Seth Boffeli: >> Hi, everybody.
Thanks for coming out.

My name's Seth Boffeli.

I'm the communications
director with AARP Minnesota,

and really glad to
have you here today.

I hope everybody is
enjoying our heat wave.

If you're like me, you put
your winter hat away today

and you took out your
summer winter hat.

But, hey, it's always
worse we're not in

Atlanta where they're
pestered by an inches.

I don't know who it

was that said the
South will rise again,

but I don't think they took in

consideration the weather that
they're having down there.

But anyway, thanks for coming.

We are really excited this

is the second conversation we've

had in the last
several years with on

Social Security and Medicare
at the Humphrey School.

We're very thankful to Larry
and our partnership here.

This is really a unique forum.

We are very blessed to have
two great leading thinkers,

both from the right and the
left here with us today.

We're going to have an
open and honest and frank,

and believe it or not, humorous

discussion here today about

some really important programs.

I think the key is
it will be civil

it will be not like anything
that you see on TV.

From our perspective at AARP,

if we really want to figure out

a long-term to secure

future for Social
Security and Medicare,

conversations like this are

what we really need to foster,

not just in Minnesota,
but in all 50 states.

Before I turn it over, I
just want to recognize

two dignitaries from AARP.

Cheryl Mathias is here in front.

She is a senior policy
advisor for AARP,

and Joan Ruff is here, too.

Joan's going to speak
a little bit later,

but Joan is on our
national policy board.

They're here in Minnesota,

part of their job is really
to travel the 50 states

and get a sense of
what our constituents,

our members think on
these two programs.

But with that, I
will turn it over

to somebody who needs
no introduction,

at least not in this
room, Larry Jacobs.

Larry Jacobs: >> Thank you
very much, Seth [APPLAUSE]

I want to thank our
partners, AARP.

These are just the events
we love to do substantive,

civil, and important and
timely that's what this is.

I also want to thank all
of you for coming out.

I start to see the snow falling,

and I wondered how
many of you would

brave the weather so thank
you so much for coming.

As Seth said, we really have
two terrific people here.

I want to start off with
a broad question and

give our guest Dean
Baker and Kevin Hassett.

Kevin Hassett is for me a
remarkable combination.

He is the American
Enterprise Institute,

is one of the
favorite economists

that Republican presidential
candidates and members of

Congress love to
consult because he

knows his economics
and has also got

a good feel for what
might fly in Washington.

He's also an economist who's

really interested in a
lot of these issues.

It's not politics only.

You see him involved in

some really interesting
conversations and partnerships,

often with colleagues who don't

see eye to eye with
him on other issues.

The other thing I love about
Kevin is he publishes in

the most exclusive
journal for economists,

the American Economics Review.

When you think of your
very best for economists,

it's publishing the
American Economics Review,

and Kevin's able to do that.

It's a remarkable
accomplishment.

Dean Baker's similar
record of accomplishment.

He is one of the most
prominent economists

looking at issues relating
to labor, social welfare.

Obviously, Social Security
and Medicare, health reform.

He's one of those people that
Democrats in Congress and

presidential candidates have on

speed dial and is also
remarkably prolific.

These are two folks who
really know their stuff.

It also helps that they

went to college at
the same place,

and by all appearances
seem to like

each other so that's
a real benefit.

Now, with that build
up, I'm wondering,

starting with you,
Kevin Hassett,

if you could give us your sense

of what's going on
in Washington, DC.

Folks out here in
the prairie scratch

their heads off about

the the rancorousness
and the sense of not

much getting done other than

avoiding complete
catastrophic outcomes.

Can you bring us up to date
on the thinking in Washington

about Social Security and

Medicare? What are
we looking at?

Kevin Hassett: >> Sure,
thanks, Larry it's

really a great honor
to be back here.

You folks, most
of you live here,

and so maybe you've
grown accustomed to

how wonderful it is here

in Minneapolis and at the
University of Minnesota.

But it's unthinkable
there aren't

many places in the country
where you could take two

[inaudible] like me
and Dean and put us

on stage talking about
Social Security and

Medicare and get such a
vibrant and full audience

so I commend you.

I guess it is a heat
wave because there's

a lot less hat hair

today than there was the
last time I appeared.

It's great to be up here
with Dean, as well.

We were both Swarthmore
college undergrads.

We didn't know each
other then you're

slightly older than me, I
think, isn't that right?

We like to think of
ourselves as the Swarthmores

on that talk about economics.

Actually, a start,

you say, how's it
going in Washington?

Of course, it's
an election year,

and there's going to be

the Punch and Judy show
that we're all so used to.

But I'm beginning to see things

change in a way that I'm

starting to sense I haven't
talked to Dean about this.

I'm interested to see what
you have to say about this,

that there's a lot
more movement to

try to think of stuff that
folks could do together.

A lot more Democrats

meeting with Republicans in
off the record settings.

An example I could
give, for example,

is that the House Ways
and Means Committee

has been working on
a corporate tax bill

that could actually have a
chance of moving except for

Senator Baucus there's a change

in leadership in Senate finance,

and so he's moving out of
that spot or has moved out of

that spot and so that
there's not much hope of

moving something into

a new Senate finance
committee this year.

But the Democrats
and Republicans on

the Ways and Means Committee
agreed to have off

the record meetings on how
folks should think about

corporate tax reform and
the possibilities of

it and what the pitfalls and
the land mines and so on.

They had these hearings.

There were 10 of them I
was at three of them,

and a huge share of
them members came,

both parties experts
or people who pose as

experts were invited and

the exchanges were
lengthy and collegial.

I'm beginning to see a
lot more stuff like that.

Even going back to

something we talked about
before that Dean and I were

working on that I
think that there was

a turning point for me in

policy and how I

need to think about how to
have a positive effect.

Because in the end if
something doesn't become law,

then you've wasted your time.

Not on the science part if
you get a paper in a journal,

it'll help someone in
the future make law.

But it all started really
in 2009, wasn't it?

That I was at a wedding and
some hedge fund guy said,

Why the heck is the unemployment
rate so low in Germany?

Their GDP dropped
by more than ours,

but their unemployment
rate didn't.

I started working
on it, and then

I found that they had a
program that I liked so much,

I thought we should emulate it,

and I wrote a piece, I think
for Bloomberg saying that,

hey, we ought to
emulate the Germans,

change our unemployment
insurance system.

We can make it much better and
more modern if we do this.

Dean sent me an email
and said you're right.

For once, I think you might be

[LAUGHTER] we should do
something together so,

Dean and I wrote really
a couple pieces in

the New York Times
about this program,

and then worked
behind the scenes.

I met with House leadership,
Democratic leadership,

Senator Reed of Rhode
Island took the lead,

and they didn't
get it 100% right,

but they changed the law.

I think you can really
trace it back to

our New York Times pieces
they changed the law.

By finding something that people

who care about the world,
but view it differently,

can agree on and then

presenting it to people as
something that's not partisan,

but just a good
idea that can make

the world a better
place. It really worked.

Dean Baker: >> Quite a number
of states did it, too.

States adopted it because
at the end of the day,

the idea of word sharing
is handled through

state unemployment
insurance laws,

and each state has their and

at the time we wrote about
this, I think it was 22,

23 states, but at
least three or four

have since adopted it in each
case, it's been bipartisan.

Kevin Hassett: >>
At the American

Enterprise Institute,
as the director,

we have about 260 people I don't

know the economic team is
a big chunk of the team.

We've been pouring ourselves

whole hog into finding
more ideas like that.

If you look at,

there's a young labor economist
named Michael Strain,

who's been thinking about how to

help the long-term unemployed,

and he's got lots of, I think,

interesting ideas that with
unidentifiable partisanship,

we should subsidize people

or help people move if
they're unemployed.

If you find a job
in North Dakota,

but you can't go
there because it

costs too much to
move in North Dakota,

then that's a bad thing
so why don't we have

relocation assistance
for people who have

been unemployed for
a long time anyway.

Those ideas are being

embraced by Republican
leadership in a way.

It's not really public yet,

but I think that there's a
change that people have said,

well, we can fight
about the minimum wage.

We can fight about the
top income tax rate,

and we can fight about
that forever, and we

probably will continue too.

But why don't we spend at
least a little bit of time on

stuff that we can agree on
and try to make it happen?

Larry Jacobs: >>
Kevin, let me lay out

a few time markers.

Ten years ago, we had
President Bush who literally,

probably about this point was

campaigning around
the country to change

the structure of social
security towards

a partial privatization
of individual accounts.

I'm not hearing, and I

want you to correct
me if I'm wrong,

those ideas about restructuring

Social Security at the
forefront of Washington debate,

not the forefront of
Republican debate.

Maybe three or four
years ago or less

Representative Paul Ryan had
some ideas about Medicare,

which were, again, fairly

robust and geared towards the
structure of the program.

I hear less about that
from Mr. Ryan these days.

If I understand what
you're saying or

the implication is
that rather than

going for these epic wins

in terms of
restructuring programs,

there seems to be more of
an interest in saying,

what are actionable policies
that you could build

a bipartisan coalition
around? Is that accurate?

Kevin Hassett: >> That's right.

On Social Security, though,

I think that it's
worth making a side

then for actionable policies
that could happen too,

I definitely want to
go to Dean because

I don't want to talk too much,

at least not yet.

But the thing is
about Social Security

that I think it's really
clear is that there

were people who pushed
privatization as a reform for

Social Security that were

not making economically
literate arguments.

I think that those
bad arguments got

crushed by trained
economists and

now people understand

that the things that
they were saying

were stupid and wrong

and no one's ever
going to admit that.

Privatization is
good, in some sense,

having government do it or you
do it probably in the end,

you controlling it
is a good thing.

But the argument is just I can

make it really clear in
a 45 second example,

and that's where I'll stop.

The problem is that
suppose we have a world

where there's a young
person and an old person,

and the young person
puts a dollar1

in the bank or the young
person earns money,

and the old person
doesn't the young person

gives the old person
a dollar every year.

Then next year, the old
person passed away.

The young person's
an old person.

There's a new young person.

They earn some money
they give a dollar to

the old person who is

a young person who gave

a dollar to somebody
else the year before.

That's Social Security,
that's how it works.

Well, suppose that a privatizer

comes and says to
the young person,

hey, this isn't fair.

You put in a dollar,
you take out a dollar.

Your rate of return is zero.

Why don't you put
90 cents away today

and then you'll have
a dollar tomorrow,

and then you'll be better off?

Then the young person says,

that's great let's do that they

privatize Social Security.

Then they look and they see

this old person who

thought he was going
to get a dollar,

and they don't have the
dollar from the young person

anymore because he put it in

a savings account for himself,

and so what are we gonna do?

Let the old person starve?
We'll say no, we don't.

Then what we'll do
is we'll borrow

a dollar from the Chinese, say,

give it to the old person and

then pay interest on it forever,

which is about 10 cents a year,

and so we go and how do
we pay the interest?

We tax the young
person 10 cents.

We've gone from a system

where he puts in a
dollar and gets out

a dollar to a system where he

puts in a dollar,
gets out a dollar.

It hasn't really changed.

But for the longest time,

there were people saying, you

should put in 90 cents
to get a dollar.

The rate of return is
zero. We need to change

the system I think that we've
finally got them to stop.

Larry Jacobs: >> This
is why I love having

conversations with
Kevin Hassett.

He's genetically
wired for candor.

[LAUGHTER] The harsh
words he just had for

partial privatization
are geared to some of

the folks that you
sometimes advise.

Kevin Hassett: >> But I
support privatization,

I can say, but not for
the stupid reasons.

There are a lot of
good reasons for it.

Dean Baker: But I think
that the problem is that

the good reasons for it are

really hard to sell politically.

I don't think that
it's likely to move.

Larry Jacobs: Dean Baker, I
want to pick up this theme

of economic illiteracy and

focus it on how you see

the current debate
in Washington,

which for much of the
Obama presidency is

focused on this idea of
finding a grand bargain in

which Democrats agree to
make some concessions

and scaling

back Social Security benefits
in a variety of ways,

including the inflation
adjuster in the context of

reducing long term deficits

and debt. Does that make sense?

Dean Baker: It makes sense
how you described it.

I don't think the
policy made sense.

I felt we really got
off on a wrong track.

If you go back to where we were,

we first got big deficits
because the economy collapsed.

Kevin's been saying some
things about the Republicans.

I'll say something
about the Democrats.

A lot of Democrats running
around, George W. Bush,

blew a hole in the
budget, this and that,

his tax cuts, the wars
he didn't pay for.

I wasn't particularly
fond of the tax cuts.

I wasn't particularly
fond of the wars.

But the reality was that the
deficits were not especially

large just before the
collapse in 2008.

Now, you could say we would
like them to be smaller,

but I can tell you exactly
how long we could run

the deficits that we
had in 2007 forever.

The debt to GDP ratio
was coming down.

The deficit at that
point, was 1.6% GDP.

We could run a deficit
of 1.6% GDP forever.

Anyhow you had a situation
where the Democrats had

exaggerated the problem of

the deficit throughout
the Bush years,

and I think that helped to feed

into this situation where,

we had the economy collapse

because the housing
bubble burst,

2008, 2009, and we
ran large deficits.

You had a lot of
people think, my God,

we have this forever problem
of really large deficits,

and I think the Democrats
helped to contribute to that.

Reality was we hadn't had

very large deficits until
the economy collapsed.

At that point, it was good
that we had large deficits,

and the basic story
was very simple.

When the housing bubble burst,

the housing bubble was creating

all this demand in the economy.

Simple reasons.
People were building

homes in near record paces,
creates a lot of demand.

Secondly, all these people
had equity in their homes.

You just saw the price
of your house double,

which in a lot of places it did,

and some places it
tripled. Guess what?

When people see the price
of their house triple,

well, they spend some of that.

Not a stupid thing to do,

especially if it's
going to stay there.

You got a house for 150,000,

now it's worth 450,000.

Well, you might buy a new car.

You might take a vacation or

maybe you're going to send
your kid through college.

It's not a bad thing to do.

Problem was, it didn't
stay at 450,000.

It fell back to 150.

What that meant was there
was this huge gap in demand.

We lost, my rough estimates

somewhere on the order
of 600 billion a

year in annual demand
because of the fall off

in residential and
nonresidential construction,

and roughly the same amount
on the consumption side.

People saw roughly $8 trillion

in housing equity disappear.

They've been spending based on

this wealth just disappears.

That's why we had the deficit.

We were making up that gap.

Some of that was

just the natural
workings of the economy,

automatic stabilizers,
people lose their jobs,

they pay less in taxes.

We had a big fall
off in tax revenue.

Flip side was spending.

We have programs like
the Food Stamp Program,

SNAP, and also
unemployment insurance.

Spending automatically
increases when

people lose their jobs,
see their income fall.

That was a big part of that.

We did on top of that,

deliberately create a larger
deficit with the stimulus.

That was spending money.
That was the point.

That was putting more
money in the economy,

much of it was tax cuts,

and that created
a larger deficit.

Well, the deficits
weren't always there.

Large deficits
weren't always there.

They were there because
the economy collapsed.

To my view, I
didn't look at this

as a problem of a deficit.

I looked as a problem
of a collapsed economy,

and the deficit was
part of the solution.

But suddenly, we had a lot

of people running
around Washington,

my God, the sky is collapsing.

We have these huge deficits,

out of control spending,

blah, blah, blah,
blah, blah, blah.

That created the context where,

well, we have to have
a grand bargain.

We have to sit down,

and the Democrats are
going to agree to

cut Social Security,
cut Medicare.

Republicans will agree to
have some increase in taxes,

and that will get
our deficits down.

To my view, as I say,

the deficit at that time
certainly was not a problem.

I'd say it's not a big
problem today because,

again, we need demand
in the economy.

We're still well
below full employment

by almost 31% estimate.

The focus on Social Security

and Medicare as being
the problem, as I say,

I thought that was very

wrongheaded because
implied in the story

with Social Security is that
seniors have too much money,

and I think for the most
part, that's not true.

Which isn't to say
there's no one anywhere,

so I'm not going to say
it's absolutely sacred,

but the point was, in general,

I don't think Social Security is

a particularly generous
program, certainly,

if we compare it to
other countries that

we think of ourselves as
comparable to Canada, England.

Generally, it's less

generous than most
of these programs.

On the Medicare side,

the idea that we're going
to do it by cutting,

if you're going to
reduce Medicare costs,

and I think to some extent,

the Affordable Care Act
is trying to pursue that.

I think that's great.

But if you compare
the United States,

the generosity of our Medicare

program with other countries,

it's not that we're
getting more care.

It's not that people in
the United States are

getting better healthcare,
better outcomes.

It's that we're paying twice

as much for just
about everything,

for our drugs, for our doctors,
for medical equipment.

You go down the list. If you

have a plan to save
cost on Medicare,

it shouldn't be by
making seniors pay more,

at least not for the most part.

Again, I'm not going to
say every penny is sacred,

but it has to be focused
on cutting costs.

I think the idea
that somehow we had

to take this out of the
hide of our seniors,

I thought was very
much misplaced.

That was something I
really regretted about it.

Larry Jacobs: I want to
just give a shout out.

If you've got a question,

there are cards walking around.

Please fill them out.
We're going to get to

as many as we possibly can.

Kevin Hassett, I want
to pick up on a theme

that has often puzzled me.

When you look at the
trust fund reports,

nonpartisan expert report,

and their best estimate in
terms of Social Security,

let's put aside Medicare
for the second.

But if you look at
Social Security,

what we've just heard
last year is yet again,

Social Security is
in pretty good shape

for about 20 years out to

a year hopefully we'll see
2033, it's way out there.

Yet, we have these
discussions in Washington

about the need to scale
back Social Security,

even though its finances,

according to the trust
fund, reports are good.

How did this happen? How did
we get so locked in with

President Obama and Republicans

saying Social Security was
the driver of our deficits?

Dean Baker: Social
Security is, of course,

not the driver of our deficits.

Government healthcare
spending is probably

the biggest driver and certainly
in the fullness of time,

the healthcare driving engine

is taking over the
whole machine.

I think that it's
widely accepted.

I don't think Dean disagree.

If Dean accepts it
and I accept it,

then widely accepted
might be true.

But I think that the
prescription drug benefit

costs more in present value
than Social Security.

I've seen estimates
suggest that.

Maybe plausible.

I've looked at that
but it's so plausible.

But it puts it in perspective.

In shortfall.

Yeah. Because it

was an unfunded expenditure.

In addition to the
long run deficit,

the present value of it from
the drug benefit is bigger.

Therefore, if you
want to do something,

you have to go after
medical expenses.

Social Security is a tiny
fraction of the problem,

but it's still a
significant problem.

We're talking, what about

this current present
value shortfall is

maybe around six trillion or so,

give or take a trillion
among friends.

Larry Jacobs: But
that's out decades.

That's over 75 year period.

You look at it, out two decades.

Actually, if you
walk this back to

Greenspan's commission in
the early '80s, many years,

we had surpluses out of

Social Security that
were essentially

covering shortfalls in

the government's
general revenue pool.

Now we're continuing
to get these reports.

The program is in good
shape for two decades.

The question I guess
that I'm asking is,

again, just focusing
on Social Security,

is this one of those
areas that you'd put in

the Kevin Hassett
economic illiteracy

that didn't make sense?

No, you think it does
make sense today.

Dean Baker: I think it's really

urgent that we act
on Social Security.

But the reason is that
one, there are, I think,

low-hanging fruit things
like the work sharing,

changes to Social Security

that everybody
ought to agree to,

and we can go into those in
a minute that need to happen

now because there are negative
effects, like for example,

there's an extra high tax
on second earners that's

discouraging older females
often from working.

There's not much benefit

from working after
a certain age,

and so we're
discouraging people from

working. Those things
we could address.

But in the long run,
suppose that in the end,

what we need to do is take

folks like maybe
everybody in this room,

but certainly the
folks on this panel,

we've had pretty lucky lives,

and we're not going
to be living just

on Social Security
when we retire.

Right now, we're being
promised benefits

25 years from now that are

richer than probably necessary,

and maybe than we can afford.

If you were to tell
us today, well,

we're not going to give
you 2,000 a month,

we're going to give
you a 1,000 a month,

25 years from now,

then we can start to plan.

So that when it's
25 years from now,

we'll have adjusted
and we'll have saved.

I think that it's
urgent that we fix

it on the backs of people
who can afford it,

some progressive indexing
or something like

that and we do it soon
so that the people

whose benefits are going to
go down have a chance to

optimize against the new system

and change their behavior.

Larry Jacobs: Great. Dean
Baker, when you hear that,

does that sound
like a solution to

the deficit problem as

it's been talked
about in Washington?

Because everything Kevin
Hassett just said makes sense.

It's frankly in a
roster of things

that have been talked about
for decades and decades,

and we can add to it.

But I'm still not
hearing how that ties

into this deficit mania
that we hear in Washington.

Dean Baker: Well, it
makes good sense to me.

No, I'm kidding. I just want to

see how Kevin will
react to that.

Well, two things.
First off, again,

just to repeat that we don't

really have a deficit
problem today.

I think that this
is when I'd put in

economic illiteracy that we have

people running around
going, my God,

we have a deficit
of $600 billion,

and that's a huge sum because

none of us will ever
see $600 billion.

Of course, the relevant fact

here is we need a denominator,

and we have an economy

that's on the order
of 17 trillion.

We're talking about a
deficit around 3.5% GDP.

Again, maybe larger
than you'd like,

but given the fact that most

of that is due to the fact we're

still very much below
full employment,

very far from having recovered,

it's not in my view
at all a problem.

I'd rather have a
bigger deficit.

If I could snap my finger
and had the choice of

doubling the deficit or having
it, I would take double.

Wait. Dean is the first Democrat

to ever say, thank God,

President Bush didn't
pay for that Iraq war.

[LAUGHTER]

I said it every
time. I didn't say

he should fight it.

But I don't blame him
for not paying for it.

Having said that, again,

longer term problem as I
think all of us agree,

it is a healthcare story.

Now, in looking at
Social Security,

to take issue with
Kevin here, yes,

we have some people that
could take cuts in benefits,

but to really affect the
finances of the program,

it won't just be people
earning 200,000 a year.

You're going to have
to talk about hitting

people earning 50,
60,000 a year.

I get a kick out of
this in Washington

because when we want
to raise taxes,

you recall we just
restored part of

the Clinton a tax rates.

The question was, where
would you do that?

Where was the cut off?

President Obama
originally said 250,000.

Well, 250,000 is that rich?

Then you end up doing it at
400,000 so it was a cutoff.

Now we're talking
about Social Security.

Where should cut back
people's benefits?

Well, to really
have much impact,

you have to talk
about and we could

argue where the exact line is,

but somewhere around 40, 50, 60,

because the reality
is, Pete Peterson,

most of you probably
know the billionaire

who's giving a lot of money to

groups to support cutting

back Social Security
and Medicare.

He always goes around
saying, I don't need

my Social Security check.
Go, well, that's great.

You and the other
billionaires, send it back.

We don't have to change a
single number in the program.

It doesn't matter.
It's too trivial.

Knock it down to a million,

knock it down to 500,000,

knock it down to
200,000. Doesn't matter.

If you really want to have
an impact on the program,

you have to talk about
hitting people, I think,

by anyone's definition, are
very much middle income.

The idea they could just get
by with much lower checks,

cut it in half, they would
not see it that way,

and I think with some cause.

I should also point out,

we do have an idea that people

should get somewhat
of a decent return.

Kevin, I'm sure has seen
the calculations on this.

You take someone who's
earned 70, 80,000 a year,

not rich by any means,

but well above the
average in this country.

Their Social Security benefit
would imply a return,

somewhere in order of
half a percent, 1%,

depending exactly what
year they're born,

not a very strong real return.

It's not zero, so I
have something to show,

but it's not a great return.

Now, if we were to
substantially reduce that,

they would be getting back

less in real dollars
than what they paid in.

Would we feel good about
that? Is that fair?

I think there are real
problems with that.

As I said, I don't
see a lot of seniors.

I'm certainly willing to grant.

We have some that are
very comfortable,

and if they had a
little less money,

it wouldn't bother me.

But that's not going to have

a big impact on the
Social Security program.

Once we talk about
cutting back benefits for

people who are very
much middle income

by everyone's definition,

then I have a problem with it.

Larry Jacobs: Kevin Hassett, I
think all of us would agree that

the real challenge in

terms of deficits on
the healthcare side,

and for Medicare, reflects

the backdrop of
health expenditures.

I'm wondering if your views

about the sustainability
of Medicare,

how they've changed in light
of the Affordable Care Act,

which reduced the subsidies

to private insurers and
Medicare advantage.

Big debate about that,

and I'm sure there's some folks

here not too happy about it,

but in fiscal terms,

it reduced some of the costs.

Then you've got this pattern,

which the CBO actually
just reported and it's

a much discussed
report last week,

though this was not part
of the headline that

the slowdown in the
growth of Medicare,

they described it as
broad and persistent.

If you look at spending per
beneficiary in Medicare,

it rose about 4%
between 1985 and 2000.

CBO is talking now about

1.5% after controlling
for inflation.

When you start to look
at those changes,

does that give you any hope,

or do you still remain
quite concerned

about the sustainability
of Medicare?

Dean Baker: The key
question really

is the subset of your question,

that there has been

a palpable slowing in the
growth of health expenses,

both for private insurers and
for the federal government.

It seems like the inflection

point was about a decade ago.

It's about when the trend
seems to have broken.

It's accelerated by the
recession and if it continues,

then the problem,

it's still large, but it's

significantly smaller
than we thought.

When we're thinking about the
sustainability of Medicare,

then what happens to costs?

Do they go back to
growing as fast as they

were when they were

really skyrocketing a little
bit more than a decade ago,

or do they stay at
the lower rate?

It's a big open question.

When someone takes a forecast

where historically over
the last few years,

the CBO has been presuming that

the really high cost growth
is going to come back.

That's probably the prudent
risk averse thing for

a neutral budget analyst to do.