Government: It ain’t broke yet, but just wait
Kurt Brouwer August 19th, 2009
This poster from a rally on healthcare makes a very good point that goes beyond the current healthcare debate:
Source: CharlieFoxtrotBlog
There are plenty of potential positions one could take on the issue of healthcare reform. We’ve had excellent discussions and comments on this issue from people on all sides (see Healthcare: An Ounce of Prevention). However, this poster makes an excellent point about the state of our government:
Government: it ain’t broken yet, but just wait…
Government finance is in tatters at the state, Federal and local levels. The Congressional Budget Office (CBO) put out its estimate of the Federal budget deficit for the current year (10 months) through July [emphasis added]:
Monthly Budget Review (Congressional Budget Office, August 6, 2009)
The federal budget deficit for the first 10 months of fiscal year 2009 reached $1.3 trillion, CBO estimates, close to $880 billion greater than the deficit recorded through July 2008. Outlays rose by almost $530 billion (or 21 percent) and revenues fell by more than $350 billion (or 17 percent) compared with the amounts recorded during the same period last year. The estimated deficit reflects outlays of $169 billion for the Troubled Asset Relief Program (TARP), recorded on a net-present-value basis adjusted for market risk…
The budget deficit last year was high, but we are beating it by $880 billion. Oh joy.
And, in terms of large Federal entitlement programs, they are all in deep financial trouble despite the fact that we have significantly ramped up spending on these programs:
This information is based on data from the government’s Office of Management and Budget. It is from a comprehensive report — Citizens’ Guide 2009 — on government spending and debt put out by the Peter G. Peterson Foundation. It is well worth reading.
These pie charts demonstrate the change in Federal government spending over the past 40 years.
Source: Peter G. Peterson Foundation
Today, Medicare, Medicaid and Social Security spending constitutes 41% of Federal outlays. Forty years ago, those programs only constituted 17% of Federal spending. Theoretically, those programs should be awash in cash, yet they are all underfunded and, essentially, broke.
Medicare is probably our biggest single budget busting program and it is currently underfunded to an enormous degree. So, if we have such great potential solutions for cutting healthcare costs, what’s to stop us from addressing Medicare underfunding?
Why not fix Medicare first?
I am not the first to make this point, but I have written this before: if reform is so easy and logical and beneficial, why not fix Medicare first? It’s already underfunded and actuarially broke, so let’s get going on that:
This sentence from Virginia Postrel really struck me as one of those irrefutably obvious points:
…If simple and decisive government action can curb costs in health care, as Obamacare advocates claim, why not begin by fixing Medicare before rushing in with sweeping changes to the entire system?…
We often hear how efficient Medicare is and how low its administrative costs are. But then, we hear about the vast underfunding of Medicare to the tune of double-digit trillions of dollars. So, let’s fix Medicare.
Or, we could fix Social Security
My friend Allan Sloan, Senior Editor At Large at Fortune Magazine, made this point in a lengthy piece on Social Security [emphasis added]:
…Perhaps as early as this year, Social Security, at $680 billion the nation’s biggest social program, will be transformed from an operation that’s helped finance the rest of the government for 25 years into a cash drain that will need money from the Treasury. In other words, a bailout…
His piece is well worth reading in its entirety. I also intend to do a longer post on it, but for now just look at this chart that accompanied Allan’s piece:
Source: Fortune / Social Security
But, it’s not just Medicare or Social Security, the Post Office is broke too
This report from the GAO tells the tale about another government agency that is broke [emphasis added]:
Restructuring the U.S. Post Office to Achieve Sustainable Financial Viability (Government Accounting Office, July 2009)
GAO is adding the U.S. Postal Service’s (USPS) financial condition to the list of high-risk areas needing attention by Congress and the executive branch to achieve broad-based transformation. Amid challenging economic conditions and a changing business environment, USPS is facing a deteriorating financial situation in which it does not expect to cover its expenses and financial obligations in fiscal years 2009 and 2010. This year, USPS expects to increase its year-end debt to $10.2 billion and incur a cash shortfall of about $1 billion…
The GAO reports the cash shortfall as about $1 billion, but to reach that number it drily noted (in a footnote) that it had assumed unspecified ’savings’ of $5.9 billion. Those savings have not yet been realized, so the shortfall could be much higher.
Then there is Fannie Mae, Freddie Mac, GM and even Cash for Clunkers
I have posted on these as well (see Bankruptcies, Bubbles & Bailouts and Collateral Damage From Cash for Clunkers). And, that’s not to mention GM (see GM Means General Malaise). Or, even the jets for Congress fiasco (see Congressional Cash for Clunkers).
A sordid tale of mismanagement at the highest levels
All in all, it’s a sordid tale of fiscal mismanagement at the highest levels of our government. As the picture at the top of this post points out, Federal programs and departments are busted. Rather than taking on ambitious new programs, Congress should spend its time fixing the broken programs we already have in place.
Finally, what credible evidence do we have that the Feds can run national healthcare — an even bigger program than Medicare or Social Security — without putting us deeper into the hole?
- Business , Economy , Geopolitics , deficit , healthcare , income taxes
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