Tuesday, August 21, 2012

Entitlement Spending (Social Security, Medicare, Medicaid) is Crowding Out Everything Else

Guide for the Perplexed is an excellent summary of our growth in spending for entitlements in America:

"What really matters in this election? Well, the big issue is national decline. How can we ensure that the U.S. is as dynamic in the 21st century as it was in the 20th?

The biggest threat to national dynamism is spending money on the wrong things. If you go back and look at the federal budgets during the mid-20th century, you see that they spent money on the future — on programs like NASA, infrastructure projects, child welfare, research and technology. Today, we spend most of our money on the present — on tax loopholes and health care for people over 65.

A study by Jessica Perez and others at the group Third Way lays out the basic facts. In 1962, 14 cents of every federal dollar not going to interest payments were spent on entitlement programs. Today, 47 percent of every dollar is spent on entitlements. By 2030, 61 cents of every noninterest dollar will be spent on entitlements.

Entitlement spending is crowding out spending on investments in our children and on infrastructure. This spending is threatening national bankruptcy. It’s increasing so quickly that there is no tax increase imaginable that could conceivably cover it. And, these days, the real entitlement problem is Medicare.

So when you think about the election this way, the crucial question is: Which candidate can slow the explosion of entitlement spending so we can devote more resources toward our future?

Looking at the candidates through this prism, you see that President Obama deserves some credit for taking on entitlement spending. He had the courage to chop roughly $700 billion out of Medicare reimbursements. . . .

Still, you wouldn’t call Obama a passionate reformer. He’s trimmed on the edges of entitlements. He’s not done anything that might fundamentally alter their ruinous course.

When you look at Mitt Romney through this prism, you see surprising passion. By picking Paul Ryan as his running mate, Romney has put Medicare at the center of the national debate. Possibly for the first time, he has done something politically perilous. He has made it clear that restructuring Medicare will be a high priority.

This is impressive. If you believe entitlement reform is essential for national solvency, then Romney-Ryan is the only train leaving the station.

Moreover, when you look at the Medicare reform package Romney and Ryan have proposed, you find yourself a little surprised. You think of them of as free-market purists, but this proposal features heavy government activism, flexibility and rampant pragmatism.

The federal government would define a package of mandatory health benefits. Private insurers and an agency akin to the current public Medicare system would submit bids to provide coverage for those benefits. The government would give senior citizens a payment equal to the second lowest bid in each region to buy insurance.

This system would provide a basic health safety net. It would also unleash a process of discovery. If the current Medicare structure proves most efficient, then it would dominate the market. If private insurers proved more efficient, they would dominate. Either way, we would find the best way to control Medicare costs. Either way, the burden for paying for basic health care would fall on the government, not on older Americans. (Much of the Democratic criticism on this point is based on an earlier, obsolete version of the proposal.)

You’re still deeply uncomfortable with many other Romney-Ryan proposals. But first things first. The priority in this election is to get a leader who can get Medicare costs under control. Then we can argue about everything else. Right now, Romney’s more likely to do this.

All of which causes you to look over to the Democrats and wonder: Why don’t they have an alternative? Silently, a voice in your head is pleading with them: Put up or shut up.

If Democrats can’t come up with an alternative on this most crucial issue, how can they promise to lead a dynamic growing nation?" 

Summing Up

Now let's consider a few salient facts about the state of entitlements in America today.

In 1962, government spending on investments (infrastructure, roads, education and such) was two and a half times that of entitlements. But today, entitlement spending is three times that of investments. And it's going to get worse as more baby boomers retire and their benefits grow faster than inflation adjusted wages.

In fact, in another ten years spending on Social Security alone is scheduled to amount to close to 25% of our national budget.

Relative to other expenditures, the percentage of the federal budget spent on entitlements has more than tripled since the 1960s.

We simply can't afford to stay on the current path we're following.

If you're interested in learning some more details and facts, please take a few minutes to read the "Third Way" study referenced above.

It's an eye opener.

Thanks. Bob.

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