It's the Death Spiral Math, Stupid

Since the president took office:

* Medicaid is up from 46.9 million to 56 million people.

* Disability beneficiaries are up from 7.5 million to 8.8 million.

* The food stamp program has grown from 32 million Americans to 47
million.

Add to that 80 million beneficiaries 40 million Americans age 65 or older on Social Security and Medicare (9 million of the 49 million on Medicare, including some under age 65, also receive means-tested benefits).

That 120 million does not include the numerous smaller entitlement programs.

Put them all together, and a number approaching half of the country participates in an entitlement program.

Now add in the 16 million new Medicaid beneficiaries, thanks to ObamaCare, plus an estimated 12 million people who enter the health insurance exchanges by 2014, where most will receive federal subsidies.

The budget implications of these programs are huge. For fiscal 2012, America spent $2.2 trillion of its $3.7 trillion budget on entitlement programs - $400 billion less than the $2.6 trillion in gross annual
revenues.

Oh, and interest on the federal debt was $220 billion.

Read More At IBD:
http://news.investors.com/ibd-editorials-perspective/101512-629360-entit
lement-cliff-threatens-americas-fiscal-health.htm#ixzz29UIDZgS2

Thus, the cost of entitlement programs plus interest on the debt are nearly equal to total federal revenues today.

Virtually everything else the government does is with borrowed, or printed, money.

Entitlement spending is also growing much faster than the economy.

Since 1980, Social Security and the various income security programs have grown at an average annual rate of 6%, while Medicare and Medicaid have both grown at more than 9% annually, which includes population growth.

This Will Only Hurt For A Little While

The highest barrier to a new economic boom is the defeatism of those seeking to manage the west's decline. Millions of Europeans and Americans alike are now enduring the painful consequences of empty promises becoming broken promises, after politicians pushed government spending and debt to unsustainable levels and spread cronyism instead of entrepreneurial dynamism.
http://www.ft.com/cms/s/0/c9eb2ad6-d022-11e1-99a8-00144feabdc0.html#axzz21BkdEsAb

Who couldn't recognize this in the efforts of the past few years?  Paying off needed elements drastically over-rode any other motive.  This is how socialism works.

Unipartisan Support: Yes It Is A Ponzi Sceme

As follow up to this post, have a look at this:  What should be interesting to participants and pundits alike is that during the last presidential campaign, on November 5, 2007, the late Tim Russert, and Chris Matthews, while talking about the Democrat candidates on an episode of MSNBC's "Hardball" broadcast exactly one year before America elected its first black president, agreed that Social Security was "a bad Ponzi scheme".

Another interesting post is here. 

Which was my point - at least in a Ponzi sceme, you didn't have to make the bad investment.

Productivity Must Exceed Employment Cost

As I think of the language of this post, "We Need Jobs":
http://www.nytimes.com/2011/09/06/opinion/yes-we-need-jobs-but-what-kind.html?_r=2&ref=opinion

I think, "we" is meaningless in this term.  Everyone on the planet is in need of the means to make their way in the world, trading their time and expertise and inginuity to get the stuff they want - water, food, housing, and capital goods to expand their ability to create that which they can create better than most others.

The author says "we" meaning "US Citizens", but never offers his structure that would illustrate what influence politicans could have on making it more commonly possible for folks to increase their ability to "get what they need" in exchange for their time (aka, a job). 

He suggests government intervention, and seems to think arbitrary pay floors will have a positive impact.  I suppose he means things like minimum wages, and benefits packages, and he suggests folks need paid time off - ultimately, he is suggesting that coercive interventions can interupt a cycle in which people have to work so hard to get by, they can't get to even, they can't parent their children, and they can't break a cycle of helplessness. 

He seems to assume that the current state is a natural phenomenon, and that the unusual part is how hard it is for the folks he discusses. 

Here's my short mental test for his ideas.  Suppose we do establish a minimum level, a so called living wage, for each person.  Where does that money come from?  How do we know it can be paid for given their productivity and overall expense to pay for their employment?  If we're going to pay a living wage, why not pay enough to buy a big enough house for each person's family, a new and very reliable car, two weeks of vaction, enough to fully fund an IRA, and enough to start saving for the children's college education?  Heck, why stop there - if we can arbitrarily pay "more" than what these people are making now, why not just pay everyone $150,000 a year unless they can make more? 

To me, it is clear that government interventions ignore the complexity of where "jobs" come from, focusing on only those elements of what "jobs" are that can be seen - the need for them and lack of perfection in compensation, especially in an economic down turn.  The author's analysis also skips over the effect of existing interventions - for example, the 15% cost for social security and medical care, that could easily be paid in compensation to the worker at the same overall cost to the employer.  There is a long, long list of government interventions that make it more costly to hire employees, from mandatory time off (if you get 2 weeks vacation, that is the same as saying "I'll pay you less for fifty weeks in order to allow you to have two weeks pay without being here to contribute."  The costs come out in the wash, but don't actually change), to OSHA compliance to excessive costs for transportation due to government regulations and mis-management to an absurd tax system that pretends to tax those that employ "us" but really just makes our stuff cost more at the point of sale (effectively hiding the fact that governments take a lot more of our money than we know). 

In short, anything that makes it more expensive to hire a person makes it less likely that person can be productively employed.  There's no magic hat out of which to pull productivity.  If productivity does not exceed what it costs to employ a worker, the employer won't hire.  Ultimately, any interventions which raises the cost to employ has to have an equal or greater than equal opposite effect - somewhere, somehow, it's going to cost more than the benefit of the employment. 

The solution to the "jobs problem" is only for government to reduce the many ways in which it has made employment more costly. 

Nevermind the impact of the government's monkeying around with the financial systems, the banking industry, home mortgage industry, and the overall profligacy of one generation's politicians taking money from the next generation while promising "the great society." 

We all know that if we could get our lawns mowed for fifty cents, none of us would keep a lawn mower or take the time to mow our own lawns.  If we could get our cars washed for nothing, we'd have them washed daily.  If we could get our furnaces installed for $10, we'd all get new furnaces.  If we could get free health care, we'd be in the doctor's office on a whim, any time we had a moment's anxiety about our health.  Good intentions, sympathy for life's difficulty, sorrow at the ways in which children's lives are impacted by the current, government manipulated economy does not create a magic hat by which we can just increase wages and time off.

But if I'm wrong and in fact the professor has a magic money hat, let's just pay each other $100,000 to get up in the morning and be done with it, enough dorking around on the margins with silly stuff like minimum wages and mandatory time off.

How Much Money Equals An Infinite Amount?

Buffett makes some valid points about the tax codes inequities, but please, can we quit kidding ourselves that we can tax our way to prosperity? 

How much of other people's money will politicians spend?    ALL OF IT.  There's an infinite demand for a politician to spend other people's money to burnish political legacies. 

Without a constraint built into the government, which will prevent politicians from doing what politicians do (spending other people's money and blaming other politicians for not letting them spend more), it is morally represhensible to give these buffoons more power to take other people's money.
http://www.nytimes.com/2011/08/15/opinion/stop-coddling-the-super-rich.html?_r=1&ref=opinion

That's News?

The president hinted that defense spending would have to take a hit. (On the table, sources tell me, is the possibility of a freeze on defense spending.) And some have argued that the promise of an overhaul of the tax code -- real reform that could lower overall rates but take away some sacrosanct deductions -- should be a part of this discussion. But we didn't hear about any of that, because those are tough choices, and they haven't been made. This was about politics and positioning to get the upper hand in the looming debt limit battle.
http://www.cnn.com/2011/OPINION/06/29/borger.leadership.debt/
REALLY?  A freeze at current levels is news?  I regret my ignorance.  Why wouldn't a freeze at current spending levels for the entire budget be the starting point?  Granted that does not solve the entitlement black hole but they are not dealing with that anyway.

Easy Come, Easy Go

Or should we call this post "It's Only (Our Children's) Money"
In fact, the government’s classification of obligations such as interest payments as official and others, such as Social Security payments, as unofficial is a labeling game with no basis whatsoever in economic theory. It’s a strategy politicians have used for decades to disguise the true nature of our country’s indebtedness.
How big is the fiscal gap? By my own calculations using the CBO data, it now stands at $211 trillion -- a huge sum equaling 14 times the country’s economic output. To arrive at that figure, I assumed that annual noninterest spending, as well as taxes, would grow indefinitely by 2 percent a year beyond 2075, the point at which the CBO’s estimates end.
http://www.bloomberg.com/news/2011-06-29/stop-the-fiscal-war-against-our-children-now-laurence-kotlikoff.html

Unintended Consequences? What Could Go Wrong?

The theory for ACOs, as they're known, is that hospitals, primary-care doctors and specialists will work more efficiently in teams, like at the Mayo Clinic and other top U.S. hospitals. ACOs are meant to fix health care's too-many-cooks predicament. The average senior on Medicare sees two physicians and five specialists, 13 on average for those with chronic illnesses. Most likely, those doctors aren't coordinating patient care.
This fragmentation is largely an artifact of Medicare's price control regime: The classic case study is Duke University Hospital, which cut the costs of treating congestive heart failure by 40% but then dumped the integration program because it lost money under Medicare's fee schedule.
http://online.wsj.com/article/SB10001424052702304520804576343410729769144.html?mod=WSJ_Opinion_LEADTop#printMode

The smartest person in the world couldn't figure this out.  But that won't stop those who think they are the smartest, most progressive, most compassionate, from trying, due to the fatal conceit and the instinct to tyranny.  Next historical reference - the goose that lays the golden egg is slowing being murdered by these absurd interventions by the State into the affairs of would be, should be, free folk.

How To Tax

Tax credits for buying solar panels or hybrid cars are just like government spending to subsidize those purchases. Similarly, the exclusion from employees’ taxable incomes of employer payments for health insurance is no different from subsidizing the purchase of those insurance policies. The deduction for interest on residential mortgages, probably the best-known tax expenditure, amounts to a giant subsidy for homeownership.
At their worst, such tax expenditures create incentives for wasteful borrowing and spending; they have been factors in the mortgage crisis and the rising cost of health care.
Tax expenditures collectively increase the budget deficit by more than all other nondefense spending combined, other than Social Security and Medicare. And unlike those direct outlays, these tax expenditures are not subject to annual review as part of the appropriations process. Once they are part of the law, they automatically continue and become more costly with time.
Despite the strong case for limiting tax expenditures, it is politically difficult to do so because no one wants to give up benefits.
http://www.nytimes.com/2011/05/05/opinion/05feldstein.html?_r=1

This is all good, but, there's no amount of tax revenue we can raise that will pay for the open ended entitlement system we presently 'enjoy.'  Until there's a limit to the spending, tax reform will not make much difference.

It's Either Medicare, or Medicare

Debt Ceiling Tango
Bottom line - without a massive reform or Medicare, the bottomless pit of open ended "entitlement" spending which is going to function as a virtual syphon from young to old, pitting generations against each other in a fiscal food fight, there's no hope for a rational US budget.

Where The Money Is

The mathematical reality is that in the absence of entitlement reform on the Paul Ryan model, Washington will need to soak the middle class—because that's where the big money is.

Where The Money Is

Unsustainable, That's What You Are

Think we can just raise taxes on the rich to save the welfare state?  That's a negative, ghostrider, because the retiree patten is full and getting moreso.  The welfare state is not sustainable.

http://www.city-journal.org/2010/20_1_birthrates.html  - excerpts follow:

Kamikatsu shows in microcosm what Japan and several other nations now face—and what others soon will. For decades, demographers and economists have watched the world’s fertility rate plunge as countries grew wealthier and more urban. These days, fertility rates in much of the industrialized world are far below replacement levels—that is, the number of kids that parents must have to replace themselves and adults who remain childless. Though the steepest declines happened first in wealthy countries like Japan, Italy, Germany, and Spain, even many developing countries have seen their fertility rates head downward.

Demographers are scrambling to adjust their population projections, with little notice in the press. In the early 1990s, United Nations researchers projected that the world’s population would reach a maximum of 10 to 12 billion people (up from about 6.7 billion today). They subsequently scaled back that projection to 9.5 billion and then to about 9.1—adding, however, that it might be as low as 7.9. But the truth is that no one knows how this massive reversal will end. The UN demographers optimistically claim that the world’s fertility rate, currently at 2.6 children per woman, will decline to replacement level and then stabilize. But there’s no clear reason for that to happen; dozens of countries have seen their rates sink far lower. In his book Fewer, Ben Wattenberg estimates that if the rate were to stop at 1.85 births per woman, the world’s population could shrink to 2.3 billion by the year 2300.

Unfortunately, getting people to work longer won’t solve countries’ fertility-related economic difficulties, even if it will have a modest impact on pension spending. The Japanese, for instance, already boast a nearly 70 percent labor-force participation rate for those aged 55 to 64. But because of the country’s extreme birth dearth, by mid-century the average Japanese would need to work until age 83 to keep a constant ratio of workers to retirees. Europeans would need to work until their late seventies.

Government is Suicidal

"Government is suicidal because it breeds expectations that cannot be met."

Samuelson - Government On The Brink

Joke Becomes Reality

A man of twenty-one with learning disabilities has been granted taxpayers’ money to fly to Amsterdam and have sex with a prostitute. Why not? His social worker says sex is a “human right” and that his client, being a virgin, is entitled to the support of the state in claiming said right. Fortunately, a £520 million program was set up by Her Majesty’s Government to “empower those with disabilities.”
http://www.newcriterion.com/articles.cfm/Dependence-Day-6753

I've been joking with friends about this for months, but didn't think I'd see it come to fruition so fast!  But really, if we're going to use the coercive force of the state to take money from the subjects and apply that money with the benefit of governmental wisdom to alleviate suffering - what greater reduction in suffering could there be than to 'empower' young men to avoid the suffering of sexual deprivation!?! 

Steyn's a genius, if a bit too enamored of using words like 'we' when he means 'the political class with the consent of those who are mesmerized by them'.  But this piece covers a lot of ground and is worth reading more than once, if one can hold off the urge to feel as depressed about things as Steyn seems to.

Shooting Fish in the Proverbial Barrel and Yanking Sheep Skins (all in one post)

"But what nobody seems to be asking is: Why are important projects now unaffordable? Decades ago, when the federal and state governments were much smaller, they had the means to undertake gigantic new projects, like the Interstate Highway System and the space program. But now, when governments are bigger, they don’t.
"The answer is what Jonathan Rauch of the National Journal once called demosclerosis. Over the past few decades, governments have become entwined in a series of arrangements that drain money from productive uses and direct it toward unproductive ones. "
http://www.nytimes.com/2010/10/12/opinion/12brooks.html?src=me&ref=general

You mean to say that there's not a bottomless well of money that will allow government, without consequence, to alleviate all who suffer? 

Yes, I know it's too easy to make fun of government, and not that interesting.  Here are some of the numbers that reflect what will inevitably happen when we allow governments to try to do things like "promote future prosperity".

"New Jersey can’t afford to build its tunnel, but benefits packages for the state’s employees are 41 percent more expensive than those offered by the average Fortune 500 company. These benefits costs are rising by 16 percent a year.
"New York City has to strain to finance its schools but must support 10,000 former cops who have retired before age 50.
"California can’t afford new water projects, but state cops often receive 90 percent of their salaries when they retire at 50. The average corrections officer there makes $70,000 a year in base salary and $100,000 with overtime (California spends more on its prison system than on its schools).
"States across the nation will be paralyzed for the rest of our lives because they face unfunded pension obligations that, if counted accurately, amount to $2 trillion — or $87,000 per plan participant.
All in all, governments can’t promote future prosperity because they are strangling on their own self-indulgence."
With all of the money governments have spent promoting future prosperity, and that is trillions, and given the fact that there's greater prosperity where there is relatively less government, how long until we collectively yank the sheep's clothing off of that wolf?

Ryan's Roadmap - Possible?

The Death Spiral seems a certainty without entitlement reform - but can anyone turn back the spigot once the State has 'promised' one group of people (the old) the fruits of the labors of another group of people (the young), and live to tell the tale? 

"Should Republicans win the House, Ryan would likely ascend to the chairmanship of the Budget Committee, a powerful post. “We obviously are going to have to take on entitlement reform,” he says. “I don’t know what the budget will look like, but its form will be determined by the consensus I can get from at least 218 people. What I would hope to do is get this budget needle moving in the right direction.” Still, as he looks toward a possible scenario of divided government, Ryan is quick to say that he does not wish to “overpromise.”"
http://www.nationalreview.com/articles/248607/ryan-looks-down-road-robert-costa
“Scaring seniors is apparently the past, present, and future of the Democratic party,” Ryan continues. “But they have created political paralysis. I’m fed up with it, and I’m not going to let it intimidate me. I’m going to go forward, put ideas out there, and get this debate moving one way or the other.” It’s a fight, he says, that he does “not intend to lose.”