Entitlement Blues

The late economist Herbert Stein (Chairman of the Council of Economic Advisors under Nixon,  a founder of the American Enterprise Institute and an avowed Rockefeller Republican) once noted that something that is unsustainable cannot continue. It is asserted by those in the know of both right and left political persuasions that the current federal budget path is unsustainable and entitlements are the problem.

In particular the Medicare and Medicaid programs are on a long-run path to swallowing the whole budget. (Social Security also has a problem but it is modest by comparison.) The medical expenditures are driven by the nation’s demography and the medical sector’s increasing treatment costs. Both of these elements are outside of the formal budgeting process. Our population will continue to age. No one has made a convincing argument yet as to how to slow down the rate of medical inflation.

The Ryan/Republican approach is to shift the costs off budget by increasing the share of the costs paid for by the beneficiaries. The Obama Administration and the Democrats hope to shift some of the costs to the supply side of the medical market place. Neither approach directly deals with the demographic and cost inflation. The burdens are just redistributed. A real solution remains politically elusive.