The REAL causes of the long-term federal debt crisis

by: Paul Rosenberg

Sun Feb 07, 2010 at 14:30


I'm going to do a more extended diary (or two) about this next weekend, but given how much attention this is getting, I really can't wait to make this basic point:  The long-term federal debt is basically due to two things: Republican fiscal irresponsibility and the extreme costliness of the American health care system as a whole.

First, from the December 16, 2009 report from the Center on Budget and Policy Priorities, "President Obama Largely Inherited Today's Huge Deficits: Economic Downturn, Financial Rescues, and Bush-Era Policies Drive the Numbers" comes this chart showing how mid-term (next decade) deficits (and hence, the cumulative mid-term debt) is dominated by Bush policies and their consequences:

The interest from this mid-term debt is, in turn, a major contributor to the long-term (20-40 year) debt.  But--as seen in this chart from CBPP's mid-December report, "The Long-term Fiscal Outlook is Bleak"--the largest contributor to that debt is the growth in costs of Medicare and Medicaid above and beyond the increase in GDP:

Demographics is not the most significant driver of such costs (chart from same report):

Paul Rosenberg :: The REAL causes of the long-term federal debt crisis

What's more, for over 30 years, government program costs have grown at almost the same rate as overall health care costs--especially considering that they cover a sicker population pool (also from same report):

Which brings us back to the fundamental fact that US health care costs are drastically out of line with the rest of the world, as shown by this chart (I first posted in my April 2008 diary, "Medicare Myths--Don't Blame The Boomers"):

In short, it's not the government programs--Medicare and Medicaid--that are the problem, it's our entire medical sector that's badly out of whack compared to other advanced industrial countries.  And this is the fundamental point that single-payer advocates virtually alone have focused on.

It should be noted that a single-payer system by itself would not solve the long-term problem shown here--only make it more manageable.  But it would also give us better tools and political momentum toward achieving the added cost savings that would be needed.

In short, the entire debate over long-term federal debt is framed in terms of ignoring the most fundamental causes--the Bush-era policies that need to be completely reversed & repudiated, and the US medical system, that needs to be radically transformed.

That would be change we could believe in.

Tags: , (All Tags)
Print Friendly View Send As Email

The REAL causes of the long-term federal debt crisis | 24 comments
Doctors make too much money (0.00 / 0)
we need to at least triple the amount of seats in medical schools
(or just have a free market in medical education).

More middle class jobs, cheaper-faster-better health care, warring down the proud...

What more could you ask for?

Need To Be More Precise (4.00 / 1)
Specialists make too much money.  GPs, not so much, particularly given how much a medical education costs.

And that contributes to a distorted system where we don't catch as many problems at the GP level as we should.

Of course, the incomes of GPs could come down as well, if we made medical educations not just more widely available, but also cheaper.

Australia, for example, has socialized health care, and socialized medical education.  And much lower doctor salaries.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

[ Parent ]
Even more (4.00 / 1)
Specialist surgeons make sharply higher incomes than specialist non-surgeons (cardiologist vs. heart surgeon).  Experienced surgeons make sharply higher incomes than less experienced surgeons.  Much of the money is in a small number of high paying cases.  These include very wealthy foreigners, Cadillac plans, and out-of-network coverage.  Strangely, billionaires tend to be older and many US billionaires are covered by Meducare and don't pay well.
[ Parent ]
Debt? (4.00 / 1)
Paul,
What about the theory that sovereign governments that issue fiat currency do not need debt to raise money for spending?  Hand in hand with that is the idea that central government  deficits are a necessary component to a healthy economy?

What do you make of this article, for instance:
http://www.creditwritedowns.co...

This Is Easily Misinterpreted (0.00 / 0)
Sovereign governments can create money out of nothing. But if they do that too much, then very bad things happen.  You might want to look up hyperinflation.

But things don't have to become disastrous just to be undesireable.

You know, it's also true that on the atomic level steel is mostly just empty space.  But I wouldn't plan on walking through any steel beams just based on that knowledge.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

[ Parent ]
Hyperinflation (0.00 / 0)
Yes.  The question in my mind is, is that kind of inflation happening in the States?  Because I'm not seeing it, other than asset inflation. Certainly wages aren't going anywhere and neither are prices for consumer goods.  At least from what I see.  
[ Parent ]
It's Not A Problem Now (0.00 / 0)
But if you interpret what you said above without reservations--and saw it as a reason not to think about long-term debt at all--then well before 2050, it would become a problem, believe me.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3
[ Parent ]
Again (0.00 / 0)
It isn't clear to me why we're talking about issuing debt to "pay for" healthcare if  in fact we can simply issue money instead.  If we're all concerned about inflation then certainly we should track that.   If I'm understanding them correctly,  the functional finance folks assert that the sale of government debt is a way to take money out of the economy.  

I asked an honest question-- I was curious about your views regarding the article that I linked.  I'm still pretty new to the concepts explained in the article, and that is why I asked you for your opinion.

[ Parent ]
Why Be Stupid, Just Because We Can? (0.00 / 0)
Although sovereign government can't go bankrupt, they can be more or less in control of their destinies.  Keeping debt-to-GDP ratios in historically acceptable levels tends to prevent subjective reactions that can harm an economy and limit the governments options--particularly when the world economy is as globalized as it is today.

It's all well and good to say that there's no objective reason any of this should matter, but economics has far more to do with subjective judgments than it does with objective reality.  Subjective judgments are what do the most to set most prices in most situations.  So they have to be taken into account, no matter what sort of esoteric knowledge you have about the atomic-level structure of steel.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

[ Parent ]
why be stupid? (0.00 / 0)
good question.

first, we don't need to issue debt in order to deficit spend. instead, that's how interest rates are regulated.

second, how much deficit spending would the fed gov have to do inorder to cause serious inflation (especially if we instituted some sensible regulation to the credit markets)? don't you think we'd be resource constrained (think energy) LONG before that point and that resource constraint, not excess aggregate demand, would cause inflation - but not the kind you are talking about (hyperinflation).

want hyperinflation? maybe we'll see it if people get pissed off enough to start a seriouss tax revolt and refusal to pay.  or maybe if we behave irresponsibly enough on the global front for the rest of the world to decide to take the hit going off the dollar reserve std would cost them.

but what other possible paths to hyperinflation are you warning about? or are you, as from your wikipedia link, buying the arguments of classical economics, monetarism or neoliberalism?

The root cause is a matter of more dispute. In both classical economics and monetarism, it is always the result of the monetary authority irresponsibly borrowing money to pay all its expenses. These models focus on the unrestrained seigniorage of the monetary authority, and the gains from the inflation tax. In Neoliberalism, hyperinflation is considered to be the result of a crisis of confidence. The monetary base of the country flees, producing widespread fear that individuals will not be able to convert local currency to some more transportable form, such as gold or an internationally recognized hard currency. This is a quantity theory of hyperinflation.


[ Parent ]
undesireable (4.00 / 1)
But things don't have to become disastrous just to be undesireable.

and the risk of a little inflation is SO much more undesireable than massive and structural unemployment, lack of investment in the future or protection of the planet's climate.

i'm sorry to be so confused. please forget the stupid question, but is this a progressive blog?

[ Parent ]
Growth rate in EU combined is less than the growth rate in US (0.00 / 0)
And, as I remember (I think I saw this with OECD numbers but can not find the link), all of this is with the EU having a larger population and one that is also aging, including countries like the UK with poor diet, etc.

The reality is that we are doing something wrong, and it is not reducible to public health care plans.

When I saw this, I figured out why the US medical industrial complex needs to demonize the EU. You don't want Americans doing what I did by comparing and contrasting us to the EU.

I have this friend who thinks that the US is number 1 with regard to health care, and she was stunned to hear we are 37th or 38th.

Your post is great, but I think, part of the issue is we really need to know more about how other countries are doing compared to us.

By, the way, I hope you plan to discuss the amazing increases in the cost of military expenses, and, if you have not done so, the hyperinflation American face in education.  

fladem Did A Very Good Quick Hit About The Military Expense Factor (0.00 / 0)
which I was going to reference as well, before I decided to make this a briefer, less complicated piece suited to a Superbowl Sunday.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3
[ Parent ]
This is good just regarding testing cherished assumptions (0.00 / 0)
For example, if the neo-liberals were truly serious about ending the deficit someone at daily kos a while back wrote they would raise taxes on the top income earners by ending the bush tax cut, raise taxes by 10 percent on the top income earners, freeze military spending, end the 2 wars etc. These things would do more to eliminate the deficit and debt within 2 decades than the tweaking at the edges that the president proposes. But they prey on a lack of awareness about the country's budget. Another OT, it is like when  Naked Capitalism recently wrote that if Obama were serious about jobs in America he would address the trade imbalance brought on by China's protectionist policies which we answer by trying to be more rather than less neo-liberal:

http://www.nakedcapitalism.com...

But, in the up is down, and down is up world of failed neo-liberal policies we are suppose to ignore true economic policy making in favor of peacock style economic policies that look the part while doing nothing. There are so many examples of this including the Public Option that I have concluded that the president and his people are ideological extremists.

[ Parent ]
Not Necessarily "Extremists" (0.00 / 0)
"Extremism" is a term that seems to have lost all meaning.

Plus it implies that rigidly sticking an idiotic position that's somewhere in the middle of a vast uninformed horde is somehow less bad.

I prefer the less flashy, but descriptively more accurate term of "rigid ideologues" to "ideological extremists".

But, to each his own.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

[ Parent ]
Rigid ideologue is fine. I was just trying to find a way (0.00 / 0)
to describe how unyielding they are even on the HCR bill. Big Tent Democrat describes it at Talk Left:

"They want the House to pass the Senate Stand Alone Health bill. My word, even the Villagers have given up on that one. They know it is impossible. Pelosi is 100 votes short for that...

Here's the thing - it does not matter what they say, or I say, or what the Village says - if they want to pass the Senate bill, they'll need to gut the excise tax. It is the only chance for passage in the House. The alternative is incessant whining."

http://www.talkleft.com/story/...

They would rather whine and torpedo the bill than give in even a little to progressives.

He referencing a diary up at Daily Kos by the crew who keeps pushing that the Dems pass the Senate bill. There are simple things that the administration and the Senate could do to pass the bill this week, but they refuse to it. The same with regard to the China issue. This is all about an administration that is unwilling to yield on anything of neo-liberal economic ideology, but then dresses it up as if others are being rigid. When you think about it, how much have they really compromised their perspective given its failures thus far? Not much as far as I can tell.

So, if you want to say that's rigid ideology, then I am fine with that because it still denotes their true nature.

This makes me believe Glenn Greenwald was right when he argued in the fall that most of these battles are about preventing progressives from gaining a foot hold on power. It is not about post partisanship or compromise or passing a bill or any of the other lies they throw out there that when tested they are proven false. After all, they are not even willing to compromise on the small details. What does that tell us? So, I would add to that this is not just about ideological rigidity, but also about maintaining neo-liberal control over the party as the sole source of ideas within Democratic leadership.  

[ Parent ]
I'll Have A Diary About This Next Weekend (4.00 / 2)
It's my thesis that contrary to surperficial appearances, there's a conservative/Blue Dog/Neoliberal consensus that's dominating US politics right now.  The basic bottom line of that consensus is support for a uniquely American version of the conservative welfare state, in which the welfare state is used primarily to entrench the power of existing elites.  Their pathways there, and their rationales, and all other details may vary, but the common bottom line of what they're willing to support binds them together, and unites them against progressives--as well as the majority of the American people.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3
[ Parent ]
This is the argument I made to Dtzone about DC centrist versus American moderation (0.00 / 0)
He crapped on it because of his agenda of supporting the President at all cost and pretending to be an insider.

But the thesis is as you described it. Basically I said in the fall of last year, that the fact that the PO is supported by 60 percent of the public and so many other issues run like that while DC ignores it tells me that DC politics has nothing to do with moderation regarding change.

In fact, it is not moderate at all. Using your new phrasing, it is a rigid ideological perspective in part based on plutocracy.

And yes, the path ways differ- I describe that as two versions of "What's the Matter with Kansas" There should have been a liberal companion edition to describe how the present system uses liberal vote against interest based on 4 factors: identity politics, personality based politics, partisanship and liberal psychology. These 4 factors push liberals to enable the system in DC.

This last part of the thesis about liberal psychology being used to enable the conservative status quo has gotten me into trouble, but the point of it is that I see this system like a circuit. I agree that it is all designed to reinforce the status quo of elect a Dem (get a neo liberal) or elected a Republican (get a neo liberal) with the added bonus plutocratic policy making. However, I add that the circuit exists where by the system use progressive desires like hope for the future to justify passing more and more establishment policies in exchange for crumbs to the progressives. But that the crumbs are never meant to give progressives  any power or for that matter- the American people.

Both parties service this structure with different actors. Liberals as enablers are just one.


[ Parent ]
Superbowl Sunday my ass! (0.00 / 0)
I'm watching Arsenal/Chelsea. But then, I'm wunna those liberal elitists -- and a non-apologetic one at that -- who thinks that he'll see a far more entertaining game than the NFL has ever served up. (Although I gotta admit that Broadway Joe's money-where-his-mouth-was exhibition wasn't exactly chopped liver -- as anyone old enough to remember it would have to admit.)
[ Parent ]
On Friday's Washington Week (4.00 / 2)
NYT reporter Jackie Calmes claimed that the only way to lower the deficit was to reduce entitlement spending, which aside from its dishonesty and/or stupidity, is pretty much standard Versailles claptrap intended to push the public into supporting policies that would undeniably hurt most of them.

There are three core lies being spouted by most deficit "hawks" these days:

1 - The deficit is unsustainable and spiraling out of control.

No, policies persued over the past decade have caused the deficit to balloon, which a reversal of these policies would lead to the deficit coming back into control.

2 - This out of control deficit is the biggest economic problem we face today.

Not even close. Long-term, a huge and growing deficit is definitely a problem, but we're talking years if not decades. Right now, though, problems like a deep recession, economic stagnation, trade imbalances, a shrinking domestic manufacturing base, lower effective wages, rising medical costs, etc., are vastly bigger problems. And none of them can be solved without an increase in federal spending, and thus an increase in the deficit, in the near to mid term (which, if done right, would actually LOWER the deficit, long term).

3 - The only way to reduce the deficit is by cutting entitlement spending.

Wrong on at least three counts.

One, this excludes defense spending, which is actually a bigger chunk of the budget than entitlement spending (which btw in mandated, as opposed to most defense spending), and is thus dishonest by glaring and willful ommission. One could argue that we nevertheless shouldn't cut defense spending (an argument that I would dispute, of course), but that is different from implying that cutting defense spending wouldn't lower the deficit, which is it undeniably would (at least in the near term, feedback loop implications complicating things somewhat).

Two, the way to deal with the negative effect of entitlement spending on the deficit isn't by simply "cutting" it, but by reforming it to make it more efficient both on the spending side (e.g. fraud, waste, inefficient treatments), and systemically, such that we have healthier Americans whose net health care cost to the economy is much lower than it is today.

And three, as mentioned above, well-designed stimulus deficit spending now would almost certainly pay for itself and then some in the long run, by bringing the economy back on track and generating proportionately more net tax revenue than was spent on economic stimulus.

But, of course, when you're rich and secure, and work and/or speak for people even richer and more secure than yourself, all of whom have very different economic interests than most people, it's always easier to advance arguments that serve the (real or perceived) interests of your own economic group, and not that of society as a whole.

The real question is how do we win the PR, ideology and political war on this issue, seeing as we've clearly won the intellectual one?

"Those who stand for nothing fall for anything...Mankind are forever destined to be the dupes of bold & cunning imposture" -- Alexander Hamilton

help tjfxh! (0.00 / 0)
I really can't wait to make this basic point:  The long-term federal debt is basically due to two things: Republican fiscal irresponsibility and the extreme costliness of the American health care system as a whole.

paul, i beg you, please read tjfxh's comments. here's an example from one this weekend (my bold):

Most people erroneously believe that government spending is either funded by taxes immediately or else financed by borrowing, which means that the principal plus interest must be paid by taxes later. This is only true under a convertible fixed rate monetary regime, which currency issuance is anchored to the gold that the government holds in its vault. This now obsolete monetary regime ended on August 15, 1971, when President Nixon shut the gold window. The US immediately went on a non-convertible floating rate system, which is currency issuance is not financially constrained. The government neither funds its currency issuance (spending) with taxes, nor finances it through borrowing. The required debt offset of deficit spending is a political (voluntary) choice that is an unnecessary holdover from the previous era. Now, as then, it is thought of as providing fiscal discipline for the government.

Progressive need to realize that a balanced budget and especially a budget surplus is not in their interests of the interest of national purpose for this reason. Under the present monetary system, government deficits generate a surplus of non-government net financial assets, and vice versa. A balanced budget is a wash, leaving non-government NFA the same. What this means practically is that unless the country runs an export surplus, spending power is insufficient to purchase all the goods and services for sale at full capacity. This means that either people have to go into debt to commercial banks or the economy will contract ad unemployment rise.


There Is Good Debt & Bad Debt, Appropriate Debt & Inappropriate Debt (0.00 / 0)
The federal government has only run a surplus in something like 6 years, so obviously it's clear that running deficits  is the normal state of affairs.  But that doesn't mean that all debts are created equal.

The vast majority of our current debt has been created in the process of engineering a massive upward re-distribution of wealth. And now the mania to reduce the debt will be used for the exact same purpose.

That's a bad thing, coming and going.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

[ Parent ]
need a bigger fed deficit AND to spend it wisely (0.00 / 0)
private debt and fed budget deficits are completely different things. i don't even know what long term fed debt crisis you are referring to. but we certainly have a crisis, right now, in private sector debt.

i agree that the massive upward re-distribution of wealth is a real problem (and the obama administration has probably done more of it than the world has ever seen). but that doesn't mean the fed deficit is a problem, let alone a crisis. we need a bigger fed deficit AND to spend it wisely.

[ Parent ]
Good charts, but... (0.00 / 0)
Good charts, but the "real" cause of our federal debt crisis is our corrupt political system. It is unsustainable. Politicians get money from rich folks not to run the country but to transfer more wealth to their pockets. They both win under that system, but the middle and low income folks pay the price.

See: http://moneyedpoliticians.net/...

Jack Lohman

Jack Lohman

http://MoneyedPoliticians.net

http://SinglePayer.info

The REAL causes of the long-term federal debt crisis | 24 comments
USER MENU

Open Left Campaigns

SEARCH

   

Advanced Search

QUICK HITS
STATE BLOGS

Home | RSS/XML Feed | Register | Contact

  © OpenLeft 2007-2010, Powered by SoapBlox

Powered by: SoapBlox