Tuesday, March 28, 2006
The Plan Might Work, Stan
One of this week's offerings was a reference to this article in the WSJ Opinion Journal by Charles Murray about his suggestion to get past our fiscal crisis. It might seem somewhat radical, but something like this is what's going to happen if we decide to survive:
No serious student of entitlements thinks that we can let federal spending on Social Security, Medicare and Medicaid rise from its current 9% of gross domestic product to the 28% of GDP that it will consume in 2050 if past growth rates continue. The problems facing transfer programs for the poor are less dramatic but, in the long term, no less daunting; the falling value of a strong back and the rising value of brains will eventually create a class society making a mockery of America's ideals unless we come up with something more creative than anything that the current welfare system has to offer.Read the article. He has written a book, which seems worth reading. I particularly like his non-numerical reasoning as to how this might affect culture, because I do believe that human beings are better at dealing with human problems than the government.
We can scrap the structure of the welfare state.
Instead of sending taxes to Washington, straining them through bureaucracies and converting what remains into a muddle of services, subsidies, in-kind support and cash hedged with restrictions and exceptions, just collect the taxes, divide them up, and send the money back in cash grants to all American adults. Make the grant large enough so that the poor won't be poor, everyone will have enough for a comfortable retirement, and everyone will be able to afford health care. We're rich enough to do it.
Consider retirement. Let's say that we have a 21-year-old man before us who, for whatever reasons, will be unable to accumulate his own retirement fund. We accumulate it for him through a yearly contribution for 45 years until he retires at age 66. We can afford to contribute $2,000 a year and invest it in an index-based stock fund. What is the least he can expect to have when he retires? We are ridiculously conservative, so we first identify the worst compound average growth rate, using constant dollars, for any 45-year period in the history of the stock market (4.3% from 1887-1932). We then assume our 21-year-old will be the unluckiest investor in American history and get just a 4.0% average return. At the end of the 45-year period, he will have about $253,000, with which he could purchase an annuity worth about $20,500 a year.
A little while back Ilona of True Grit wrote a reply and rebuttal to one of my posts. Unfortunately her post got wacked by the internet gods, or I'd link to it. She disagreed with my contention that most of our economic problems were really quite soluble. I stand by it. Now Ilona is almost always brilliant and incisive (see this
If Islam is a religion one can only convert to not from, then in the long run it is a threat to every free person on the planet.[edit - Ilona tells me the quote above is Mark Steyn's] and this for examples), but on these economic issues she has been flim-flammed.
What has happened is that our government has so mismanaged our fiscal policy that we have dug ourselves into a hole. We have a prosperous populace, a dynamic economy and a fiscal mess on our hands. This took some doing. Ironically we have created such a huge problem that it can be relatively easily solved.
If you don't believe me, go look at this US budget simulation, courtesy of Betsy Newmark. Leave everything "Hold Even" and just look at the spending distribution. Here's a shorter way to see (text version of GAO doc) what has happened to the budget. As you can see, from 1964 to 2004 defense expenditures have dropped from 46% to 20% of the budget as Medicare, Medicaid & Social Security have increased from 14% to 41% of the budget:
1964:That's a lot of money. If we weren't playing shell games with it on the federal level, we could stop stripping capital from the lower class, which is what we have done. The productivity gains alone would be huge over two decades. The thing is, when you've been very, very stupid you get dramatic returns from suddenly starting to be only pretty stupid. The amazing thing is that you will never, ever see an honest discussion about the federal budget in a newspaper, and that is because it has numbers in it (anathema to the Columbia School of Journalism) and the facts do not support the public storyline. What we are doing is stunningly inefficient.
Social Security: 14.0%;
Medicare & Medicaid: 0%;
Net interest: 7.0%;
All other spending: 33.0%.
Social Security: 21.0%;
Medicare & Medicaid: 9.0%;
Net interest: 13.0%;
All other spending: 30.0%.
Social Security: 22.0%;
Medicare & Medicaid: 19.0%;
Net interest: 7.0%;
All other spending: 32.0%.
For slightly more detail, go to the historical review of the budget through 2007 and extended to 2011. It's a zippy little 329 page pdf document that everyone should read before voting in the 2006 elections. Start with page 58. In 2006 spending on human resources is estimated to be 1,707,209 million dollars. That is about 63% of the total budget and about $5,700 for every person (man, woman & child) in the US. It includes SS, Medicare, Medicaid, income support payments, veterans benefits, etc. If you knocked out a lot of these programs and simply made direct payments to individuals you could solve a lot of this.
In 2011 that total is estimated to be 2,208,535 million dollars and about 68% of the total budget.
Go to page 83 (table 4.2) and look at the numbers from 1962 until today.
Defense/homeland security spending was 47.4 % of the budget,
Health and Human Services was 3.3%, and
Soc. Security was 13.4%.
The estimates for 2006 are
Defense/homeland security at 21.4%,
Health and Human Services at 23.7% and
Social Security at 21.9%.
Another way to look at this is by percent of GDP (the total size of the economy). In 1962 Defense was 13.2% of GDP and Human Resources was 3.4%. In 2006 the estimate is Defense at 4.1% and Human Resources at 13.1%.
George Bush is a great president. He's one of the very few political persons trying to tell the public the truth, which is that this dance is ending in about a decade. It doesn't matter how much Teddy Kennedy screams. We can either choose to study the Koran in a very reverent fashion, or we can reverse our fiscal course.
It was Mark Steyn- who we know truly is incisive and brilliant, and with whom I brilliantly agreed :)
you should probably edit to account for that. I apologize for structuring my post in an unclear way- I'll have to edit myself I think.....
I am still planning on posting on the former topic of your post and that of the Anchoress, but it is taking me longer to get to than planned.
Hmmm...flimflammed... sounds like a conversation;)
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