William Silber had one on the Wall Street Journal‘s Sunday opinion pages. Naturally, I have one on his.

The core of Silber’s thought is this:

The so-called neutral rate of interest is observed in hindsight—by whether the economy is expanding fast enough to keep unemployment low but not too fast to provoke higher inflation. By that measure, the current target interest rate of 4.25% to 4.50% seems about right. I say “about right” because the unemployment rate is low but the rate of inflation is somewhat elevated. That suggests, if anything, the target interest rate should be higher to push down inflation.

Silber is right on the first part. He’s wrong on the second. The current target interest rate “seems about right” because it historically correlates with the Fed’s inflation target of 2%. Now it’s time for the Fed to sit down and be quiet—and to say in so many words that that’s what it’s going to do. Excursions above and below the inflation target are just the noise of a free market. The time is not yet—if ever in the current market conditions—to make any sort of move on target interest rates.

The lede intimates the problem:

Dual-earning married couples are estimated to face a loss of $18,100 in annual benefits in seven years without the passage of some sort of entitlement reform, according to a new study.

And this:

“At the same time, those retirees might experience reduced access to health care due to an 11% cut in Medicare Hospital Insurance payments. The cuts would grow over time as scheduled benefits continue to outpace dedicated revenues,” the analysis [by the Committee for a Responsible Federal Budget] also read.

Florida Republican Senator Rick Scott has proposed legislation to address this:

…create a “Budget Point of Order” and require a two-thirds vote against any legislation that the Congressional Budget Office (CBO) “determines would create a “Budget Point of Order” and require a two-thirds vote against any legislation that the Congressional Budget Office (CBO) “determines would reduce or cut existing Medicare and Social Security benefits.”

But that would only increase costs to all of us in the form of steadily rising taxes. After all, any tax bill that didn’t raise taxes sufficiently to suit CBO would be claimed by it to reduce or cut those benefits and so would require that supermajority vote.

No, the better solution is to entirely privatize Social Security and to return responsibility for Medicare entirely to the States under their respective Medicaid programs.

Social Security could be privatized entirely for those currently younger than 50 years—or under 40 years if the longer transition period would be more politically palatable. Continue to require folks to pay those Social Security taxes, but the money would go into retirement accounts strictly for the benefit of the taxpayer and his future retirement, instead of being sent right back out for the current benefit of existing retirees. This would give the taxpayer/future retiree skin in his own game, and I guarantee you that this individual would do a lot better job of managing his retirement money than the government has been doing—especially with the government confronted as it is with both a dwindling supply of employed persons paying the taxes to produce current payouts and an increasing post-retirement life span. The transition would be deucedly expensive for the government (all of us taxpayers), but that expense is only going to explode if nothing else is done.

On the other hand, Medicare conversion doesn’t need so long a transition, and it would produce immediate savings for the Federal budget—its real budget, not the fictional one that pretends Social Security and Medicare aren’t part of government expenditures. For this conversion, it’s a simple matter of converting the Medicare transfer to each State to a Year Zero block grant solely to the State’s Medicaid program. Then each year over the next 10, reduce the size of the block grant by 10% of the Year Zero amount and reduce each worker’s Medicare part of his payroll tax and his employer’s contribution to that payroll tax by 10% of that Year Zero tax collection. At the end of those 10 years, the Federal government would be out of the States’ health coverage business, the States would have their responsibility for and control over their own programs wholly restored, and each worker and employer would be out from under that portion of the payroll tax.