Megan McArdle talks with Russ Roberts. A few points
I disagree with many of Russ’s substantive points but the one we are in complete harmony about is that Social Security and Medicare are not liabilities. They are promises and they are promises that will be broken.
These promises are little different from me telling my wife that one day I will take her on a three month long cruise in the South Pacific. Its an enormous future expense. We could try to budget for it, but this would just be engaging in an extended fantasy. There is really very little chance that this is going to happen.
Indeed with Medicare I think its important to point out that most of the things we have promised to buy future generations do not even exist yet. We are projecting that sometime in the future some new way to spend money will be created and then we are promising that we will buy it.
On the other hand, I don’t see the current debates as simply proxies for “whether we become more or less like France.” I don’t see any serious push for greater government ownership over major industries. I don’t see a push for radical new labor laws. The support for union backed card check regulations is weak.
The size of government is expanding but this is primarily driven by rising health care costs and shrinking health care coverage. There is a massive debate over the externalities associated with carbon emissions. These, however, are specific issues that carry a lot of import themselves.
On New Keynesianism in general. Russ acknowledges that people are holding more cash. He said he “didn’t doubt” Posner’s contention that the purchases of personal safes had skyrocketed. McArdle herself, is detailing a cash holding strategy that is increasingly popular. Yet, he seems to doubt that the conduit between savings and investment has broken down.
If the extra cash is not forgone consumption and investment, then what is it?