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The Granny Bashers: Different Facts, Same Policy

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Monday 16 March 2009
t r u t h o u t | Perspective

The granny basher crew constitutes one of the largest and most determined lobbies in Washington. The top priority for this lobby is to cut Social Security and Medicare.

The lobby includes the Peter G. Peterson Foundation, with an endowment of more than $1 billion from the private equity tycoon himself. It also includes The Washington Post, which liberally sprinkles assertions about the need to cut Social Security and Medicare in both its news and editorial pages. Many prominent members of Congress also belong to the club, along with much of the punditry who make their living pronouncing on public policy.

The granny bashers' theme is that Social Security and Medicare constitute an enormous generational injustice because the young, and those yet to be born, will be forced to pay for the cost of these programs for retirees and current workers. Of course, the reality is that the vast majority of the granny bashers' horror stories about generational inequity stems from the cost of sustaining a broken health care system not from programs for retirees.

If the United States fixed its health care system, then the granny bashers' horror story disappears. In fact, even if we don't fix the health care system, we can make most of the horror story disappear by just allowing seniors to buy into the health care systems of countries that have more efficient systems than the United States.

But the granny bashers are not interested in fixing the health care system; that would involve confronting powerful interest groups like the insurance and pharmaceutical industries and the doctors' lobby. In fact, the granny bashers are not really even particularly interested in generational equity. This is just an excuse for their real agenda: cutting Social Security and Medicare.


This point is demonstrated by the fact that their policy recommendations never change even when the evidence changes in very big ways. The granny bashers have treated us to three very dramatic examples of this "different facts, same policy" approach in the last 15 years.

The first example is slightly technical. It has to do with the claim that the consumer price index (CPI) overstates inflation.

The CPI is our yardstick for measuring how much better off people are getting through time. If wages grow 4.0 percent and the CPI tells us that inflation is 3.0 percent, then real wages have grown by 1.0 percent. However, if the true rate of inflation is just 2.0 percent because the CPI overstates inflation by 1.0 percentage point a year, then real wages have grown by 2.0 percent (4.0 percent wage growth, minus 2.0 percent inflation).

 Fifteen years ago, many economists and pundits (including much of the granny basher lobby) embraced the claim that the CPI overstated the true rate of inflation by at least 1.0 percent a year. If this claim was true, then it undermined the core of the granny bashers' story. It would mean that our children and grandchildren would be far richer than we ever imagined possible and that many older workers and elderly grew up in poverty.

If annual wage growth was 2.0 percent rather than 1.0 percent, then in 40 years, wages will be more than 220 percent of the current level, instead of just 50 percent higher. The granny bashers embraced the claim of the overstated CPI in order to justify cutting Social Security (retiree benefits are indexed to the CPI), but they never followed through the logic of this claim for their generational equity story.

 This would be comparable to Al Gore maintaining a drive to reduce greenhouse gas emissions even after new evidence showed that the planet was actually cooling. Honest people don't ignore such evidence.

The exact same issue arises with the speed up in productivity growth in the mid-90s. The granny basher crusade against Social Security and Medicare dates from the mid-80s when productivity growth was just 1.5 percent a year.

Productivity growth determines the rate at which society can, on average, get richer. In the mid-90s, the rate of annual productivity growth increased by a full percentage point - in effect bringing about the more rapid gains in real income that would have been implied by an overstated CPI. However, none of the granny bashers noted how the productivity growth speedup had enormously improved the prospects of future generations. They just maintained their insistence on cutting Social Security and Medicare.

Finally, the recent collapse of the housing bubble and the resulting stock market plunge have reduced the wealth of older workers and retirees by close to $15 trillion. This is a transfer to the young, since they will be able to buy the housing stock and the corporate capital stock for a far lower price than they would have expected to pay just two years ago.

Remarkably, the granny basher crew has somehow failed to notice this enormous transfer of wealth from the old to the young. They just continue their crusade to cut Social Security and Medicare as though nothing has happened.

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Dr. Dean Baker is a macroeconomist and Co-Director of the Center for Economic and Policy Research in Washington, D.C. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. (more...)
 

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They just want to gut it so they can steal yet mor... by Hillbilly on Tuesday, Mar 17, 2009 at 11:38:38 PM
Medicare  takes care of us.  Costof living goes ... by Margaret Bassett on Wednesday, Mar 18, 2009 at 5:41:34 PM

 

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