Where did you get the $4/prescription number from?

Wal-Mart

The $72 trillion likely includes Part D, the (small) Soc. Sec. long-run shortfall, and the massive General Fund long-run shortfall. Small government Fred flunks basic arithmetic!

Dean or pgl can you answer a question?

Is Infinite Future a standard device among economists? In the Social Security context it didn't show up until the 2003 Report, it had not been seen to be necessary in any of the Reports before, and frankly I missed it the first time around, it was tucked away in a new little table. But it sure got trotted out in a hurry.

I have copies of the 2001 and 2007 Medicare Reports at my feet. The 2001 one never heard of such a thing, whereas the 2007 has it in by count five tables. Infinite Future seemed pretty science fictiony in the Social Security context but at least you have standard economic and demographic models to work with. But using Infinite Future to project Medicare seems totally insane. As an example a dramatic breakthrough on the Alzheimer's front immediately restores trillions in lost productivity over a lot shorter timelines than infinity. How do you predict medical outcomes in the 22nd century?

Is infinite future used anywhere else? Or did it pop up out of nowhere in time for the 2003 Reports?

As you have reported , all the major newspapers hype the bogus numbers to make them look realistic and ignore the glaring mistakes of their corporate bretheren.

If a Democrat had made the same mistake they would be all over it .

While the MSM is cheerleading the economy it is also cheerleading benefit cuts. Any real discussion of the possible ideas that would involve tax increases is "OFF THE TABLE'.

The best way to stop tax cuts is to scare people into thinking these problems are iminnent (the more iminent the better)and insurmoutable by any means.

Paul O'Neal and Alan Greenspan started this ball rolling early in the Bush administration.

"Former Fed and Treasury economists Jagadeesh Gokhale and Kent Smetters initially measured the U.S. fiscal gap in a highly detailed 2002 U.S. Treasury study commissioned by then-Treasury Secretary Paul O'Neal and approved by Fed leader Alan Greenspan. The study, which showed a $45 trillion gap, was censored the day O'Neal was fired (actually drop-kicked) by the
White House"

http://72.14.253.104/search?q=cache:MROHVIYiOHAJ:people.bu.edu/kotlikoff/Drifting%2520To%2520Future%2520Bankruptcy%2520October%252022,%25202006.pdf+Paul+O%27Neal+trillion&hl=en&ct=clnk&cd=1&gl=us

It is called the "Shock Doctrine"

"Disaster Capitalism" is alive and well at home.
.

Bruce - Max Sawicky never liked this infinite horizon idea. My view is that we need some way to think about long-term consequences. Especially given the Bush Enron accounting habit of looking at 5-year windows as they knew they were accelerating revenues and deferring expenditures. But no - the PV model is not the only way to look at this.

Because the 75 year window sounds about right. It comfortably covers everyone in the work force today, and planning with the financial welfare of your prospective children and grand-children in mind makes sense to me too. But Professor Samwick's assertion that we have a fiduciary resonsibility to all future generations baffles me. In particular Boomers are being asked to make some big sacrifices when frankly we have been pulling our weight. Now I can see using PV for lots of things, after all I used to work for County Planning. It just seems weird when used for a retirement system, which by nature is close ended for any current participant.

The reason I asked is because Prof Samwick was uniquely positioned when Infinite Future was introduced. He was at that point Chief Economist of the President's CEA. Moreover he was working on a plan that explicitly drew on a 3.5% payroll gap itself drawn from an IF model. That is he had Means, Motive, and Opportunity to get this idea inserted into the topic mix.

OOOPS - Repost

As you have reported , all the major newspapers hype the bogus numbers to make them look realistic and ignore the glaring mistakes of their corporate bretheren.

If a Democrat had made the same mistake they would be all over it .

While the MSM is cheerleading the economy it is also cheerleading benefit cuts. Any real discussion of the possible ideas that would involve tax increases is "OFF THE TABLE'.

The best way to stop tax INCREASES is to scare people into thinking these problems are iminent (the more iminent the better)and insurmoutable by any means other than slashed benefits.

Paul O'Neal and Alan Greenspan started this ball rolling early in the Bush administration.

"Former Fed and Treasury economists Jagadeesh Gokhale and Kent Smetters initially measured the U.S. fiscal gap in a highly detailed 2002 U.S. Treasury study commissioned by then-Treasury Secretary Paul O'Neal and approved by Fed leader Alan Greenspan. The study, which showed a $45 trillion gap, was censored the day O'Neal was fired (actually drop-kicked) by the
White House"

This report was shelved because more tax cuts were on the way in 2003 !

This release was a mistake because they wanted to use it later after their tax cutting agenda was finished.

Indeed the figures were reintroduced for Bush's assault on Social Security , but the cat was out of the bag and most of the 'Shock Value' diminished.

When the 'new' deficit was released it was 63 Trillion !

http://72.14.253.104/search?q=cache:MROHVIYiOHAJ:people.bu.edu/kotlikoff/Drifting%2520To%2520Future%2520Bankruptcy%2520October%252022,%25202006.pdf+Paul+O%27Neal+trillion&hl=en&ct=clnk&cd=1&gl=us

It is called the "Shock Doctrine"

"Disaster Capitalism" is alive and well at home.

Bruce,

Infinite horizon accounting had its origins with Larry Kotlikoff and his former students who had previously pioneered "generational accounting." While they got the Bush administration to adopt generational accounting, CBO rejected it (I played a very small role here), and eventually it was discredited it.

Kotlikoff and his crew came back with infinite horizon accounting. Like generational accounting (which typically showed lifetime tax burdens of 80-95 percent for future generations), infinite horizon accounting shows bad stories for future generations.

My view of this stuff is that the merit of any accounting method is determined by the extent to which it conveys information to the public and/or experts.

I fail to understand what information is conveyed to the public by saying that the government has a $72 trillion deficit. How many people who hear this number (or say it) know that the vast majority of this projected shortfall is due to a projected explosion in health care costs.

In the case of Social Security, two-thirds of the projected $13.2 trillion takes place after the year 2200, a period for which we are in no position to determine policy.(Sorry to all those power hungry policy wonks -- no one in 2200 is going to give a damn about what you thought was the optimal tax rate and division between work and retirement years.)

Anyhow, an accounting method that does more to scare people than inform them is not a good one, unless of course your purpose is generate fear to advance your policy agenda.

Dean,

I see this type of thing all the time. It seems the newspaper folks do not have solid critical thinking skills that would question these data. And in my experience they are not willing to even do simple back of the envelop calculations to verify what is being said.

The "advantage" to "infinite horizon," Scott Moore, is that is can be done as, literally, a "back of the envelope" calculation.

Assume you're going to spend $100 million constant PV in perpetuity. Assume a discount rate of 2.5%. Voila: $4 billion ($100 million * 40) PV cost on an "infinite horizon."

Those who have used such calculations in Corporate Finance, and then looked at those same companies four or five years later, can explain the dangers of the "reasoning." Or just check projections for, say, Ford ca. 1992 against the reality of the following 15 years.

what's wrong with infinite horizon and present value computations in general is that first they have to assume a value for the discount... an entirely arbitrary assumption that makes no sense at all except as between two bargainers trying to agree about pricing a deal that won't bear fruit for a number of years. in other words its a guess that only has meaning between parties who decide to agree on the value of the guess.

second, the only "use" for a present value is as a comparison to what you would get for your money if you put it in the bank, or other investment, instead.

so that while i might calculate the present value of all my future dinners, it only means something if i have the means and intention of putting that pv amount in the bank today.

SS as well as medicare will always be "pay as you go" unless someone truly discovers a machine that generates the magic of compound interest as reliably as your broker's calculator.

in other words, use the 75 year SS accounting horizon and "reasonable" present values to give you a guess about the long term future, but always remember it is a fairly wild guess.

and infinite horizon is just nonsense. and should be loudly proclaimed as such every chance you get.

I believe there no basis in fact for claiming that all prescriptions could be sold for $4.

Some states, like mine (CO), prohibit selling prescriptions below cost, and WalMart charges more than $4 for some generic drugs here for that reason.

Steve

I also heard a liberal quote recently saying we could end poverty world wide for $9 billion. This prick gets mad that someone supposedly pulled a number out of the air and hten goes on to say "all drugs would cost $4". What a hypocrite.

Steve wrote, Some states, like mine (CO), prohibit selling prescriptions below cost, and WalMart charges more than $4 for some generic drugs here for that reason.

That's hardly an effective reply, given that ending the system of supporting pharma research via economic rents is a much bigger political hurdle than that. (Meaning, Dean acknowledges the political hurdles.)

Michael McKinlay quoted: Former Fed and Treasury economists Jagadeesh Gokhale and Kent Smetters initially measured the U.S. fiscal gap in a highly detailed 2002 U.S. Treasury study commissioned by then-Treasury Secretary Paul O'Neal and approved by Fed leader Alan Greenspan.

Dean Baker wrote, Infinite horizon accounting had its origins with Larry Kotlikoff and his former students who had previously pioneered "generational accounting."

Weren't one or both of Gokhale and Smetters Kotlikoff's students?

Liberal-

I don't know what you assumed my comment was trying to accomplish, in deeming it ineffective.

To be clear, I was not trying to debunk Dean - indeed I support the goal of public funding of drug research and reduction in patent monopolies - I was merely trying to keep him on the straight and narrow.

If one is going to critique the loose association between press coverage and the facts (an important job) one had best avoid misstating one's own facts.

Steve,

I didn't mean the $4 to be taken literally in that not all drugs can be profitably manufactured and sold for $4. But, the main difference between the drugs that Wal-Mart is selling for $4 a prescription and the drugs that patients have to pay hundreds of dollars per prescription is that the latter are patented. If we eliminated patent protection, there is no reason to believe that the drugs that are currently protected would be any more expensive on average to manufacture and distribute than the ones that Wal-Mart profitable sells for $4.

Of course there will be exceptions -- some drugs are actually more expensive to produce -- but this would be a relatively small share of the total and even then we are likely talking about $10 to $20 a prescription, not hundreds of dollars.

You look like Steve Carrell.

best,
Matt D

Actually, the dollar is immediately borrowed by the Government and put to use in all the things they do. In a way the Trust Fund is a type of forced savings. The payee eventually gets back the principal with interest when he retires or is disabled. Any kind of retirement savings does the same thing, though private retirement funds obviously invest much more in the private sector.