Beginning of the end of the Republic’s solvency. Soon come the first steps to a reformed regime – or a new regime.

Summary:  Home truths about America’s health care system.  It cannot long continue in its present form, and no substantial reforms appear likely until a crisis.  At the end are links to other posts about this issue.


From a joint statement by the Social Security and Medicare Boards of Trustees, March 2009

The drawdown of Social Security and HI Trust Fund reserves and the general revenue transfers into SMI will result in mounting pressure on the Federal budget. In fact, pressure is already evident. For the third consecutive year, a “Medicare funding warning” is being triggered, signaling that non-dedicated sources of revenues—primarily general revenues—will soon account for more than 45 percent of Medicare’s outlays. A Presidential proposal will be needed in response to the latest warning.

The financial challenges facing Social Security and especially Medicare need to be addressed soon. If action is taken sooner rather than later, more options will be available, with more time to phase in changes and for those affected to plan for changes.

Translation from the government’s phony description

  • Cash flow for the Hospital Insurance (HI) Trust Fund went negative in 2004 (it was negative during much of the 1990’s, but was fixed by eliminating the cap on wages).
  • Cash flow for social security is estimated to turn negative in 2016.  It’s already near zero (see this table from the 2009 SS report; compare income and costs).

For decades the taxes for Medicare and social security exceeded expenditures on those programs.  The government spent this money.

Now the boomers are aging.  Expenditures for our social retirement programs has become an inexorable rise.  Their cash flows are no longer funding the rest of the government, but turning into drains.  This is the end of an era.  For more on this see “The biggest bailout yet“, Fortune, 17 August 2009).

The size of the age wave is too great for any feasible tax increases to cover it.

What does this mean?

The doomsters predict bankruptcy.  They are probably wrong (they are always probably wrong).  Benefits must be cut.  Benefits must be cut.  Doing so will be one of the greatest challenges in US history, like nothing seen since the early 19th century battles over slavery.

Speculating, that’s the patter we are most likely to see.  A series of crises, each met by a “great compromise” solution.  Each proving inadequate, until eventually a durable solution evolves.  The sooner we reach that point, the less pain and damage to the Republic.

Indications and Implications

This will test the structure of our political regime.  It’s not in good shape, and fixing it should be one of our top priorities.   Hillbilly logic might prove lethal — as in “can’t fix the roof when it’s raining; don’t need fixing when it’s not.”

Unfortunately the current political debate suggests that this will be a long, slow, difficult process of adjustment for the American people.  Neither party shows much interest in grappling with the problem — because the American people refuse to look at the facts.  For decades the Democrats won elections by demonizing Republican attempts to reform our social retirement systems before it was too late.  Now Republicans return the favor.

This dynamic already dominates the political debate.  One of Obama’s key advisers wrote about the looming problem of heath care costs (Dr. Ezekial Emanuel, brother of Chief of Staff Rahm Emanuel), and discussed possible solutions.  Which Republicans, like ex-Gov Palin, demonize as “death panels.”  Our politicos cannot be wiser than us, the voters.

Principles for allocation of scarce medical interventions“, Govind Persad, Alan Wertheimer, and Ezekiel J Emanuel, The Lancet, 31 January 2009 — Abstract:

Allocation of very scarce medical interventions such as organs and vaccines is a persistent ethical challenge. We evaluate 8 simple allocation principles that can be classified into 4 categories:

  1. treating people equally,
  2. favouring the worst-off,
  3. maximising total benefits, and
  4. promoting and rewarding social usefulness.

No single principle is sufficient to incorporate all morally relevant considerations and therefore individual principles must be combined into multiprinciple allocation systems. We evaluate 3 systems:

  1. the United Network for Organ Sharing points systems,
  2. quality-adjusted life-years, and
  3. disability-adjusted life-years.

We recommend an alternative system—the complete lives system—which prioritises younger people who have not yet lived a complete life, and also incorporates prognosis, save the most lives, lottery, and instrumental value principles.

This is a start at grappling with a serious problem, that about one-quarter of Medicare outlays are during the last year of life — and much of this neither substantially increases the patient’s life nor improves their quality of life.  (From the US Department of Health and Human Services).  As the boomers age we will no longer be able to afford such expenditures.

The Republicans, like ex-Gov Palin, demonize this research as advocating “death panels.”

Our politicos cannot be wiser than us, the voters.

Other posts on the FM website about American health care

  1. The American public is organizing and getting involved! Are we happy now?, 12 August 2009
  2. Important:  Beginning of the end of the Republic’s solvency. Soon come the first steps to a reformed regime – or a new regime., 14 August 2009
  3. Hidden truths about American health care, 19 January 2010
  4. About the political significance of the conservatives’ health care propaganda, 23 March 2010
  5. The core truth about our health care system, 3 April 2010

For more information

To read other articles about these things, see the FM reference page on the right side menu bar.  Of esp interest these days:

  1. Good news about America, a collection of articles!
  2. About America – how can we reform it?
  3. About the Financial crisis – what’s happening? how will this end?.
  4. About The End of the Post-WWII Geopolitical Regime.

Posts about the government’s finances:

  1. Forecasts – Why wait? Read tomorrow’s news … today! (part 3), 17 July 2006
  2. The post-WWII geopolitical regime is dying, 21 November 2007
  3. We have been warned. Death of the post-WWII geopolitical regime, 28 November 2007
  4. The most important story in this week’s newspapers, 22 May 2008 — How solvent is the US government? They report the facts to us every year.
  5. The most important news of the month. Perhaps the year., 25 September 2008 — Warnings from our foreign creditors.

Here are previous posts in the FM series about the Constitution.

  1. Forecast: Death of the American Constitution, 4 July 2006
  2. The Constitution: wonderful, if we can keep it, 15 February 2008
  3. Congress shows us how our new government works, 14 April 2008
  4. See the last glimmers of the Constitution’s life…, 27 June 2008
  5. Remembering what we have lost… thoughts while looking at the embers of the Constitution, 29 June 2008
  6. A report card for the Republic: are we still capable of self-government?, 3 July 2008
  7. Another step away from our Constitutional system, with applause, 19 September 2008
  8. What comes after the Consitution? Can we see the outlines of the “Mark 3″ version?, 10 November 2008
  9. Are Americans still willing to bear the burden of self-government?, 27 March 2009
  10. “Lights, Camera, Democracy” by Lewis Lapham, 24 May 2009
  11. “The Constitution that I interpret and apply is not living, but dead.” – Supreme Court Justice Scalia, 9 June 2009



64 thoughts on “Beginning of the end of the Republic’s solvency. Soon come the first steps to a reformed regime – or a new regime.

  1. “Our future is California writ large?”

    Apples and oranges. California has to write IOUs. The United States of America can print money – a Jedi mind trick which works very well as long as hyper-inflation does not kick in and shove reality into people’s faces.
    Fabius Maximus replies: True. But think of it structurally. California’s problem is an inability to adopt workable public policy, despite years of evidence their current policies are self-destructive. Michigan, also. Perhaps they are just the leading edge of national systemic problems. Obama’s difficulty reforming an obviously disfunctional health care system is more evidence. The passage of time will probably provide more examples.

  2. Things have gotten to the point where I, for one, am more interesting in figuring out how I, as an individual, might be able to navigate these waters rather than to attempt to resolve the policy issues – particularly considering that others would be unlikely to adopt any solution I might propose.
    Fabius Maximus replies: These are long, slowly evolving trends. Dealing with your personal circumstances and public responsibilities are not exlusive or even conflicting.

  3. I appreciate the link to Nathan Lewis. One point he makes regarding Japan’s “Lost Decade”, is that this was in large part self inflicted by highly counterproductive tax policy. Lewis thinks this was way more important than liquidity traps, or bank balance sheets. If true, one can speculate who pressed for the ill advised tax increases; Japan’s boomers, right on time, about a decade ahead of us. The impossibility of using monetary expansion to reinflate due to elderly fixed income folk voting no was well documented, but the tax angle I have not seen. This could be us very soon, voting really stupid tax increases to make up shortfalls in the goody bag. Watch Ca. we’ll go first.

  4. As a Brit I consider myself on the outside looking in. To me I think its time your country had a long hard look at itself in the mirror and had an adult conversation with itself. Time to decide what kind of country you want to be and how it will have to be paid for. There seems to be a deep irrational fear of your government running something for the good of the country and its citizens. But once you have decided that national solidarity with respect to taxation & healthcare reform among others is important I don’t really see how it could run any other way. I mean its meant be “Government of the people by the people” yes? so where did this disconnect and fear of government come from and why has it posioned any form of rational debate?

    If you don’t want government involvement, then what exactly is the role of your government? Why vote if the last you want is a pro-active government?

  5. My BS meter just went off the scale. I’m quite frankly offended by the notion that we, as Americans, should expect less from our government merely because those we hired to manage our retirement program have not done a good job.

    Benefits do not have to be cut, sir. Instead … the cap on wages for Social Security taxation should be removed. There is absolutely no reason on Earth why those who have benefited the most from American society should receive a tax break on paying their fair share.

    Additionally, I cannot fathom that in just a few short years, the world’s richest man will begin receiving a check from Social Security. Bill Gates does not need the money, but other ordinary Americans do need the money.

    We should not expect less from our government merely because it is corrupt. Asking that we accept lower benefits is tantamount to accepting that we cannot improve our government … and that just isn’t so. We can improve our government by firing the sons of bitches.
    Fabius Maximus replies: Nice to see that we agree on so many things.

    (2) “the cap on wages for Social Security taxation should be removed. ”

    Yes, I agree that taxes must be raised.

    (3) Bill Gates does not need the money, but other ordinary Americans do need the money.

    Yes, I agree that benefits must be cut. Means-testing social security benefits is the logical place to start. The government has not done so, seeking to preserve the illusion that it is a pension system (your contributions finance your benefits) — but that, like so many of our illusions, we can no longer afford.

    (4) “those we hired to manage our retirement programs”

    Social security was from the start an intergenerational transfer system, with children’s contributions funding their parents’ retirement. If had more kids the program would still be sound. Also, this is an odd way to speak of our elected representatives.

  6. Re comment #6 by James Morton.

    Wait you are actually suggesting fixing a problem caused by socialist policies and intrusive government with more socialist policy and intrusive government? It boggles the mind that anyone would take such a suggestion seriously. If I’m not mistaken your nation’s statist policies will destroy you soon too. Wake up. No wonder the Muslims are devouring your once great country.

    “The government will save us” – ROTFLMAO!
    Fabius Maximus replies: When your roads have potholes, do you fill them in? If the US faced foreign threats, do you arm your family to defend our shores? Most of us believe government has a role, which is determined by citizens voting in elections. It’s not clear from your comment what system you want.

  7. Fabius, all you are acknowledging is that there will be rationing. No one seriously argues that that is untrue.

    Folks who speak against death panels are arguing against ceding the health care system to the control of unelected and unaccountable bureaucrats. As with all scarce goods, the market has proven many times over to be superior in efficiency to any government method ever devised.

    The point is, as always, not over what is to be rationed but who decides. The government has failed horribly in managing Medicare and Social Security, so why turn the remainder over to them, or to any bureaucrats or panel of experts?
    Fabius Maximus replies: I wish your theory was correct, but it’s not.

    “there will be rationing. No one seriously argues that that is untrue.”

    Headline on a page of the White House Website: Reform will stop “rationing” – not increase it.

    Reform will stop “rationing” – not increase it: It’s a myth that reform will mean a “government takeover” of health care or lead to “rationing.” To the contrary, reform will forbid many forms of rationing that are currently being used by insurance companies.

    Equivalents to this are equally prevalent on both sides. It’s a powerful propaganda tool because many Americans fear rationing. To some extent the fear is correct, because more rationing of care is inevitable — as I showed in the post. However, it need not lead to poorer care!

  8. So, you think it’s ok to use the word “hillbilly”, eh? Why not go with a blast against a person of another color? What, that’s not acceptable? No slow Mexican or lazy black blast? Come on – be a man – spread the hate around. Or stop hating. It’s not ok to hate white people. Check yourself.
    Fabius Maximus replies: The language police strike again! How sad that we see only your virutal presence, depriving us of the opportunity to mock you in person. It’s a free country; get used to it.

  9. {From the abstract of the Persad et al article:} “favouring the worst-off” – Which country are we talking about here?

    “Death Panels” – let’s see, a Federal government commission makes medical decisions based on cost containment. Their weapon of choice is withholding treatments and medications to contain costs. Gee, “death panels” sounds like a pretty apt moniker. Are you saying this commission won’t make cost decisions that produce a death sentence for individuals?

    Your self-assumed superior thought process seems to be clouded by ‘PDS’ and stereotypes. You may want to forgo blogging for a while to clear the “demonizing” spirits you are exhibiting.
    Fabius Maximus replies: You did not read the text. Persad’s article was not describing any country, but evaluating “8 simple allocation principles that can be classified into 4 categories”.

    “Their weapon of choice is withholding treatments and medications to contain costs.”

    Yes, because nobody has unlimited money. All health care systems — past, present, future — involve rationing by the payer, public or private. What’s your point?

  10. FM: “For decades the Democrats won elections by demonizing Republican attempts to reform our social retirement systems before it was too late. Now Republicans return the favor.

    This shows your whole mindset a hillbilly. Democrats aren’t trying to reform anything. Democrats are trying to extend the socialization they have already accomplished even further. Socialization that is at the root of the troubles in the first place.

    This hillbilly mindset is even less intelligent than the one you complain about. It’s the I fired my shotgun through the roof in and now it’s leaking. Maybe if I fire it a the roof a few more times the lead will plug up the holes.
    Fabius Maximus replies: Do you have any evidence for these assertions, or are you relying on The Force?

  11. Utter inanity. There is no such thing as “bankruptcy” or “solvency” for a sovereign currency issuer. You get part way there when you acknowledge that the government can “print money”, but you don’t know exactly what that entails, or why it makes all the difference (hint: “printing money” isn’t something the government does when it somehow runs out of the real stuff; it’s how the government spends, ever day: by changing numbers in bank accounts.)

    Randall Wray can tell it better than I cam so I’ll link to him: “Social Security Truth or Useful Fictions?“, Center for Full Employment and Price Stability, February 2004.
    Fabius Maximus replies: Govenments’ solvency has been a major factor in history — from the assignats of the French Revolutionary government to many examples in the 20th century history, as printing money has limits. Also, governments do go bankrupt — it’s called regime change, and happens frequently.

    Randall Way’s article is excellent, but does not discuss the dynamics of government solvency or bankruptcy, nor the specific situation of the USA. It’s a discussion of one specific US government social program: OASDI (aka social security).

  12. It is far more likely that, instead of cutting benefits, the U.S. will continue on it’s current path until it bankrupts itself and a few states remove themselves from our “imperfect union” to avoid having to pay these bills.

    At that point, all U.S. national debt will be null and void, although many retired Americans (and other assorted investors) who have Treasury notes as part of their investment portfolios will be pretty much fudged.

    I’d advise older folks to look into private long term care insurance. The citizens of our nation are just not interested enough in this topic to prevent the oncoming disaster resulting in huge investment losses and the end of Social Security and Medicare.
    Fabius Maximus replies: I doubt that private insurance companies can surrvive regime change on the scale you describe, esp the total default of the US on its debt. Their assets will probably also collapse.

  13. Though the window of opportunity on a real reform of our entitlement systems without gutting them may have closed, there is hope. That I have advocated for years. It is for individuals to plan their lives, retirements and old age as if government did not exist. This is not to wish it away, but to be prepared should it fail. That level of preparedness and self sufficiency I find to be a very American approach.
    The problems we face have less to do with economics than they do the decline of Res Publica in the citizens minds.
    Fabius Maximus replies: The problem is the boomers. Your sound advice is too late. Most of them have insufficient savings for retirement, and insufficient time to accumulate them before age 65. They will need to work much longer, and their retirement benefits will strain the US government’s finances — forcing change in benefits and taxes.

  14. Comment #7: “There is absolutely no reason on Earth why those who have benefited the most from American society should receive a tax break on paying their fair share.”

    How much–in numbers, not twaddle-filled words like “fair”–should that share be? Express it, please, as a percentage of the rich’s income, what percentile qualifies you as rich, and the total GDP take of the government overall.

    FRankly, I doubt you have the ability to perform that simple task I ask of you, since you likely have no idea what the numbers are now, thus demonstrating you should not be taken seriously at all.

  15. As I follow the healthcare debate (debacle?), I have yet to hear anyone elucidate the root of the problem. IMO, a “root cause analysis” is missing. Perhaps such an analysis has been performed …? I don’t know, but a discussion of the real causes appears, IMO, to be missing from the public discourse.

    Here is an interesting article that helps bring that discrepancy into focus … at least for me. “How American Health Care Killed My Father“, David Goldhill, The Atlantic, Spetember 2009:

    After the needless death of his father, the author, a business executive, began a personal exploration of a health-care industry that for years has delivered poor service and irregular quality at astonishingly high cost. It is a system, he argues, that is not worth preserving in anything like its current form. And the health-care reform now being contemplated will not fix it. Here’s a radical solution to an agonizing problem.

  16. I fear you are incorrect. Benefits need be cut only in the sense that we need government to stop funding them. The elderly will get their treatment, their ‘benefits’, one way or the other. If government benefits are denied, the elderly or their families will spend the money to replace them, through a black market if need be.

    If the government spends the money, the heirs have a better inheritance. If the families spend it, the government keeps its money and the heirs do worse. The net results are similar, though somewhat better if people spend their own money directly. Society continually gets richer and more productive with more resources available after necessities for frivolities like looking after the elderly. Benefits will increase accordingly, indeed they must as we are already hard pressed to consume all we produce.

    All of this holds true unless lefties through their usual tricks of taxation and regulation manage to create Heinlein’s ‘bad luck’.
    Fabius Maximus replies: You are ignoring the specfic example I gave of rationing — spending $36,000 on care in the last year of life. Much of it neither increasing lifespan or quality of life. First, I doubt that people will spend that money themselves — or that most Americans could afford it. Second, experience at other nations disproves your theory.

    “Benefits will increase accordingly, indeed they must as we are already hard pressed to consume all we produce.”

    That’s one of the most bizarre things I have read in a long long time.

  17. Agreed. She shouldn’t have called them “Death Panels”. How about “Choice Panels” instead? We all know how the Left feels about “Choice” and how good it is, and everyone knows what kind of results come from having a “Right to Choose”.

    As Brian Macker points out “reform” is a word like “choice”, one that the Left has debased by substituting their own meaning for the one that used to be in common use.

  18. Based on past behavior, I see little reason that the political class will accept any short term political pain, until obvious disaster comes over the even horizon (i.e. before the next election).

    Many of the current proposals from the Democrats are counter-productive. A nationalized health care system will be a near monopoly provider. Expect all the efficiency killing mechanisms that monopolies bring. The workforce will be de facto Federal employees, doubtless highly unionized. Efficiency further reduced. Few incentives for innovation – drugs, procedures, systems (the IRS computers still can’t talk to each other – I see no reason at all to think FedCare will do any better). Think about the largest public school systems – like Detroit or LA – this is the future they are driving us toward.

    We are in a huge hole, that is not widely recognized (the Democrats have lied energetically about it for years). Some things would help – very strong tort reform, less government regulation (things like Walmart minor-care clinics should be encouraged, not prohibited),decoupling the discussion of health care from health insurance (via much higher deductibles, HSA), etc. – but it won’t be enough.
    Fabius Maximus replies: The experience of many European nations (esp France and Germany) suggests that your fears are unfounded. They have mixed government-public systems that are superior to our by almost every metric. Focusing the debate on the UK and Canada examples absurdly narrows the debate.

  19. FM: “When your roads have potholes, do you fill them in? If the US faced foreign threats, do you arm your family to defend our shores? Most of us believe government has a role, which is determined by citizens voting in elections. It’s not clear from your comment what system you want.

    Ummm, the constitution is fairly clear about the role government should take in our affairs. While it is clear that the defense of the nation is a government affair, it is less clear that it is always the government’s job to fix potholes, for instance. My parents have a road 1/2 mile long leading to our house. They keep the road maintained just fine, thank you. However, I’m willing to concede that there is a role in government for fixing potholes on a basis that is somewhat restrained by benefit analysis and in a way that does not abrogate the property rights of individuals in an unfair manner.

    However, the role of government in retirement and in healthcare is an unmitigated disaster. While it is nice to have a government coordinated retirement program, the way in which it has been implemented makes it an unsteady ponzi scheme. Most people would be happy to take the money they’ve put into the system and do something beneficial with it.

    Similarly, the biggest problems of health care in this country start with the distortion effects of Medicare and Medicaid, the government regulations preventing real price comparisons and insurance compatition across state lines, and with perverse tax legislation (from WWII wage controls) preventing the true portability of coverage. Your claim seems to be that it is OK for the government to destroy any real possibility of true supply and demand, and then to claim that supply and demand don’t work and must be centrally controlled.

    What you exhibit here is an arrogance about the decision making power of yourself and or a few other “elites”. In reality, nothing works better than millions of people making billions of individual decisions to help make complex systems like this work. Government control invariably makes these systems worse because they cannot possibly process and correctly interpret the multitudes of indicators and data points necessary. However, functioning markets do work win this regard, and while they may be messy, they are far, far better than the alternatives. In almost every case, functioning market spur innovation while government control stifles that innovation. I fear that the long-term secondary effects of government control of health care would be far worse than the immediate problems introduced – funny, nobody seems to mention that the REAL free-rider problem is with the other socialized countries getting a free ride with our health care innovations.

    The problem with the “death panels” (and that is what they would be) is that instead of millions of people making those decisions in conjunction with market prices, doctors services and insurance plans, you would substitute them for the same people who decided that the senior bondholders at GM were to be bypassed for the unions.
    Fabius Maximus replies: As I and many others have said, there are many systems with long histories of superior performance to ours, such as the mixed public-private systems in Europe (e.g., France and Germany). Instead of relying on actual performance of these examples, you seem to prefer to rely on your imagination — esp your fears.

  20. A government conceived in liberty cannot be in the business of determining “Principles for allocation of scarce medical interventions.“
    If the continued expenditures of such social programs would bankrupt the government then the government simply must cease to involve itself in such social programs. Benefits must be cut. Expenditures will fall accordingly.

  21. Re: comment 8

    What socialist policies are these you refer to exactly? Government bailout of your banks? If it were not the Government, who did you epxect would provide the money…IMF, world bank, the saudis, China? I don’t see that bailout there as socialist…the government does not run your banks, the directors of the banks still run them with little or no government input or oversight. Who extacly do you think is going to get your country out of the fix it is currently in? The same freemarkets who put your country in this mess? now that is what makes me angry…i find very little about it to make me “ROTFLMAO”

    My nations “statist” policies will destroy us soon…hmmm If anything its inexplicable belief in PFI initiatives and other private business involvement will do more harm than good in the long term. Destroy us though? I think not.

    “overrun with Muslims” These “Muslims” are UK citizens as are the numerous other ethnic groups. If they pay their taxes and obey the laws of the land what do I care what religion they practice. Do you feel the same about the ethnic groups in your own country?

    My post was largely rhetorical…and it still stands. If you have such contempt and scorn for Government what point does it serve. Why the fear, why the hate? They are elected are they not? They didn’t invade your country. I am curious to understand the disconnect between citizen and the state that would govern in the citizens name.

  22. I fully agree that benefits will have to be cut, or runaway inflation will be triggered as the Federal Reserve monetizes the debt. But instead of slashing SS payments and rationing care, how about just delaying retirement age, say to 70? With the vast advances in medical care, people are living healthy and active lives much longer than when Roosevelt set the retirement age at 65 back in the 30’s.
    Fabius Maximus replies: I agree, in the sense that all methods will be used. Higher taxes, reduced benefits (including later retirement age), and means-testing of benefits. The problem is so large that there is no magic bullet solution.

  23. FM: “Headline on a page of the White House Website: Reform will stop “rationing” – not increase it.”

    I said no one seriously argues there will be no rationing. Such BS is around, even on a White House web page. No one takes such an assertion seriously, not even them.

    ” many systems with long histories of superior performance to ours, such as the mixed public-private systems in Europe”

    Good thought. Note however that France has huge deficits itself related to health care, and its health budgets have been in the red since 1988.

    “In 1996, France introduced targets for health insurance spending. But a decade later, the deficit had doubled to 49 billion euros ($69 billion). “I would warn Americans that once the government gets its nose into health care, it’s hard to stop the dangerous effects later,” said Valentin Petkantchin, of the Institut Economique Molinari in France. He said many private providers have been pushed out, forcing a dependence on an overstretched public system.” source

    Fabius Maximus replies: I don’t understand the basis for your belief. Both sides fly the “no rationing” banner, which indicates that a significant fraction of the public finds this credible. Perhaps you mean “every sensible person believes there will be rationing.” That seems right, and implies that both sides base their PR on lies — which is a very bad sign for the Republic.

    “has huge deficits itself related to health care”

    That’s not what the article says. Spending has overshot targets, which is also true for a large number of US government programs. For example, DoD programs routinely exceed their spending targets. In the usual sense, deficits refers to government-level differences between income and outgo. Most government departments run deficits, as they are not structured to fund themselves.

  24. FM: “As I and many others have said, there are many systems with long histories of superior performance to ours, such as the mixed public-private systems in Europe (e.g., France and Germany). Instead of relying on actual performance of these examples, you seem to prefer to rely on your imagination — esp your fears.

    Just as you ignore the information that shows that our life expectancies are better than theirs when you adjust for accidental deaths (see Mankiw’s blog) or the fact that their infant mortality numbers are skewed by babies that they consider to be miscarriages (i.e., these are not considered live births and are taken out of the numbers) that are often saved in the US, and just as you ignore the “free rider” effect of those countries not fully paying for the health care innovation from US.

    Finally, I am not relying on my fears. I have previously lived and worked in Germany and my wife has lived and worked in France, Germany, England, and Hong Kong. As a she has a major health issue to deal with, she has had ample opportunity and to guage the quality of the health insurance in those countries, and it definitively does not rise to the level of the United States.

    Perhaps you should do better research before you pontificate.
    Fabius Maximus replies: I have seen much research that shows the european health care systems have broadly equivalent outcomes as ours — with far less cost. I have seen nothing saying that our is better overall, or that we get benefits proportional to our vastly higher costs.

    “our life expectancies are better than theirs when you adjust for accidental deaths (see Mankiw’s blog)”

    Can you provide a reference or link? Using Google, I can find nothing about this on Greg Mankiw’s blog. He does have some good work on health care, however.
    * “Beyond Those Health Care Numbers“, op-ed in the NY Times, 4 Nov 20007
    * “International Health Comparisons“, 19 June 2009

    You’re going into the weeds with the infant mortality details. International comparisons are difficult due to different calucation of these things. Plus each system has a different mix of strengths and weakness, none does everything well. For example, see this post on the Becker-Posner blog, 7 June 2009 (cited by Mankiw).

  25. Solvency has been an issue for governments in the past, true – but it cannot be for a government that is a currency issuer in a floating exchange rate regime. Such a government can, by definition, always pay it’s bills, since it doesn’t have “get” money from anywhere: it changes numbers in bank accounts.

    So solvency is never an issue – but inflation can be, if the government tries to allocate throgh its spending more than the economy can produce. If costs for retirees go up, and the government simply spends more on them while not reducing spending on other things (via taxation), that will just cause a bidding up of prices. I call your attention to this line in Wray’s article:

    Today OASDI benefits equal 4.5% of GDP; that grows to 7% over the next 75 years. Does anyone doubt that we will be able to afford to devote 7% of our nation’s output to provide a social safety net for retirees, survivors, and disabled persons? That leaves 93% of GDP for everything else. We have easily achieved larger shifts of GDP in the past without lowering living standards of the working generations. I cannot imagine a future so horrible that we won’t be able to support OASDI in real terms.”

    Yes, we will need to allocate more for retirees, But two things are relevant about this:

    1.) We will be richer in the future than we are today. Unless something happens (like peak oil, world war, or a meteor strike), productivity will continue to increase, and there will be a bigger pie to divide. That 3.5% extra GDP will still leave the rest of us better off. May I remind you that, today, approximately 10% of the population grows all the food, builds all the buildings, and manufactures all the goods that the rest of us use? That’s why we can currently afford to support our oldsters in a way that no previous society could – and we will continue to be able to.

    2.) SS is just a way to redistribute goods from a working population to a non-working population. If the goods aren’t there, no other method is going to work, either – private retirement funds are simply a different means of redistribution.

    As for the dynamics of bankruptcy and solvency, here’s a better article on that: “The 7 Deadly Innocent Frauds of Economic Policy“, William Mosler, Draft, no date.
    Fabius Maximus replies: This is getting too much into Econ 101, off-topic for this post. To make this brief, printing money works up to a point. Then the system collapses. There are many many examples. You can define the problem however you want, but printing money is not a magic ward.

    Your analysis of SS misses the point. It is just one of the many government programs the present value of whose promises add up to aprox $60T. Discussion in the general terms you use sheds no light on the matter. There is a large literature by experts explaining why this cannot be paid, and massive changes in government revenue and expenditures will be necessary. Warmings from academics, government agencies, NGOs, Wall Street, ratings agencies. For a small sample of these see We have been warned. Death of the post-WWII geopolitical regime, 28 November 2007.

  26. Beginning of the end, end of the beginning? Who knows or cares. The world we created in 1945 — never have so few sacrificed for the benefit of so many — is finished. Either we recognize our altered circumstance — “Sole Superpower” rubbish lasted a decade, Clinton bullshit of course– or we will decline. Reform, revolution or Reaction are the choices that loom. More of the same is not an option which is what Obamacare and the Bank bailouts represent. Is he a Socialist? Who knows, he is a Statist, as was BushClintonCarterReaganJOHNSONNixon. If we continue on this course of one party government, we will decline over the next two generations. The debate is only beginning. Sure, we need a complete overhaul of the tax code, income, corporate, non-profit rackets, SS and withholding. But there is no chance until a long and rancorous debate has gone on and real, definable public positions emerge. Same with our 900 foreign bases and corrupted defense industrial policies. FM you are the True Patriot. Keep at it.

  27. Cmment 23: “These “Muslims” are UK citizens as are the numerous other ethnic groups. If they pay their taxes and obey the laws of the land what do I care what religion they practice.”

    I can’t speak for the other guy, but I don’t care what religion they practice. What I do care about is the intolerance they bring for other religions and their commitment to impose Sharia Law on non-Muslims already evident in the UK. Or haven’t you noticed?

    FM replies: Most of us believe government has a role, which is determined by citizens voting in elections. It’s not clear from your comment what system you want.

    Some of us still think that the role of government is defined by the Constitution, which, despite inroads by Democrats and judicial oligarchs, has not yet been repealed.
    Fabius Maximus replies: It’s not clear to most of us that the Constitution is relevant to this discussion about the US health care system. Perhaps you think that Medicare and Medicaid are unconstitutional? If not, why would expanding those systems be so?

    Everybody, please no more about Muslims. It’s grossly off-topic.

  28. FM,

    Here are the translated numbers in chart form for life expectancy when you take out non-health-related deaths along with the link back to Mankiw’s post and data source: “Beyond Those Health Care Numbers: US Looks Good“, Mark Perry, posted at his blog CARPE DIEM, 4 Nov 2007.

    and here is an additional post (likely reflecting the impact of the numbers above) showing that the US has clear health care benefits over that of the UK near the end of life when, presumeably, it would be more important, he didn’t yet have similar numbers for France, Canada and Germany).

    Life Expectancy Higher in US than UK at Age 65+“, Mark Perry, posted at his blog CARPE DIEM, 10 August 2009

    Finally, the US has a much different mix of immigrant populations than the other countries do, not to mention health issues that are particular to our country – obesity, teenage births, etc. all of which contribute somewhat to the different outcomes. When you compare apples to apples (i.e., relatively healthy people with no dangerous or unhealthy habits), we do very well.

    That still doesn’t address an essential issue of control and decision-making power. Why is it better to have the government or a fall set of “wise” bureaucrats making decisions instead of a market based system of doctors, patients and insurance companies?

    AND, you have not addressed the central issue of innovation. Literally all recent medical innovation has been financed by and produced in the US. Where will that innovation come from if not from us? I’d rather pay more and have more innovation, even if it meant paying less under the government program – where it is almost certain that innovation will be stifled, just as it has been in those other countries.
    Fabius Maximus replies: Thanks for posting links to these excellent articles. However they both support my statement that the US system produces outcomes that are similar to the better european systems, but at a far greater cost. Note Perry’s conclusion, in the Nov 2007 article:

    Bottom Line: Once you go beyond the the standard health care data on life expectancy at birth, the U.S. looks pretty good, and actually has the highest standardized life expectancy in the world, according to the University of Iowa study.

    These differences between outcomes (usually < one year) are all small, and well within their error bars (i.e., not statistically significant).

    Also, you don’t see the point of this post. It’s not a discussion of alternative health care systems. It’s about our government’s eroding solvency. The conclusion is that radical change in the government’s mix of income and expenditures is needed, and that the debate so far consists largely of exaggerations and lies by both sides.

  29. FM: “It’s not clear to most of us that the Constitution is relevant to this discussion about the US health care system. Perhaps you think that Medicare and Medicaid are unconstitutional? If not, why would expanding those systems be so?

    As I discussed in my comment, it’s not even an issue of whether or not they are constitutional, it’s a question of whether or not they were good policy in the first place. Medicaid is a huge problem for the health care system. In most states they reimburse less than 10 cents on the dollar and their reimbursement is so slow and uncertain that most hospitals write this money off almost immediately. This money has to be made up somewhere, so it comes out of the pockets of private insurance and the people who pay cash.

    Similarly, Medicare is well liked by the people who use it, but it’s threatening to bankrupt our country in the not so distant future. Why would the government want to expand such a program to cover all Americans? If there are such amazing cost savings to be found, why haven’t they already found them in Medicare? Why can’t the fix that before jumping in with their untested plans for everyone?

    These systems are perhaps the biggest part of the problem with health care in America – While they may not be in the scope of what the constitution grants as federal power, they are certainly a mess and a mess that is likely to be repeated if the government goes forward with the kind of health care programs that have been discussed.
    Fabius Maximus replies: All great points. As I noted in the post (giving one example of many), irrational spending my Medicare is a serious and growing part of the problem. In addition to this and the examples you note, there is the tilt toward care by specialists rather than often more cost-effictive care by primary providers (nurse-practitioners, family doctors).

  30. FM Note: I recommend reading this.

    One more post and I’ll leave it alone. In the post you cite, you link to some analyses from the Levy institute, including some from Randall Wray. To paraphrase Inigo Montoya: “I do not think they mean what you think they mean.” I would urge you to reread some of those papers, and correspond with Professor Wray if you want clarification. Most of the rest are typical conventional economic analysis that assumes that the dynamics of a gold standard regime still operate in a floating rate world.

    When you start lobbing around numbers like “$60T present value” (a highly dubius number calculated by people with axes to grind), you still miss the fundamental question: will there be the real goods and services in the future to take care of old people, disabled, etc? I submit that there is no evidence that we will not. As someone upthread commented (to your derision) we currently spend a great deal of effort figuring out ways to consume everything we produce. We have a marketing industry of millions of highly paid people who produce nothing, but spend their lives trying to figure out how to get people to buy cars, ipods, houses, etc. We have millions more who provide services like “Yoga instruction” or “pet psychiatry” that would have seemed absurd to our grandparents. There is no reason to believe that will become so impoverished in the future that we will have to start pushing our old people onto ice flows…
    Fabius Maximus replies: You give nothing to respond to. You wave away analysis from a VERY wide range of experts, and substitute your dreams. This is a perfect demonstration of American thinking (collectively) at this time, and perhaps our greatest danger.

  31. @ Fabius

    You can argue that some European countries have health care systems that are superior to ours by various metrics. That issue is debateable. But the Administration shows no sign of having studied those European systems or having made a serious effort to learn anything from them, either their strengths or their weaknesses. As far as I know, none of the bills being bandied about in Congress bears cloase rsembalnce to either the French or German system (Though truthfully, who knows what’s really in any of those bills?)

    This being the case, I think the concerns being expressed about health care reform are well founded. Even if the French and german systems are as good as you say (Which I doubt), that isn’t what we’re being offered.
    Fabius Maximus replies: I strongly agree on all points. As I have written many times, our public policy mechanisms are dysfunctional. The point of this post is that the current system is in a slow-mo collapse. Drastic reform is required. Discussion of specific public policy measures is beyond its scope (it’s too long already, as web posts go).

  32. FM – You’re missing one gigantic point about Germany and France – for the last 60 years, they have had almost all of their national defense needs covered by the American taxpayer. They also have significantly higher taxes than the United States.

    As far as I am concerned, taxes are too high already. I certainly don’t want to see them raised. Finally, given how many things our government has done well (hint – beyond the military and the moon, it’s pretty much none) the very last thing I want is for them to end up in complete control of the health care system.

    And make no doubt about it – the end goal here is a completely government-run single-payer system where you are beholden to unelected government workers for your care.
    Fabius Maximus replies: I didn’t say that these nations were better than us, merely that their health care systems delivered broadly equivalent care at far less cost. Nor is it clear why you consider that a bad thing. As for your “no doubt about it”, what evidence do you have that this is the goal of the majority in Congress, or any substantial body of folks in office — or the public, or in the health care field?

  33. FM – How about their words?

    Obama, the bulk of the “progressive” wing of the Democratic members of the House, the unions that finance them, the “activist” groups that lobby them — ALL of them are on record as supporting a government owned and operated single payer system.

    And they know where they went wrong in 1993, when Hillarycare went down in flames. They’re going incremental this time. The present plan that’s being pushed will create a government “insurance” plan that will compete with private insurance. However, the private insurers will all have to get their plans approved by government regulators. In addition, the government is not required to turn a profit, or break even for that matter.

    Come on, you can play chess, can you not? Do you not see the next move? Obama’s own words “I don’t see private insurance going away right away, it’ll take 10 or 15 years or more.”
    Fabius Maximus replies: I agree that substantial elements of the Democratic Party (including Obama) — and the Left — want a single payer system. Like the UK and Canada, not like the more successful mixed public-private systems in Europe. It just seems to me that you’re exaggerating the range of folks for whom that’s the goal, or perhaps being too vague.

  34. Oh, and the bulk of the health care field are against the proposed “reform”. But their opinion doesn’t matter. Congress isn’t listening to them.

  35. Means-testing is coming, but I do not think you’ve thought through rationing or the basis of “few can afford it” with respect to the last year of life expenses.

    Many seniors, especially the aging Boomers, have property. It is reasonable to require that people use their own assets before dipping into the public troth. The Boomers have not done a good job of managing their wealth for retirement, in the abstract, but many/most have property to sell. I expect to see some sort of reverse mortgage products appearing for the sole purpose of paying medical expenses (or government liens against property for this purpose, payable when the property is sold).

    The idea that one retires and is able to maintain the same lifestyle when working is over. In addition, the idea that people “retire” was a temporary glitch of the last 50 years (not a concept that existed before). Boomers might not stay in the workforce in traditional jobs, but they might have to live with their children (say, providing daycare for their grandchildren). The Greatest Generation will be the last to have golfing/vacation style retirements.

    It is immoral to think that you can check out of life and live off your children and grandchildren. It may not be what the Boomers want, but it is what they are going to get. It may require that we bankrupt the nation before the reality of the situation sinks in, but the reality is that Boomers will not have the same retirement as their parents. Bankrupt nation or before, the coffers are empty (and always were, by original design of Social Security) and there is no amount of taxation that will produce the amounts required to pay to the Boomers what they think they’re entitled to receive. The unfunded liability for the Boomer’s retirement years is projected to be 120% of GDP. 100% taxation on working people wouldn’t be enough. The Boomers might whine, but it is their fault. They were the stewards of the government for the last 40 years and they didn’t make sure the government was managing the budgets as they should. The Boomers have already spent their retirements by being the most coddled and spoilt generation in history.

  36. FM: “It’s not clear to most of us that the Constitution is relevant to this discussion about the US health care system. Perhaps you think that Medicare and Medicaid are unconstitutional? If not, why would expanding those systems be so?

    It was not clear to me that your original reply limited its context re the role of gov’t to health care spending, so I was speaking generally. Nevertheless, it may well be time for us begin asking the source of Constitutional authority for many of the things the federal gov’t is doing. In a constitutional republic that does not seem out of line, however unfashionable.
    Fabius Maximus replies: Both good points. I esp agree with your second paragraph, as explained in some detail in Forecast: Death of the American Constitution (4 July 2006).

  37. Is there anyone else that matters? The people who make the laws are in favor of complete government takeover. They don’t care about results, they want control. Even if every Republican in America was against it, they can’t stop it. The only thing that looks likely to prevent this takeover is the threat to incumbent Democrats that they are likely to end up at the unemployment office in January 2011.

    If the government was TRULY interested in reforming health care, they’d get the hell out of the way. In every other field of human endeavor, prices go down as technology improves. But not medicine. Why? We have waiting time issues here too, and they’re caused by the false scarcity imposed by government and guilds to keep medical care expensive.

    Allow anyone who is capable of completing the educational and licensing requirements become a doctor. More doctors means lower costs. Get rid of the idiotic HMO system that completely hides the costs of care from the consumer. Get rid of the tax breaks to employers that inhibit worker mobility. And when all that is done, if you still want someone to pick up the tab for the truly poor, let the government pay for basic private insurance.

    Government is the problem here, not the solution.
    Fabius Maximus replies: The government restrictions on health care licensing probably push the cost up, but do you have any evidence that this is a significant factor? It seems unlikely, IMO. Wages are not that large, and I doubt that massive wage cuts through increased supply of docters and nurses will help much. Anyone in the medical field reading this who can comment.

    “if you still want someone to pick up the tab for the truly poor, let the government pay for basic private insurance.”

    Do you have any evidence that this would be cheaper than Medicare, Medicaid, VA, or Tricare? Or are you just making stuff up?

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