Update on our government’s deteriorating solvency

Summary:    Here are some ugly numbers for August from the Chief Actuary of the Social Security system.  This is a follow-up to 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).

Contents

  1. Monthly cash flow in 2009 for the US Social Security Administration
  2. FM recommendations
  3. Other recent articles about this slowly developing crisis
  4. How does the US health care system compare to that of other nations? (update)
  5. Afterword and For More Information on the FM site

(1)  Monthly cash flow of the US Social Security Administration

Month Cash in Outgo Surplus/Deficit YoY $ YoY %
Jan-09 $71,854 $55,290 $16,564 -$2,906 -15%
Feb-09 $54,413 $55,760 -$1,347 -$3,863 -154%
Mar-09 $58,669 $56,135 $2,534 -$4,935 -66%
Apr-09 $77,081 $56,596 $20,485 -$3,827 -16%
May-09 $54,408 $56,330 -$1,922 -$5,068 -161%
Jun-09 $61,156 $61,383 -$227 -$6,553 -104%
Jul-09 $56,345 $56,890 -$545 -$4,207 -115%
Aug-09 $50,657 $56,490 -$5,833 -$5,642 -2954%

Notes:

  • In millions of dollars.  Big money — aprox 5% of US GDP.
  • YoY means Year-over-Year (e.g, August vs. August).
  • This does not include the Medicare Trust Fund, for which I see only annual data. Its contributions probably show the same trend.
  • Quarterly contributions arrive in March, June, etc.  April, of course, is a big month for contributions. 
  • Does not include “interest” paid by the government to itself, which is just another journal on the the government’s books. 
  • For more information see the source.

See the trend!  The year-over-year change in the surplus was -$15.3B in the first four months of 2009, and -$21.5B in the second four months.  Cash in was down 15%; cash out was up 3%.  The latest forecasts were for the system to go cash-flow negative in 2016 (Medicare went into the red in 2004).  August looks esp ugly, as Bruce Krasting warned us at his blog on 8 September 2009.

This does not mean that social security will go broke.  Social security contributions are just taxes.  Social security benefits are promises by the US government, and can be changed at will.  Instead this marks an inflection point for the government’s solvency.  For decades the taxes for Medicare and social security exceeded expenditures on those programs.  The government spent this money.

This is the end of an era.  As the boomers retire, expenditures for our social retirement programs begin their inexorable rise.  Instead of  funding the rest of the government, these programs become burdens.    For the next few decades the government will find the deficit growing each year (all other things being equal).  For more on this see “The biggest bailout yet“, Fortune, 17 August 2009).  The coming wave of deficits are too large for any feasible tax increases to cover it.  For more on the effects of various proposals, see these reports by the Chief Actuary.

(2)  FM recommendations

  • Taxes increase
  • Social security and Medicare benefits get taxes and means-tested
  • Other government programs get cut (e.g., our imperial but costly military)

Some combination of these three measures will do the job.  The two maintain social peace  by sharing the burden, and distributing scarce funds where most needed.  The third represents inevitable belt-tightening, pruning now unaffordable luxuries.

It will be a new world, not the end of the world.  Unless we cannot take these simple measures, and allow events to overwhelm us.

(3)  Other recent articles about this slowly developing crisis

(4)  How does the US health care system compare to that of other nations?

This subject has been intensively studied for decades.  These are a few sources, to help anyone interested get started.

(a) Mirror, Mirror on the Wall: An International Update on the Comparative Performance of American Health Care“, Commonwealth Fund, 15 May 2007 — Abstract:

Despite having the most costly health system in the world, the United States consistently underperforms on most dimensions of performance, relative to other countries. This report—an update to two earlier editions—includes data from surveys of patients, as well as information from primary care physicians about their medical practices and views of their countries’ health systems. Compared with five other nations—Australia, Canada, Germany, New Zealand, the United Kingdom—the U.S. health care system ranks last or next-to-last on five dimensions of a high performance health system: quality, access, efficiency, equity, and healthy lives. The U.S. is the only country in the study without universal health insurance coverage, partly accounting for its poor performance on access, equity, and health outcomes. The inclusion of physician survey data also shows the U.S. lagging in adoption of information technology and use of nurses to improve care coordination for the chronically ill.

(b) The OECD has a large body of research comparing national health care systems by a wide range of metrics. See their Health Care page here. Esp note the following:

(5a)  Afterword

Please share your comments by posting below.  Per the FM site’s Comment Policy, please make them brief (250 word max), civil and relevant to this post.  Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling). 

(5b)  For more information from the FM site

To read other articles about these things, see the following:

Reference pages about other topics appear on the right side menu bar, including About the FM website page.

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.
  6. 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

58 thoughts on “Update on our government’s deteriorating solvency

  1. None of this should be any surprise; Americans have been living beyond their means for decades now – largely financed by mortgaging their future and steadily selling the middle class of to underclass status.

    But what is interesting is how it will be distributed. There is really no interest on how America will compete in the global economy, and instead everyone is just scrambling for the rapidly shrinking pie. There is very little reason for regime change because there is every indication that the rich are going to have little problem making sure that ‘they’ don’t have to bare the burden of any cuts.

    At the same time there is a large wealth difference between boomer and later generations. So that the transition is going to be relatively rapid. Most of the following generations seem resigned to a lower lifestyle then their parents but I doubt they realize just how sudden the transition will be.

    Interesting to see that New York is trying to become the lifestyle city for the rich. As the financial industry declines they are facing a financing problem as a large percentage of city taxes comes from that industry. So their plan is to make NY a city where the rich want to live despite having businesses in Dubai or Hong Kong etc.
    Why you would want to live in the wrong time zone instead of say Singapore beats me but the city doesn’t have many alternatives.

  2. The problem is political,though, not one of macroeconomics, at least for Social Security. Social security will in the worst out-years run a deficit of roughly 2-3% of GDP. Certainly that is a sustainable deficit. And aside from Social Security, no other major program is planned to increase particularly rapidly. If you set total federal tax revenues at 22% of GDP you could cover everything that is foreseeable, and certainly bringing it to 22% of GDP, still lower than the rate in 1983 for instance, there is no insolvency problem at all…. with one key exception — health care.

    We don’t have a generalized insolvency crisis. We have a narrow health care fiscal crisis. Fix health care, and the rest becomes relatively simple if you can just convince the GOP to abandon its slash and burn opposition to any tax increases.
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    Fabius Maximus replies: I agree, except for two points.

    (1) “And aside from Social Security, no other major program is planned to increase particularly rapidly”

    One word: Medicare. It’s not included in these numbers, as it is a separate program: separate rules, separate funding, separate Trustees. On a smaller scale, Medicaid is also a problem — as boomers qualify for nursing homes.

    The distinction between retirement income and medical care is vital, allowing a cure for this budget vise. The experience of almost every other nation shows that we can probably cut health care costs by 1/3 without substantially affecting quality. Reducing retirement income support is far more difficult, and fortunately probably not necessary.

    (2) “If you set total federal tax revenues at 22% of GDP you could cover everything that is foreseeable…”

    Table S-1 of the May 2009 US government budget forecasts expenditures (including social security and medicare) as 22.1% of GDP in 2012 (after the effects of the recession), slowly rising to 22.8% in 2019 (and rising more after that). History suggests that these assumptions are far too low, all other things remaining the same (i.e, no radical change in the health care system).

    It forecasts government revenue at 15.1% of GDP in 2009, rising to 19.4% in 2019. That means a tax increase of 3%-4% of GDP {to balance the budge}, aprox a 20% increase in taxes from their average level. This assumes expiration of the Bush tax cuts. I agree that the political impact of a 20% would be big. However, the economic impact probably also would be severe, as Japan proved in during their lost decade. Each brief recovery was aborted as they raised taxes to reduce the deficit.

    The 1990’s boom was our lost (and last) opportunity to reform both expenditures and taxes with minimal impact. Now it steadily becomes more difficult. That was the point of this post. I strongly agree with you that the solution lies in the political realm, and lies within our reach.

  3. “Doesn’t matter, its all profit! And then finally, when there’s nothing left, when you can’t borrow another buck from the bank or buy another case of booze, ya bust the joint out. Ya light a match.” — Henry Hill, in the 1990 movie “Goodfellas”

  4. the thing is that ss had a surplus of 71 billion this year and congress took it and gave them a iou so it is alldems and rep. not just one or the other they are both at fault.
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    Fabius Maximus replies: Social Security is a department of the government, and intragovernmental IOU’s have no meaning (as you note). Social security taxes have financed the rest of the government for decades, one reason we’re in the current bind, as the surpluses disappear.

  5. FM, you and I are in agreement on everything except for one statement: “Social security benefits are promises by the US government, and can be changed at will.

    While your statement is factually true, there is virtually no will in Washington to reduce SS benefits. There is a reason why social benefits are known as the “third rail of politics,” because the politicians know full well that if they touch it they are dead.

    In fact, I suspect that the recent financial meltdown (which I suspect had its biggest impact on pension funds although I can’t find any trustworthy supporting evidence to support my theory) will cause some pressure in the next few years to increase SS benefits while keeping taxes down.
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    Fabius Maximus replies; You statement is not in disagreement with mine. One refers to the underlying reality; the other is a statement of the current situation. When the budget crunch hits, then change will become inevitable.

  6. FM: Right, I agree completely. I specifically mentioned that health care was the exception. Not just medicare, but medicaid and tricare/VA as well.

    In your response, however, you misspoke and I want to clarify:
    “It forecasts government revenue at 15.1% of GDP in 2009, rising to 19.4% in 2019. That means a tax increase of 3%-4% of GDP, aprox a 20% increase in taxes from their average level. ”

    15.1% is not the average level. Over the past 30 years, it is closer to 18.5%. And in 2000 — the federal government collected 20.1% of GDP in revenue. That was also a year we had a nice surplus, and oh btw, the economy was doing well, even if you factor out the benefits (short-term) of the tech bubble.

    The problem with the doom and gloom stuff is that we were running a surplus (or moving toward it) in the late 1990s, and that was even before the tech bubble took off.
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    Fabius Maximus replies: I did not misspeak, but was unclear. The 3% – 4% tax increase is that necessary to cover the deficits between now and 2019. As shown in your comment and the government’s own forecasts.

    “we were running a surplus (or moving toward it) in the late 1990s”

    The government ran a cash flow surplus for a few years 1990’s, including Clinton’s sales of government oil reserves (done when oil prices were near their long-term lows). Cash accounting is illegal for corporations, as it shows a fraudlent picture of an organization’s finances — as it does for the government by ignoring the increase in pension, social security, and other liabilities. By real accounting, such as GAAP, the federal government ran large deficits during the 1990’s. But smaller, of course, than during Bush and Obama Administrations.

  7. The Clinton economic miracle was due to Y2K expenditures preceeding the turn of the century (about 3 years total). Look at the stock market decline (and business in general) after 1 Jan 2000. If you don’t believe this analysis, point to one policy that Clinton implemented that would have this pattern on the economy?

  8. Is there a reason your recommendations do not include raising the Social Security retirement age? I don’t think we want to raise it right at this moment, due to the current relatively high unemployment, but over the medium term it seems like a no brainer.
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    Fabius Maximus replies: Good point, I should have included it. The effect is small, but every little bit helps.

  9. Fabius – You’ve missed one factor. Admittedly it’s the hardest one to quantify but it deserves at least a mention. Innovation can shrink costs by making certain expenditures unnecessary. If a UAV puts bombs on target for 1/10th the cost of a manned plane, you can cut the budget by 90% and get the same effectiveness. Government expenditures are notoriously resistant this sort of innovation but it is at least one potential component of a fix and should not be omitted entirely.

    The Obama administration attitude to innovation and productivity enhancement is… uneven at best (and I’m being generous). We could do better.
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    Fabius Maximus replies: A good point. I am unsure of the actual impact — have administrative expenses decreased at private firms during the past 20 years due to improved technology and methods? Or have the savings been eaten up by offsetting factors?

  10. No one can fix it. The system that is our political structure doesn’t work that way. Protect yourself and watch the mess get worse. So sad.
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    Fabius Maximus replies: I believe that your pessimism is unjustified, and merely provides an excuse for passivity.

  11. OK, here’s my take.
    I’m 64. The gov’t forced me to contribute to SS all my working life, going back to 1963. In return, it promised benefits for the rest of my life upon retirement. The return on that investment has been about 1% annually before inflation, if I have my facts straight. During my working life of paying into SS that same government embezzled my and everybody else’s contributions to fund whatever was the flavor of the month. Now due to demographics and a bunch of other variables both controllable and uncontrollable we have to means test the beneficiaries, tinker with retirement dates, and all manner of other tricks to continue the program. This puts the government in material breach of its promise to me, a promise even worse than what lawyers call a “contract of adhesion”: take or leave it, but if you try to leave it you are in violation of the law. Maddolf was a piker.
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    Fabius Maximus replies: The USA is a republic, of which you are a citizen. During your 40 years of working, how active were you politically? How did you attempt to prevent this situation? God knows, experts have been warning about this for decades.

  12. A better idea is to privatize social security for the young ( and let them have real future retirement funds) and let the boomers social security and medicare be paid out of the general fund. Let them compete with every other interest group. So after receiving my annual notice from the social security administration stating all of my contributions paid to date, what I can expect at retirement and all couched in the form of an annuity now FM tells me I am a chump for believing what the government told me. So if benefits can be changed at will, cut the benefits and stop the fraud of pretending to be an annuity instead of another welfare program.

    In the meantime change the retirement age to 68 for partial benefits and 72 for full benefits. And change the age that federal employees start collecting their pensions to age 68.
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    Fabius Maximus replies: Other nations did variants of that (e.g., Chile, UK, Australia), which prevented this kind of problem. While important reforms, at this point they do little to help the situation.

    ‘I am a chump for believing what the government told me.”

    Two replies to that. First, as Prof Finel notes above, reasonable health care reforms can rebalance our system — esp when combined with other measures (tax increases, spending restraint, means-testing benefits, and raising the retirement age).

    Second, many experts warned about this for decades. Why did you not believe them? Assuming responsibility for this problem is IMO the key to putting this nation back on its feet. If we think like peasants, then we will be peasants.

  13. Frankly, I can’t see any scenario that differs much from the end of the Soviet Union. Their “unfunded liabilities” were defaulted upon using inflation as ours will be. Count them: SocSec, Medicare, Public Pensions, Loan Guarantees & Bailout Debt, an endless list of increasingly expensive, do-nothing expenditures at Federal, State, and Local levels, constant state-of-war-funding. The tumor has metastasized as de Toqueville predicted.

    When taxes are raised (and/or benefits cut), tax receipts will fall dramatically since US output will fall. Capital transaction taxes will crater along with the value of assets being traded, or not traded (no buyers). In response, the Fed will monetize the debt by creating more “money.” The dollar will slide causing further inflation through increasing import prices. “Everyone is to blame, we couldn’t see it coming…” will be the political mantra.

    The political class has insulated themselves from this malaise and actually become part of it. They have ZERO incentive to “fix things” because the only fix is to devolve power back to the citizenry as per the Constitution. Loss of power cannot be tolerated by a bureaucracy, especially when populated primarily by power-seeking personality types. What was once freeborn citizenry has been lobotomized by public “education” and the drug of ubiquitous, electronic entertainment. So where are we headed?

    I’d like to see FM explore realistic scenarios for the US and reader comments. Perhaps a straw poll on most likely scenario. Nominees (in no particular order):

    1. Weimar-style inflation, followed by totalitarian political control…and then?
    2. Weimar-style inflation, continued corrupt/weak government (think late, 3rd French Republic), followed by “Vichy US” under China/India.
    3. Bifurcation of US electorate into Haves (government beneficiaries) and Have-Nots (government payors) with the latter meekly assuming their role as serfs. Cheap beer and Monday Night Football continue unabated.
    4. Electorate votes in a responsible legislature/executive, fiscally prudent and dedicated to shrinking government, bills/committments paid and laws upheld. Inflation limited to 1970s style.

    Too bleak?
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    Fabius Maximus replies: With regard to social security and medicare, yes — too bleak. As discussed above, reasonable reforms can re-balance the system. We need only the wit and will to make them.

    “when … benefits cut, tax receipts will fall dramatically since US output will fall.”

    That does not follow. The experience of every other developed nation shows that our health care system can produce equivalent care at far less cost. Nor do benefit cuts necessarily result in lower national “output.”

  14. SS is just a tax, not a retirement contribution. It does (now) entitle you, though, to an inflation-adjusted annuity that insures you against outliving your savings.

    The fix is just to raise the retirement age to balance the demographics as it goes. Keep the benefits, but if you want to retire earlier than the new age, you have to do it on your own dime.
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    Fabius Maximus replies: Please read the reports by the Chief Actuary mentioned in this post. They show that raising the retirement age will have only a small effect on the system’s finances.

  15. FM, in regard to raising the retirement age: “The effect is small, but every little bit helps.

    The effect is as large as we choose to make it, depending on how much we raise the retirement age. The real limit on that will be political will. ( Yes, there are other concerns, such as unemployment and the elderly being less able to continue physically demanding jobs. )
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    Fabius Maximus replies: Do you think nobody has thought of this, or studied the effect of raising the retirement age? It has only a minor impact. We could raise the retirement age to a billion, de facto abolishing Social Security and Medicare. In which case most of these people would go on welfare (producing some but not massive savings), or starve on the streets (our society not being able to generate sufficient jobs for them).

  16. But you can’t use business accounting practices either for many, many reasons, and I will highlight just three:

    (1) Business can’t modify their “liabilities” unilaterally, the government can. Social Security is only a “liability” in a contingent sense. They can be modified — or even eliminated outright — by statute.

    (2) Business can’t increase their revenue by fiat. The government can.

    (3) Businesses can’t print money either. And the crisis is not sufficiently bleak to require Weimar-style inflation either. Now, this is a massively complicated issue, because of the way inflation, expectations, and debt interact, but regardless controlling the levers of monetary policy is a significant tool.

    The big picture issue is that the solvency gap can be closed by policies that would neither require socialism nor hyperinflation.

    Oh, and Jay? Over the past 30 years, spending on non-health care social programs has declined as a percentage of GDP because we’ve shut down more social programs than we’ve created. Blaming the “Great Society” sounds nice, but has nothing to do with reality.

  17. “I’m 64. The gov’t forced me to contribute to SS all my working life, going back to 1963. In return, it promised benefits for the rest of my life upon retirement.”

    Who is the government that made this promise? We the people, but since it was done years ago, it largely means today’s retirees. What did they promise? They promised that I and my children would pay for their retirement. That is a promise I feel no obligation to keep.

    I’m 42. I’d happily give up all the benefits I have comming to me if it would mean that I would not be passing this obligation on to my children.
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    Fabius Maximus replies: Every generation has the ability to repudiate the measures of the past. Treaties, government bonds, laws — all these committments can be changed by each generation. But not without costs, risks and consequences. I suspect you have given little thought to anything but the savings to your pocketbook.

  18. With respect to innovation, drugs are a prime example of treating some diseases less expensively (i.e. avoiding surgery) due to innovation. But if one looks at the table of veterinary expenses over the past 10 years, you will see the costs have moved in lockstep with human medical expenses. What this says is that costs will continue to rise because patients will continue to demand new treatments as they become available. Yes, some will replace more costly predecessors, but many will not.

    FM — As far as your list goes, you might add pushing out the retirement age. We still have a stick in the ground at age 65 in this country, but people are living much longer lives. Taking partial retirement at 62 or whatever the rule is now simply takes productive workers out of the force and converts them into benefit recipients. Otherwise, I agree with all your points. Means testing is not a conservative position, on the whole, but short of blowing up the system altogether (which would be my preference), it makes a certain amount of sense.
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    Fabius Maximus replies: Do you think nobody has thought of this, or studied the effect of raising the retirement age? It has only a minor impact. We could raise it to a billion, de facto abolishing Social Security and Medicare. In which case most of these people would go on welfare (producing some but not massive savings), or starve on the streets (our society not being able to generate sufficient jobs for them). For analysis, see Summary of Provisions That Would Change the Social Security Program, Social Security Department.

  19. Ignorance, The promise was made long before I and you were born, and you and I are on the same page. I would have happily given up the benefits as well in exchange for being exempted from the Ponzi scheme of SS. But that was not and is not an option because Uncle knows best. And Fabius, what was I doing? I was giving the government the benefit of the doubt, assuming it would shoulder even the barest of fiduciary duties to me and my generation. And to answer Fabius further, just in case it didn’t, I arranged my life, my IRA and my 401K so that I could retire at 54 comfortably and never, never depend on a government promise. But as a laboratory example, I and others of my generation feel spat upon by a government that insisted it knew better than I how to handle my money. Silly me.

  20. Fabius – In answer to your question on 13. we do a lot more for the administration dollar and undertake a lot more analysis than we used to. Spreadsheet programs enable near real time analysis for the same money that you used to have to pay for that same analysis once or twice a year in the paper era.

    Most company’s finances are not so imbalanced as the Federal governmant so they plow much of the savings in improved performance. In fact, it is difficult for a company to become this indebted without quickly being called to account. For an out of whack budget like the Feds, you plow the savings into debt reduction and further efficiency gains. Once the debt is brought under control, you can responsibly change the mix of what you do with your savings.

    The government sector has a culture that reveres budget size and head count as a measure of bureaucratic power. This is not a good thing and needs to be changed. If we ever manage it, this will improve our governance in a real, if unpredictable way.
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    Fabius Maximus replies: None of this answers my question about the ability of technology to reduce administrative expenses. In fact the gains of technology in many service functions have often been absorbed by improved service or quality levels (aka the productivity paradox), hence no savings.

  21. It seems to me that the political class has been taking an everybody gets everything approach to governance for far too long. Bush failed in this regard (Medicare prescriptions) and Obama seems to want to double down on Bush’s mendacity. And that’s what it is. It’s unconscionable, in my view, to pass the pain to future politicians and future generations. This is just one of the reasons why politicians, as a class, are thought of with disdain by the general population.
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    Fabius Maximus replies: Those evil leaders, making such big promises and then forcing us to vote for them! Yes, it’s their fault. That’s logic.

  22. The only solution is to Starve the Beast. Sure, raising the retirement age and taxes and reducing benefits could prolong the viability of the system, but at some point, the young will rise up and “go on strike”. Why should they be responsible for the Baby Boomer’s debts and lifestyle — a generation that took more than it contributed?

    My oldest daughter is 13. She is now starting to realize the amount of debt she is personally responsible for and she’s not happy about it. At the rate things are going, she will spend about a third of her working hours paying the interest to service the debt that has been left behind. If all this money went into infrastructure for the benefit of future generations, that would be another matter. Most of this money was wasted and spent for political reasons to support someone else’s lifestyle and buy votes.

    And don’t use the excuse “this is a republic, she should be politically active”, as you mentioned above. Until she turns 18, she has none of those rights. My advice to her and her cohorts is to do everything possible to contribute to society in a way that cannot be taxed or further stolen from them. Be self sufficient and avoid any thing the government is involved in.

    The Boomers have voted themselves money from the Treasury via low taxes and higher benefits for themselves. It will come back to haunt them.

  23. Ayn Rand as John Galt in Atlas Shrugged:

    “Did it ever occur to you, Miss Taggart, that there is no conflict of interests among men, neither in business nor in trade, nor in their most personal desires – if they omit the irrational from their view of the possible and destruction from their view of the practical? There is no conflict and no call for sacrifice, and no man is a threat to the aims of another – if men understand that reality is an absolute not to be faked, that lies do not work, that the unearned cannot be had, that the undeserved cannot be given, that the destruction of a value which is, will not bring value to that which isn’t. The businessman who wishes to gain a market by throttling a superior competitor, a worker who wants a share of his employers wealth, the artist who envies a rival’s higher talent – they are all wishing facts out of existence, and destruction is the only means of their wish. If they pursue it, they will not achieve a market, a fortune or an immortal fame – They will merely destroy production, employment and art. A wish for the irrational is not to be achieved, whether the sacrificial victims are willing or not. But men will not cease to desire the impossible and will not lose their longing to destroy – so long as self destruction and self sacrifice are preached to them as the practical means of achieving the happiness of the recipients”

    SS is the inter-generational version of this, and if too enthusiastically pursued, will destroy production as surely as happened in East Germany. Spread wealth among the old if you must, but do not rob the young, lest they go John Galt per the Laffer curve.
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    Fabius Maximus replies: And your evidence for this is….?

  24. Bernard,

    Whatever emotional or partisan attachment you have with the words “Great Society” must be very strong if you can not admit that 1) these are great society programs and 2) they are failing.
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    Fabius Maximus replies: The subject of this post concerns the greatest drag on future government budgets: Medicare and Social Security. The first is not a Great Society Program. The major GS programs are usually considered to be:
    * Civil Rights — any objections to that?
    * War on Poverty — a small part of the current budget mess
    * Education — federal funding to schools and colleges
    * Medicare and Medicaid

    The last two are obviously not working, but due to structural problems which every other developed nation has fixed. I do not understand your claim that the “GS Programs are failing.”

  25. Fabius, I have come back and read your responses to a couple of posts, including mine at #16 and I must say that to the extent you fault those of us who didn’t rise up and fight SS somehow, you are living in a netherworld if you think we defaulted on our responsibility as a citizen of the republic. SS was rightly called “the third rail of politics” for the reason that any politician who touched it would never again win an election. That was and still is the received wisdom of politicians of both parties, a rare area of agreement. Just what, what do you think the average citizen could have done in the 70’s when birthrates were still high enough to sustain the system, raiding the fund was much less common and there was no internet to inform us to the extent we are now? You are just interested in making (or trying to make) debating points, methinks.
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    Fabius Maximus replies: This is a Republic. There is no other group than us, the citizens, to assume responsibility. That we find this distasteful is a ominous symptom that the burden of self-government grows to heavy for us to bear. Don’t worry, many will volunteer to take if off our shoulders.

    “SS was rightly called “the third rail of politics” for the reason that any politician who touched it would never again win an election.”

    Yes, that’s my point. We preferred to make impossible to fulfill promises and run massive deficits, every year. Those were our choices. Many experts warned that this would end badly, but we preferred not to hear them.

    ‘and there was no internet to inform us to the extent we are now?”

    So that’s why the American revolution failed in 1776! No Internet!

  26. Due to small family sizes, geographical mobility, high rates of divorce and illegitimacy, as well as the increasing number of children who have been raised by grandparents due to drug abuse/incarceration issues that their parents face, MANY boomers will grow older without any adult children living nearby who are willing and able to help them with various personal and household tasks that help people postpone moving into a nursing home.

    I know of lots of people who would help out their mother, but wouldn’t lift a finger for Deadbeat Dad. As the years go by, there will be an increasing number of impoverished geezers who have NOBODY in their family to help them with any personal or financial problems. The young people paying crushing taxes for “social services” are going to feel that they gave at the office and shouldn’t have to pay anything out of what remains of their takehome pay.

    My grandmother lived in her own home until she was in her late 90s. She had a huge number of very responsible descendants. Somebody checked in on her every day, mowed her yard every Saturday, drove her to church and shopping, etc. Nobody is going to do any of that for my ex-husband.

  27. So Fabius’ fix is a 20% increase in taxes, getting the Federal goverment to make health care more efficient, and other, only marginal, reforms. It appears that every step at a fix means more and more control over our lives by the Feds. Thanks Fabius, but no thanks.

    It seems like only a few years ago somebody was saying we need to reform Social Security and instead of giving the Feds more control, the control went to the citizens. However, the opponents swore up and down that Social Security was good to the 2050s, no need for reforms.
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    Fabius Maximus replies: While I find it flattering that you confuse me with the US government (bow down before me!), that is not so. The 20% increase in taxes is the forecast in the offical 2010 Budget.

  28. “(2) FM recommendations — Taxes increase

    Er.. how about NO. Terse message from one generation, to another generation… we are not enslaving ourselves simply because the preceding generations spent themselves into a hole and committed general budgetary asshattery.

    Everyone seems to expect my generation (and our children, and theirs) to pay for this shortfall, despite the fact that we’ve assumed since childhood that there will be no SS benefits for us when our turn comes around. And let’s be honest – there simply will not be benefits the likes of which are enjoyed today.

    But there is a snag – We get to pick your nursing home – or lack thereof.

    Two largest problems for the republic:
    (1) Either we get term limits, or we need a lot of rope. There is virtually no solution without one or the other.
    (2) Unfunded, kick-the-can-down-the-road large scale liabilities/entitlements have to go. One can make an argument for indebting later generations to pay for emergencies, but not simply because entire voting blocs are too lazy or stupid to work.
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    Fabius Maximus replies: It’s arithmetic. Past debt, future obligations. There is no magic bullet to make it all go away.

  29. Jay: Instead of using the empty phrase “great society” programs, can you just list the ones you don’t like?

    Consider something like Aid to Families with Dependent Children (Welfare). It was a disaster for all sorts of reasons. I am not defending the program. But then again, I don’t need to. It was gutted under Clinton, and is not Temporary Assistance for Needy Families (TANF). There were 11,000,000 recipient for AFDC in 1989 (8,000,000 children). There were under 4,000,000 total recipient of TANF in 2009. How can this program, often considered a poster child for the great society be blamed for our fiscal problems.

    The only significant programs from Great Society that are causing problems are medicare and medicaid — which I have specifically mentioned are causing all the fiscal programs.

    Again, it isn’t “social spending” as an undifferentiated mass… it is health care spending that is killing us.

  30. Most of this money was spent on the US military – rather wastefully and inefficiently. The US spends more on the military than the rest of the world put together.
    “Summarizing some key details from chapter 5 of the Stockholm International Peace Research Institute (SIPRI)’s 2009 Year Book on Armaments, Disarmament and International Security for 2008:

    * World military expenditure in 2008 is estimated to have reached $1.464 trillion in current dollars …;
    * The USA with its massive spending budget, is the principal determinant of the current world trend, and its military expenditure now accounts for just under half of the world total, at 41.5% of the world total;”

    That is where you Americans’ money went and that is where you will have to save if you are serious about it.

  31. Follow-up to comment #17 by cubanbob:

    1-I believed them,I was being sardonic, I guess it did not come across properly. However I have but one vote and that vote is not weighted in proportion to the amount of taxes I pay. As a business owner paying the employer portion I have paid far in excess of what ever benefit I will ever receieve. As an employee I already paid pretty much all I will ever recieve and at 53 I still have 15 more years to keep paying in. Tell me again why someone elses problem is my obligation. As long as people who do not pay or pay little in comparision to what they are getting in tax revenue benefits those who pay the freight are pretty much screwed.

    2-Every so-called reasonable health care reform seems reasonable from the prespective of the advocate since the measures proposed are not the ones that will affect them. Non smokers raising the costs for smokers? No problem for them. The slim on the obese? Not their problem. Heavy drinkers and druggies, not the problem of the of those who don’t drink or use drugs. AIDS/HIV? Those are expensive diseass to treat. Should we tax people who engage in risky sexual behaviour? Or the promiscous for STD’s, especially woman since not only do they get pregnant but are more seriously affected by STD’s than men on average. Yes I belive in real competetion in health insurance, allowing a real medical insurance market nationwide without having them larded with mandates and tort reform. All of these things will lowers costs to a degree. Forcing the drug companies to charge the lowest price in the US equal to the lowest price in the EU or Canada will certainly costs significantly. But until such time a pill is invented that lets us live in near perfect health until 100 followed by a quick easy death old age is going to be expensive healthwise. So the real cost control will be in the form of rationing. Then the fun part starts, whose health care gets rationed. The rich or the poor? The old or the young? There really is no no good solution. Only less bad options and to go full circle that depends on who is doing the advocating.

  32. Bernard,

    The reform of AFDC was a good start in the repeal of Great Society, most of the rest should follow.

    It would have been better to repeal the two flag ship great society programs, Medicare and Medicaid. I will admit that any solution here will be so politically unpopular as to be impossible. If we were responsible we would have done this back in 1994. We have been avoiding it for over 20 years and I see no reason we will suddenly become responsible today.

    As long as we are dreaming about the US developing political responsibility and will power, I would remove virtually all the “war on poverty” provisions, which have been just about as successful as the “war on drugs”, only the first (but still foremost) in a long line of “war on X”, where X is something we end up making worse via government action.

  33. “Every other developed nation has solved”
    “Equivalent care at lower cost”

    I find these statements dubious, especially the second in light of horror stories about queues etc. I would be very interested in further explanation and documentation from Fabius.
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    Fabius Maximus replies: I have found from experience that when I provide these links, people seldom click on them. However, I have added another section to the post with a few references, a start for anyone interested. Two minutes with GOOGLE will yield dozens more.

    BTW — I suggest not getting critical information on such matters from horror stories. There are plenty about our system, about any system, anywhere. In the current debate, most are about the UK, which IMO (no expert) has one of the worst systems among developed nations (although better than ours by many metrics).

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