This is an abbreviation of what started out as a much longer post (believe it or not), prompted by my frustration with the rhetoric surrounding the supposed “fiscal cliff.” I’ll spare y’all most of what I intended to say about that episode of political theater. What I do want to follow up on though is what the latest contrived crisis (and the resolution of it) suggests for longer term economic sustainability in this country. It is imperative that we see this situation in the context of the bigger picture and that we think in terms of long-term sustainability rather than short-term fixes that only make the long-term solution more difficult.
I used to blog a lot about politics and economics, until I repented from that. I’m not trying to score any points for any particular political team here, or prompt yet another silly discussion about “socialism” or “the tea party” or any of the other rhetorical hot buttons the status quo likes to push. I just want to suggest that unless we step back and look at the big picture of the ultimate sustainability of the role of government, in its entirety, we are doomed to an unending series of these supposed “crises,” each subsequent solution sinking us deeper and deeper into a hole from which escape may ultimately become impossible.
So what was the “fiscal cliff”? To begin with, it was a term coined by Ben Bernanke as a scare tactic. That is ironic, given that he has long ago taken the country over a monetary cliff, with no fanfare. A pity Congress didn’t declare an impending “monetary cliff” and whip the nation into a worried frenzy about it. But I digress… What Bernanke was referring to is a set of temporary tax reductions set to expire at the end of 2012 (all of which were enacted at the time in response to some perceived emergency, crisis or need), and a set of sequestered spending reductions agreed to in exchange for approval of the last extension of the debt ceiling. While each individual item could be fairly debated, in toto they were modest steps toward financial responsibility.
The CBO predicted that enactment of these measures would lead to a mild recession in 2013. Other experts (whose expertise is primarily in creation of self-fulfilling prophecies) began to warn of more dire consequences, as did all the interest groups set to lose some of their government cheese. Soon the “fiscal cliff” was uniformly portrayed as some impending catastrophe to be avoided at all costs. The consequence of that is the bill passed on Jan. 2. I will spare y’all an extended rant on the details of that monstrosity.
Now I’m going to share some numbers that rarely get mentioned in the policy debate and never by a politician running for office. Candidates may share some of these numbers (for partisan effect) but never do they present them all, in context. So while Congress and the President were rearranging the deck furniture on the Titanic, here’s what we are facing.
Federal tax revenue for fiscal year 2012: $2.469 trillion
Federal spending for fiscal year 2012: $3.793 trillion
Quite obviously, we don’t have enough money to pay the bills. Through some combination of spending cuts and tax increases we have a $1.3 trillion gap to close if we want to avoid adding to our national debt of more than $16 trillion, and obviously we need to do a great deal more if we are to start paying the debt off rather than adding to it.
A little over $1 trillion of annual federal revenue is from the individual income tax. So we could DOUBLE the income tax on everyone in the country (rich and poor alike) and we’d still not have enough money to pay the bills.
But wait, there’s more.
Total “discretionary spending” is $1.319 trillion. That amount is the sum total of all spending that is part of any appropriations bill. Thus, we could eliminate ALL discretionary spending from the budget and we’d still barely have enough revenue to pay what’s left. What is “discretionary spending”? Essentially, everything other than Social Security, Medicare, Medicaid, debt interest and government/military pensions. Think about that. We could reduce the defense budget and welfare budgets to ZERO, we could shut down every federal agency unrelated to mandatory spending, and yes even defund Sesame Street, and we’d still be broke. And for those diehards who say they are willing to toss everything except defense spending, keep in mind that only about 1/3 of discretionary spending is unrelated to defense ($450 billion). 2/3 of all discretionary spending is military or military-related.
So it should be obvious that any long-term solution to our financial insolvency has to involve mandatory spending, specifically the so-called entitlement programs.
That is not to say that we don’t need to reduce discretionary spending. Of course we do. We now spend more on the military than at any time in history, and military spending increases every year (regardless of which party is in power). We spend more than nearly every other country in the world combined and are seemingly in a perpetual state of war. That is neither necessary, sensible or sustainable.
Likewise our social welfare spending is skyrocketing and equally unsustainable. Over 1 out of 7 Americans (nearly 48 million people) are now receiving food stamps (SNAP). That’s a 70% increase since 2007. In 11 states there are now more people on welfare than there are with full time jobs. Those states are red and blue, north and south, east and west. And the numbers are growing. When the adminstrative costs of delivering the services is factored in, households receiving means-tested assistance (welfare) receive on average $168 per day, which is 20% more than the median household income of non-welfare families. I don’t share these stats to bash those on welfare. There are lots of hurting families out there and their numbers are growing. But a society cannot long survive unless this trend toward dependency is reversed.
But, returning to my point, unless we address the escalating entitlements spending (and admit we can’t afford them with available tax revenue) then the welfare and warfare spending is almost irrelevant. We could cut military and welfare spending in half (or eliminate them altogether) and the problem remains.
As unsustainable as current discretionary spending is, mandatory spending is increasing 6 times faster than discretionary spending. If we are serious about righting the ship, we have to address entitlement spending.
Ultimately Social Security, in its current form, is unsustainable. It has evolved into something it was never meant to be and today’s demographics just don’t support it. It can be kept afloat for a few more decades by pushing back the retirement age and/or enacting means testing, but in the long run it fails.
Yet Social Security is not the biggest problem, in my humble opinion. Based on current trends, I believe it is the cost of health care that will sink the country, unless we face reality and address it. As the cost of “end of life” care increases and our population gets sicker, fatter and increasingly unhealthy, medical expenses continue to consume larger and larger chunks of our GDP. Medicare expenses are projected to double between 2010 and 2020 (to nearly a trillion dollars per year). Medicaid expenses are growing even faster, as are private health care expenses. Health insurance is increasingly unaffordable, and putting it on the taxpayers’ tab doesn’t make it any less expensive to society as a whole.
With all the financial problems we face, I believe it is the cost of medical care that is the most pressing
I’ve gone on too long already so I won’t pontificate at length about how the introduction of third-party payers distorts pricing and leads to price bubbles and runaway expense. But it does.
Even leaving that issue aside however, it seems to me that the most significant factor driving our skyrocketing increase in health care costs is our skyrocketing increase in poor health. Our national addiction to fats, sugars and processed foods has created an obesity epidemic (about which I have frequently blogged) with attendant dramatic increases in diabetes, heart disease and a host of other expensive illnesses. Eating processed food leads to cancer, an extremely expensive disease to treat, and cancer rates continue to spike as we consume more and more carcinogens and processed food.
I’ll draw this post mercifully to a close by saying that one of the most vitally important steps we can take toward fixing our broken system is to eat better and stay healthy. As a people, we need to reverse the path toward sickness and abject dependency and strive for healthy lives, living as self-reliantly as possible.
Yes, the government will probably still eventually go broke even if we do that (barring some unlikely change in what our culture chooses to expect from it). But the less we require from it, the less pain that will entail.
Why not resolve to make 2013 the year to really get serious about healthy living?