But I’m — it is all part of trying to get me to set the parameters — you know, apart from the Congress, which is not a good way to get substantive reform done.

    AMY GOODMAN: President Bush at his news conference on Monday. Paul Krugman joins us on the line now, columnist for The New York Times, professor of economics at Princeton University, his latest book, The Great Unraveling: Losing Our Way in the New Century, a collection of his Times pieces. Welcome to Democracy Now!

    PAUL KRUGMAN: Good morning.

    AMY GOODMAN: Your response to President Bush on Social Security?

    PAUL KRUGMAN: This is a — this is a unique excuse. I mean, I got to give him some credit. He says, Mr. President, your stuff doesn’t add up. You’re saying that two minus one equals four. What are you going to throw in? He says, don’t get me to try to negotiate with myself. This is new. The important thing to say here is that Social Security is way down on the list of problems we have got. If you were going to take a look at just the budget, we have a huge, immediate problem on the deficit about which Bush intends to do nothing, really. We have a very serious problem on Medicare and Medicaid, which is a big issue. Social Security is the bright spot. It has maybe some mild financial problems, several decades out, and here we are — he wants a crisis there, partly to distract from the very real crises in other places, and there you go.

    AMY GOODMAN: Paul Krugman, can you explain how Social Security works? Because it’s not just President Bush. If he was raising questions about it with a little megaphone on the steps of the White House, it would not have the kind of effect it was having without all of the media, it seems, amplifying the idea that Social Security is broken. It’s bankrupt.

    PAUL KRUGMAN: Right. And of course, that’s really a question about the media, not about Social Security. Social Security is a program which has been traditionally run. It looks like a retirement fund, and it is not exactly. What it really is is a government program with a dedicated tax. We take the payroll tax and it’s used to pay benefits to retirees. And 20-plus years ago, the commission led by Alan Greenspan said, you know, we are going to have this problem as the baby boomers reach retirement age. We will have a higher ratio of retirees to workers, and we better get ready for it. Social Security, the payroll tax was increased. There were some other things, a small rise in the retirement age set in motion. So that Social Security would run a surplus, which would be used to accumulate a trust fund, and this would tithe us over, some ways into the aging of the population. And that on its own accounting is working just fine. I mean, one of the things that we need to know is that the estimates of the day at which the trust fund runs out, just keep on receding further into the future, because the program is doing so well at running surpluses. So, ten years ago, people said it was going to run out in 2029. Now the official estimate is 2042. Realistically, it’s probably going to go well into the second half of the century. Now how does this become a crisis? Well it becomes a crisis by changing the rules. By saying, oh, well, actually, that surplus that we’re running because of the tax increase that was designed to prolong the life of Social Security, that’s not real. Because it’s invested in government bonds which are a perfectly good asset, for anybody else, but not for the Social Security administration. And so, there was a real crisis that people saw in the 1980’s. They dealt with it. The solution worked very well, but because this administration, because the Republican party doesn’t want Social Security to remain, because they have always wanted to get rid of it since Franklin Roosevelt, they have decided to redefine the rules so as to call it a crisis when realistically, we have a huge budget problem, but that has nothing to do with Social Security.

    AMY GOODMAN: We’re going to talk about that in a minute. We’re going to take a break. We’re talking to New York Times columnist, Princeton University professor, Paul Krugman.


    AMY GOODMAN: Paul Krugman is our guest. He’s a columnist with The New York Times. He teaches at Princeton University. His latest book, The Great Unraveling. We’re talking about Social Security and other issues raised by President Bush in his 17th news conference yesterday. You talked about the real problem with the budget. I want to get to that in a minute, but what about the issue of, you said, this is really a problem with how Social Security is being conveyed, not so much with President Bush as with the media?

    PAUL KRUGMAN: Yeah. This is an issue where at the very least there are — there’s great dissension among people who have — there is by no means a consensus among people who actually know something about the subject that there is a Social Security problem and certainly no consensus, there is a crisis. This is a front burner issue. But if you got your news from TV or, to a large extent, even the newspapers, you would never know that. The reporting has simply bought into the White House spin, and people who offer a different point of view are simply not considered, you know, just not part of the discussion. It’s kind of like a — well it’s like the threat from Iraq, to take a random analogy.

    AMY GOODMAN: So, how does that change?

    PAUL KRUGMAN: I think the thing to do is to — I mean, certainly what I will be doing once I’m back full time at the Times is keep on hammering what the realities are and also on the fact that other countries have actually gone down the road that the Bush administration wants us to go down and the results have not been happy. So, to just say, look, this is where — this is a phony solution to a phony crisis, and hope that at least we can get some traction. But I have to say it’s pretty frustrating. You cannot get the alternative view — which happens to be the majority of view that people who have actually studied the subject — just can’t get it on the air.

    AMY GOODMAN: Paul Krugman, what about the devaluation of the dollar and its impact?

    PAUL KRUGMAN: Not sure what it has to do with Social Security, but we are having a — look, the United States is running huge twin deficits. The federal government is borrowing $1 billion a day or so for the operations. The United States as a whole is borrowing $1.5 billion to pay for imports. Those can’t go on forever. It’s a law that says that things that cannot go on forever don’t, and it appears that the world is finally looking at it and saying, “Gee, we don’t see this changing,” and so, the money flows are starting to dry up. The dollar is falling. We don’t know how it plays out. If this was a Third World country, and you had the numbers we have, you would say, “Oh, my God, start stocking up on canned goods,” because we look by many of the numbers worse than places like Argentina or Indonesia. But it is the United States. We get a lot of the benefit of the doubt. The debts are in dollars, which is some protection, having the debts in our own currency. But it’s going to be — it just adds to the difficulties.

    AMY GOODMAN: On the issue of difficulties, and overall, the budget, where do you see the crisis in the budget really is?

    PAUL KRUGMAN: Well, if you look at why are we — why have we gone from surpluses to deficits? The answer is about one-quarter, roughly — roughly, one-quarter of it is extra defense spending. Three-quarters is a plunge in revenues. And the plunge in revenues is — a large part of it is directly the result of the Bush tax cuts. A lot of the rest we don’t quite understand. It’s capital gains that were a big thing in the late 1990s that dried up. Probably an increase in tax evasion and avoidance because of the political climate is favorable to that. We don’t really know. But the point is, what’s really happening is we’re just not bringing enough tax revenue to pay for the operations of government right now and it’s — but that’s off the table. Doing something to enhance revenue is clearly, from the point of view of this White House and this current ruling party, something you just don’t do. And there is really no way that I can see that the spending is going to be cut enough. So, we have a deficit, which is — which our political system is now unwilling to be realistic, unwilling to contemplate doing what has to be done to bring it down significantly.

    AMY GOODMAN: Vice President Cheney, among others, has called for Bush’s tax cuts to be made permanent. Your response to that?

    PAUL KRUGMAN: Well, then the question is what — is he prepared to be honest and say that “And we’re going to slash Medicare benefits, slash Social Security benefits, not for people 30 years from now but people in the near term”? Because you can’t run deficits this size indefinitely, and you can’t cut these deficits significantly without either raising taxes or making big cuts where the money is, and this — the federal government is basically — as number of people have said, it’s basically a big insurance company with a side business in national defense. Aside from Medicare, Medicaid, Social Security and national defense, there just isn’t much there. So the only way you can really pay for bringing the deficit down significantly is with big cuts in the programs that people have come to count on in their lives.

    AMY GOODMAN: Paul Krugman, what is the effect of the invasion and occupation of Iraq on the budget in this country?

    PAUL KRUGMAN: Well, it’s a — I mean, roughly speaking, it’s about a third of a Vietnam. That is, you are looking at — although it may be getting up to half of Vietnam, given some of the later cost estimates. It’s a big expense. It’s dwarfed in importance as a source of lost revenue by the tax cuts. Roughly speaking, the tax cuts are — this past fiscal year, the tax cuts were responsible for about $270 billion of lost revenue, and the cost of the Iraq war probably was $70 billion or $80 billion. It’s a little bit hard to figure out. It’s a big thing, just adds to the fire, adds to the problems, but you know, I know people on — liberals, particularly people who are horrified by the war would like to make it the root of all evil, but the truth is that on the fiscal side, it’s a secondary source, compared with big tax cuts for people with very high incomes.

    AMY GOODMAN: Can you talk about — and this goes back to Social Security — exactly who profits right now from this debate?

    PAUL KRUGMAN: Well, that’s — we don’t — you know, since we don’t have specifics, we don’t know. I mean, what the Social Security privatization would do probably in the first place is it would probably end up removing a lot of the security features in Social Security. So that people — you know, as it stands now, Social Security is much more than just a retirement program. It’s a disability program. The way the benefits are structured tends to protect people against poverty. So, people — the worst off would tend to be hurt and people who would have been fine without Social Security will do better, probably, as a result. Then the big question is, if we get these private accounts, how are they going to be handled? They are now saying, “Oh, well, we’ll put them in index funds which will generate almost no business,” but now we hearing that will be for starters and then they’ll relax the rules. There will be enormous lobbying pressure to relax the rules so that Wall Street gets a piece of the action, so it generates commissions. It is worth saying, as I wrote in the Times last week, if you look at privatized systems, they generate large commissions for the investment industry. They typically — the operating costs are typically around 20 times as high as the operating costs of Social Security. And those are — that all represents business for Wall Street.

    AMY GOODMAN: Can you talk more about what happens in other countries, that we could look to as examples, that have gone through privatization?

    PAUL KRUGMAN: The stories — the country that people like to point to is Chile. But what we’re told is a myth about Chile. They privatized their retirement system, and lived happily ever after. The reality is that the returns on accounts of not been very good. Considering the — you know, the fees have absorbed a large part, about probably 20% of the money put in. The other thing is that the system doesn’t do the job of protecting people against poverty. Now, the good news for Chile is that from the beginning, they had a clause in there that said that the government steps in and supplements pensions if people don’t have enough income to live on, basically, and that’s what happens. The government ends up paying a lot of support. So, instead — it isn’t really — they privatized it in part but it turned into a big expensive poverty support program in addition. So it just isn’t doing the things that people claim it did. Britain has had a system of private pensions, and it’s reaching the — there was a big commission study, the Pensions Commission in Britain released a study in October saying that we’re going to have a lot of poor older people that basically poverty among the elderly, which, in Britain as in the United States, had been greatly reduced by social insurance programs, is staging a comeback, and we’re going to need to do a lot to help them out. So, these — again, the fees to investment companies eat up a lot of the returns. So, you know, these systems are not — they don’t have the virtues that people claim for them and they actually turn out to do a lousy job of providing for people’s retirement.

    AMY GOODMAN: On the one hand, you look at Chile and say it’s been touted as a success and it isn’t. What about looking north to Canada? This is on the issue of health insurance, but how often in the media it is talked about as a complete failure, and what do you think of that?

    PAUL KRUGMAN: Well, the Canadians don’t think so. Their health system is very popular. What is true is that the very best medical care in the U.S. is the best in the world. If you have a very good insurance program, if you are covered through your company in a way that’s generous, then, the U.S. probably has somewhat better health care for you than you would get in Canada, although I actually probably don’t want to say this, but the system that seems to be terrific on all dimensions is France. But anyway, the Canadian system at the very highest end is maybe slightly worse than ours. But large numbers of Americans don’t get the best we can offer. In fact, the health insurance is — the system of company-provided health insurance is cracking. The number of people in it is steadily declining. And so, we actually don’t get very good coverage for many Americans. And that shows in really lousy health returns. The other thing, it’s incredibly expensive. There’s the myth about the efficiency of the private sector, which is true in some things, but it isn’t when it comes to health insurance. In fact, the U.S. system is about twice as expensive per person as anyone else’s, and we get worse results because we have basically insurance companies spending a lot of money, going to great efforts, in an effort not to cover people. All of which is wasted effort from the view of society. When you have a single-payer system, like in Canada, that doesn’t happen.

    AMY GOODMAN: We only have a minute, and I want to go to this issue of France, if you would dare to take it on.

    PAUL KRUGMAN: Just so to say that the French have a single-payer health care system. A lot of the details are different, but basically it’s national health insurance. The difference between them and most other advanced countries is they actually fund it better. I mean, they — the complaints that people have about — the British system is the one that people say provides poor care, and apparently it largely does because the British don’t spend enough money on it. The French do spend enough money on national health care and it’s excellent. Infant mortality is much higher in the U.S. than it is in other advanced countries. Life expectancy is lower than it is in other advanced countries. And here we are claiming, saying, “Yes, we have the best system in the world and look at how bad those other guys are.” Let me tell you, when it comes to life and death, we don’t do very well.

    AMY GOODMAN: Paul Krugman, I want to thank you very much for being with us. Do you think that President Bush understands this to the point where — this is why he vilifies France?

    PAUL KRUGMAN: I don’t think so — I think they have no idea. No. I doubt it. I think they — he just has the — I think our leadership is very insular. They just believe everything American must be best because they don’t know what goes on elsewhere.

    AMY GOODMAN: Paul Krugman, author of The Great Unraveling: Losing Our Way in the New Century, columnist for The New York Times and Princeton University economist, joining us.

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