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I am taking some flak, as expected, for the optimism of my piece on the baby boomers. How can I be so darn cheery when we've got $55 trillion in unfunded obligations coming down the pike?

Well, the point of the piece was to stop focusing so much on cash figures. All government spending numbers are impressively large--that's what happens when you're dealing with a very rich, very populous nation.

But our entitlement problem is not that our unfunded liabilities have a net present value of $55 trillion. That is a very big number, but we're not going to get handed a bill for it all next week. It's a slice of a much, much bigger figure: the NPV of our future income.

Prices are very, very useful things. But they can often obscure as much as they hide in economic debate: a $20,000 Hermes handbag does not consume 100 times as many economic resources as a $20 Target handbag, and the illusion that it does fuels much of the current debate over redistributing wealth.

The ultimate price tag of Medicare is hazily unknowable, and really, the number does not much matter. And the argument that this spending is "unsustainable" is not particularly interesting; as Herb Stein famously said, "If something cannot go on forever, it will stop." If the spending is really, actually, unsustainable then the government will eventually stop trying to sustain it. These are not the interesting questions.

My (partial) list of the interesting questions:

  1. Is Medicare well structured to provide good health care to the elderly?

  2. Is Medicare encouraging today's workers to save less than they will ultimately need? In other words, is the program likely to be severely curtailed in the future, leaving workers who counted on it worse off than they would have been had it never existed?

  3. Is Medicare encouraging, or discouraging, the medical innovation that could make future generations better off?

  4. What is the deadweight loss of the taxation required to pay for Medicare, and does this represent a good use of our money?

  5. Is this massive transfer from old to young just? Does this answer change if it turns out that future generations are likely to massively trim the program?

My answer is that Medicare is a bad program on many fronts: badly structured, economically and medically destructive, and a fairly injust transfer of resources. But none of those things have anything to do with eye-popping NPV figures. A bad program doesn't become a good program just because it's cheap.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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