Steering into an iceberg

[Azazello1313]

President Barack Obama took office promising to lead from the center and solve big problems. He has exerted enormous political energy attempting to reform the nation's health-care system. But the biggest economic problem facing the nation is not health care. It's the deficit. Recently, the White House signaled that it will get serious about reducing the deficit next year—after it locks into place massive new health-care entitlements. This is a recipe for disaster, as it will create a new appetite for increased spending and yet another powerful interest group to oppose deficit-reduction measures.

 

Our fiscal situation has deteriorated rapidly in just the past few years. The federal government ran a 2009 deficit of $1.4 trillion—the highest since World War II—as spending reached nearly 25% of GDP and total revenues fell below 15% of GDP. Shortfalls like these have not been seen in more than 50 years.

 

Going forward, there is no relief in sight, as spending far outpaces revenues and the federal budget is projected to be in enormous deficit every year. Our national debt is projected to stand at $17.1 trillion 10 years from now, or over $50,000 per American. By 2019, according to the Congressional Budget Office's (CBO) analysis of the president's budget, the budget deficit will still be roughly $1 trillion, even though the economic situation will have improved and revenues will be above historical norms.

 

The planned deficits will have destructive consequences for both fairness and economic growth. They will force upon our children and grandchildren the bill for our overconsumption. Federal deficits will crowd out domestic investment in physical capital, human capital, and technologies that increase potential GDP and the standard of living. Financing deficits could crowd out exports and harm our international competitiveness, as we can already see happening with the large borrowing we are doing from competitors like China.

 

At what point, some financial analysts ask, do rating agencies downgrade the United States? When do lenders price additional risk to federal borrowing, leading to a damaging spike in interest rates? How quickly will international investors flee the dollar for a new reserve currency? And how will the resulting higher interest rates, diminished dollar, higher inflation, and economic distress manifest itself? Given the president's recent reception in China—friendly but fruitless—these answers may come sooner than any of us would like.

 

Mr. Obama and his advisers say they understand these concerns, but the administration's policy choices are the equivalent of steering the economy toward an iceberg. Perhaps the most vivid example of sending the wrong message to international capital markets are the health-care reform bills—one that passed the House earlier this month and another under consideration in the Senate. Whatever their good intentions, they have too many flaws to be defensible.

 

First and foremost, neither bends the health-cost curve downward. The CBO found that the House bill fails to reduce the pace of health-care spending growth. An audit of the bill by Richard Foster, chief actuary for the Centers for Medicare and Medicaid Services, found that the pace of national health-care spending will increase by 2.1% over 10 years, or by about $750 billion. Senate Majority Leader Harry Reid's bill grows just as fast as the House version. In this way, the bills betray the basic promise of health-care reform: providing quality care at lower cost.

 

Second, each bill sets up a new entitlement program that grows at 8% annually as far as the eye can see—faster than the economy will grow, faster than tax revenues will grow, and just as fast as the already-broken Medicare and Medicaid programs. They also create a second new entitlement program, a federally run, long-term-care insurance plan.

 

Finally, the bills are fiscally dishonest, using every budget gimmick and trick in the book: Leave out inconvenient spending, back-load spending to disguise the true scale, front-load tax revenues, let inflation push up tax revenues, promise spending cuts to doctors and hospitals that have no record of materializing, and so on.

 

If there really are savings to be found in Medicare, those savings should be directed toward deficit reduction and preserving Medicare, not to financing huge new entitlement programs. Getting long-term budgets under control is hard enough today. The job will be nearly impossible with a slew of new entitlements in place.

 

In short, any combination of what is moving through Congress is economically dangerous and invites the rapid acceleration of a debt crisis. It is a dramatic statement to financial markets that the federal government does not understand that it must get its fiscal house in order.

 

What to do? The best option would be for the president to halt Congress's rush to fiscal suicide, and refocus on slowing the dangerous growth in Social Security, Medicare and Medicaid. He should call on Congress to pass a comprehensive reform of our income and payroll tax systems that would generate revenue sufficient to fund its spending desires in a pro-growth and fair fashion.

 

Reducing entitlement spending and closing tax loopholes to create a fairer tax system with more balanced revenues is politically difficult and requires sacrifice. But we will avert a potentially devastating credit crisis, increase national savings, drive productivity and wage growth, and enhance our international competitiveness.

 

The time to worry about the deficit is not next year, but now. There is no time to waste.

 

Mr. Holtz-Eakin is former director of the Congressional Budget Office and a fellow at the Manhattan Institute. This is adapted from testimony he gave before the Senate Committee on the Budget on Nov. 10.

[Ursa Majoris]

Amazing that all this stuff didn't appear until a Democrat was in the White House, then all the Cassandras come wailing out of the woodwork.

 

That said, there clearly is a monumental issue to resolve. If not, we're done and it really is as simple as that. The question is how to eliminate the deficit.

 

The article gives a possible start:

 

What to do? The best option would be for the president to halt Congress's rush to fiscal suicide, and refocus on slowing the dangerous growth in Social Security, Medicare and Medicaid. He should call on Congress to pass a comprehensive reform of our income and payroll tax systems that would generate revenue sufficient to fund its spending desires in a pro-growth and fair fashion.

 

Reducing entitlement spending and closing tax loopholes to create a fairer tax system with more balanced revenues is politically difficult and requires sacrifice. But we will avert a potentially devastating credit crisis, increase national savings, drive productivity and wage growth, and enhance our international competitiveness.

 

How is any of this going to get past the lobbies in Washington? Both Republicans and Democrats are in thrall to their own entitlement lobbies.

[SEC=UGA]

Interesting segment on 60 minutes last night that somewhat paralells this. They were talking about MEdicare and how much money is soent during the last two months of a persons life. Because Drs and hospitals can justify it and medicare pays it all sorts of "unnnecessary" measures and tests are taken that are spiraling costs to the govt out of control.

 

The thing about healthcare now is, yes, it is expensive and in many cases people ration healthcare to themselves because they can't afford it. When healthcare becomes essentially free, people are going to consume more of it, one would think, and the cost estimates currrently being talked about for nationalized healthcare will compound exponentially.

 

This is essentially what we are seeing in medicare, people are choosing to have these tests run, they are choosing not to sign DNR orders and an abundance of money is being spent prolonging a life that essentially should not be prolonged. (And no, I don't have a problem w. the implementation of "death panels" should the legislation get passed, in fact I think they should be mandatory).

[dmarc117]

Amazing that all this stuff didn't appear until a Democrat was in the White House, then all the Cassandras come wailing out of the woodwork.

 

That said, there clearly is a monumental issue to resolve. If not, we're done and it really is as simple as that. The question is how to eliminate the deficit.

 

The article gives a possible start:

 

 

 

How is any of this going to get past the lobbies in Washington? Both Republicans and Democrats are in thrall to their own entitlement lobbies.

 

 

no chance. we are skrewed and it really sucks.

[dmarc117]

Interesting segment on 60 minutes last night that somewhat paralells this. They were talking about MEdicare and how much money is soent during the last two months of a persons life. Because Drs and hospitals can justify it and medicare pays it all sorts of "unnnecessary" measures and tests are taken that are spiraling costs to the govt out of control.

 

The thing about healthcare now is, yes, it is expensive and in many cases people ration healthcare to themselves because they can't afford it. When healthcare becomes essentially free, people are going to consume more of it, one would think, and the cost estimates currrently being talked about for nationalized healthcare will compound exponentially.

 

This is essentially what we are seeing in medicare, people are choosing to have these tests run, they are choosing not to sign DNR orders and an abundance of money is being spent prolonging a life that essentially should not be prolonged. (And no, I don't have a problem w. the implementation of "death panels" should the legislation get passed, in fact I think they should be mandatory).

 

 

for my family's sake, i hope i go quickly. heart attack in my sleep. dont want my son's inheritance going to the nursing home wolves.

[Azazello1313]

Amazing that all this stuff didn't appear until a Democrat was in the White House, then all the Cassandras come wailing out of the woodwork.

 

well the deficit was around 200 billion in 2007, 400 billion in 2008. Then of course it explodes to 1.4 trillion this year, and now comes in over a trillion per year as far as the eye can see. So, without even trying to affix blame here, the situation has recently changed dramatically for the worse. Affixing blame one way or the other doesn't change the severity of the crisis, but which direction we go from here is crucial, and I think the piece above makes a pretty convincing case that we are steering straight into an iceberg.

[wiegie]

The time to worry about the deficit is not next year, but now. There is no time to waste.

I will note though that although water damage can ruin a home, the time to worry about such damage is not when your home is on fire.

 

They do need to get a grip on the budget deficit in the next few years though. And it will have to be done via both decreasing spending and increasing taxes.

[dmarc117]

I will note though that although water damage can ruin a home, the time to worry about such damage is not when your home is on fire.

 

They do need to get a grip on the budget deficit in the next few years though. And it will have to be done via both decreasing spending and increasing taxes

 

 

i see one of those happening and one of those not happening.

[Azazello1313]

I will note though that although water damage can ruin a home, the time to worry about such damage is not when your home is on fire.

 

They do need to get a grip on the budget deficit in the next few years though. And it will have to be done via both decreasing spending and increasing taxes.

 

that analogy maybe works a little bit if the topic is TARP or stimulus spending, but it fails completely on the subject of health care. SS and Medicare are going broke fast. Apparently some of the pols think you can save some money there by, well, mostly just imposing some big ol cuts. Ok great, so go ahead and pass those cuts and save Medicare. But using those cuts simply to pretend to pay for a huge new entitlement that is just as out of control? That just demonstrates a complete lack of seriousness about the deficit. "oh yeah, we'll worry about the problem NEXT year, after we finish making it that much more impossible to EVER fix THIS year."

[Ursa Majoris]

well the deficit was around 200 billion in 2007, 400 billion in 2008. Then of course it explodes to 1.4 trillion this year, and now comes in over a trillion per year as far as the eye can see. So, without even trying to affix blame here, the situation has recently changed dramatically for the worse. Affixing blame one way or the other doesn't change the severity of the crisis, but which direction we go from here is crucial, and I think the piece above makes a pretty convincing case that we are steering straight into an iceberg.

There are some major fundamentals that make party preference completely irrelevant. In no particular order:

 

No lobby will allow their share of the pie to be diminished

No individual will vote for any politician who advocates reducing SS or any other entitlement as long as they themselves are going to be affected (which everyone is)

No individual will vote to raise their own taxes

As the population grows more uneducated, unable to understand logic and susceptible to propaganda, the chances of addressing the looming crisis diminish further

As long as politicians depend on votes every four to six years, major problems will not be tackled in any meaningful way

Each party will deliberately sabotage the other rather than work together

[CaP'N GRuNGe]

Interesting segment on 60 minutes last night that somewhat paralells this. They were talking about MEdicare and how much money is soent during the last two months of a persons life. Because Drs and hospitals can justify it and medicare pays it all sorts of "unnnecessary" measures and tests are taken that are spiraling costs to the govt out of control.

 

The thing about healthcare now is, yes, it is expensive and in many cases people ration healthcare to themselves because they can't afford it. When healthcare becomes essentially free, people are going to consume more of it, one would think, and the cost estimates currrently being talked about for nationalized healthcare will compound exponentially.

 

This is essentially what we are seeing in medicare, people are choosing to have these tests run, they are choosing not to sign DNR orders and an abundance of money is being spent prolonging a life that essentially should not be prolonged. (And no, I don't have a problem w. the implementation of "death panels" should the legislation get passed, in fact I think they should be mandatory).

 

Obama himself has talked about the increased costs in the last days of one's life. Of course the new right wing populist tea partiers response is the typical death panel route, but whatever.

[chester]

Each party will deliberately sabotage the other rather than work together

 

I NEVER respond to political threads and this is exactly why.

[cre8tiff]

I NEVER respond to political threads and this is exactly why.

 

you just did.

[chester]

you just did.

 

touche

[dmarc117]

Each party will deliberately sabotage the other rather than work together

 

 

sounds like a divorcing couple continuing the fite, which in turn hurts the children. sweet!