From Gray to Red

With their vote this week to impose strict limits on future federal spending, House Republicans continued an argument not so much with Democrats as with demography. The real current they are seeking to reverse is not some ideological drive from President Obama to convert America into Sweden; it’s the inexorably rising cost of providing retirement security, especially health care, to an aging society.

The cut, cap, and balance bill that Republicans muscled through the House would authorize an increase in the federal debt ceiling only after Congress approved a constitutional amendment to balance the federal budget. The bill doesn’t specify the spending level at which Washington must balance the budget, but each of the major balanced-budget proposals that House Republicans have already introduced would eventually limit federal spending to an amount equal to 18 percent of the nation’s total economic output.

Federal spending hasn’t represented that small a share of the economy since 1966, when it stood at 17.8 percent. That’s an especially revealing comparison because 1966 was the year when Medicare went into effect—the first guarantee of health coverage for the nation’s seniors. The program didn’t even begin until July 1; Washington spent only about $100 million on it that first fiscal year. Medicaid, which provides care for both the poor and the elderly, was also just getting started; it cost the federal government only about $800 million in fiscal 1966.

Since then, those two programs, along with Social Security, have provided much of the upward pressure on spending. From 1948 through 1966, federal spending averaged just over 17 percent of the economy—about the level that House Republicans are hoping to restore. Since 1967, federal spending on average has grown to just below 21 percent of the economy.

The difference between the two eras is entirely explained by the growth in federal payments to individuals—preponderantly, entitlements for the elderly. In the first period, essentially before Medicare and Medicaid, Washington spent on average an amount equal to 4.2 percent of the economy each year on payments to individuals. Since 1967, the average annual cost of payments to individuals has more than doubled, to 10.5 percent of the economy. If you do the math, that means that as a share of the economy, Washington actually has spent slightly less on everything else—defense, national parks, education, environmental protection—over the past 40 years than it did in the previous 20.

Within the overall explosion in federal payments to individuals, the key driver has been health care—again, predominantly for the elderly. In 1965, federal health care spending equaled less than 1 percent of the economy. Today, the figure stands at 6.3 percent. That’s not because of Obama’s health care legislation, which doesn’t generate significant spending until 2014 and is projected to largely pay for itself by restraining Medicare’s growth; it’s because Medicare and Medicaid now cost nearly $800 billion annually.

Two factors above all are swelling those programs. One is the unbroken rise in per capita health care spending as medical technology advances. The other is the growing elderly population. When Medicare began in 1966, it served about 19 million seniors. Today, the program serves nearly 48 million. Its trustees project that by 2035 that number will approach 86 million.

Against that overwhelming demographic pressure, mandating that federal spending return to its 1966 level is like ordering the tide to reverse its course. Although many Republicans want to cap federal spending at 18 percent of the economy, the nonpartisan Congressional Budget Office projects that Social Security, Medicare, and Medicaid alone will consume about 15 percent of the nation’s total economic output by 2035. And under other scenarios that CBO has explored, even that figure might be optimistic.

That prospect points toward two large conclusions. One is that it’s unrealistic to limit federal spending to levels last seen when the elderly represented only about half as large a share of the population as they will in the decades ahead. Given the demographic demands, future federal spending will almost certainly require more than 21 percent of the economy—although likely less than the swollen 25 percent level reached after 2009’s stimulus program. A corollary is that sooner or later, the demands of providing for an aging society without gutting everything else that government does will require Washington to raise more revenue.

The second large conclusion bookends the first: It would be irresponsible to surrender to demography as fiscal destiny. Unless Washington controls entitlement spending, especially by slowing the overall rise in health care costs, these programs will bury all other public needs and impose unacceptable tax burdens on a working population shrinking in relative size; by 2035 there will be only half as many working-age Americans per senior as there were in 1966.

Too many Democrats resist the need to restrain entitlements, and even more Republicans refuse to admit the need for more revenue. Yet only by moving on both fronts—beginning in the debt-ceiling standoff still convulsing the capital—can the nation go gray without falling dangerously into the red.

This article first appeared at National Journal.

Ronald Brownstein, a two-time finalist for the Pulitzer Prize for his coverage of presidential campaigns, is National Journal Group’s Editorial Director, in charge of long-term editorial strategy. Prior to joining Atlantic Media, Brownstein was the National Affairs Columnist for the Los Angeles Times. He appears regularly on national television, including NBC, ABC, CBS, and MSNBC, and served as a political analyst for CNN from 1998 through 2004.

75 replies »

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  3. I just wonder how much Obamacare really will impact our National Debt. We must do something about the Washington politicians in 2012. We so sorely lack real true leadership.

    Put the golf clubs down Mr. President and get to work on reversing this train wreck you had the country on right now.

  4. Paolo –

    I hear what you’re saying and it’s a reasonable argument. While it’s hard to trust politicians to do anything in an honest and straightforward manner, my personal preference would be to divide federal spending into an operating and a capital budget. Just as very few prospective homeowners could buy a home for cash, taxpayers should not be expected to pay cash for assets from office buildings to fighter planes that are expected to last for 30 years or more. Taxes should fund the operating budget, including depreciation on capital assets and “normal” defense spending over an economic cycle. We could run deficits to cover the cost of wars and catastrophic events like Hurricane Katrina and we could run deficits during recessions. There are certain categories of spending, such as education that people could differ about with respect to whether it should be considered an operating expense or a capital investment. This creates opportunity for mischief, of course.

    Since states and localities also often look to the federal government for financial help during difficult economic times, I think it’s important to maintain significant borrowing capacity to be able to respond to challenging and unusual circumstances. I also don’t want excessive debt to create a powerful incentive for policymakers to deliberately increase the inflation rate in order to reduce the real value previously incurred debt. An inflation rate in the 2% range is fine as investors can easily factor that into their expectations when they bid for Treasury bonds and notes. The sharp increase in inflation from 1974 to 1981 was a disaster for bond investors as they did not contemplate inflation close to what occurred during that time when they bought their bonds. Finally, I think the population in general should limit their expectations as to what they want from government to what taxpayers, including the broad middle class, can reasonably afford and we should try to develop a consensus among policymakers as to what constitutes a “fair share” tax burden as a percentage of income, especially in the upper portion of the income distribution. It can’t be always just more than whatever they’re paying now no matter how much that is.

  5. Barry, I agree with most of what you say and share the belief that investments should only be done on worthwhile projects. I am not in favor of not-worthwhile spending just to increase the availability of treasuries. What I’m in favor of is setting the level of taxation slightly below the amount of money required for worthwhile projects so that as the economy grows there are enough treasuries to satisfy the need for them. Obviously, this is not a concern these days, but it was a concern as recently as 2000 when Greenspan, fearing that we would run out of treasuries, asked for lowering taxes to generate some deficit.

    I do disagree with your last point. The current real interest rate (after inflation adjustments) of overall government debt is roughly zero (see the rate for 5 or 10 year TIPS). In real terms, it basically costs nothing for the government to hold this debt. If you also factor in the withholdings on nominal interest payments to taxable entities, the government is actually making a small profit. So that nominal 1.7% of GDP that you mention is not actually being spent or diverted from any other project. It’s simply being rolled back into the overall debt where inflation is chipping off about 1.7% of its value.

  6. Paolo –

    I don’t have any problem with federal debt for worthwhile capital projects as I said previously. I also don’t have a problem with borrowing, at least to some extent, to finance wars because protecting freedom and our legitimate national security interest benefits future generations as well as our own. Running deficits during recessions is also fine by me though I would like to see the operating budget balanced over an economic cycle. I’m not in favor of non-worthwhile current spending just to run up debt so the Federal Reserve has enough debt securities outstanding to manipulate the money markets. It or the Treasury can extend credit to banks that run into financial difficulty and it could act as a buyer of last resort or guarantee repayment for investment grade corporate debt during periods of financial stress such as the fall of 2008.

    I agree that the banking system has generally served us well over the last 100 years or so though the previously discussed housing bust caused a lot of harm this time around. Virtually everyone was guilty of assuming that house prices would continue to appreciate indefinitely but nobody contemplated that they would decline significantly in every market at more or less the same time. Previously, prices might decline in some markets but not all markets. This was clearly a black swan event.

    I think the country would be net better off if the 1.7% of GDP that we are now spending to pay interest in our accumulated debt were 100-125 basis points less than that amount with the resources freed up for numerous other worthwhile priorities in both the public and private sectors.

  7. Barry – Open market operations by the feds is the primary tool used to regulate the money supply. And even that has proved to be inadequate in the last couple of years as the fed has had to resort to direct asset purchases to increase liquidity beyond what you can do with 0 interest rates. Changing the reserve requirement as you suggest is essentially useless these days since the only assets that are subject to this requirements (bank accounts) comprise only a small part of the liquid assets in circulation (does not include money markets, commercial paper, etc.). I don’t think it is a good idea to take away from the fed the main tool that it has (and every other western free market has) to effect monetary policy.

    Countries with controlled economies like China obviously don’t need open market operations. The government there owns and controls all the banks and can control the money supply by simply creating more or less money via bank loans. I don’t think we want to emulate that model.

    Sovereign funds are not terrible, but can be problematic because the government becomes responsible for investing and placing bets in real businesses and assets and that is interfering with the free market. I prefer a government that facilitates credit in a reasonable manner and let’s private enterprises do the investing. I also prefer that in normal times, wealth be controlled by the private sector and not by the government.

    Small countries like Singapore or Hong Kong, don’t really have a monetary policy, they just peg their currency to the dollar, the euro, or some other basket of currencies. I don’t think we want to follow that example either.

    It’s easy to follow the populist theme these days of bashing all the bankers and all the central bankers. But, the banking system that has been in place for the last century has been the corner stone of our prosperity in the 20th century.. I’m not against changing it to improve it, but we need to be very, very careful that we don’t make it worse.

  8. “This is a subjective statement unless your a communist. What is an equitable distribution, give me a number Peter, what percent of income should the bottom 10% make?’

    I won’t fall into your false trap of a specific “number”, it’s arrived at from policy. But for some research and insight you can read this:


    As well, what do you think was the proper income distribution in Communism where party leaders and cronies were at the top and everyone else was at the bottom? Extremes from any system are not a solution.

  9. Well Nate I tried to post a reply but it disappeared into the abyss of THCB cyber black hole. An attempt to re-post said I’d already said that. Now THCB is not accepting anything.

  10. “Argentina has so far failed to reach an equitable distribution of income (the wealthiest 10% of the population receives 31 times more income than the poorest 10%).”

    This is a subjective statement unless your a communist. What is an equitable distribution, give me a number Peter, what percent of income should the bottom 10% make?

    “Maybe you could give us a list of who you would pay and who you wouldn’t. ”

    Sure Ptert send me a list of the 80 million checks they cut and I’ll tell you which ones would be released and which won’t.

  11. This is on RCM discussing this. Sounds pretty familiar, rich bankers using favord laws for the benefit of rich bankers at the cost of the public. Washington bails out the mortgage giants so they can forclose on the homeowners and make a fortune like Soros with OneWest/IndyMac. Americans did not benefit at all with the Soros deal, he makes more money to take people’s houses then if they worked with them. They want us to believe the central bank is in our best interest, I don’t think it is

    Of course it’s arguable that stability wasn’t the sole reason the Fed came into existence as is often assumed. As writer G. Edward Griffin observed in The Creature from Jekyll Island, its unannounced purpose was initially to drive out competition that was increasingly crimping the profits of money-center banks.

    According to Griffin, by 1910 the number of banks in the US was increasing at a very high rate, and the majority “were springing up in the South and West, causing the New York banks to suffer a steady decline of market share.” In 1913, when the Federal Reserve Act was passed, non-national banks accounted for 71% of all banks, and they could claim 57% of total deposits. From 1900 to 1910 70% of the funding of corporations was generated internally, which meant that financial innovation inside and outside traditional money center banks threatened to make them irrelevant.

    The Federal Reserve Act of 1913 would serve to halt the market share decline of the traditional banks, because those banks, according to Secrets of the Temple author William Greider, would have “dominance over the new central bank,” and in the bargain they would “enjoy new insulation against instability and their own decline.” To put it more simply, as large banks all, they would have access to cash during shortfalls thanks to the creation of an entity that would restore and perpetuate their dominance.

  12. just becuase central banks did something good in 1913 doesn’t mean they are capable of doing it in 2020. Can’t say I am very impressed with the performance of the central banks and IMF last couple decades, maybe they have passed their usefullness?

    Maybe a modern monetary system is one without central banks bungeling from disaster to disaster?

  13. “Which of these is not better off today?”

    Better off from what Nate, total collapse?

    Maybe you should ask American voters if they would think the results of default (real or imagined) would be worth it. As for Argentina, maybe a little research on the whole situation might put the “default doesn’t matter” view in perspective.


    “While unemployment has been considerably reduced (it has been hovering around 8.5% since 2006), Argentina has so far failed to reach an equitable distribution of income (the wealthiest 10% of the population receives 31 times more income than the poorest 10%). This disparity, nevertheless, compares quite favorably to levels seen in most of Latin America.”

    And I guess The “disparity levels” also compare quite favorably with the U.S. as well. At least Wall Street would accept this, I doubt the rest of the voting public would tolerate it for too long and would realize that the carrot is just not achievable.

    “Not raising the debt limit doesn’t mean we can’t pay our debt it just means we will have to cut other spending.”

    Maybe you could give us a list of who you would pay and who you wouldn’t. Right now there are 70,000 workers laid off because the FAA budget has been paralyzed. Is this your recipe for recovery?

  14. Paolo –

    I, for one, would love to have the chance to find out how debt markets and the economy more generally would function if government debt were rarely more than, say 10% of GDP. For example, instead of the $3.6 trillion of U.S. debt now held by federal trust funds including Social Security and Medicare, which will eventually have to be converted to debt held by public investors to meet their obligations, I think it would be better if the money were invested in real assets. Other countries including Norway, Singapore and China have sovereign wealth funds. We would just need to limit their ownership of any one private company to preclude undue influence over its affairs.

    The Federal Reserve has other tools at its disposal to regulate the money supply including changing bank reserve requirements. It could also have a large standing line of credit or authority to issue government bonds as needed to deal with financial crises to be repaid later out of profits and fees paid by member banks.

    In the worst case, surplus government funds could be held in non-interest earning demand deposits at banks. More rigorous oversight of banks would be required as would better functioning insurance markets to protect bank deposits. Alternatively, the FDIC could have far higher insurance limits but it would need to ensure that the premium it charges banks is sufficient to meet its obligations. It could also have a backup federal line of credit to protect depositors which, again, would be repaid in the form of higher premiums on bank deposits later.

    If, in the end, all this meant that borrowers paid somewhat higher interest rates than under the current system and homeowners had to make at least a 20% down payment instead of 3% or even nothing to buy a house, it wouldn’t be such a bad thing, in my opinion. At the end of the day, it’s perfectly appropriate to finance sound capital projects with long term borrowing but current consumption and operating expenses should be paid for with current income or short term credit card like borrowing to allow for minor timing differences between incoming cash flow and outgoing expenses.

  15. “Personally, I think mortgage loans should require a 20% down payment like they did once upon a time in the 1970’s and before. If it means the home ownership rate is 10-20 points lower that it’s been in recent years, so be it. People can rent instead.”

    Barry, I’d love that, I’d get a lot more business. I’ve rented and owned and have come to realize that home ownership should be counted on as more lifestyle than investment. If you add maintenance/improvement/mortgage costs the only way you can justify owning is a substantially rising value. If you do it with sweat equity then you have to count on time lost from other stuff in your life. The hardest thing now is assessing present/future value, unfortunately too many people rely on RE agents and their appraiser shills.

    Here’s a good illustration of when the housing market larceny started. Coincidence?

    To illustrate where the banks are now a local bank manager described that he can’t even loan $2000 with a $10,000 CD as collateral without a full credit investigation for a long term and known customer.

  16. “What would be wrong with no treasuries? ”

    You wouldn’t have a modern monetary system. You’d be going back to the 1890s. Read Milton Friedman to see how central banks should use treasuries to set monetary policy. Conservatives used to like him before the crazies arrived.

  17. Yes Barry, the nominal amount of outstanding treasuries would remain constant, but the ratio of debt to GDP would continue to decrease until the amount of debt becomes insignificant compared to the size of the economy. For example, our debt during WW2 was in the billions of dollars and that was HUGE compared to the GDP of the time. However, if we would have balanced the budget since then, we would not have enough treasuries today for a functioning debt market. A few billion dollars of debt would not be enough to satisfy the demand for trillions of dollars in government securities. Moderation is key here. Large debts are bad, but zero debts (at a macroeconomic level) are bad as well. In my opinion, a debt of about 40% of GDP has traditionally served us well.

  18. Welcome to TFB, THCB’s younger sister.

    What would be wrong with no treasuries? Obviosuly the brokers making billions trading them would not be to happy but most of us won’t lose sleep over that. If private money wasn’t tied up in treasuries then maybe we could get the government out of lending. I rather student loans, mortgages, et all be done privately then with the distorting government lending.

    ” the same party which famously declared last decade that deficits don’t matter is now insisting on a zero deficit balanced budget amendment. From one extreme to the other.”

    Learning from our mistakes is a sign of inteligence isn’t it? While the party name may be the same this is not the same partiers. We had a bad case of RINOitis there for a couple decades, its about kicked now but the new party ain’t going to look like the last.

  19. Nate, I agree that markets can be wrong, and sometimes wildly wrong. My only point is that your prediction of future interest rates is wildly off from what the market is expecting. If you had any confidence on your own prediction you would be buying interest rate swaps and making a a fortune instead of posting your prediction on the Internet.

  20. Yes I did. GDP growth has gone up from -5.1 in 2009 ( revised downward today) to +1.3 for Q2 2011. Tax revenues have gone up since then, although it’s been partially offset by temporary tax cuts like the current SS payroll tax holiday. Tax revenue is expected to go up from 15% of GDP today to about 18% in 2014. If you need more details look at the CBO or the Ryan plan projections.

    If there is a US default and/or a double dip then obviously revenue will dip again and the deficit will grow. Unfortunately a lot of people are rooting for this outcome.

  21. Paolo –

    If we balanced our budget over an economic cycle on a go forward basis, the existing Treasury debt would remain outstanding as new securities are sold to pay off those that mature. Moreover, if our federal government could be trusted to maintain an honest accounting system, which it probably couldn’t be, we could still borrow to finance legitimate long term capital projects like roads, airport expansions, ports, schools, fighter planes and ships, etc. while we balanced our operating budget. For this to work, economically unsound pork barrel projects would have to be avoided or at least minimized. Also, if we built something that is expected to last, say, 30 years, we would have to depreciate 1/30th of the cost each year and count that as an operating expense to be financed with taxes (over a cycle) even though depreciation is a non-cash charge.

  22. The numerous economists are probably right. The federal government has never run a surplus over an entire economic cycle and probably never will. If it did, then there would not be a treasuries market since the debt/GDP ratio would eventually shrink to zero. In fact, historically the deficit has averaged 2% over the last hundred years and the economy did quite well when this was the case. The last time we had a surplus (2000), the markets were scared that we were going to run out of treasuries (the CBO projected that by 2006 the debt would be zero). The GOP wisely raised the deficit at first, but then it went overboard. Interestingly, the same party which famously declared last decade that deficits don’t matter is now insisting on a zero deficit balanced budget amendment. From one extreme to the other.

    That’s not to say that surpluses are always bad. They are necessary during periods of high growth and high inflation to cool down the economy and build reserves for times of crisis. But to insist on balancing the budget at this moment is folly. It’s like curing a headache by blowing your brains out.

  23. Hey Paolo:
    ” This will be thanks to the expiration of the Bush tax cuts, increase in tax revenue as we get further away from the recession, and decrease in spending as fewer people will be eligible for government assistance under current law.”

    Increase in tax revenue as we get further away from the recession?
    I may not understand the math but did you look at today’s growth figures for the economy?
    Exactly how quickly are we getting away from the recession?
    There i sat least a double digit chance now of a double dip recession. How does that figure into your math?

  24. Economic experts, including those at the Federal Reserve, will tell you that the long term potential sustainable real (excluding inflation) growth rate of the U.S. economy is about 3% per year. That’s based on 1% population growth plus 2% productivity growth. While the current and very recent growth rate is lower than that, it’s also been much higher in the past, especially during recoveries from recessions. I think the current recovery is being held back by the extremely depressed construction industry, especially the residential portion of it. The government, I think, has the housing market tied up in knots with all these attempts to modify mortgages and keep people in homes they can’t afford to pay for that the market isn’t being allowed to clear as quickly as it otherwise would.

    When it comes to the total federal debt, what counts is our ability to service it, not the gross amount of the debt. The cost to service is determined by the amount of the debt in public hands and the average interest rate owed on the debt. Our ability to service is relates to the cost to service as a percentage of GDP.

    A normalized interest rate on short term securities like Treasury bills generally compensates investors for perceived near term inflation but provides no real (above inflation rate) return. Longer term bonds maturing in 10 years or more can be expected to yield two to three percentage points above the expected inflation rate during the period the bonds are outstanding.

    Numerous economists think we can run a deficit equal to as much as 3% of GDP as long as the economy grows in real terms at that rate and inflation remains moderate. Personally, I would prefer to see us run surpluses in strong economic years, deficits in recession years and balance our budget in aggregate over an economic cycle. As debt outstanding as a percentage of GDP declines, we will have the capacity to deal with external shocks and other unexpected events like wars when they occur.

    I find it troubling that reducing our deficit from its current unsustainable level to 3% of GDP is all we need to do. In my opinion, it’s not only not ambitious enough, it’s dangerous to think that we can borrow 3% of GDP year after year on top of what we are willing to raise in taxes as though it’s an additional revenue source that we can spend to curry favor with interest groups to, in effect, buy their votes. States are required to balance their budgets. The federal government should as well, at least over an economic cycle. It does need the flexibility to run deficits to deal with extraordinary circumstances.

  25. its not math its theory, not only that, its theory that has never worked;

    Unsurprisingly, it is not a practice that pans out well in reality…

    “‘Many countries have tried this and they’ve all failed,’ said Mark Zandi, chief economist at Moody’s Economy.com.

    “It’s true that inflation could reduce a small portion of U.S. debt. The International Monetary Fund (IMF) estimates that in advanced economies less than a quarter of the anticipated growth in the debt-to-GDP ratio would be reduced by inflation.

    “But the mother lode of the country’s looming debt burden would remain and the negative effects of inflation could create a whole new set of problems.”

    The new problems that crop up include:

    * Inflation-indexed government spending. Many government obligations, like Social Security, are tied to inflation so those costs won’t go down.

    * Future debt issuance. Inflation would make it more costly for the US to issue debt in the future because buyers will demand higher interest rates.

    * Unintended consequences. Additional costs to society will develop such as increased economic stress for the poor. The poor tend to have salaries that do not increase with inflation. They also tend to require government aid that needs to match the rate of inflation.

    Read more: Why Inflation Won’t Help to Reduce US Debt http://dailyreckoning.com/why-inflation-wont-help-to-reduce-us-debt/#ixzz1TXJGrh7s

    Its an academic solution, like healthcare reform, it works great on paper or in a vacum but try it in real life and bad “unexpected” things happen.

  26. ya thats what they told me about real estate in 2007. No one thought property prices would stop growing, boy I wish they had only stopped growing instead of losing 2/3rds of their value.

    I own some iridium stock as well I was told the same thing about. Which could also be said about countless stocks circa 1999.

    Paolo 2006, The 30-year treasury is at 4.5%, so pretty much nobody in the world believes that the 5 year bond will be 4% in 5 years.

    Term Auction
    Date Issue
    Date Maturity
    Date Interest
    Rate % Yield
    % Price
    $100 CUSIP
    30-YEAR 02-09-2006 02-15-2006 02-15-2036 4.500 4.530 99.510492 912810FT0

    2006 no one thought we would be where we are today, how did that turn out?

  27. “Nate, this is not the Dominican Republic. This is the United States of America. Do you not see a difference?”

    Is this an argument, questions or what?

    We have 4 words in our name they have 2? Their’s rolls off the tongue a little better, nice exotic sound to it? They have better climate?

    instead of playing what ever game your playing how about you point out the difference Margalit and argue why it is material then asking rehetorical questions? Well of course its becuase you don’t know what the difference is and why it matters.

    Constitution says a lot of things, we think, then perspective is changed. If we pay our debts but do so a day late the debt is still paid. What if the debtor agrees to take 90 cents on the dollar and we pay it, then our debt is paid.

    You also aren’t grasping that the August 2 deadline is a bogus date who’s only signifance is allowing Obama to have his extravagent birthday bash that weekend. Outside of Obama’s birthday it has no meaning.

    Not raising the debt limit doesn’t mean we can’t pay our debt it just means we will have to cut other spending.

  28. You still don’t seem to get the math. Higher than 2% inflation will actually make it easier, not harder, to support a 3-4% deficit indefinitely.

  29. The 30-year treasury is at 4.12%, so pretty much nobody in the world believes that the 5-year bond will be at 4% in 5 years (it’s at 1.36% today). If you think otherwise, you should quit the insurance business and become a bond trader. You’d make a lot more money and become the new Bill Gross.

  30. and about that 2% inflation;


    The Shadowstats.com report last Friday said, “There are numskulls in the financial media — toadies to the Federal Reserve — who would like to think that energy and food inflation do not count. Simply put, the monthly December inflation releases for the CPI-U (annualized 6.2% inflation), CPI-W (annualized 7.8% inflation) and PPI (14.0% annualized inflation) were disasters . . .” The credit or the blame for the big spike in inflation is the direct fault of the Fed. “The sharp increases in December energy and food prices were not due to normal price volatility in those areas, instead, they were created directly by Federal Reserve Chairman Bernanke’s ongoing push to debase the U.S. dollar — to destroy the purchasing value of the U.S. currency,” said Williams.

    As long as you don’t eat, drive, travel, or use electricity then 2% inflation is achievable. If you wish to eat, drive, or travel and use electricity we have a problem.

    Jim Willie at GoldenJackass.com says you can expect inflation to be reported as growth by the government. This will make it look like the economy is recovering when, in fact, it is sinking. In his latest report, Willie said, “Not just emerging economies like China and Brazil are contending with price inflation. The US does too, but it calls it growth, since its economic trackers are much more accomplished decepticons. When job losses mount in the second half of 2011, the lies will be unmasked. The US Fed is the greatest destroyer of working capital in the history of the world. Their balance sheet is negative $1 trillion and growing worse, their highly appropriate report card.”

  31. “With 2% inflation and 2% GDP growth (both conservative assumptions),”


    Output increased at a 1.3 percent annual pace in the second quarter as consumer spending barely rose, the Commerce Department said on Friday. In the first three months of the year, the economy advanced just 0.4 percent,

    Simple math isn’t the problem, its the fact we don’t have 2% GDP growth and there is no promise we will have it in the future. Average historical numbers are great, when our debt is back to average historical numbers let me know.

    let me know if you need any help with that.

  32. Nate, this is not the Dominican Republic. This is the United States of America. Do you not see a difference?
    We pay our debts. The Constitution is not allowing you, or anybody else, to question this simple fact.

  33. There will be no collapse, ever.

    With 2% inflation and 2% GDP growth (both conservative assumptions), you can run a 4% deficit forever. The debt/GDP ratio will stabilize at 100%. With 3% inflation and 3% GDP growth (average historical numbers) you can run a 3% deficit forever and the debt/GDP ratio will decrease and stabilize at around 50%.

    If don’t believe in simple math, then I can’t help you.

  34. Which of these is not better off today?

    Venezuela, July 1998 – defaulted on $270 million worth of domestic currency bonds

    Russia, August 1998 – a massive $72,709,000,000 default that rattled the entire global economy. The trouble started in August of ’98 when the country missed payments on local Treasury obligations, and later extended to include foreign currency obligations and MINFIN III foreign currency bonds. Russia’s debts were eventually restructured in later years.

    Ukraine, September 1998 – $1.27 billion dollar default

    Pakistan, July 1999 – defaulted in July of 1999 but quickly resolved the situation

    Ecuador, August 1999 – missed a payment, leading an an eventual restructuring of over 90% of their bonds. Default amount was around $6.6 billion

    Ukraine, January 2000 – defaulted again (1.06 billion) in January of 2000. Defaulted on both DM-denominated Eurobonds and USD-denominated bonds. Ended up rectifying the situation by exchanging their current obligations for bonds with a longer term and lower coupon.

    Peru, September 2000 – defaulted on $4.87 billion of debt but rectified the situation within 30 days

    Argentina, November 2001 – a massive $82.26 billion dollar default that once again rattled the global economy and worldwide markets. Missed a payment in early 2002 – debt obligations were restructured and the country continued to receive funds from the IMF to aid in their recovery

    Moldova, June 2002 – defaulted on $145 million worth of debt, only to rectify the situation a short while later, once to default once again

    Uruguay, May 2003 – Argentina’s troubles spread to Uruguay, and the government of Uruguay defaulted on $5.7 billion dollars worth of debt in May of 2003. The country eventually completed a restructuring of their debt obligations with their bondholders

    Dominican Republic, April 2005 – Defaulted on $1.62 billion dollars worth of debt in April of 2005. Eventually completed a debt restructuring that ended up extending the maturity of their debt obligations by five years

    Belize, December 2006 – Defaulted on $242 million dollars worth of debt in December of 2006

    Ecuador, December 2008 – Defaulted on $3.2 billion dollars worth of debt obligations after calling several of their previous debt offerings “illegal and illegitimate”. An unusual situation in that Ecuador is thought to have the resources NOT to default, but chose instead to default for “moral” reasons.

    *note* there were other sovereign debt defaults that occurred during this period, including Ivory Coast, Grenada and Seychelles, but

  35. How does a default today hurt future generations? Your ignoring a lot of history to make this claim.

    Ask a resident today about the OC default and they probably won’t know what your talking about.

    how is Brazil suffering fromt their default of 1999?


    I think this is one of the cases where you really don’t know what your talking about. If you look at the performance post default it could easily be argued we would be stupid not to default. I would have no problem telling China, hey sorry all that debt you owe is worthless, consider it trade for all the technology you stole. What are they going to do, not lend to us again, good, it never should have happened in the first place.

    You can’t cite any historical references to support your claims of poverty and sorrow that would come from default. You have no idea what your talking about making these claims.

  36. we can borrow at 2.79% now, there is no promise, in fact history says otherwise that we can borrow at that rate 5 years from now. Increase that to 4% and see what it does to our budget.

    You can’t run a 3-4% budget deficit forever, sooner or later it will collapse, that is the flaw in the current thinking.

  37. Nate, we can disagree on whether continuing to borrow or not is good or bad, but a default today will only hurt this and future generations, because a lot of additional wealth will be vanishing into thin air, you will end up with a poorer nation and poorer people, which will no doubt elect a government to increase spending in the next elections, which will require more borrowing (at higher rates now), and basically throw us all in a spiraling cycle to the bottom.
    So if you want to see massive Democrat majorities in Congress and the White House for the foreseeable (miserable) future, then default is the way to go.
    There are proper venues do deal with fiscal policy. This is not it.

  38. “and make no mistake everyone will suffer if he fails.”

    I would disagree with this, everyone today would suffer. Future generations would be far better ahead of Obama failed miserably and the government defaulted on the debt and was forced to stop borrowing. There has been a huge transgeneration theft of wealth, anything to stop this would be in the best interest of the future.

  39. The debt ceiling crisis is a political crisis, not a fiscal crisis. If you believe in what free markets tell you (I do), you would know that a country that can borrow money at 2.79% over 10 years is not in a fiscal crisis. Bond traders are a lot smarter than you or me.

    If nothing is done at all, the deficit is projected to go down to 3-4% in the next few years, which is not great, but is sustainable. This will be thanks to the expiration of the Bush tax cuts, increase in tax revenue as we get further away from the recession, and decrease in spending as fewer people will be eligible for government assistance under current law.

    Of course, it would be much better if we replaced the Bush tax cut expiration with tax reform that broadened the base instead of raising rates. This is actually pretty easy to do if there is a political will. Eliminating just a small part of the tax exclusion for employer-based health insurance or the mortgage interest deduction can raise trillions in 10 years. These and other similar programs are essentially spending through the tax code and are not essential.

    It would also be great if we could reform social security to make it actuarially viable after 2040 (pretty easy to do) and reform health care to reduce its rate of growth (not so easy to do). But nobody is going to perish next week if we fail to fix this right now.

    If we do go into default, it will be like the man who committed suicide because he was afraid of dying.

  40. I forgot to mention that banks are also working through a lot of litigation related to the housing bust and mortgage practices which will require a significant amount of money to settle in all likelihood. It’s prudent to hold on to cash to resolve those issues as well.

  41. Margalit –

    Banks and large corporations aren’t sitting on their cash to be perverse. The corporations are doing it mainly because they don’t see enough investment opportunities that offer a return commensurate with the risk inherent in the projects. While many of the banks have increased commercial and small business lending, they have tightened their credit standards relative to standards that were, in retrospect, too loose in the mid-2000’s. This is especially true in the residential housing market. In housing, the banks are still working through a mountain of foreclosures and short sales. Capital standards are going up. Non-performing loans remain at well above normalized levels. In short, it’s sensible to err on the side of caution for now.

    Personally, I think mortgage loans should require a 20% down payment like they did once upon a time in the 1970’s and before. If it means the home ownership rate is 10-20 points lower that it’s been in recent years, so be it. People can rent instead. Builders who specialize in multi-family construction create jobs and hire people too. I also think the mortgage interest deduction should be phased out. We could lower marginal tax rates and further increase the standard deduction instead. The value of the mortgage interest deduction gets capitalized into home values making it more expensive to buy a home than it would be otherwise. Besides, the deduction disproportionately benefits higher income people because the higher the bracket you’re in, the more valuable the deduction is. They also have larger mortgages and more interest expense to deduct. Mortgage interest is not deductible in Canada and it was phased out in the UK about 10 or 11 years ago. We should phase out ours too.

  42. “A functioning banking system is the oxygen that our economy needs to operate.”

    No question Barry, but with that comes grave responsibilities and obligations as well as what should be strict oversight. Quite clearly the banking system was NOT functioning, but it was taking all the oxygen. How many financial institutions have been fined for fraud to this date?

    Here’s an example of what passed for “functioning”:


  43. “You have given the typical liberal meme – this is all Bush’s fault, him and his rich cronies.”

    Cory, no, I don’t put all the blame on the Bush years, the financial shell game that got us here has been just as much a Democratic creation, in fact many of the same financial thieves have advised both Obama and Bush. During Bush it just became a feeding frenzy.

    If you can I’d suggest a CD called “Inside Job” (won an Oscar), with plenty of political blame to go around. As usual the slimy fingers of Goldman-Sachs have been directing both White Houses.

  44. “and make no mistake everyone will suffer if he fails.”

    This point seems to be lost on most super-right-wing representatives, who are perfectly content to have everyone suffer, including those who voted them into office, just to see this President fail.
    Interesting take on the meaning and purpose of public service….

  45. Barry, from everything I read, the banks and most other large companies are sitting on very large cash piles. The government’s direct assistance to businesses did not flow down to job creation and investment in recovery.
    Perhaps if the wealthy would have used the money as intended, there wouldn’t be such a great need for them to aid the poor, because there would be less poor and the middle class (whatever that is) would be able to take on more responsibility.
    As it stands now, there has been this enormous suction of cash from the broad economy into the vaults of the very few. Not good for the broad base and not even very good for the few.

  46. Peter:
    I’m not here to deify Reagan or defend Bush or protect the rich.
    You have given the typical liberal meme – this is all Bush’s fault, him and his rich cronies. Which is partially true, partially false, and a partial oversimplification. (by the way, that sentence Bush’s record on GDP, debt and jobs isn’t too good – well it’s 2/3 right, our unemployment numbers now would look real good if they were what they were then).
    But all that is beside the point now.
    IF it makes you feel good to blame Bush go ahead, Obama is obviously going to do that to try and get reelected.
    I wish he would spend a little more time trying to fix this problem- and make no mistake everyone will suffer if he fails.
    IT is a philosophic point whether you believe more taxes at this point will aid or hurt the economy but I think concern about the poor and the middle class should focus on helping them up, not knocking the fat cats down. IF taxing them does that, fine but either way the basic point remains- Government can’t keep spending more money than it takes in, in increasing rates.

  47. Peter –

    I would support somewhat higher taxes on upper income taxpayers as part of a budget solution but I would prefer to see it in the form of a higher rate on capital gains and dividends coupled with a broader base and lower marginal rates on ordinary income that raised revenue on a net basis. I’ll bet, though, that even if the Bush tax cuts were allowed to expire at the end of 2011, as we came up against the debt ceiling, Obama and the Democrats in Congress would still be clamoring for the so-called wealthy to share in the sacrifice and pay their “fair share” in addition to the higher burden from the expiration of the Bush tax cuts because, for them, a fair share is always more than whatever they’re paying now no matter how much that is.

    The middle class cannot continue to get away with demanding more from government than it is willing to pay for. Millions among them, including lots of the elderly, own their homes free and clear. While the stock market decline hurt the net worth of all who own stock, the rich take the biggest hit because they own the most stock. The housing bust had many enablers from politicians who wanted to push home ownership even for people who couldn’t afford it to bankers and Wall Street securities firms hungry for fees to investors of all types greedy for a little higher interest rate than they could earn from plain vanilla Treasury securities with a comparable maturity date to homeowners who used their inflated equity as an ATM to those who willingly bought a more expensive home than they could afford because they wanted to maximize their potential future price appreciation and tax deductions. While the banks got federal help, their investors suffered enormous dilution as the share count increased sharply to rebuild capital. This was especially true for Bank of America and Citigroup. Many thousands of bank employees lost their jobs as well. A functioning banking system is the oxygen that our economy needs to operate. The TARP program was absolutely the right thing to do at the time. The bottom line is that the broad middle class will have to pay for the government services it expects to be provided to the broad middle class. Money for programs that aid the poor will come mainly from the wealthy.

  48. Cory, budgets represent income as well as expenditures and GDP is influenced by many factors including government spending, so an increase in Reagan’s debt helped his GDP. GW Bush’s economic record (GDP, debt and jobs) is poor even with his tax cuts and his deficit spending, maybe it was too thinly spread to his rich cronies. You might also want to consider that our way out of the Great Depression was massive government spending and debt – war.

    My response to Richard L . Reece was to point out that his apparent deification of Reagan, which many of the current right like to evoke to bolster their side, had holes in it and those holes would support compromise to arrive at solution.

    Asking for more taxes from wealthy individuals and corporations, who have done very very well during this recession, which will soften the need for cuts the middle and lower class will have to shoulder, is not asking a lot. The creators of this criminal economic fiasco, largely under-regulated financial institutions, have been doing quite well with the FED standing behind them with free money. Their execs also continue to make extravagant bonuses, while middle/lower America has had to subsidize their success with job loss, wage loss, foreclosure, high personal debt, and equity loss. If we are saying this “debt” is a crisis, isn’t it appropriate that EVERYONE to participate in the pain, given that the cuts to taxes ratio proposed is 3-1.

    Agreeing to extend the Bush tax cuts was Obama’s great blunder he’s having to pay for now. During the GW Bush years outcry about the growing debt, which Obama inherited, was poo pooed by the right, as the benefactors of government debt, the “K” Street gang, walked off with the cash bags.

    We need to control our budget, but that includes revenue and expenditures, cost controls and justification of government programs and earmarks. Those who rail against government spending are among the first to run to FEMA for assistance, lacking both insurance and the good sense to not build in a flood zone and proper building codes for hurricanes, they also want their congressman to return with federal money to their district. The recent FAA budget cut-off (tax dollars) has cost 70,000 jobs, so be careful how much cutting you want. Taxes aren’t buried in a hole, they’re spent, a lot more broadly and faster than the rich spend their money, we just need a concrete 10 year plan that includes everyone and a transition not a blunt hammer.

  49. President Clinton threatened to withhold up to $48 million in federal funds from a Chicago hospital unless it promises to never again turn away a person needing emergency care.

    In an ironic counterpoint to its highly publicized effort to save kids from smoking by slapping a massive new tax on cigarettes, the Clinton Administration last week endorsed the distribution of free hypodermic needles to drug addicts-while withholding federal funding for such programs.

  50. “The federal government is liable for all authorized payments that are written into current law”

    Paolo you are WAY out to sea on this one, time to start swimming back to shore. It is common pratice to withhold funding for all sorts of reasons. Care to explain all that unspent TARP money?

    The Obama administration said Friday that Mexico has met enough human rights requirements for the U.S. to release $36 million in previously withheld funds that were part of the $1.4 billion Merida Initiative.

  51. That’s nonsense. The federal government is liable for all authorized payments that are written into current law (and that’s a lot more than revenue coming in). If it defaults, the Feds may stop some payments, but the liability does not go away. You’ll see millions of Medicare/Medicaid providers, defense contractors, and all sorts of government aid recipients file lawsuits against the government and probably win.

  52. Barry – thank you for your balanced views and your fact-based reasoning. A rare occurrence these days!

  53. What else is false about your Reagan narrative is that you don’t mention he was raising taxes at a time of economic expansion. Big difference with today.
    But what is the point about what Reagan did, or Clinton did or Bush did or JFK did?
    Generals fight the last war.
    This business that “there is no relation between the debt ceiling and our future spending” is bunk.
    This business that “don’t worry it will all work out” is bunk
    Other countries don’t have debt ceilings -how is that working out in Europe right now?
    Health care spending can’t go on like it has -sure I’ve heard that for 30 years, I guess eventually you will be right
    Play with all the numbers you want, opine what markets will do (as if anyone knows) or what economists think (as if anyone cares -and that’s what my son does for a living).
    the fact is our spending is profligate – it can not go on like it is. raise taxes or don’t raise them – we can not go on spending more money than we take in at increasing levels and taxes won’t cover that over the long-run.
    Anybody want to argue that basic point?

  54. We don’t need to raise the debt celing to pay pay expenses we are already liable for, we only need to rasie the debt celing to spend more money for expenses we are not yet liable for.

    We have enough income to service debt and pay entitlements. It would require drastic cuts to programs and future spending but thtas not what you said your objection was.

    Betting your now going to change your objection….

  55. On at least 125 occasions, the President has acted without prior express military authorization from Congress.

    I guess you would also be ok with Bush, Obama, and any future President starting wars, its been done 125 times.

    “I don’t know anybody” Sounds like your circle isn’t nearly as mixed as you would like to think.

    “with no possible positive outcomes for any one.”

    Margalit you don’t have anywhere close to enough understanding to make this statement. Positive outcomes are numerous. First off we cap our debt and it stops increasing, Future generations of America would much prefer we leave them with 14 trillion in debt then 40 trillion. Second a short term default that forced washington to actually deal with the problem instead of kicking the ca down the road as they all agree would be a huge positive outcome. This isn’t a new problem or an unknown unknown, we all knew this was comming, if not a default then what will force Washington to finally fix the problem.

    I could turn around and argue passing a debt ceiling increase has no positive outcome better then you can argue the other way.

    If you think this is the wrong way to fix the problem then how do you propose we fix it?

    Ahh that’s right, the liberals haven’t offered any solutions they just want to attack the ideas the Republicans have proposed.

    I’ll repeat;

    What exactly are Republicans doing to throw the country under the Bus?

    Republicans are trying to solve the problem, Democrats are sitting on the sideline refusing to even show up for work.

    Its the Democrats that are refusing to pass any of the bills that have been brought up, its only the democrats throwing anyone under the bus.

  56. “to use President Ronald Reagan;s expression, “If it moves tax it “(to win the politcal support of 12,000 baby boomers moving into Medicare each day, and the 50 million supported by Medicaid), “If it continues moving, regulate it “(as in Obamacare, which will require $500 billion in additional taxes over the nextr 10 years), “And if it continues moving, subsidize it”

    The Reagan myth:

    Created the department of veterans affairs contributed to an increase in the federal workforce of more than 60,000 people during his presidency.

    Skyrocketed the debt from $700 billion to $3 trillion.

    Reagan actually ended up raising taxes – ELEVEN TIMES.

    Massively increased the Pentagon budget.

    Agreed to bailout SS by $165 billion.

    Reagan raised the gas tax and signed the largest corporate tax increase in history.

    “Ronald Reagan was never afraid to raise taxes,” historian Douglas Brinkley, who edited Reagan’s diaries, told NPR. “He knew that it was necessary at times. And so there’s a false mythology out there about Reagan as this conservative president who came in and just cut taxes and trimmed federal spending in a dramatic way. It didn’t happen that way. It’s false.”

  57. pcp –

    I agree with you on the debt ceiling. Most countries don’t have a formal debt ceiling and we shouldn’t either or the president should be able to raise it by executive order when necessary. At the same time, the total debt outstanding should be a transparent number broken down by how much is held by the public vs. government trust funds and by maturity and updated every time the Treasury sells new debt instruments or pays down maturing securities. There should be a general consensus among economists as to how much debt and net interest as a percentage of GDP is reasonable and sustainable for a developed economy like ours to carry and let private investors take it from there in determining their willingness to buy our debt securities at any given time and at what interest rate vs. other investment alternatives.

  58. Raising the debt ceiling is about paying expenses we are already liable for. That’s completely different from bringing deficit spending down to reasonable levels, and getting the total debt under control (both of which I favor). They’ve never been linked before, and there’s no reason to do so now.

  59. If we look at the total cost of Social Security, Medicare, Medicaid, defense and net interest on the federal debt, it was 13.3% of GDP in 1970 and increased to only 13.8% of GDP in 2007. Defense this year is estimated at 4.7% of GDP and will likely shrink back to 3.5%-4.0% as the two wars wind down. Defense spending consumed 8%-10% of GDP during most of the 1950’s and 1960’s and bottomed out at 3.0% during the Clinton years as a result of the so-called peace dividend following the collapse of the former Soviet Union. That all said, I think we will have to, over time, raise taxes enough to produce revenue of 20%-21% of GDP in normal (non-recession) economic times.

    “And what happens when we are paying 40% of our GNP to interest payments in 25 years?”

    It won’t happen. Net interest on the federal debt is about 1.7% of GDP today. Investors will stop buying our bonds at affordable interest rates if they perceive that we are accumulating debt beyond our ability to service it at bearable levels of taxation or if they think inflation will accelerate and drive their interest rate into negative territory in purchasing power terms. As for healthcare costs, trends that are unsustainable will ultimately stop and even reverse. The political dynamic will change and people will change their behavior to become more mindful of costs. Nobody knows exactly when that will happen but there is no doubt that it will. At least that’s my opinion.

  60. pcp:
    No 48% don’t pay income tax. But you already knew that.
    Just raise the debt ceiling?
    How long and how often?-
    And what happens when we are paying 40% of our GNP to interest payments in 25 years?
    IF I have a credit card with a huge balance I can’t pay all at once, you’re telling me I should just keep raising the limit on the card?
    Even if you believe that- what’s your plan eventually? what’s your counterargument

  61. “What Democrat plan would you propose we follow instead?”

    The one proposed by Pres. Obama in January, the exact same one used by Eisenhower, Nixon, Reagan, and both Bushes: raise the debt ceiling. Period.

  62. Clearly part of the answer must be to finance ways of addressing the healthcare cost nightmare and, particularly to fund the innovations that can help temper the cost of treating the elderly and those with chronic conditions. It is almost misleading to talk about the cost of Medicare in the same breath as the number of Medicare members since the costs are disproportionately concentrated in a fraction of the population each year. The government must continue to squeeze out some capital to help the private sector innovate to solve these problems, as they did with the space race initiatives. There is a little of this going on, but it seems to be going disproportionately to those who don’t have a history of innovating solutions. Unfortunately tax pressures at the state and federal level are also working against those initiatives. It would be nice if policy-makers integrated their thoughts once in a while from a broader national perspective. No doubt the solution is a combination of cost reduction and revenue enhancement, but it must be done in a way that fosters private sector growth in critical areas or we will never work our way out of this mess.

  63. I travel in ideologically mixed circles, but perhaps my conservative friends are different than yours.I don’t know anybody that supports the insanity of taking a simple procedure performed 18 times by Reagan and 7 times by Bush and almost twice a year since 1962, and turning it into a surreal spectacle with no possible positive outcomes for any one.
    There are no Democrat plans on the table. Everything there is, or has been, proposed by Republicans in the past, but that’s not good enough anymore.

    This is a public enactment of a picture book I used to read to my kids ” If you give a mouse a cookie…” only the mouse was really cute.

  64. “are not representing the vast majority of decent folks who happen to hold conservative views.”

    You would know this how Margalit, you have never had a conservative thought let alone have a conservative idelogy so how do you know they don’t represnt our views? I get the newsletter and emails, they are moer in line with our views then you care to admit.

    *this is the fun part of arguing with Liberals, ask specific questions and see how they go silent*

    What exactly are Republicans doing to throw the country under the Bus?

    What Democrat plan would you propose we follow instead?

  65. Gosh, I’ve always loved nice, rational arguments like Ron Brownstein makes. If he can ever find a way to have them resonate among folks beyond the National Journal demographic, it would be great. But in a political atmosphere where even a Karl Rove shudders to publicly challenge a Sarah Palin, lest he be accused of being inadequately politically correct (though the right only uses that term about the left), the rationality will remain a comforting form of summer fantasy. Alas.

  66. The Republican officials in DC, who are currently engaged in an all out effort of throwing the entire country under the bus, just so they can keep their nice offices on the Hill, are not representing the vast majority of decent folks who happen to hold conservative views.

  67. is that what all those oup kitchens and charities ran by conservative and religous organizations say? Seems like a waste to spend all that time helping people off if thats how they feel.

  68. “It’s Not The System, It’s Aging” was the title of a medinnovation blog I wrote recently about Canada’s problems of paying for the elderly’s health costs, a problem every Western nation faces. That’s one problem. An associated problem is tht aging citizens want every medical technology to make them look and feel and function younger.

    To Democrats, the solutions are, to use President Ronald Reagan;s expression, “If it moves tax it “(to win the politcal support of 12,000 baby boomers moving into Medicare each day, and the 50 million supported by Medicaid), “If it continues moving, regulate it “(as in Obamacare, which will require $500 billion in additional taxes over the nextr 10 years), “And if it continues moving, subsidize it ( to the tune of about $2.5 trillion from 2014 to 2024). T

    he Republican answers are to make structural changes, i.e, Ryan vouchers, advancing the age of entry into Medicare over the next 10 years), means testing the affluent elderly who can aford to pay for more of thier own care, and market based incentives (HSAs, tax credits for all, shopping across state lines, and competition).

    Until something happens, AARP, according to Robert Samuelson in the Washington Post and Newsweek, AARP, now 50 million strong, will continue to rule the country.

  69. “That’s not because of Obama’s health care legislation, which doesn’t generate significant spending until 2014 and is projected to largely pay for itself by restraining Medicare’s growth; it’s because Medicare and Medicaid now cost nearly $800 billion annually.”

    No one who makes a living based on the outcome of their projections thinks PPACA will even come close to paying for itself. Only political projections have claimed this and we have 50 years of Medicare projections to show what those are worth.

    PPACA has already increased cost 5-10% and a recent study showed 1 in 8 small businesses dropped health insurance becuase of PPACA.

    Your study starts with the assumption we have to have Medicare…why? We were better off before Medicare existed, both seniors and the nation as a whole. Prior to Medicare 13% of seniors needed assisatance with healthcare, thanks to medicare that is now 19% and rising. As a whole we would be better off if Medicare was eliminated tomorrow. There would be the sob stories in the news paper abou tthe small percent of people that didn’t get transplants at 80 years old but collectivly we would be further ahead and most importantly sustainable.

    “but as always, you need to force people to do the right thing for their own good.”

    Then why don’t we force them? A recent study said something like 60% of SS beneficaries take SS as soon as it is available, at age 62 which cuts their benefits around 30% I think. They don’t start at 62 because they can’t work and need it, they chose to quit working and start getting by on what they can.

    Its been said the first person that will love to be 150+ has been born already. Do the math on that, 150-62 is 88 years of collecting benefits for 10 years of work. Only a liberal could design such a system and think it is sustainable. Social Security needs scrapped as well as it is flased and will never be sustainable.

    “Republicans don’t want to talk about taxes,”

    Really is that so? I hear them on the air EVERY day saying no new taxes during a recession. So the factual statement is Republicans don’t agree with you on taxes, its dishonest to say they don’t want to talk about them becuase they do every day.

    “they don’t want to talk about what we pay private providers and insurance, ”

    Ryan plan did more of this then any plan put forth by Republicans. Again just making stuff up. Why can’t you have an honest discussion about anything?

  70. If we can see what the country will look like if we don’t do anything to entitlements then maybe Republicans can tell us what it would look like after they gut entitlements. About 43% of Americans have less than $10k in retirement savings, and that’s probably before many had to raid those accounts due to job loss, as well, 56% of workers between 25 and 34 have less than $10,000 in savings, added to all this to an overall reduction in wealth of the middle class from house values to wage loss and with no economic growth surge on the horizon to rescue them their due a bleak future.

    Social Security should be separated from health care as more contributions will extend it, as with any other retirement account, and for many SS is all they have or will have. SS is only a minimum of retirement needs, but as always, you need to force people to do the right thing for their own good.

    I think there are three legs to the health care debate; what we contribute to Medicare/Medicaid in taxes, what we take out of those programs in services and what we pay for those services. Republicans don’t want to talk about taxes, they don’t want to talk about what we pay private providers and insurance, so clearly they only see the fix as cutting what we have access to. But if you listen to their rhetoric, every time the other side talks reducing the cost of Medicare, they fear monger to seniors about how cuts are going to hurt them, and that a vote for Republicans will ensure seniors access to Medicare as they’ve always known it.

    We need all three sides tackled to solve this in a shared effort. But sharing the pain is not what Republicans have in their vocabulary. They’d rather make this a “them or us” argument.

    I don’t see a soft landing on any of these issues and Washington seems set to solve crisis with more crisis.

  71. the demands of providing for an aging society without gutting everything else that government does will require Washington to raise more revenue.-

    “Raise more revenue” is code for “raise taxes”. This is not some anti-tax screed. It might be necessary to raise taxes in the short -term to reach an agreement on the deficit. But with 52 % of the population paying for the other 48% and that imbalance threatening to grow, long-term hikes in taxes are simply an unsustainable course, it will fray the fabric of our society eventually – unless the economy grows significantly.

    Further, the piece doesn’t mention the rapidly climbing interest payments the Government will be obligated to pay – money essentially spent on nothing. This will overwhelm our other obligations if allowed to grow at current spending levels.

    Unless today’s politicians make some hard decisions, that will cost some their jobs, or we find some breakthrough technologies that allow us to grow our economy, either our seniors are going to face an uncomfortable future or our young people are going to face an even longer uncomfortable future – or most likely both. There is no third way.