Friday, April 8, 2011

A Response To: It’s 2026, and the Debt Is Due

Greg Mankiw is an economics professor, in fact my brother took an economics class using one of his textbooks which when I looked over thought was worth its weight in dirt. Though I think his economic skills are dubious at best, he is not always wrong (as is the case with all people), so I thought that I would respond to his article that he had in the New York Times a few weeks ago. You can find the article by following this link.

He starts off his article very well. It begins with the populist call to arms about out of control government spending and a debt that seems to be growing exponentially. But then it begins to fall apart.

The seeds of this crisis were planted long ago, by previous generations. Our parents and grandparents had noble aims. They saw poverty among the elderly and created Social Security. They saw sickness and created Medicare and Medicaid. They saw Americans struggle to afford health insurance and embraced health care reform with subsidies for middle-class families.

Mankiw does not seem to know his history. Social Security was never a program meant to aid the elderly. From the start it was meant as another income tax, and it has been used as such since the day it was created. This is why the program is ready to go bust. Medicare and Medicaid were programs meant to keep Democrats in power, and it did until 1994 when Republicans finally took back the House of Representatives. And even if they were noble ideas, they have proven themselves to be miserable failures. We still have the poor in this country, and in fact these programs have only served to disintegrate the family. Why should a father care about his children if the government will take care of them? This is why the rates of single-parent households have risen so dramatically since these welfare programs were started.

Our efforts to control health care costs have failed. We must now acknowledge that rising costs are driven largely by technological advances in saving lives. These advances are welcome, but they are expensive nonetheless.

Mankiw is wrong once again. Rising health care costs are due to the AMA having so much political clout and limiting the number of doctors and medical schools. It is also due to government favoring non-profit hospitals and helping out HMO's which obscure prices from consumers. This is why prices have skyrocketed, and I have proven it in many posts in this very blog.

The economics guru then goes on to say that these problems could have been avoided if we only had taxed ourselves. This is nonsense. The reason that we are in this mess is because spending has not been controlled and estimations for the cost of programs have been far off. Just take a look at this chart.

But at least Mankiw sees the problem and is honest about it. Bond markets are now viewing treasury notes with distrust. People are losing confidence in the ability to pay back all of the debt that it has. At least he sees the problem, though he cannot correctly identify the source of it. He does not want to blame past administrations and the impossible promises of past generations.

As for his solutions, Mankiw mentions cutting higher income groups out of social security. While I would also do this, I just want to see the whole program eliminated entirely. People can save for their own retirement and private charity can fill the void. He also mentions limiting Medicare and Medicaid. This is also a good idea, but again I would rather see these programs completely eliminated. He then attacks subsidies, which while a good idea, is a very small part of the overall program.

After saying all this, he has to ruin it by saying that we need to raise taxes on all but the poorest Americans. This is funny though, because in his own blog he mentions that raising taxes will not bring in as much revenue as expected. Furthermore, he has also shown that despite higher tax rates in Europe, that the US and Europe basically get the same revenue per capita. Is this political pandering to the American left? It sure seems like it because he is plainly self-contradictory.

And then the real killer; he says that we should raise gas taxes by $2 per gallon. If he wants to limit traffic, then congestion pricing would be much more effective. If he wants to raise revenues, I do not see how this would work because such a tax would cripple the economy such that any gains would be offset by decreases in oil consumption.

He then says that we should have faced up to the problem long ago. But this is funny, as what he proposes would not even fix the problem. His cuts are not enough and his tax increases would not bring in any more revenue. We need to be real. Social Security has to face deep cuts as do the other social safety net programs. Once we start doing that and paying down the debt will we finally see a reduction in our national debt. Mankiw, like most other people, does not want to face this reality.


  1. Excellent post and I have to speak to your point about the AMA. You hit the nail on the head, it would be incredibly easy for the AMA to support the construction of new medical schools, but the hoops a school has to go through in order to get certified are tremendous. The AMA is almost a country club that is by invitation only. Yet there is an obvious impending shortage of doctors in the near future.

    As to social security thank you for your education on the matter. Keep up the great blogging!

  2. Where do people buy these degrees in economics. I'm thinking I might like to buy one.

  3. Public universities are great. Resurrect some old fallacy debunked a century ago by real economists and you can get your Ph.D. How else do you explain Paul Krugman?

    Thank you for the kind words J. Pope.