Monday, September 15, 2008

Scott Burns and the Medicare Problem

Scott Burns, formerly with the Dallas Morning News, has an insightful take on an "old" problem. He shows how Medicare will negatively impact not just young children, but 30 year old adults:

Scott Burns, Peter Peterson, David Walker, and Richard Fisher have warned us about the Medicare ticking time-bomb. With apologies to Aldai Stevenson, we need more than just the thinking men to agree that change is necessary. Seniors tend to vote in higher numbers, and it will take a strong, bipartisan effort to fix the broken entitlement system. Someone needs to figure out how to counteract advertisements of grandma not being able to afford her medication, or stories about seniors skipping lunch so they can afford medicine. Such tactics are bound to be used to support the status quo, which is hurting America's younger generations. What can we do when so many Americans spend their working life not saving enough and then end up relying on the government to survive?

This isn't an old-vs.-young issue. The negative savings rate destroys the feasibility of universal healthcare for all Americans, young, middle-aged, and old. Universal healthcare requires more taxation, a surplus, or a weakening of the American dollar, and since we don't have a surplus, I'll give you two guesses as to what the other options are in the absence of a higher savings rate. Meanwhile, here's what the Federal Reserve of San Francisco says about China's savings rate (

China's overall saving rate is now nearly 50%, by far the highest in the world. China's domestic investment rate has also been high, but not as high as saving, resulting in net current account surpluses which rose from 4% of GDP in 2004 to 7% in 2007.

Sadly, America's economy is based on other countries lending us money to spend while America prints more money to sell to the creditor countries, whose citizens save their money. But without Americans spending money, fewer people get to move up the economic ladder, because a nation of savers is terrible for growth and jobs. So the key is for central banks to work together to create timely incentives to spend and to save. Forget about presidents working together--I'd rather see central banks getting chummy first.

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