PUTTING OUR HOUSE IN ORDER – A Guide to Social Security & Health Care Reform, by George P. Shultz and John B. Shoven, W. W. Norton, New York, London © 2008,  ISBN: 978-0-393-06602-9, 226 pp, $24.95 , www.wwnorton.com/

Reviewed by Del Meyer, MD

George Shultz and John Shoven open their Guide Book quoting Fed Chairman Ben Bernanke's Senate testimony concerning the right time to address our entitlement programs, "I think the right time to start is about ten years ago. The projected costs for these programs - Social Security, Medicare, and Medicaid - loom with gathering intensity."

The unease is produced by a feeling that the costs of entitlements are out of control and will overwhelm the budget. This will bring a catastrophe for beneficiaries whose needs will not be served as well as for the fiscal stability of the United States. But can the entitlement problems be solved? Whether or not the political process can work out sensible changes is certainly an open question but Shultz is confident that progress can be made by reaffirming the wide consensus that the present programs are not sustainable and by showing that there are workable alternatives.

The magnitude of these costs cannot be met by any reasonable projection of future federal government revenues. Can the U.S. Body politic somehow find a way to ensure that systems are in place to provide reasonable income for the elderly that are consistent with fiscal sanity?

Dr. Shultz offers a different approach than the impending catastrophe, which is prevalent in much of the current writing on this subject. He cites informed sources about careful projections of future costs made by the Congressional Budget Office (CBO) which show that entitlement costs alone could reach 28.5 percent of gross domestic product by 2050, clearly an unmanageable level, especially considering that federal revenues have never exceeded 21 percent of GDP in the history of the Republic. And these projections reveal only part of the problems before us. Commitments by state and city governments and by private employers contribute substantially to the looming threat which Shultz calls, "The Iceberg Ahead."

Shultz is optimistic of a positive approach. He relies on America's solid record of economic achievements, which holds promise of continued success in the future. He points out American success on many fronts. The U.S. economy sets the world standard, and its growth is an essential ingredient in the expanding global economy. The creativity and dynamism of the American economy now yield strong gains in productivity (output per man-hour) that surpass the rate of improvement in many prior decades. The U. S. economy produces one of the highest per capita incomes in the world and no other major developed country has been able to keep pace, let alone catch up. So it's clear: We have success on our hands.

The economy is by no means the only area of success. Not only do Americans live longer than ever before, but many are healthier and capable of being productive far longer than at any time in the past. These trends are likely to continue as a result of many breathtaking advances in science and technology. He feels such momentous developments are opportunities to nourish.

The contradiction between this clear evidence of success and the current atmosphere of unease in the United States calls for a change in mind-set. The projected gargantuan shortfalls in the U.S. budget stem largely from the interaction of constantly expanding costs of health care and longer life spans with relatively inflexible entitlement programs. Increasing longevity and better health are developments to celebrate. The challenge is to adapt income support and health care programs to these changing demographics and health care options.

He feels the difficult problems in financing Social Security and health care commitments must be approached from a realistic perspective based on demography, medical developments, and fundamental economics. In demographic terms, we are retiring earlier and living longer. The result is a growing proportion of people outside the labor force compared with those who are working. Medical treatment options too have expanded. As a consequence, the federal government has increasingly become a mechanism for transferring every-mounting sums of money from younger workers to older retired Americans.

The history of Social Security and health care programs in the United States shows that their structural roots come from an altogether different era, that of the Great Depression and World War II and its aftermath. These programs must be adjusted to better accommodate increased longevity as well as improved and promising medical treatments, which are often costly.

Reform of these programs will not come easily. To touch them, many politicians worry, is to touch a third rail. But well-documented projections of the costs of current programs show that inaction is simply not an option. Everything about the U.S. economy is dynamic except its major entitlement programs. Shultz presents how these programs must be modernized so that they are suitable for the twenty-first century and meet the tests of fairness and fiscal responsibility.