I.O.U.S.A.

Just saw the documentary IOUSA on Netflix today. Nothing new to me, but the film definitely does a great job of explaining in relatively short, simple pieces the enormous economic hole our nation has dug for itself and what it may mean if we don't address the problem soon.

It's hard to be optimistic after viewing a film like that because when you analyze where the money's going, it becomes obvious that America almost certainly doesn't have the political will to address it. Just google "federal budget" and look at any of the graphs of where the money is going and you'll see why.

The problem is there are only four areas that matter: defense spending, social security, medicare/medicaid, and debt interest. Add everything else and you get less than what is spent on any one of these areas. Put homeland security and veterans affairs under defense spending where they belong and "everything else" becomes even less relevant. So to balance the budget involves:

a) cutting defense spending. Will probably never happen because we are simply too cowardly as a nation. We spend more than every other nation combined and any mention of reducing defense spending is met with outcries about how unsafe we'll become. Unsafe? The US has never, in its entire history, suffered an attack from foreign powers that killed more people than are killed in a typical month in car accidents. 9/11 was terrible, but put in perspective it was no worse than a bad disease outbreak. Nobody in their right mind would suggest spending $750 billion annually on the CDC. Yet we spend it on the military because we're a bunch of cowards afraid to fall asleep without a night-light because the boogeyman might get us.

b) cutting Social Security. Not going to happen. Seniors are the most reliable voting bloc. Besides, the system collects pretty much what it spends. This will change as the Boomers retire, but increasing retirement age by a few years could easily fix it. Regardless, ending SS will do nothing to balance the budget because the reductions in spending would be directly offset by reductions in collections.

c) cutting Medicare/Medicaid. Again, seniors are the most reliable voting bloc. Seniors will march in the streets against taxes and even, amazingly, against universal health care, but they sure as hell aren't going to give up their own access to universal health care. What politician is going to stand up to grandma and tell her she needs to drop dead because we can't afford to keep her living? Never gonna happen. Besides, as with SS, if we end the program we also end collections. In this case, the spending exceeds collections, but still if we end the program the deficit doesn't go down by the amount we've cut, only by the much smaller gap by which spending exceeds collections.

OR

d) cutting interest on the national debt. If we can't cut the major sources of spending, the only way to reduce interest is by raising taxes.

Democracy was long opposed because if people had a voice they would simply vote themselves money out of the treasury until the nation was insolvent. Turns out, the gentry may have been right and we the people don't deserve the power we fought for. Let's hope I'm wrong about that.

...OK...I was going to end the post right there, but I've decided to think positively and consider why these things could possibly have a tiny chance of happening, and the rational defenses that may win over enough reasonable people to make them reality. So here's how an heroically brave politician might try to sell these necessary actions to the American public.

a) We could cut defense spending in half, which would put us right in-line with other developed nations as a percent of GDP, and we would still be spending far more than any other nation by a huge margin. And our NATO allies (bound by treaty to defend us) comprise 2 of the next 3 top spots on the list. Further, any non-Allies with significant spending (i.e. China & Russia, really the only two nations that can reasonably be described in those terms) are generally speaking hugely economically dependent on us (they hold vast amounts of our currency, rely heavily on exports to us, etc.). For these nations to attack us would mean tanking their own economy to attack a far more powerful nation with far more powerful friends. Hard to imagine anybody being crazy enough to try that...and if somebody is crazy enough to try that, then spending an extra few hundred billion dollars on defense isn't going to stop them anyway.

b) SS, as I already discussed, really won't matter since at this point receipts are roughly equivalent to outlays. Of course, it's a demographic necessity that we must gradually increase the retirement age to make up for a pending gap, but I've previously addressed that in other posts.

c) Our country does seem to be finally having a serious discussion about health care reform. I'm disappointed that President Obama is still not being completely straight about the sacrifices that may be involved. Yes, a lot of money can be saved by simply replacing ineffective treatments with more cost-effective options. But the reality is we can not contain costs until we actually have a plan for containing costs. Seems obvious, but unfortunately that idea can also be referred to as "rationing" and that's pretty much an untouchable idea in American politics. At some point Americans have to wake up to the reality that we can not spend an unlimited amount of money for every possible improvement to health no matter how minor. We have to make a policy that says we will not spend half a million dollars on procedures that only extend life by a few weeks. That means at some point the Medicare/Medicaid system and all other public systems will have to implement something along the lines of Britain's unpopular NHS that catalogs the likely effectiveness of all treatments and sets a maximum amount the state will pay for these treatments. It sounds harsh, but that's reality. When I had a tooth-ache awhile back, I could have gone to a dentist for total relief, but I popped Ibuprofen and dealt with it for a week and it went away (of course, if it had persisted longer or gotten worse, I would have eventually paid up to see a dentist). I can't afford to see a doctor and have a procedure over every little ache or pain. The government can't afford to pay for that either. I would hope my parents wouldn't want to see their life extended by a week if it meant there kids would be paying it off the rest of our lives and their grandkids wouldn't be able to go to college. The reality is if we don't implement cost containment, then that's ultimately the burden being passed to future generations.

AND

d) Ignoring the temporary effects of the stimulus package, it's possible that cutting defense spending and reigning in health care costs could balance the federal budget and possibly create a surplus. But if we really want to restore the fiscal health of our country, we have to raise taxes to start paying down the national debt. The only other time since the creation of the income tax system that we've had taxes as low as they are now was in the years preceding the Great Depression. That alone should demonstrate the fallacy of the lower-taxes-alway-lead-to-economic-growth argument. The period of highest taxes in our nation was during the 1940's, when we were simultaneously combating the Great Depression and the Nazi threat of world domination. Hmmm...terrible economic conditions and a global military threat from proponents of a horrifying ideology. Sound familiar? We've been waging war for almost eight years now (arguably against a threat to our very way of life, but that's another discussion), and we're mired in an economic slump unparalleled since the Great Depression. The American public needs to be made aware that wars aren't free, and we now have to start paying for the wars we fought in recent years. Tax hikes are never popular, and they're not always effective, but the only tax increase in a generation (Clinton's tax hike in 1993) was followed by the most prosperous period in a generation and the only balanced budget in a generation. In our nation's history, the largest tax increase ever allowed us to emerge from the Great Depression while fighting a World War.

I'm still reserving judgment on Obama's performance as president until the next election nears, but I'm beginning to think that in my future voting I'll be looking for three promises from every politician I vote for: reduced defense spending, health care rationing, and higher taxes. Yeah, I probably won't be voting for many winners (in fact I'll probably be doing a lot of write-ins), but it seems like it's the only responsible thing to do at this point.

Health care again

So this article in The Economist got me thinking about health care once again. According to the first chart in the article (and there's a better one in the print version that puts government health care spending as a percentage of GDP), the US and Canadian governments spend a roughly equal amount per person on health care. But in the US, that coverage only covers those over 65, very poor, or disabled. In Canada, it covers EVERYBODY.

So here's the plan: copy the Canadian system--with one exception. Let the private health care market continue to function. For the same amount of tax dollars, we can cover everybody. So let's start by doing that, since it won't cost anybody any more, and will allow millions of uninsured people to get coverage. For people who don't like the Canadian system, fine. They won't be paying any more than they are now, and they'll be free to continue receiving their coverage through the private market.

I don't like this solution. Nonetheless, it's incredibly simple to implement as it requires zero original thinking or innovation. (Here I naively thought America was a place that encouraged innovation but it's clear in the current health care debate that is not the case.) It costs no more than what we're already spending and requires no additional contributions from anybody. Everybody is free to remain with their private market solution if they choose. And people who are unable to get coverage under the current US system now have coverage. Voila, we've just improved the US health care system. Now was that really so hard?