Bitter Medicine

It is astonishing to me how the two the political parties continue to argue about the economy when the facts are well known.  The posturing is demagoguery on both sides, so I submit that it is time for a simple review. Here are some facts from well-edited pages on Wikipedia.

 

Entitlement Spending As A % of GDP

 

The crisis in the federal budget can best be expressed as a percentage of GDP.  As you can see in the chart above, if revenues, the dotted line, are held constant as a percentage of GDP (and that takes inflation out of the picture), then clearly we are living beyond our means.  Note that while we run out of money somewhere around 2030 we even now are spending more than we are taking in.  This is shown by the white bar sticking up above the dotted line.  This is why we are now seeing Congress beginning to trim.  (They cut a mere $4 Billion just the other day, an amount so small it wouldn’t even show up on the chart.)

What is the main factor in lifting spending above the dotted line?  It is the light blue part, which is Medicare.  The red, representing interest on the debt, is simply the result of spending more than we take in.  Keep the bars below the dotted line and the red disappears.  The green, representing Social Security, is not a big factor and it can even be kept level by small adjustments in eligibility age or means-testing, so fears of it collapsing are unfounded.  Where is defense spending here? It is in the white part of the bars along with all the other discretionary spending that keeps the government running.  So when the white lifts above the dotted line you are talking about real fiscal pain.

So what about military spending?  What has been the trend on that and what is the projection for the future?  Here is a chart on that.

 

Defense Spending Trend

 

 

As you can see, based on a long history defense spending as a percentage of our total outlays is low.  Given the sad state of world affairs I submit that this is not an area we should cut further.

Are we spending our federal dollars on the right things?  Here is a pie chart on that.

 

Federal Spending Pie

 

 

You can see that our discretionary spending has shrunk to only 19% of the total last year, and unless we take decisive action it is going to continue to shrink.  That’s right.  Everything left to argue about is all packed into this small brown wedge. This is one reason that it is kind of silly, really, for the politicians to be fighting so furiously over the small chunks of the budget when the real problem is entitlements.  If we fixed the entitlements then we would have a bigger brown chunk to argue over.

So, the real problem is MEDICAL.  The cost of medical care, like the cost of education, has been rising much faster than inflation for years. Below is a chart showing how we would have to raise taxes to afford the projected costs each year (now and forever) of MediCare and Social Security.

 

Medical Funding Gap

 

 

In other words, medical costs as they are trending are simply unsustainable and with the aging of the boomers it is going to get worse, not better.

How do we fix the ongoing budget deficit problem?  The only way to do it is to live within our means, principally in the area of medical care.  The cost of medical care dwarfs all the other factors.  I can’t emphasize that enough. But the difficulty of dealing with that is readily apparent from the fracas over the Affordable Healthcare Act, a title which is an oxymoron because it does not address the affordability of health care at all, it simply tames it a little by requiring the uninsured to contribute.  And the GOP  is determined to quash even that effort.

Friends of Medicare Healthcare Rally

Healthcare Rally, by dave.cournoyer via Flickr

As a people, Americans are in denial. A recent poll shows a solid 3 out of 4 do not want Congress to “cut” medical “benefits”.  We are like spoiled children demanding what is unaffordable. The costs must be reduced. Options should, in my opinion, include making medical care competitive. This is because we are both unable and unwilling to pay for what technology can provide. This may result in things like doctors being paid less, fewer expensive tests, fewer expensive testing machines, people deferring medical care longer, or even outright rationing and socialized medicine.

Bottom line:  The problem is medical costs.  The Democrats want all that science can provide and they want the rich to shoulder a lot more of the cost.  Even if they tried, which is unrealistic, it wouldn’t be enough.  The Republicans want to solve the problem only by cutting taxes and growing the economy.  That is unrealistic also, as shown by the first chart.  Compromise between the parties is clearly essential. The dotted line needs to be raised, not lowered.  I submit the way is clear.  First, tame the costs, then squabble over not whether to raise taxes, but how much.  As a people it’s time to man-up and pay for what we want.

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About Jim Wheeler

U. S. Naval Academy, BS, Engineering, 1959; Naval line officer and submariner, 1959 -1981, Commander, USN; The George Washington U., MSA, Management Eng.; Aerospace Engineer, 1981-1999; Resident Gadfly, 1999 - present. Political affiliation: Independent, tending progressive as the GOP recedes from its Eisenhower roots.
This entry was posted in Economics, Health, Medicare, Medicine and tagged , , , , , , , , , , . Bookmark the permalink.

4 Responses to Bitter Medicine

  1. ansonburlingame says:

    Jim,

    You and I have essentially the same points (see my blog on “My Part of the Challenge” but different ways of getting there (living within our means).

    I agree that Medical costs are a substantial part of the “cuts or restraints” needed to make progress but they alone do not solve the problem. Defense, while “declining” over time as you show, has to be on the table as well and substantial cuts are needed there.

    I also believe that WHERE we windup to live within our means MUST be part of the entering argument. I have stipulated 20/20 as a percent of GDP as a starting goal just to encourage debate. Actually if you, Duane and I could ever reach agreement on how to get spending and revenues to $2.8 Trillion each year, I would closely examine getting such equality down further to say $2.4 Trillion or lower. But for now that is a secondary argument.

    I have offered a first approximation to get spending down to $2.8 Trillion in 2012. I challenge you, Duane or anyone else to KEEP cuts amounting to $600 Billion constant and tell me other ways to achieve that goal, again only as a first approximation.

    Then we can let Duane tell us how to get revenues UP to $2.8 Trillion without attacking his goal but taking shots at his ways to do so.

    Such an approach at least “hones” or arguments with specific cuts and taxes to debate, not generalities of …..

    As a smaller matter, check my link to the Presidents budget submission and look at the “discretionary” numbers in total for FY 2010 (contained in the FY 2012 budget document). That number (some $1.2 Trillion) is a lot more than 19% of the FY 2010 budget. I don’t understand the disconnect between your graph above and the President’s FY 2012 budget submission for starters. By the Presidents own numbers it would be around 50% instead of your 19% it seems to me.

    Anson

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  2. Pingback: The Elusive Palace of Wisdom | Still Skeptical After All These Years

  3. Your numbers are incorrect. 54% of federal outlays are spent on current and past military spending. See: http://i.imgur.com/lKiZK.gif

    The government statistics do not classify payments on bonds for war as military spending. Its the same as if you took out a loan for a car and then did not include payments on the loan as car expenses. The official statistics understate the amount of military spending by misclassifying it into other categories.

    The US cannot raise taxes further, because it would not generate additional revenue. Tax revenue as a percentage of GDP has been fixed and is relatively independent of tax rate.

    The issue here is health costs, not spending. Health costs are rising at a rate of 7% a year. At this rate, health costs per family will be $160,000 per year by 2040. Health care costs cannot continue to increase at that rate indefinitely.

    The primary reason for increasing health costs is a doctor shortage, resulting in massive increases in doctor salaries. The AMA regulates the number of students medical schools are allowed to graduate and lobbies every year for cuts to the medicaid residency budget. The AMA also lobbies for laws which restrict the ability of foreign doctors to practice in the United States, protecting salaries for US doctors, while driving up health care costs for everyone.

    This is a cost issue, not a budget issue.

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    • Jim Wheeler says:

      I see you’ve got a pie chart, Brandon, but I don’t see any source reference. Still, I do buy the inference that there are different ways to categorize federal spending and that such games are played. I also buy that Defense outlays are major, albeit not as major as medical entitlements.

      You said,

      The US cannot raise taxes further, because it would not generate additional revenue. Tax revenue as a percentage of GDP has been fixed and is relatively independent of tax rate.

      I assume you mean that raising the taxes of the 1% (or the 2%) wouldn’t in itself increase economic activity, and that is true. However, what it might do is lessen the bipartisan divide that has resulted in government gridlock. Right now Congress sees us all in two separate boats, not the same boat. That needs to change.

      I agree that the prime issue is healthcare costs, and I don’t doubt that limiting the doctor supply is one of the mechanism being used to keep those costs more than double what they ought to be, but I submit that there’s a lot more to it than that. But yes, it is more of a cost than a budget issue.

      You have picked an 8-month-old post here. May I recommend these as more up to date?

      https://jwheeler59.wordpress.com/2011/10/27/striking-it-rich-in-galena/
      https://jwheeler59.wordpress.com/2011/09/20/a-simple-picture/
      https://jwheeler59.wordpress.com/2011/10/25/insurance/

      Thank you for your comments, Brandon. Don’t be a stranger.

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