America Is Broke
Though I’ve been hard on Republican politicians for their dearth of policy ideas — basically I agree with what Ross Douthat writes here and here — what I find even more galling on alternate nights is the utter disregard the Democrats now in power have for America’s fiscal future. Do they have any plan to prevent our impoverishment?
You’d think after rightly complaining about the Bush Administration’s unprecedented irresponsibility for eight years, leading Democrats would understand that we’re trapped in a terrible hole, but instead they just keep digging, figuring that while they’re in power, why not lobby for a massive new health care entitlement, game its scoring to make its cost seem more palatable to voters, and pay for it by pretending that it won’t cost any more than what we currently spend. Does anyone who argues it’ll all be deficit neutral in the end, or that costs will go down, want to wager on that proposition? (Update on the prior paragraph: I’m told that any talk of costs going down is actually shorthand for slowing the rate of increase.)
But quite apart from health care — their being no sense in you dismissing this post if you merely disagree with me on that single example — is there anything approaching an appropriate amount of attention being dedicated to this:
Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.
Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.
With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.
In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.
The previous paragraph warrants three pages of exclamation points. Republicans may be full of it when they promise that if returned to power they’ll cut spending and pay down the debt, but at least they recognize the need for those measures, and that they’re an appropriate priority.
It’s almost enough to rally me behind Glenn Beck’s 100 Year Plan. Ha ha, okay, I’m just kidding with you about that last part, it isn’t even close to enough. But if I could replace 10 Senators and 75 Congressmen chosen at random with Ron Paul clones right now I’d do it.
OK, see, this is just hard to understand.
Republicans may be full of it when they promise that if returned to power they’ll cut spending and pay down the debt, but at least they recognize the need for those measures, and that they’re an appropriate priority.
In other words, you don’t expect that they’ll actually do anything, only that they “prioritize” the problem. Right? Then what on earth is the value of such a thing? Look, we don’t need to imagine that Republicans won’t lower spending and fix the deficit. We have ample evidence that they won’t! Ronald Reagan didn’t lower the defict. In fact, he grew it a great deal. George H.W. Bush didn’t lower the deficit. The Republicans had control of every branch of government a few short years ago and not only did they not lower the deficit, they passed a massive new entitlement. It just so happened to be an entitlement for a favored political class, so deficit warriors were and remain oddly silent about it.
And none of this is to even begin to point out that reducing the deficit absolutely, unquestionably has to address the largest expenditure on planet earth, the amount the United States spends on defense. Tiny reductions in the defense budget by percentage amount to massive reductions in terms of dollars. But would the GOP ever countenance, for the barest moment, a reduction in our defense budget? Is there any chance they wouldn’t filibuster and fight any such thing tooth and nail?
What is the value of talking about fiscal responsibility when absolutely all recent history demonstrates that the party so talking has done nothing whatsoever to actually take that responsibility? When you admit that they are “full of it,” how does it represent an alternative?
— Freddie · Nov 24, 05:59 AM · #
“Republicans may be full of it when they promise that if returned to power they’ll cut spending and pay down the debt, but at least they recognize the need for those measures, and that they’re an appropriate priority.”
Or we could raise taxes. I don’t know why it’s assumed that if Americans were really forced to choose between cutting Social Security and raising marginal tax rates they’d opt for the former.
— Trevor Austin · Nov 24, 06:08 AM · #
So you would put fiscal policy in the hands of someone who very seriously wants to convert us back to the gold standard. Were you angling for credibility on fiscal issues here?
I’m with Freddie. Why doesn’t Conor advocate for withdrawal from Afghanistan and Iraq and slashing the defense budget on fiscal grounds? That’s the blindingly obvious place to cut. Go on record as a conservative blogger as advocating serious cuts to the defense budget and end to wars and you’ll get some cred.
And how about we take a little tiny bit of that and get everyone basic health insurance? If you’re on board with all that, we’ll call you a “liberal”. Welcome to the club, notice the dearth of dirty hippies.
— Steve C · Nov 24, 06:52 AM · #
Freddie,
I don’t know — why do I prefer Democrats on gays in the military even though they never do anything about it? Because acknowledging an issue is better than nothing insofar as it’s a prerequisite to action, I suppose. And I’m not sure that the GOP does represent an alternative, hence my desire to clone Ron Paul, something one doesn’t invoke when other options are available!
Trevor, yes, I think some taxes will have to rise — and that SS should be means tested, and the retirement age raised to 70, immediately.
— Conor Friedersdorf · Nov 24, 06:53 AM · #
Steve C,
You write almost as if I’ve never blogged about cutting the defense budget, or called out Republicans for never wanting to do that: http://www.thedailybeast.com/blogs-and-stories/2009-09-28/what-war-costs-the-right/
— Conor Friedersdorf · Nov 24, 06:56 AM · #
It’s going to be pretty tough to convince you that the Democrats are failing to do something about the debt when you make us assume that the CBO scores of Democratic legislation are wrong. It’s going to be even harder to debate this if you don’t cop to the, or at least criticize, the Conservative movement’s 3-decade crusade to make any and all tax increases political suicide, or the Republican Party’s strategy of blocking every Democratic bill at all costs instead of trying to make deals that would make Democratic legislation more fiscally sound.
I mean, if you were to ask me what I would to about the long-term deficit, I’d say that we ought to cut some wasteful programs (farm subsidies, Medicare Advantage, parts of the Defense budget), raise some taxes (the estate tax, maybe a VAT, and a carbon tax/auctioned cap and trade), let inflation creep up a touch to deal with our current debt and reform health care with serious cost controls. The trouble is that most of these things are impossible in a 60-vote Senate. If you want to play partisan games with that list, here’s the breakdown: all of the tax increases are opposed fanatically by the Republican Party, and either supported tepidly, ignored or opposed by the Democrats. both parties are tepid/ignore/oppose on the farm bill, the Republicans are demagoging the bejeeses out of Medicare Advantage (ditto for any and all health care cost controls), and the Obama Administration/Gates pentagon is the only group that’s demonstrated any interest in cutting any defense spending.
As I read it, the blame here goes 1 part Democrats, 3 parts Republicans, and about 158 parts political institutions and interest group corruption. That doesn’t sound like a situation that will be fixed by somehow convincing the Democratic Party to “have a plan” for avoiding bankruptcy. Why does it seem that way to you?
— Zeke · Nov 24, 07:03 AM · #
Yes. We’re going to prevent the complete crash in tax revenue that would occur as a result of the destruction of the US economy. We’re going to bring the two needless wars that constitute such an enormous drain on our nation’s finances to whatever end seems least bad. And, yes, we’re going to probably raise taxes, on those who can most afford to pay them.
Let’s be realistic. As Yglesias noted we could entirely eliminate Medicare and Medicaid and still have more than an $800 billon shortfall. Of course, millions would find themselves without health care. I guess we could have not done the stimulus, as well, and let the economy suffer a 20-year depression.
Conservatives – including, yes, Ron Paul – have no plan to balance the Federal budget. They just have some empty nostrums. Is that somehow better? I guess, if you’re completely blind to the fact that you’re being used.
— Chet · Nov 24, 07:12 AM · #
this is nuts. even if you’re a real cynic on the cbo scoring, at worst healthcare reform will slightly nudge the medium term deficit(as for the long term, who knows, some republican idiot will probably jack on an unpaid for entitlement in order to win an election at some point in the future). as for the stimulus/bailout, reasonable people can disagree, and again the collective effect on the deficit is pretty small over any extended period of time.
also, all this deficit worry seems a little much. other than the fear of big numbers and the bluster of commentators, what actual evidence is there that the deficit has reched leveals that are “too large”?
finally, as bad as you may think congress is, it seems like a bad idea to replace some fraction with copies of a race-baiting (to use conor’s preferred terminology) economic lunatic just because he shares your odd discomfiture at numbers ending in “trillion”.
— drcripptic · Nov 24, 02:45 PM · #
“Trevor, yes, I think some taxes will have to rise — and that SS should be means tested, and the retirement age raised to 70, immediately.”
Well if I had a magic wand I’d say raised to 70 over 10 years, starting immediately, but I see what you mean. But why the deficit panic today? I once heard Megan McArdle argue pithily on BhTV that “things that can’t continue forever, won’t.” The American system with its forest of veto points makes it very hard to solve things before they become a real problem. But when the national debt actually starts to cause problems, political pressure will build to fix them. And unlike other problems that may get really truly bad before voters and congresspeople start to feel the immediate effects, the national debt is watched by the bond markets, whose whole job is to be forward facing.
The US Treasury isn’t broke – it can borrow money on extremely favorable terms right now. Our hometown California is really and truly broke, but that’s another story.
— Trevor Austin · Nov 24, 03:50 PM · #
Freddie wrote:
Sorry, Freddie, but you’re wrong: the biggest expenditure is care for seniors, which in 2007 was $952.3 billion, while defense was $552.6 billion—35% of the budget vs. 20% of the budget. Care to revise your blathering?
No matter, if Obama gets his way, all of these numbers will be chump change or meaningless. We are so screwed.
— jd · Nov 24, 04:02 PM · #
So, Trevor, does the term “broke” have any meaning at all for you?
— jd · Nov 24, 04:07 PM · #
“Sorry, Freddie, but you’re wrong: the biggest expenditure is care for seniors, which in 2007 was $952.3 billion, while defense was $552.6 billion—35% of the budget vs. 20% of the budget. Care to revise your blathering?”
Speding 35% of the federal budget actually taking care of old people is a bit different than spending 20% of your budget on a military that is not only more expensive than the military budgets of the next 5 biggest spending countries put together, but is a greater percentage of GDP than any other major industrialized nation. If the U.S. just spent the same GDP percentage on defense as France, we’d have at least 150 billion extra dollars to play around with and still have a military more powerful than any other 2 or 3 countries put together.
Mike
— MBunge · Nov 24, 04:36 PM · #
CBO scoring is a myth. First off, take a look at the actual numbers. The Senate bill runs a yearly deficit once the benefits are phased in (in 2014 or 2015) so it’s only in balance because of budget trickery and any reasonable analyst knows it.
Second, why not take the money used for HCR and make a dent in the deficit instead. Money is money. Saying this money goes for this thing is BS. Look as the SS trust fund. Hey we spent that money already on other stuff. If you think restraining medicare growth, taxing high cost health plans and a medicare surtax are good ideas, then do them and reduce the deficit. Don’t offer structural change.
For those who want to cut military spending, count me in. I’m not big fan of the wars we are fighting but to say you’re going to balance the budget by cutting military spending is a farce. $150 billion is nothing. Simply put, there are only two things that can make a material difference — a real increase in taxes that hits all Americans, not just the rich, and radical reform of entitlements. We must do both. Dickering about which one to do is silly because neither alone will work.
What I don’t understand is how anyone justifies adding structural costs of $150 to $250 billion per year via HCR in a world where we don’t have the money to pay for it.
— SteveinCH · Nov 24, 05:05 PM · #
For the outfit that prints the money, it’s especially meaningless.
— Chet · Nov 24, 05:33 PM · #
Idiotic as usual, JD. When you factor in additional defense spending beyond merely the DoD allocation, military expenditures total 1.14 trillion dollars in 2009.
— Chet · Nov 24, 05:38 PM · #
“So, Trevor, does the term “broke” have any meaning at all for you?”
Yes, it means something like “not having any money or credit.” Which is pretty much the standard definition. It also lines up pretty well with my personal experience – my net worth is negative (and my debts are a much larger in proportion to my income than the government’s are to its budget), but I still have money to spend if I need to, because not all my debts are due immediately and I still have access to credit. So I’m not broke.
— Trevor Austin · Nov 24, 06:11 PM · #
“why not take the money used for HCR and make a dent in the deficit instead”
Because heath care reform will give insurance to tens of millions of Americans who don’t have any. Right now.
— Trevor Austin · Nov 24, 06:17 PM · #
I think we have to continue working to shrink the republican party until it is small enough to drown in a bathtub.
— cw · Nov 24, 06:30 PM · #
Trevor,
So your rationale for spending money while in debt is that the money will buy things that you want to buy. Works for me. I’d like a new house please.
By the way, you are aware that we already have 2 rather large Federal programs that give health insurance to people. If you want to give it to more people, you could change the eligibility rules and problem solved. Bet you could do it in less than 2000 pages too.
And one more note, HCR won’t actually give anything to anyone until 2014, at least in the Senate version but that’s just to make the CBO score work. It could always be amended once the bill passes.
Lastly, on the issue of whether the government is broke, it isn’t. However, at some point the bills will come due. To take Trevor’s analogy, eventually someone is going to have to pay for your negative net worth Trevor, either you in the future or your estate upon your death. And so it is with the US government. Nobody knows when that will come but it will be ugly when it does.
— SteveinCH · Nov 24, 06:41 PM · #
Chet,
Followed your link to the ever so reliable Wikipedia. It’s an interesting analysis, but it fails pretty substantially when you include everything that is remotely related to defense, including past deficit interest. I mean seriously, we want to start ascribing interest to particular programs?
Even if your link were true, the aggregation of SS, Medicare and Medicaid (on budget) still exceeds your total for defense. By the way, the numbers you’re using are FY2008. In FY2009, the budget increased by more than a trillion and almost none of that (net) went to defense (even broadly defined)
— SteveinCH · Nov 24, 06:45 PM · #
Yes, Chet is correct— the DoD budget does not include the Department of Homeland Security, which is huge and a large part of our military infrastructure, or our nuclear weapons programs, which are insanely expensive and funded through the Department of Energy.
— Lifafa Das · Nov 24, 06:45 PM · #
No, SteveinCH, we want to accurately reflect that DHS, our nuclear programs, the CIA, and a whole host of other programs that are absolutely a part of our defense expenditure does not lie within the budget of the Department of Defense. Which refutes someone like jd and his oh-so-certain statements to the contrary.
— Freddie · Nov 24, 06:58 PM · #
Pretty much 100% of new houses are bought on debt, most of those certainly while the buyers had other debts. What’s your point, exactly?
Not likely. But, you know, keep sticking with this line of argument, please. I can’t imagine how Democratic interests aren’t served when the Republican party attempts to portray themselves as being unable to muster the attention to read anything longer than a magazine.
It doesn’t make any sense to aggregate SS, Medicare, and Medicaid as “for seniors” when those programs cover children, the disabled, veterans, and so forth.
No, the numbers I’m using are FY 2009:
“So it is with the US government”? The US government will die and its heirs will inherit the debt?
Seriously? Just a hint, Steve – the budgetary and finance matters relating to the largest government in the world probably can’t be reduced to balancing your checkbook at the kitchen table, writ large. For instance, one crucial difference is that the government prints it’s own money. This is not a solution to all problems, of course, but it’s a substantial source of difference between your personal financial reality and the government’s.
— Chet · Nov 24, 06:58 PM · #
SteveinCH: You want Dems to expand Medicare to cover everyone instead of the current bill? Done and done. I and basically every other Liberal would be ecstatic. Yet somehow I suspect that you wouldn’t support such a move, so can we go back to the part where you claim that the Senate health care bill isn’t really deficit neutral because the outlays will exceed revenues once the benefits kick in?
That’s true of the House bill, but not the Senate bill, where the funding mechanisms(primarily the “cadillac plan” surtax) are designed to bring in more money over time while slowing health care inflation. Yes, that’s what party’s with no plan to deal with the deficit do: they push legislation that funds itself in a way that is sustainable in the long term, ameliorates the country’s other long-term fiscal problems, and is unpalatable to the party’s major interest groups.
— Zeke · Nov 24, 07:13 PM · #
Actually Zeke, I’d like to focus our giving away of other people’s money on people who really need help. Want to expand Medicaid to 150% of the poverty level, I’m in. 200% I’m willing to discuss. Medicare is truly insane. It’s a giveaway of young people’s money to old people when old people on average have higher levels of wealth than you people.
No I don’t favor Medicare for all but Medicaid for those who need it, count me in
— SteveinCH · Nov 24, 07:29 PM · #
Seriously Chet, I know you think you’re smarter than I am and that’s cool by me. You explain to me (and use small words so I’ll understand) who is going to pay back the debt and when. Or is it your contention that the US government can run any level of debt forever? If so, I’d propose eliminating all taxes tomorrow and just borrow everything.
My contention is that the probability of a catastrophic failure (hyperinflation or default) increases as the ratio of debt to GDP rises. I have no idea what the curve looks like between the two and neither, as best I can tell, does anyone else.
If your argument is you’re willing to run the risk because you think the probability is small at both 40%, 80%, and 100% debt to GDP (all possible within the next decade), that’s a legit argument. I don’t think we should run the risk of catastrophic failure when we do not have to. But that’s just my pov.
So surprisingly, I don’t think it’s like balancing my checkbook but assuming the problem away seems relatively uninspiring as a strategy.
— SteveinCH · Nov 24, 07:34 PM · #
By the way, Medicare is all for seniors as in 90% or so of SS. Not sure of the percentages on Medicaid and you still haven’t answered the point why your link includes accrued interest on past deficits and that’s about 15% of your 1.14 trillion number.
If we want to have fun with numbers, I’ll use the unfunded liabilities deficit for Medicare and it will trump military spending for the next 2 decades but that’s just fun with numbers.
— SteveinCH · Nov 24, 07:36 PM · #
Headlines like “America is Broke” does not help the situation one bit.
Kind of disappointing that you would be yet another deficit scold. Here we are in the midst of the Great Recession, with two shooting wars going on (no end in sight) and you are advocating what exactly? And when?
Obama recently said he is concerned about the deficit. Many people think it is way too premature to be thinking about that with over 10% unemployment (17% if you count underemployed/discouraged workers). So I guess you and Obama have more in common than you think. So what, exactly, is your beef here? He’s not slashing spending fast enough? He could fire all federal employees tomorrow (ALL of them) and still not balance the budget this year.
I am a social liberal but consider myself a fiscal conservative. I don’t like paying off LA Senator Landrieu with $300,000,000 of our tax dollars either. But that’s not what this is about here. I expect to encounter lots of deficit scolds on right wing sites. I did not expect that here – and so pedestrian an argument to boot.
— luko · Nov 24, 07:50 PM · #
You explain it to me without reference to kitchen table finance. What is the maximum level of debt the US government can take on, and when it takes on that debt, what happens? Who, in your view, is loaning the money? The “Chinese”?
I’m not assuming it away. Let’s be clear on that. It’s clearly the case that a debt is something that should be paid back. But how important is that? Is it more important than millions dying from preventable/curable disease? Is it more important than preventing a greater economic crisis than the Great Depression? Is it more important than the nation’s crumbling infrastructure?
Is it more important than seniors dying of starvation? Is it more important than preventing climate change that makes human agriculture all but impossible?
Agreed. Which catastrophic failure seems more imminent? Some kind of unspecified government “default” resulting from… well, no one exactly knows but it has something to do with mounting deficits, or a 20-year depression resulting from the utter collapse of the American finance system, which every business relies upon to do business?
The best thing we can do for our government, its revenues, and its debt, is to prevent a cataclysmic financial collapse and back-breaking medical obligations to individuals and businesses. Predictably, Republicans have stood up to oppose both efforts. Remind me again which party is serious about deficits?
Why wouldn’t interest accrued in past wars and other defense spending constitute a portion of defense expenditures? I don’t understand your criticism, I guess. That doesn’t seem like an overly broad inclusion. The numbers for Medicare, SS, and the like certainly include the accrued interest on deficits in those related expenditures, don’t they? Apples to apples.
— Chet · Nov 24, 07:52 PM · #
Interest wouldn’t be included because every element of spending equally caused a deficit. Government can’t ascribe a deficit to one particular element of spending. That’s why it should not be included. Pretty simple.
No, the numbers on SS, etc, don’t include accrued interest. They are current year spending numbers pure and simple. The actuarial deficit for Medicare is in the tens of trillions of dollars so apples to apples would exclude that unless your point was to make the number seem as big as possible.
If your concern is the financial system, kindly explain the link between that and Bush’s and Obama’s multi-hundred billion dollar increase in entitlement spending.
— SteveinCH · Nov 24, 08:00 PM · #
SteveinCH:
“Medicare is truly insane. It’s a giveaway of young people’s money to old people when old people on average have higher levels of wealth than you people.”
Really, Steve? You do realize that old people are the sickest group in the country, and as a result, are basically uninsurable on the private market. They are also often retired, meaning that they won’t get insurance from their employers. No Medicare means either no health care, complete destitution, or both for huge numbers of seniors. just because they’ve accrued wealth over their lives doesn’t mean that it won’t evaporate almost immediately upon contact with the Health Care system. You might be ok with thousands or millions of Seniors dying because they can’t afford medical care, but I’m not.
— Zeke · Nov 24, 09:12 PM · #
Zeke,
They aren’t uninsurable. It’s simply costly to insure them. And the reason it’s costly is because they are likely to be sick. Let’s imagine that if we eliminated Medicare tomorrow, they would be insurable at a price which they certainly would be, just as people can get life insurance at any age, at a price. Being sick doesn’t make you uninsurable, it makes insurance cost more, both with health insurance and with life insurance.
My question to you is, why should workers pay that price until such time as a senior has a financial need for it? If there is no need, all we are doing as a society is subsidizing intergenerational wealth transfer. I give my father Medicare so he doesn’t spend his own money and, as a consequence, he leaves more for me. How does that make any sense at all?
If I had my druthers, I would eliminate Medicare and put the people who had financial need on Medicaid, a program designed for people with financial need. Simple enough. The people who don’t have need can pay for their own health care until they do. It doesn’t seem unreasonable to me. Just being a certain age should not qualify you for a transfer of wealth from your fellow citizens regardless of need.
— SteveinCH · Nov 24, 09:19 PM · #
Does anyone who argues it’ll all be deficit neutral in the end, or that costs will go down, want to wager on that proposition?
Sure, I’d take that bet. I do think Congress will keep ducking the previously established automatic reductions in Medicare payouts, but that’s not an impact of this bill. The tricky thing though will be adjudicating the bet. This is the first round of healthcare reform and subsequent rounds will make it harder to discern the specific impact of this bill. I’m open to suggestions on that regard.
I did a post in response to Tyler Cowen on the reasons I think that the various revenue mechanism are more credible than those automatic Medicare cuts. I think the biggest new idea is the excise tax on health plans that is indexed to inflation and not health care spending rates.
Anyhow, re: debate above, what’s key here isn’t that the government can print money. It’s that U.S. debt is predominantly owed in dollars and the bonds are not inflation adjusted. Default is most likely when the debt is in someone else currency. The risk, of course, is that people will stop loaning us money, but that’s a deficit problem more than a debt problem, so the hole isn’t as deep.
Also, side point, I’ve seen the trillion dollar figure before. It includes the entire foreign policy budget as national security spending. You want to include military financing through State? Fine. But including all of the DoS budget makes the total number a joke. To be fair, it’s not even that much money, DoD massively outspends DoS, but you aren’t going to get to a less militarized foreign policy by calling all international affairs spending national security spending.
— GregSanders · Nov 24, 09:23 PM · #
But that’s not the case. Each element of spending caused a portion of the deficit proportional to the fraction of total spending it represented. Therefore, each category of spending includes the interest accrued as a result of it. I mean, Steve, it seems like you don’t even understand kitchen table levels of finance. If you and your wife run up a huge credit card bill, and it turns out that you ran up exactly half of the bill and she ran up exactly the other half, aren’t you both responsible for half of the finance charges that are going to result from that bill? Seems perfectly obvious to me.
What you’re saying is that you and your wife can run up equal halves of a huge credit card bill, but because your combined income equals your half, she’s responsible for the finance charges all on her own. That makes no sense.
What they include is Federal and state funding, which is, again, an apples to orange comparison against federal defense spending. JD obviously didn’t read his own citation. I wonder if you have.
— Chet · Nov 24, 09:24 PM · #
“They aren’t uninsurable. It’s simply costly to insure them. And the reason it’s costly is because they are likely to be sick. Let’s imagine that if we eliminated Medicare tomorrow, they would be insurable at a price which they certainly would be, just as people can get life insurance at any age, at a price. Being sick doesn’t make you uninsurable, it makes insurance cost more, both with health insurance and with life insurance.”
This isn’t true. Insurance companies routinely deny coverage, at any price, to people under 65 with chronic or serious illnesses. And even if this is true, the price would be high enough that large numbers of old people wouldn’t be able to buy insurance, so you get to the same place: lots of people dying or living with disability, pain, or other impairments because they can’t afford health care.
— Zeke · Nov 24, 09:40 PM · #
Chet,
I must disagree. The original Wikipedia link is to the Federal budget not Federal and state. While it is true that some Medicaid spending is given to the states, this is still Federal spending. SS and Medicare are all Federal and no state spending. State Medicare is not included in the figure on the linked page. As a consequence, the Federal spending on SS, Medicare and Medicaid is $612+$682=$1300 billion for FY 2008.
As to your point on interest, I’ll concede that it’s a fair approach but the author of the link provides no math to support his contention, which fails any reasonable test of logic when he argues it’s 91 percent of public debt. Think about it this way. Most public debt was accrued between 1990 and today. During that time, the defense budget (narrowly defined as per the authors description) never exceeded more than 40 percent of the total Federal budget (in general it was far lower). With that being the case, I don’t see the 91 percent number as credible. Even if it were, it’s still a smaller number than the entitlement number.
But even that is beside the point. I’ve conceded that I’m willing to cut military spending but I do not believe that this alone will address the issues we have. If we do not address entitlements, we will not solve the problem in the long run. Adding new entitlements as Bush did and Obama wants to makes the problem harder to solve.
— SteveinCH · Nov 24, 09:49 PM · #
Chet,
I’m as prone to hyperbole in a good discussion as the next person, but
“It’s clearly the case that a debt is something that should be paid back. But how important is that? Is it more important than millions dying from preventable/curable disease? Is it more important than preventing a greater economic crisis than the Great Depression? Is it more important than the nation’s crumbling infrastructure?”
Millions dying from preventable/curable disease? Where exactly are those millions dying and why? If you can explain the linkage between greater spending avoiding the Great Depression, I’m willing to listen. I’d like something more than a probabilistic argument of course since you didn’t like when I made one on the debt. By the way, I can’t find a forecast from a reputable economist that says but for the stimulus, we would have had a great depression. In general, they range from 1 to 2 percent of GDP. Not nothing mind you but not the difference between what we have an the great depression. As to the “nation’s crumbling infrastructure”, I hear that a lot and there are certainly a lot of potholes where I live but I rather doubt that you’re arguing that supporting the nation’s infrastructure requires a deficit of greater than $1 trillion.
Regarding your point on how much debt the US can have, please refer to my post above. I clearly said I don’t know (and I don’t think anyone else does either). What I do know is more debt equals a greater chance than less and therefore I’d like to avoid more debt as much as possible.
My proposal is simple. Mostly I work with companies. When they have a deficit problem, they send various departments out to look for ways to save a lot of money. They choose a crazy target like 30 to 40 percent reduction and see what they get back. How about, before we spend anymore, we ask the government to do something like this? There’s no harm in it and it might save some unnecessary spending before we debate the “necessary investments.”
— SteveinCH · Nov 24, 09:57 PM · #
No Zeke, that’s exactly my point.
Would it cost seniors more to buy insurance that 25 year-olds? Sure would and it should because it’s going to cost more to pay the bills. Pre-existing conditions is an entirely separate debate but one I’m happy to get into if you want to.
If you read my post, I’m not opposed to paying for people who need it but I don’t want to give money to people who have no need. Even if that’s 10 people in the entire country, I still don’t want to give them the money. By the way, it’s a lot more than 10. Take a gander at the distribution of net worth by demographic group sometime and you will see what I mean.
— SteveinCH · Nov 24, 10:03 PM · #
Steve, I’m not disputing that Seniors have more wealth than the rest of the country, on average. I’m pointing out that their health care costs would be vastly higher than the rest of the country’s on the individual insurance market, and that they would be largely unable to get insurance through an employer, so that wealth wouldn’t make a difference in the face of the huge medical expenses an uninsured 70-year old would face. We still wind up with all but the very healthiest and very wealthiest denied coverage outright or priced out of the market. I suppose if you think we should have Medicaid, then we’ll be left with a slightly less bad situation. Seniors won’t be denied care outright, they’ll just have to drain their finances paying medical bills until they are destitute, at which point they’ll qualify for Medicaid and get insurance from the government.
Unfortunately, I’m not enough of an expert to come up with some numbers on this nightmare scenario, but I don’t see any grounds to disagree. As it stands now, the most problematic uninsured population is people just shy of 65, because they are old enough to be too sick for the private market, but too young to have the government alternative. given that it is obvious to any insurer that a 65, 70, or 75 year old will have serious health problems in the near future, why do you think that health care will be affordable for more than a tiny fraction of the elderly in a world without medicare?
— Zeke · Nov 24, 10:22 PM · #
To put it another way, being over 65 is about equivalent, in actuarial terms, to a serious pre-existing condition in a younger person. Both mean large, predictable medical bills that almost nobody can afford to pay without insurance. Just as the private market screws people with pre-existing conditions (a very large group, according to insurance companies), it’ll screw over virtually all senior citizens if they aren’t protected from it be Medicare.
— Zeke · Nov 24, 10:38 PM · #
Zeke,
I doubt we’ll agree on this but since you want to talk about preexisting conditions, here goes. Part of the reason they are such a problem is because insurance companies have restrictions on what they can do. For example, let’s say I have a chronic but non life threatening preexisting condition (which I actually do). An insurance company might like to offer me a product that will pay for my bills assuming I have no substantial complications within the first 3 to 5 years of coverage; however, in most states, they are not allowed to do so. Thus, coverage that they would like to offer, they are not allowed to offer.
Any insurance company with half a brain will cover anyone at the right price and terms because they have an economic interest to do so…it’s what actuaries do for a living.
The issue is, given the mandates on coverage, coverage is often expensive to your point. However, I think you are dramatically overstating the issue. Let’s assume you are 65 and have a net worth of $300,000. A medical plan might cost you $20,000 per year but pick some other number if you like the point will be the same. The simple question is when should your fellow citizens start paying for your medical coverage — year 1, year 5, year 10? We know that they will have to come year 15 (assuming you do not add or subtract to your net worth by that point).
All I’m saying is under the current system, we’ve rendered this entire conversation irrelevant and someone with a net worth of $1 million gets coverage paid for by someone with an income of $20,000 and a net worth of less than zero. In my book, that’s no kind of fair system.
— SteveinCH · Nov 24, 10:51 PM · #
One more thing Zeke. I think you correlate high prices with screwing people over. I honestly don’t see it that way. Let’s you and I make a deal for you to pay for my groceries for the next 10 years. You know how many kids I have and what their ages are, my weight and my wife’s and what kind of food we like.
With that information, you could develop food insurance and sell it to me and a bunch of people like me where, on average, you could make a little bit of money (to cover your costs of providing the product).
If I had 10 people in my family rather than 5, you might charge a higher price. If I had 8 teenaged boys, you might charge me more than if they were younger. None of this is screwing me, it’s simply pricing for your expected payout.
While there are undoubtedly many cases of people being taken advantage of in the insurance industry the bulk of price discrimination is simply people charging more for predictably higher payouts in the future.
Community rating (everyone pays the same) is simply a transfer of wealth from the younger and healthier to the older and less healthy. The insurance company has the same total payout and needs the same total payin either way.
— SteveinCH · Nov 24, 11:00 PM · #
I agree with the basic point that entitlement spending, as we do it now, will create massive systemic budgetary issues in the long run. But solutions to entitlement issues must also be in the long run. In the short term, there are far more pressing problems with far longer consequences. In the short term, the structure and the procedure of Congress precludes all but the weakest possible solutions to any problem.
Obviously we can’t spend infinite money in the long term. But a recession is the worst possible time to roll back government expenditures – it’s the demand of the government, with unparalleled buying power in the private sector, that is keeping us afloat. Now, in the short term, better we spend that money on infrastructure development and health care than shipping it in pallet-loads to Iraq never to be seen again.
All over the place, in twos and threes, which is why you don’t notice. 45,000 of them in the last year alone, from nothing more than a lack of affordable coverage for their illnesses. Look, if you had no idea how desperate the need was for reform, you really don’t have any credibility to discuss this issue.
No problem, I saw three today.
I guess I was talking about crumbling bridges in my home state. If you’re determined to pretend like the problems aren’t real, you’re going to have to ignore more and more sources of news.
Now I know you’re not serious, or you’re impossibly naive.
But that’s the point of insurance! To pool risk, to pool resources. Neighbors enter into a house insurance pool because they know some number of them will suffer the catastrophic loss of their house. Rather than one or two of them suffer a greater loss than they can bear, they band together to share the risk. And, yes, if your McMansion burns down, its replacement is going to be borne, in part, by your poorer neighbors. That’s the whole point of insurance! Of course it’s a wealth transfer. The wealth transfer is the means by which the risk is transfered.
— Chet · Nov 25, 12:03 AM · #
Chet,
So millions dying is now tens of thousands. By the way, that oft quoted study is an extrapolation of a relatively small study well beyond the point it was intended. It’s also fewer people than die in highway fatalities. It actually isn’t the role of government to prevent all preventable death regardless of what you may think.
I read the same forecasters you did all of whom projected 1 to 2 percent lower GDP than we saw in the absence of the stimulus. Not a one of them argued that we would have seen something “worse than the Great Depression” without the stimulus which is the argument you made.
I agreed with your point on infrastructure but argued it wasn’t sufficient to justify trillion dollar deficits as long as the eye can see and you responded that infrastructure is an issue. That’s not terribly responsive.
Lastly, you completely misunderstood my point in the last quoted paragraph. That is a description of the current Medicare system. It’s not risk sharing, it’s cost sharing with the cost of the insurance of the person who has a million dollar net worth being borne by the person who has a negative net worth. It has nothing to do with the cost of care per se and is not a risk sharing issue. I have no issue with pooling risk as it is the only way to make the math work. I’m simply arguing with those with the means to pay should pay for their share of the risk instead of asking their fellow citizens to pay their premiums for them.
— SteveinCH · Nov 25, 02:34 AM · #
Chet,
Let me correct before you respond my first point. I didn’t see the recent Harvard study that you linked. I’ll happily accept the number but I still believe one cannot argue that we should consider only benefits and not costs.
Remember that many of the people who lack insurance don’t want it and many who do want it are near the poverty line or qualify for Medicaid but don’t register. As I’ve said above, I’m strongly in favor of making Medicaid available to more people but I don’t believe that requires the other steps that are being considered. I further believe that our fiscal problems argue strongly for means testing entitlements now in part as a way to provide to those who truly have need.
If you are unwilling to consider common sense reforms to entitlements now then you have no place in a discussion on budgetary policy…sorry for that but just giving you back in kind.
— SteveinCH · Nov 25, 02:38 AM · #
“You write almost as if I’ve never blogged about cutting the defense budget”
I stand corrected. You have cred ;-)
— Steve C · Nov 25, 05:50 AM · #
Well, sure. One of the costs of the current system is 45,000 preventable deaths. What, in your view, do we get in return? (It’s well-known that our health care system is an international joke, or a travesty, depending on whom you ask. It’s well-known that we pay half again as much for middle-at-best levels of health care.)
Let me be direct – I’m asking you what we get that is worth the lives of 45,000 of your fellow citizens every year.
I don’t know what to tell you, I guess. If the words of Nobel-prize winning economists aren’t sufficient to convince you, I guess you’re simply not aware of how slight a decline in demand, employment, and productivity it took to create the runaway conditions that led, ultimately, to the Great Depression. If you don’t think the literal destruction of the entire American finance system, which was what was going to happen absent TARP and the ARRA, would have significant repercussions on the national economy – and therefore our ability to raise tax revenue – then you’ve simply identified one more field upon which you have no credibility to discuss, yet.
Why on Earth would “trillion dollar deficits as far as the eye can see” be a requirement for infrastructure investment? Ultimately, the Republicans opposed to the stimulus were against only $400 billion dollars in extra spending. Hardly any of that was for infrastructure. Economists widely agree that we need more stimulus; I’m hoping we can do a little better and a little bigger, next time.
Um, yes, exactly. The risk is shared between them. Look, any time you have a system of insurance, that’s going to transfer wealth between those who paid premiums and those who made claims. That’s the entire point of an insurance system.
But I’m not at all unwilling to consider common sense reforms to entitlements. It’s just that during two shooting wars, a financial crisis to rival the Great Depression, and an emerging crisis in health care isn’t the time for that dramatic overhaul, especially if such an overhaul is untenable in the first place due to structural impediments in the House and Senate to real change. When a 40-member rump can obstruct every portion of the majority party’s elected agenda, there’s simply not going to be any opportunity for reforms of entitlement – which I agree will have to occur at some point – of any kind, common sense or not.
Of course, I have a sense that we disagree on what constitutes “common-sense reform.” The most common-sense reform to my mind is the complete destruction of the health insurance/HMO industry and a move to single-payer government insurance of everyone, paid out at Medicare rates to private doctors.
— Chet · Nov 25, 07:23 AM · #
Addendum to my statement above. After reading the NY Times article more closely and some of the debate relating to this post, I realized that I was overestimating the extent to which the U.S. held long-term debt versus short term bonds. With the debt needing to be resold regularly, inflation to ease debt burdens is a trickier strategy. However, the Treasury is acting on this and converting over to higher-interest longer term fixed rate bonds. All that said, in the short term I don’t think there’s much inflation risk and I think the bond rates show that.
— GregSanders · Nov 25, 05:31 PM · #
Conor: I believe the $200 billion figure paid in interest on the debt is artificially low this year because interest rates are so low. I believe that’s acknowledged in the NYT article you link to (albeit with a lack of clarity I found annoying). Also, you have to note that the US economy ought to be something like 30% larger in 2019, which would account for $120 billion of that increase.
Factor those in, and you’ll get a smaller increase the interest paid on federal debt in proportion to the economy than you’d otherwise think. I’m not enough of a wonk to actually run numbers on this, but I think the effects I mentioned are real. Anyway, the increase in our debt burden will still be substantial, and it will still make it harder to have a balanced budget (or something close to one) than it would’ve otherwise been, but you should get shell-shocked at the $500 billion gap because it’s misleading.
Damn this is a long thread, so I hope I’m not duplicating someone else’s comment.
— Justin · Nov 26, 06:43 AM · #
As Freddie said,“Prioritizing” a problem will not “solve” the problem.The best and the most obvious way to reduce the deficit is to reduce the defense
budget and pull out from Iraq and Afghanistan. It will be so much better …For America and rest of the world if America can stop this unnecessary blood bath!
— Monica · Dec 4, 08:43 PM · #