On the menu today: After last night’s State of the Union Address, where President Biden and members of Congress from both parties seemed to agree to take no action regarding the long-term fiscal stability of Social Security and Medicare, it’s time for a refresher on the old hard facts about the upcoming insolvency of those programs. Meanwhile, President Biden barely mentioned the Russian invasion, and he made only the vaguest reference to the Chinese spy balloon, indicating that the state of U.S. foreign policy is more challenged that he wants to admit.
Apparently, MSNBC Doesn’t Trust the Trustees
Medicare is the federal health-insurance program for roughly 65 million people ages 65 and over and younger people with long-term disabilities.
According to the trustees of the program overseen by the U.S. Treasury Department, “the Hospital Insurance Trust Fund, or Medicare Part A, which helps pay for services such as inpatient hospital care, will be able to pay scheduled benefits until 2028.” That’s the last year of the term of whoever wins the presidency less than two years from now.
According to the trustees of the U.S. Social Security program, the Old-Age and Survivors Insurance Trust Fund, which pays retirement and survivors benefits, will be able to pay scheduled benefits on a timely basis until 2034. That’s a bit more than a decade from now.
These numbers are slightly better than previous years. Go figure: It turns out that a terrible global pandemic that kills 1.1 million Americans, mostly the elderly and the sick, reduces the projected long-term expenditures for health-care and old-age benefits. (Also note that since the pandemic began, the U.S. has suffered an additional 300,000 deaths above “normal” that likely relate to the pandemic in some way — delayed medical appointments and missed diagnoses, overdoses, social isolation, etc.) But the pandemic also dramatically increased unemployment for a period, dramatically reducing the amount of payroll taxes being paid into the system.
The above numbers are not from some right-wing think tank or some GOP talking head’s speculation. They are the official numbers.
Recently, Republican congressman Byron Donalds of Florida appeared on Joy Reid’s program on MSNBC and stated this fact: “Social Security is going to be insolvent in 2035.” (Insolvent means unable to pay the debts owed.)
Reid’s response was, “It is not true. No, that’s actually not true. No, that’s actually not true. It’s actually not true. But it’s actually not true. That’s actually not true. That’s actually not true. That’s not true. That is not true.” The previous sentences are not a typographical or editing error; Reid actually repeated the phrase, over and over, like an incantation or mantra, in the face of Donalds’s repeating a figure issued by the U.S. government’s own accounting. As this newsletter discussed yesterday, quite a few Americans, when confronted with a thorny problem, choose to pretend that they don’t see a problem.
Our Phil Klein wrote last night that, “The most grotesque moment [of the State of the Union Address] actually was one of the most bipartisan: when both Republicans and Democrats stood with Biden to applaud the idea of not touching Social Security and Medicare, which both desperately need to be pared if there is any hope of the United States escaping a fiscal crisis.”
Phil explains that:
Medicare and Social Security are already spending more money on benefits than they take in via taxes. Under current law, the programs can continue to offer full benefits, because there were years in which they generated a surplus of tax revenue that was used to finance other government priorities. However, at some point in the next presidential term, Medicare’s hospital program will have exhausted those prior surpluses — and Social Security will face the same fate in about a decade. At that point, absent action, Medicare beneficiaries will receive an automatic 10 percent cut, and Social Security beneficiaries will receive an automatic 23 percent cut. The only way to avert those cuts — which there seems to be a bipartisan consensus about — will be to change the law in a way that will ultimately shift even more of the burden onto working-age Americans.
Keep in mind, the U.S. government spends considerably more than it takes in, and it makes up the gap by borrowing money; that process requires paying interest on that debt. With interest rates rising, those interest payments are taking off like a rocket, as you can see in this St. Louis Fed chart using data from the U.S. Bureau of Economic Analysis. The line is almost going straight up.
In fact, the U.S. government is paying more for the privilege of borrowing than ever before: “The U.S. government spent a record $213 billion on interest payments on its debt in the fourth quarter, up $63 billion from a year earlier. Indeed, a jump of almost $30 billion on the previous quarter represents the biggest quarterly jump on record.”
The more money the U.S. government must spend on interest payments, the less money there is to spend on Social Security, Medicaid, Medicare, research for cures for cancer, aircraft carriers, or anything else it wants. The Peter Peterson Foundation warns that, “In late May, the Congressional Budget Office projected that annual net interest costs would total $399 billion in 2022 and nearly triple over the upcoming decade, soaring from $442 billion to $1.2 trillion and summing to $8.1 trillion over that period.” In other words, a few years from now, just as we will really need massive amounts of money to cover the costs of Medicare and Social Security, we will also be paying $1 trillion dollars or so per year just to pay for past borrowing.
“Taxing the rich” will not be enough to cover it all.
The Near-Absence of Russia and China
Last night, President Biden waited until nearly the end of his address to mention anything related to foreign policy, and then only spent about a minute or two on Russia’s invasion of Ukraine and the challenge of China. Biden made only the vaguest allusion to the Chinese spy balloon: “As we made clear last week, if China threatens our sovereignty, we will act to protect our country. And we did.”
Don’t blink, because I’m about to say something nice about the Biden administration: It appears its effort to restrict the Chinese government’s access to advanced semiconductor chips is working like gangbusters. Back in October, the U.S. government enacted sweeping restrictions on China’s ability to import advanced semiconductors, the equipment to make them, and basically any tool related to chipmaking. Last month, Japan and the Netherlands agreed to similar bans, and the Biden administration extended similar restrictions on Macau.
And the Chinese tech sector is squealing like stuck pigs. The South China Morning Post recently reported that:
As the US pushes to keep China from getting the latest chip-making technology, tightened sanctions could cause Chinese semiconductor and AI development to fall decades behind, according to industry insiders. . . .
“With the agreement between the US, the Netherlands and Japan, the door to non-US equipment, which the entire Chinese chip industry has relied on for survival for the past two years, has been officially shut,” said Leslie Wu, a Taiwanese semiconductor industry consultant and the environmental, social and governance (ESG) VP of Jinhong Gas. . . .
The sanctions have led to an imminent shortage of high-performance chips, pushing up the price of those still available, draining profit margins and dissuading potential clients, according to the founder of an AI software start-up in China who did not want to be named because of the sensitivity of the issue. “Our cost to buy chips has gone up five to six times,” he said.
U.S. defense supply-chain analysts are coming to the same conclusion:
“This severely limits China’s ability to access advanced nodes or build its own capabilities,” said Jay Goldberg, a specialist on Asia’s electronics supply chain and the chief executive of D2D Advisory, a consulting firm. “I don’t see any way that they can build their own advanced processors for like a decade. There’s no avenue there.”
Oddly, while Biden talked about the importance of making semiconductor chips in the U.S., he didn’t mention chips in the context of China. Go figure, one of the few times Biden has an indisputable bipartisan reason to take a victory lap over a hostile geopolitical foe, and he doesn’t take it.
Last night, Biden mentioned the word “Putin” but not “Russia,” and the ongoing war in Ukraine received only fleeting mention, welcoming Ukraine’s ambassador to the United States.
Yesterday, Mississippi senator Roger Wicker appeared in NR, pointing out that President Biden and his team tend to argue in favor of supporting Ukraine in the context of defending a rules-based international order, instead of citing direct, clear American national interests. Wicker argues that the president should emphasize the need to check Putin, who is implacably hostile to U.S. interests; the cost-effectiveness of having the Ukrainians wear down the Russian army so that it can no longer threaten the rest of Europe; the ongoing transformation and upgrading of NATO, which will add to regional security and stability and deter future threats; and the likely deterrent effect on Chinese aggression against Taiwan, as Beijing watches Russia’s planned quick and easy “special military operation” turn into a bloody quagmire.
But I wonder if there are other reasons Biden is less eager to talk about the Russian invasion these days.
New York Times columnist Tom Friedman has been wrong about a lot over the years, but when he tells Times readers, many of whom are Biden supporters, and the administration something they don’t want to hear, it’s probably worth noting. Friedman writes that the second year of the Russian invasion is likely to be considerably harder for Ukraine and its allies than the first one:
Putin, it’s now clear, has decided to double down, mobilizing in recent months possibly as many as 500,000 fresh soldiers for a new push on the war’s first anniversary. Mass matters in war — even if that mass contains a large number of mercenaries, convicts and untrained conscripts.
Putin is basically saying to Biden: I can’t afford to lose this war and I will pay any price and bear any burden to ensure that I come away with a slice of Ukraine that can justify my losses. How about you, Joe? How about your European friends? Are you ready to pay any price and bear any burden to uphold your “liberal order”?
This is going to get scary. And because we have had nearly a century without a Great Power war, a lot of people have forgotten what made this long era of Great Power peace possible.
It’s hard to envision Ukraine surrendering, but until Putin is removed or dies, it’s hard to envision Russia ceasing its attack, either. Right now, the forecast is for a continued bloody stalemate that is likely to reduce Ukraine to a national pile of rubble and bleed the Ukrainian population dry. That outcome would represent only the most nominal “victory” for the U.S. and its allies. It would also lead to a lot of tough questions about the Biden administration’s decisions to send over weaponry in fits and starts over the past year.
ADDENDUM: The Editors on last night’s address from Biden:
In the real world, these programs need reform more than they need to be protected from cuts; gun control is not the answer to violent crime; and resort fees, however annoying, are not among the top challenges the U.S. government ought to be tackling. What our politics lacks most is a sober insistence on reality.