Steven Engelhardt

The Economist is a great magazine. They provide sophisticated analysis on numerous topics with unparalleled breadth and depth; their graphics design department is top-notch; and their consistent, anonymous editorial style is refreshing, even if irritatingly smug at times.  Because I know how excellent The Economist can be, it drives me insane when I see anything less.

I am particularly disappointed with their article The Frat Boy Ships Out.  Specifically, consider this graph from the article:

To me, this graph tells a clear story: In the past 8 years, the growth in unfunded liabilities in America’s entitlement programs is almost entirely caused by the growth in Medicare’s liabilities, including the introduction of Medicare Part D.  Social Security’s unfunded liabilities have grown modestly and are a small part of the government’s long-term financial troubles – less than 20%.

However, The Economist decided to play it rather differently in their analysis:

Mr Bush’s biggest failure, however, is on entitlements. The ageing of the population, coupled with rapidly rising health-care costs, means that in coming decades Social Security and Medicare benefits will outstrip workers’ payroll contributions by trillions of dollars. Both programmes presented Mr Bush with a political opportunity. To pry elderly voters away from the Democrats, he promised to add a prescription-drug benefit as part of any Medicare reform. He did so in 2003, winning the support of the AARP, the powerful pensioners’ lobby, which has long been seen as closer to the Democrats. But in the end he achieved few cost savings, while adding a staggering $8 trillion to Medicare’s unfunded liability (see chart).

Social Security, founded in the Depression to provide workers with a secure pension, has defied all recent attempts to make it solvent. Although such an attempt was part of Mr Bush’s first election campaign, it was not solvency that animated him, but the prospect of workers diverting some of their Social Security contributions to private investment accounts. Such accounts were intended as the centrepiece of the Republican Party’s “ownership society”.

Economists are divided on the merit of such accounts, but agree they do nothing to restore solvency: that requires slimmer benefits, higher taxes, or both. Because of the political peril of touching Social Security, broad reform demands bipartisan support. Yet David Walker, the federal government’s chief auditor from 1998 to 2008, says Mr Bush doomed his own effort, launched after his 2004 re-election, by seeking to shape its outcome from the start. He had appointed an advisory commission whose members first had to agree to support private accounts (which many Democrats oppose). He issued detailed proposals for private accounts while eschewing, until much later, solvency proposals. His administration staged some 200 “town hall” events attended by pre-screened participants, Mr Walker says, yet at the end of it all support for Mr Bush’s proposal was lower than when it began.

Between the Medicare drug benefit and the failure to restore solvency to Social Security, the long-term unfunded cost of America’s programmes for the elderly had last year reached a stratospheric $43 trillion, or 5% of future wages, compared with $13 trillion, or 3% of future wages, in 2000. Mr Obama and Congress may still be able to mend entitlements. But they start with a bigger and more imminent danger than Mr Bush did eight years ago, and one made even harder by the deep hole the current recession has created in the budget.

I count two whole paragraphs dedicated to discussing Social Security, and a few admonishments regarding Medicare Part D. The conclusion specifically reiterates that Medicare Part D and Social Security are the problem. They just barely mention “rapidly rising health-care costs”, even though these represent the vast majority of the growth in unfunded liabilities.

Why would The Economist devote two-thirds of their copy and half of their conclusion to a tiny part of the problem, and virtually ignore the real culprit?