Wednesday, September 22, 2010

I think I know how to help reduce the projected deficits

Cap Social Security and Medicare payments, and all other entitlements, in nominal 2010 dollars. Gradually, inflation and real GDP growth will fade the enormous weight of these programs on taxpayers. I think this beats dramatically increasing taxes, reducing short term benefits and spending, or indulging in seigniorage (or a combination of these). And given the low-inflation season we find ourselves in, the erosion of the dollar isn't on the forefront of our minds the way it was back in the White House of Jimmy Carter.

It's like Paygo, but Congress basically says: we're limiting total entitlement spending to $1 trillion per year (with the option to reduce in deflationary times).

Nothing will be "taken away" from the elderly and the lower-income population in the short term, while in the long term, these income transfers will fall to more sustainable levels. Politicians looking for re-election in the next 2-6 years can claim that they "SAVED [enter special-interest program name here]!" Folks in their 50s or younger can plan on reduced payments, but we will still get something.

Will it be popular? Of course not. Nobody is happy taking less than they are accustomed to. But this is probably the most stable way to do it. Stability increases the ability to plan and adjust for the long term. I really think this is the most practical way out of the Ponzi scheme our elected officials have trapped us in.

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