‘Why Budget Cuts Don’t Bring Prosperity’
The NYT’s David Leonhardt makes sense:
Remember the German economic boom of 2010?
Germany’s economic growth surged in the middle of last year, causing commentators both there and here to proclaim that American stimulus had failed and German austerity had worked. Germany’s announced budget cuts, the commentators said, had given private companies enough confidence in the government to begin spending their own money again.
Well, it turns out the German boom didn’t last long. With its modest stimulus winding down, Germany’s growth slowed sharply late last year, and its economic output still has not recovered to its prerecession peak. Output in the United States — where the stimulus program has been bigger and longer lasting — has recovered. This country would now need to suffer through a double-dip recession for its gross domestic product to be in the same condition as Germany’s.
Yet many members of Congress continue to insist that budget cuts are the path to prosperity. The only question in Washington seems to be how deeply to cut federal spending this year.
When I was growing up in Michigan, every year it was the same — threats of drastic budget cuts to close huge deficits.
And every year with those “cuts,” the budget grew and grew and grew as spending increased exponentially.
The only question in Washington is not “how deeply to cut federal spending this year.” The real question is why isn’t a 33 percent spending increase over 2002 levels enough? That is, why is spending only three trillion dollars not enough???
The real question is what is the limit to spending?? Especially since we are spending money that does not exist?
If it is draconian and sadistic and monstrously evil to spend only $ 3 trillion, how much should we spend? $ 4 trillion? Well, isn’t that too low? Think of what we could do if we spent $ 6 trillion instead! Or $10 trillion!
We could eliminate all the woes of the world if only we were willing to spend $100 trillon a year. So what if that would mean taxing every single dollar that is made and simply printing the rest, thereby killing the economy? It’s worth it, isn’t it? But then again, I suppose there are those who are cold-hearted enough to refuse to spend $ 100 trillion — they would rather see children and women starve and homeless.
That scam of bemoaning budget “cuts” might have worked 20-30 years ago. Not anymore. People have caught on that massive spending increases over just a few years ago hardly constitutes a “cut.”
Yes, it’s a mystery to me how governments can get away with enormous budgets, when individuals have to be so careful about balancing their check book. I’d be happy for a very large cut in defense spending. It’s such a big part of the budget that it would be the easiest way to cut spending significantly without hurting people.
I don’t know whether you can believe anything Goldman Sachs says, but they’re warning that the House proposed spending cuts would hurt the recovery.
http://www.cnbc.com/id/41753958
“The real question is what is the limit to spending?? Especially since we are spending money that does not exist?”
The basic idea of deficit spending in a recession to stimulate the economy is like having ten people with a large mutual debt with two of the ten out of work. If you could put those two to work with the other eight you will pay off the debt and also end up with a more productive group as a whole than if you waited until the working eight paid off the debt with twenty percent of their potential resources lying around watching reruns of I Love Lucy deep into the night.
The difference between what we call public spending and private spending is not as sharp as it might seem. Capitalism is and has to be awash in “money that does not exist” to even operate, and this has been true for at least 300 years and more. This money takes the form of credit and assets. The housing bubble itself was based on a massive pile of private money that didn’t really exist. That is why it was called a bubble (when it finally popped).
Eleven years ago I bought my house for $230,000. It is on a street full of houses that were worth the same amount. Over the next few years, while I cursed the plumbing problems that made my house seem less valuable to me than it had been when I first laid eyes on it, my house and the houses around me appreciated in value something like $60,000 without me doing anything at all.
This additional $60K was non-existent. But it was nonetheless real enough that I could have “cashed it out” by borrowing against it. It was tangible enough that the bank would have written me a check for 50,000 real dollars against it, if the two or three offers I was getting in mail every day could be believed. But I didn’t do this.
Did this mean that I was smart? Let’s see. The guy who lives across the street did cash out his non-existent $50K and he spent it on wide screen televisions, a new car, and stuff like that. His mortgage is now under water and he was laid off to boot. We watch his house constantly to see if it is going to get foreclosed. Another guy down the street also cashed out his $50K in the same kind of invisible money and he used it to send his wife to nursing school to become an RN. He has the same level of debt as the wide screen guy across the street and his mortgage is under the same amount of water. But with all of us Baby Boomers heading for the Last Roundup, he has created a new recession proof cash flow for his family.
We can say in retrospect that Mr. Wide Screen (I keep mentioning his wide screen because he has it against the wall opposite the window that points to my house and the thing is so bright that I have to close my shades at night; I swear that if he turned up the sound I wouldn’t have to read Lucy’s lips to see what she’s ‘splaining to Ricky Ricardo) was irresponsible, etc. But remember at the time that people would have said that Mr. Wide Screen was supporting all of the consumer spending that was expanding our miracle economy and was keeping afloat all of the owners of those abandoned store fronts that are everywhere downtown now. The people who were saying this were the foremost economists in the United States, many of whom were rock-ribbed conservatives.
The world wasn’t entirely stupid during the bubble, even though it might look that way now. It isn’t bad to spend this non-existent money IF it is spent in such a way that it creates sustainable growth. Spending it on production is part of this but spending it on consumption (and creating a market for production) is also part of it. The problem comes when the money starts getting dumped into the bubble itself for the creation of more non-existent assets. Non-existent money is both useful and essential to capitalism if there is a balance between its creation and how it is spent. The market does not do this very well by itself, because if the rate of return gets real high when people just pour their non-existent money into creating more non-existent money, that’s where all the investment starts going and then you get a bubble of non-existent money too large to be usefully invested. This is where regulation comes in. It puts brakes on the movement of money like this because like your car, the inertia of the free market will take it to all kinds of bad places if it doesn’t have some brakes.
Now the debt we have to pay back isn’t just the deficit. From the point of view of the average person, the debt that we think we have to settle on the private side is our own personal debt. We know that we all have a piece of the government’s deficit as well. Since we all naturally think in terms of our own household economies, we are prone to think that we need to seriously cut back our spending to meet our debt payments. This is just common sense.
But in fact, the debt we actually have to settle as a private citizen is the entire national debt, including all the private debt. (One could even stretch this further and say that as the US as the world’s foremost economy in a world that trades in dollars, we have to settle the entire world debt really.) The idea that public debt is different for us from private debt is simply based on the fact that public debt is more transparent than private debt. We think that we control the public debt through our taxes. We are actually paying down all private debt in every private transaction that we make. If you think that the banks and businesses intend to just suck up the debt so that you don’t, you are mistaken. They are going to pass it on to the rest of us just like they do with any other expense. It is just that this subsidy to the private sector is sort of hidden because of the individualistic way that we look at the economy.
This is in a general way how things really work. (I am not an economist, by the way, but I am an executive in a multinational company and so we have to know how things really work.) If stimulus spending puts the two people out of the ten who are out of work back to work, then it will help the economy. You can think of this money as your tax dollars. But you could also think of it as an investment that could be put to expanding the economy in a responsible way, as opposed to what might happen with the same money if you don’t spend it on taxes but rather on other stuff. You would still be paying off the national debt but in a way where the private recipient of the money can invest it in China or where ever the rate of return is the highest no matter what’s going on in the US.
I could talk all day about the way that this system creates different and complicated tangible interests in things like government spending and regulation, but I have already gone on too long. The thing is that stimulus spending by the government isn’t something antithetical to capitalism. It is and always had been a component of capitalism, no matter how it might look to the tax payer. And the question isn’t about productive private sector spending versus non-productive public sector spending. It’s more about who controls the current nationwide pool of investment dollars and what do they get to do with it.
I saw a study in my political economy class last semester that dissected every single recession in OECD countries in the past 50 years. We’re talking hundreds of different recessions, with a variety of nations tackling their sinking finances in different ways.
In 0 – ZERO – cases when austerity measures were enacted as a response to recession did the countries bounce back. They tended to suffer from anemic growth, and to feel the consequences for much longer.
Slashing deficits has nothing to do with good stewardship of finances and everything to do with ideology.
I think Herbert Hoover pretty much settled the question of whether austerity measures help an economy in a recession.
I don’t pay too close attention to what Republicans are claiming on Capitol Hill. But it’s not the state of the economy that makes austerity measures popular; it’s the state of the government’s balance sheet. I suppose, if the economy were firing on all cylinders, then people’s sense of well-being could be such that they wouldn’t worry too much about the accumulated federal deficit.
But regardless of the psychology of the moment, the law of debt is almost a law of physics. Take on too much of it, and you will absolutely sink, unless you can convince the government to bail you out. When it is the bailer-outer who is sinking, then there is nowhere else to turn. State governments are trying to come to grips with this right now.
“Slashing deficits has nothing to do with good stewardship”–nothing?? So on this logic we could go into more and more debt and it would not matter?
Slashing deficits may not be related to growth per se, but it surely may have something to do with long-term health of the economy and unjust tax burdens down the road. Don’t confuse the two.
You may also forget Thomas that the idea behind stimulus spending of the Keynesian sort fell apart in this country when its two evil twins appeared together, against all theory.
Why, then, do so many people buy the idea that you shouldn’t spend during bad times? It seems clear that the reason is because during the 1930′s depression Pres. Franklin Delano Roosevelt applied the economic theory of Keynes (sort of) to try to kick-start the economy. Unfortunately, many, many conservatives associated Keynes’ economic theory with the dreaded socialist/Communist Russian government, the extraordinarily brutal governmetn of Joseph Stalin. (Excuse the history lesson, old guys, but the young ones don’t always know such things.).
Many conservatives still believe that Keynes was a socialist (because he thought government should *sometimes* spend a lot of money) in spite of the fact that now even most conservative economists recognize that his solution to recession — government spending — is necessary to produce jobs, jobs which eventually produce the taxes necessary to pay the government debt. Milton Friedman, the most conspicuous conservative of recent years, famously said, “We are all Keynesians now”.
If the private sector with available money (cash or borrowed) spent it during the recession, that would help or even solve the recession but only if enough private money were invested. But businesses hate to stick their necks out when they think the risks are greatest. Economics is very, very much a matter of psychology.
“I think Herbert Hoover pretty much settled the question of whether austerity measures help an economy in a recession.”
Is it possible you are conflating trade policy with fiscal policy? According to the OMB (http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/hist.pdf), President Hoover increased on-budget federal outlays by 12% on a compound annual basis from $3.0B to $4.7B. Did he not also pass the Revenue Act of 1932 which I believe is one of the largest tax increases in American history? My understanding of the current Democrat criticism of Hoover is not that he did not increasae taxes and spending but that the absolute value of the increases were insufficient relative to what they would have prefered.
“I don’t pay too close attention to what Republicans are claiming on Capitol Hill. But it’s not the state of the economy that makes austerity measures popular; it’s the state of the government’s balance sheet. I suppose, if the economy were firing on all cylinders, then people’s sense of well-being could be such that they wouldn’t worry too much about the accumulated federal deficit. ”
Obviously. But this is in turn fueled with how people think the deficit works. When VP Cheney said that “deficits don’t matter” as the Bush administration was running up most of the current deficit, he wasn’t just talking about their political effects. If the money is spent well, it will help the economy and it will come back. We do this in our own homes when we borrow money for our kid’s education.
“But regardless of the psychology of the moment, the law of debt is almost a law of physics. Take on too much of it, and you will absolutely sink, unless you can convince the government to bail you out. When it is the bailer-outer who is sinking, then there is nowhere else to turn. State governments are trying to come to grips with this right now.”
It’s probably almost a law of physics that too much of anything is bad. But just because you can bankrupt yourself by spending every cent you have on education, it doesn’t follow that going into debt to get an education is a bad thing. It’s a question of degree. People who say what you say are not exactly wrong about debt as such. They are wrong when they think that public (investment) debt operates differently from private (investment) debt just because we call one kind of expenditure “taxes” and the other kind of expenditure “the grocery bill”.
The American Friends Service Committee have a chart showing 59% of the federal discretionary budget is military. Read em and weep… Let’s hear from the Cons on this blog asking for real military cuts. NOT! Cutting NPR won’t do it. and you know it. Out of Afghanistan now.
http://www.oneminuteforpeace.org/budget
“Out of Afghanistan now.”
Obama owns that war now, he’s doubled down on it. So, instead of attacking “Cons” yet again, perhaps you can direct your ire to Barack Hussein.
Speaking of FDR, in light of Obama’s call for investment in our future (smart spending,) I wonder if a renewed WPA-type program might be of help. It’d need to be different than FDR’s, of course.
I wonder if something like a Christo-Rey school model might work–at these schools, kids attend classes, but are also mentored in the workplace simultaneously.
So translate to adults…in my time volunteering with women in prison, I noticed that one of the challenges they face in adapting to the workplace (usually as people without much education, so we’re not talking high-prestige jobs, here,) is developing the habit of going to work regularly, even when you don’t want to. If you’re from a background where you’ve never been in a household where someone gets up every day to go to work, it’s really not obvious that you have to go wait tables even if you really don’t feel like it that day.
So a layered new WPA: the educated unemployed might run GED classes, the uneducated unemployed might attend. Others hit the streets to recruit for the schools. And/or those with skills run publicly-funded projects, (construction? meals for the elderly poor?) those without might be mentored to show up, develop skills, get used to the pride that can come with a regular paycheck (even if it’s a small paycheck.) There’d have to be safe daycare, too. I suspect that key to this is providing jobs for the unemployed middle-working class folks to provide work-sites instead of expecting a small cadre of social workers to do everything.
I realize there are some programs out there, but how might city life change if we made a public push on behalf of the poor first? Instead of being a nation that increasingly supports the prison-industrial complex, we might actually be able to make a difference in people’s lives. Isn’t that worth cutting funding for (another) new jet fighter or two? Or maybe the bishops could divert some of the millions they spend opposing same-sex marriage to try to keep people out of jail?
P flanagan.. the question was … are you willing to cut some of the 59%.. your use of Hussein sends your real message loud and clear so let me suggest that nobody on this blog will ever buy it so why are you wasting your time?
“Let’s hear from the Cons on this blog asking for real military cuts. NOT!”
I am not sure if Grover Norquist (1) meets your definition of “Con[s]” or (2) if he reads this message board, but if so, it was my recollection he and his Americans for Tax Reform wrote a joint letter released on 30 November 2010 titled: “Conservative Leaders Call on Congress to Consider Defense Spending Cuts: Coalition asks Republican leaders to restrain all federal outlays, reject the practice of protecting sacred cows” (http://www.atr.org/files/files/11302010pr_Defense%20Letter(2).pdf).
Is it possible he and the other signatories mean by “Defense Spending Cuts” the same thing as “real miliatry cuts”?
Deficits as such do not say anything about anything. They may be bad or good, depending on a number of factors, including their source and the structure of the repayment plan, to say nothing about the potential they have to grow the economy (if, for example, they represent an investment, as unagidon suggests above). Given our current economic context, strong arguments may be made that closing deficits needn’t be high on the national priority list. Some may not find them persuasive; I do.
Closing deficits has become conflated with slashing spending, paired with an absolute unwillingness to raise marginal tax rates. Again, some may find these arguments persuasive; I don’t.
The empirical evidence to which I referred earlier suggests to my mind that austerity measures (slashing spending, shoring up deficits) has at best an ambiguous long-run benefit, and absolutely no short term or medium-term benefit.
That the arguments are persuasive to one half of the political continuum and not the other suggests that it all comes down to ideology.
“I wonder if a renewed WPA-type program might be of help”.
I thought Obama should have marketed AmeriCorps as a “new” CCC program, since people seem to have nostalgia for the WPA.
When Obama first became President, he expanded the AmeriCorps program substantially. The target was to eventually triple it to about 250,000 jobs up from 75,000. These are mostly community service jobs, which provide a stipend and college tuition credits. There was an interesting proposal to put several thousand of these jobs in the national parks, too, though I don’t know if that ever happened. (Went I went camping around the country last year, we stayed in some state parks that were using AmeriCorps volunteers for infrastructure projects).
Anyway, last I heard the House Republicans’ proposed budget would eliminate all of the funding entirely for Americorps, all $700 million.
It’s really a shame.
MAT names as a Con who suggests military cuts …Grover Norquist???? … wikipedia says he is a pressure group/lobbyist and member of the NRA… That’s it?? your joking right??
“…wikipedia says…your joking right??”
Indeed. I must be.
Who says budget cuts bring properity anyway? That’s not the point. More properly, the argument is whether deficit spending actually stimulates the economy in a sustainable way.
unagidon’s explanation of the supposed stimulative effect of deficit spending is good, but the argument from people like me is that it doesn’t work that way. Money in the economy stimulates activity, the argument is over how it gets there. When the stimulation costs 2 million per job, I’d rather the two guys stay at home and watch I Love Lucy – BTW, it’s probably American Idol and Survivor re-runs now. Let me and my neighbors keep a a few grand, and we’ll stimulate the economy plenty.
“we are spending money that does not exist?”
Everyone who thinks that should be required to read the American Bankers Association’s “Principles of Banking”
Ever since Reagan, The USA has decided that it should spend more than it collects in taxes. That is a recipe for disaster. Reaganism does not work. You cannot starve the beast. (Well you can, but no one is prepared to cut spending on the military and social security, so practically, you cannot)
In good times you maintain a level of taxation over what you spend in order to pay down the debt, so that in bad times you can stimulate the economy by spending more.
The principles are really so simple.
Sean
The quickest way to stimulate the economy is to go out on the street corner, and give a hundred dollars to every poor person. Why?, because you can guarantee they will spend it.
Giving a hundred dollars to the people at the other end of the spectrum comes with no such guarantee.
And any way. It is just so Catholic.
“…wikipedia says…your joking right??”
Yes, you are right. Wikipedia has about as much veracity and reliability as — o, the Catechism of the Catholic Church.
Both need constant correction to fix mistakes. The only problem is that it only happens in the Wikiworld, not the CCC camp.
There seems to be a myth that spending is better for the economy than saving. A penny saved, is a penny invested, reducing the cost of capital, stimulating growth.
Mark, ‘a penny saved] is a penny costing 3 cents to make and stored in a can or jar, so much for your Reaganomics.. And I thought I was the old one.
“unagidon’s explanation of the supposed stimulative effect of deficit spending is good, but the argument from people like me is that it doesn’t work that way. Money in the economy stimulates activity, the argument is over how it gets there. When the stimulation costs 2 million per job, I’d rather the two guys stay at home and watch I Love Lucy – BTW, it’s probably American Idol and Survivor re-runs now. Let me and my neighbors keep a a few grand, and we’ll stimulate the economy plenty.”
Well, it’s certainly progress if you admit that deficit spending can stimulate the economy. And you are quite correct that the question then is HOW is it stimulated. And yes, when the government says “let me stimulate you!” and the pigs start bellying up to the trough, one should be careful about who exactly gets fed. But the fact is (and it is a fact) stimulation will get us much farther than no stimulation, no matter what Ben Franklin thought.
unagidon,
I don’t object to policies that stimulate the economy in the short term. I am saying that government spending is less efficient, more costly, and has more down sides then things like tax breaks and less regulation. Government restraint along with this has a lot better chance of helping, and because of the downsides of spending – inflation, rent seeking, fraud, and inefficiency – doing nothing is preferable to deficit spending.
Michael,
And me building a new deck or getting my house painted stimulates the economy even more. And it gererates more tax revenue besides.
What do you think wealthier people do with their money? Stuff it in a mattress?
. . . . doing nothing is preferable to deficit spending.
Sean Hannaway,
Thank goodness Ronald Reagan, Bush 41, and Bush 43 never ran deficits. Why should Republicans have any credibility on this issue?
“I don’t object to policies that stimulate the economy in the short term. I am saying that government spending is less efficient, more costly, and has more down sides then things like tax breaks and less regulation. Government restraint along with this has a lot better chance of helping, and because of the downsides of spending – inflation, rent seeking, fraud, and inefficiency – doing nothing is preferable to deficit spending.”
I don’t think that even businessmen think that taxes and regulation are a bad thing in principle. They just don’t like taxes and regulations that don’t benefit them.
Taxes and regulations on them for the rest of us have something in common. One of the myths of the free market is that if businesses were not taxed at all and were not regulated at all, they would have all this extra free capital available (true) that they would then without a doubt invest in a way that benefits society as a whole (not true). The (all too brief) regulatory fever that occurred after the recession began wasn’t from a bunch of angry people thrashing around; capital had shown that it was investing in destructive ways and this had to be stopped.
The idea of taxing to support deficit spending is that, in fact, when capital is mis-allocatred against the national interest, government is a more efficient allocator of capital than the “market” is.
“I don’t object to policies that stimulate the economy in the short term.”
The temporary nature of the monetary policy driving the pleasing 2010 GDP growth is the real question, don’t you think?. I recognize the author of the article in question needs to keep his audience entertained so he misrepresents the situation but I would reckon the real questions are: (1) how much did QE2 impact the 2010 GDP numbers and (2) what happens when it ends it June. I will caveat that I have not reviewed in detail the BEA’s email from this morning with the second revised estimates, but from previous data most of the positive GDP growth was driven by the increased consumer spending as a result of a drop in the savings rate due to the robust growth in equity prices. I would think we cannot just keep monetizing our public debt, especially given the troubling rise in wholesale food prices if not for ourselves at least to mitigate the impact on the truly poor.
unagidon,
I won’t get into the argument about a lack of regulation causing the recession – I don’t buy it. The government’s involvement in the mortgage market made all the misbehavior possible. That’s another issue.
Who defines the “national interest”? We are getting “green economy” rammed down our throats as in the national interest. How’s that working out? Here in Mass we gave $58 million to a solar panel manufacturer because the state knew the “national interest” better than investors. Three years later – belly up – nothing left to give back to the citizens of the commonwealth.
Your whole argument rises or falls on the belief that the state will make wiser decisions about how to spend money in the economy than individuals and businesses. I just don’t see what evidence there is for this. The very fact that what is the in “national interest” is a subject of fierce debate means that the when the government spends money it is not necessarily in the “national interest” but simply because the people in power decide to spend it that way. This is compounded by the fact that, unlike individuals, the people that make the decision when the state spends rarely bear the personal consequences of the decision.
“when capital is mis-allocated against the national interest,”
I shudder when I read these words.
“I shudder when I read these words.”
You should. Unregulated capital was responsible for the last and all of the prior economic crises we have had at least in this century. Capital will flow to where the rate of return is highest, period. Capital doesn’t care about the state of society as a whole, the overall educational level of the populace, whether people are in general working or not, whether the air and water is pure or not; it doesn’t care about the rights of labor real or fictitious, it has no conscience whatsoever. Individual capitalists might care about some or all of the above, but the gains go to the one with the highest returns. Yet people say that this soulless thing should be let loose without hindrance in society at large, and even that it, rather than we, should have all the rights. That’s what make me shudder. (It also made Adam Smith shudder as well.)
unagidon –
And in spite of the fact that capitalism is a soulless, conscienceless thing, the law treats it as a person. This flaunting of the most obvious sort of fact must inevitably lead to its failure.
“Why should Republicans have any credibility on this issue?”
David N – if they build some now, though, no matter how belatedly, that is something, don’t you agree? And a differentiator?
The ramifications of the Tea Party Movement are being felt. I can’t think of a reason that Democrats can’t also call themselves to fiscal responsibility.
Jim,
It is not clear to me that Republicans are being fiscally responsible. Budget cuts that affect only the immediate future are not going to solve long-range problems, and they may make the current precarious economy worse. I would be interested to see someone present a realistic picture to the American people and say (1) What do you want government to do; (2) Here’s how much that would cost, and how much your taxes would go up; (3) If you’re not willing to pay those taxes, what are you willing to do without? From what I read, the American people don’t want anybody, Democrats or Republicans, messing with entitlements. And so, at the moment, neither the Democrats nor the Republicans are making realistic proposals for the long term. I am sure you don’t trust Democrats, but if you look at Reagan, the two Bushes, and Bill Clinton, it was Clinton who brought down the deficit and the other three that caused it to grow dramatically. And Obama took office with a country in a terrible economic crisis with two ongoing wars that never should have been started.
unagidon,
The current economic crisis was not caused by unrestrained capitaism, it was the result of a very cozey relationship between some segments of the economy and the state, and in many cases the failure of the state to properly exercise the authority it already had.
Yes, capitalism is souless, but so is the state. I for one, am not saying the state has no role at all, but it shouldn’t be directing capital to the best use. It isn’t capable of doing that without causing harm. More importantly, even in a representative form, the state must always ultimately rely on force. For that reason alone it should be the last and not the first resort.
David N
You need a civics lesson – who holds the purse strings? Clinton had ne’re to do with it. If you want to back slap, go do it to your arch enemy, Newt Gingrich. Clinton didn’t even think about a balanced budget until the GOP forced him to sign one. As for Reagan, it’s kind of hard to balance the budget when you can’t get one passed. He knew this and did what he could. When he left office the feds were taking in nearly twice what they were when he took office. Despite the rhetoric, entitlements and domestic spending grew faster than defense during this time and ate up every dime of increased revenue plus a third. So lay that at the feet of Tip O’Neil.
I won’t excuse the Bushes – they just wanted everyone to like them.
I liked this quote from a Pittsburgh paper about the planned budget cuts to federal food and childcare programs for poor families:
“The phrase, ‘women and children first,’ used to mean [that] in an emergency these groups should be the first ones given the lifeboats to safety,” said Heather Arnet, chief executive of the Women and Girls Foundation. “It did not mean, in a crisis, throw the women and children overboard. But that is exactly what the U.S. House budget does.”
Sean,
I am in the fortunate position where I have everything I need. If someone gave me an extra $20K PA it would make no difference to my lifestyle.
I would either give it away (to MSF probably, currently about the only charity I now support) or it would be invested into the already inflated stock market, where it would do no good what so ever right now.
Irene –
Excellent point about the House throwing the women and children under the bus. So much for family values. Or has anybody heard from Ralph Reed and his friends?
“From what I read, the American people don’t want anybody, Democrats or Republicans, messing with entitlements. And so, at the moment, neither the Democrats nor the Republicans are making realistic proposals for the long term.”
I was thinking about this a little bit over the weekend: there is no such thing as a risk-free future. People love Social Security and Medicare, rather than saving for their own retirement or taking responsibility for their own medical care, because it seems risk-free. But it isn’t so.
Psalm 90 was one of the psalms for morning prayer this morning – more grist for reflection on the nature of risk in our lives.
“I was thinking about this a little bit over the weekend: there is no such thing as a risk-free future. People love Social Security and Medicare, rather than saving for their own retirement or taking responsibility for their own medical care, because it seems risk-free. But it isn’t so.”
I am at an age where some of my pals are starting to talk about early retirement (defined in our circle as retiring before the age of 60). None of these people will really need Social Security (and they know it). None will get Social Security early so they can retire early. Some of them remained single and piled up a lot of money. Every one of them got kicked in the teeth by the recent recession. So much for risk-free saving.
Regarding medical expense, you have a better than one in two chance of contracting something when you are elderly that you could not hope to pay for even if you saved all the money you ever made.
Unagidon –
Are you saying that half the people of this country who will have life=time earnings of say $1.5M will have medical debts over that amount? Hmm.
Would you really say that the average American would clear $1.5M in a lifetime?
I see estimates that the average retired couple will have to pay about $250K in out of pocket costs and that’s if they are covered by Medicare, which Jim is suggesting we eliminate.
unagidon –
My figure was a shot in the dark. I have no idea how to calculate the life-time earnings of the average American, especially given that the earnings of the very rich would be included in that average. At any rate, I haven’t heard of very many people of my generation paying $250K for care in their old age, unless they are in nursing homes for a number of years, and the average stay is 3 years (or so read the other day). Nursing homes are not covered for the non-poor, of course. Yes, some people have gone bankrupt, but maybe that’s the sort of insurance we need most — coverage for catastrophic illnesses. But the lesser health problems will have to be paid for out-of pocket. Or that’s how I see it.
It seems to me we ought to do some digging about just what the average or mean of medical expenses is. That would no doubt open the biggest can of worms of all — life-time limits, but I don’t see how life-time limits can be avoided. Given that medical science keeps increasing its capabilities to cure, it might be inevitable that costs will rise inexorable as health care improves. If life-time limits are required, then that would seem to require triage of some sort, and how to reach agreement about *that*?
We also should look at how much our unhealthy life-styles cost us, and that should become a matter of morality. Yes, many of the boomers already see that as a matter of morality, but my generation doesn’t, and for my generation the damage is already done.
I think we’ve kept our collective head in the sand about these matters for much too long. It isn’t only the politicians who have been avoiding these problems.
We should also look at the funds spend on medical research on specific illnesses. From a purely financial perspective, breakthroughs in cancer and diabetes more research would probably pay for themselves quickly — IF there are cures.
Complexity, complexity, complexity, . . .
Here’s an article from TruthOut and The Guardian, complete with Wikipedia graphy, showing how since the 1940′s the poor and middle-class have become poorer and the rich have become richer. Taxes, Sean. Taxes.
http://www.truth-out.org/how-rich-soaked-rest-us68155
“— taking responsibility for their own medical care —”
Can you honestly state with a straight face that most people could (1) qualify for private medical cinsurance, or (2) pay for private medical insurance, particularly when, the way insurance companies jigger the works, virtually ANYBODY and EVERYBODY will have a pre-existing condition? Even without a pre-exist, have you priced out the cost of private ins for a couple over 60?
“I see estimates that the average retired couple will have to pay about $250K in out of pocket costs and that’s if they are covered by Medicare, which Jim is suggesting we eliminate.”
I’m not suggesting we eliminate Medicare. If a Medicare could be invented that was solvent over the long term (say, into my retirement years) and was fair to all of the stakeholders, I’m sure I would love it. Until that day comes, I’ll stay attached to what we have.
I’m simply pointing out that the solvency of government-sponsored programs isn’t assured.
When I was in b school, a very long time ago now, the interest rate for long-term federal government debt instruments was taken as a proxy for the theoretical risk-free interest rate. Want to know what the risk-free interest rate is? Go figure out what rate T bonds are paying.
We’re now in a situation where debt ratings agency are dinging states, and they’re watching the accumulating federal deficit with increasing interest.