Most likely they will treat technology like drugs, with a national “formulary” for devices. Another probability is more negotiated national fee schedules like in Switzerland.

I still think we are worst off though, since we have a much bigger problem with overcapitalization. Market solutions could have meant rational market allocation of medical capital, but now it’s too late. Hospital bond ratings for example would be much lower if subjected to market pressure. Oversupply-induced demand will rise as 25 million are added to the pool with SCHIP + Medicaid + exchanges.

Europe is grossly overregulated, but that’s easier to fix than being overcapitalized like the US.

Only four problems here. First, relatively few people would agree that giving everyone an equal consumption share, regardless of his contributions, is just. Second, people maximize utility, not consumption. Third, the Solow model emphasizes steady-state consumption. People do not appear to choose steady state consumption over their lifetimes. Finally, advances in public choice theory assure us that government is not synonymous with God.

People involved in the health care debate would also be wise to recall that government run health care is not synonymous with God either. Government run health care routinely makes choices that maximize the utility of those in government while failing the individuals forced to rely on it for medical care.

Here’s where John and I agree: Missing from the debate over assuring the nation’s elderly a standard of living that we and future generations might consider ethically acceptable is the challenge of goading a basically myopic population into prudent and economically optimal life cycle planning. (More on “economically optimal further on.)

I can accept John’s thesis that the anticipated presence of Medicare, Medicaid and Social Security can seduce a population afflicted by myopia into imprudent life styles during their working years. Marty Feldstein has almost made that claim. Staunch Liberals have laughed it off. But I lean more to Marty’s views, because I believe (but cannot prove) that in the absence of these public programs private households would set aside more of their income into savings (as is the case in Asia, for example.)

Singapore has sought to overcome the human frailty called myopia with a government mandated Provide Fund. Under that law, all working people must set aside X% of income into a fund that covers pensions, health care under a regime of Medical Savings Accounts and so on(I thin it is 40%, but am not sure).

So John, in my view, does put his finger on a serious problem, one that can leave our nation with inadequate capital per worker.

But surely readers of your blog would agree that Ronald Reagan did not help matters in this regard when he discovered the beauty of deficit financing, driving up our public debt from $ trillion at the start of his presidency to about $4 trillion. Clinton did eventually turn the annual federal deficit into a surplus (after 1994 with the help of a Republican majority in Congress). But George Bush was totally deficit addicted. In effect, he behaved like a corporate CEO who sold mountains of debt (bonds) every year to pay shareholders mountain-sized dividends, the tax cuts. Unfortunately, these huge tax cuts in 2001 and 2003 did not increase the fraction of business investment in GDP; that fraction fell sharply. Investment in residential real estate, on the other hand, rose sharply. But do larger houses make workers more productive on the job? Or is it computers and non-congested roads?

So I must ask you who worry about the taxes our entitlement programs load onto future generations when Reagan and Bush II loaded so much debt onto the federal government’s balance sheet in their reigns?

Furthermore, John, while the anticipated presence of these entitlement programs (Medicaid, medicare, Social Security) may well entice people into prudent life styles, the socially and economically irresponsible behavior of a largely unregulated Wall Street does not help either. Workers have seen the private savings they had painstakingly accumulated in privately managed retirement funds decimated — often cut in half. Do you think that encourages savings? Don’t you think the misallocation of investible funds by Wall Street (and, of course, the monstrosities called Freddie Mac and Fanny Mae) also will leave our chiuldren and grandchildren with a horrible dilemma along, of course, with people who are, say, 70 years old now and saw their retirement income cut in half by private asset managers?

I think we’ll have a world wide rethinking of this entire issue — retirement income — and will have to send out of the room simplistic thinkers on the right and on the left.

The question is (1) how well or poorly, in real terms, current and future retirees should life, especially the porest among them) and (2) what we today can do to assure current and future retirees to attain the standard of living we thing they should have.

The simple cheer-leading and sloaganeering I so often see on your blog, John, just won’t do it. One literally has to switch on the cerebrum on this issue, painful as that may be for some folks on both the left and the right.

As to the “economically optimal” life cycle planning, I would refer you to the literature on on the Golden Rule of economic growth, which osught to discover national savings ratios which, in steady state growth, would allow the highest time path of consumption per capita. Nobel Laureate Edmund Phelps was one of the leading lights in that lierature, as was James Tobin. I don’t think it is much taught anymore.

Best,

Uwe

1. We are encouraging young people to believe that when they retire, Social Security & Medicare & Medicaid are going to be there for them and so they do not need to save for those contingencies without also telling them that these benefits will require astronomical tax rates to be paid by people not yet born — who never agreed to be part of this chain letter.

2. We are going to leave our grandchildren with a horrible dilemma: put the elderly on the ice or live in poverty in order to pay all their promised beneifts — without any assurance that when they retire their granchildren will pay even higher tax rates on their behelf. All because of choices made by irresponsible people who will be dead and buried long before the crisis emerges.

I just wish they’d reneg on these ridiculous super-COLA adjustments until the system is in some sort of actuarial balance. Without that it’s hard to picture any other reform making much difference.

Income is a monetary claim on GDP. GDP is real stuff. The altter comes in a pie-shaped layer cake.

Note to Bart:

Good point. Someone should have told it to Ronaldf Reagan and George W. Bush, both addicted to deficit financing.

I made a distinction between a transfer of real GDP — real stuff — and the money used to effect that transfer. One way to put that m oney into the hands of the elderly is tax-and-transfer (pay as you go). The alternative is through private savings and investments.

In principle, future generations are free to reneg on the promises we have made by way of Social security. Private corporations do it all the time in connection with promised retiree health benefits. So far government has not, but in principle future generations can reneg on promised Social Security benefits. It may not be honorable, but it is no less honorable than what private corporations have already been doing.

If instead of Social Security we used private savings and investments (private pensions), private bankers can easily reduce the money claims future retirees have through the kind of mismanagement we have witnessed in recent years. Ask 64 or 68 year old Americans how good they feel about their private pension or 401(k) plans.

To bottom line is that future generations do control their own destiny. They are free to manage their own affairs.