Wednesday, 2 May 2012

US fiscal policy - the problem is entitlements

The alternative, I assume, is to just keep on borrowing and building up debt.


droog said...

I recommend Budget Hero to wrangle views on US fiscal policy. I really wish somebody would do a similar site for UK finances.

You'll find you can balance the budget with policies on either side of the political spectrum. The site updates the figures to reflect the US's most current policy debates. For example, before the health care reform was passed they had an option for a single payer system (NHS style) which saved several hundred billions. That option is not available since the legislature passed something much different (no chance the GOP would go for single payer). The final bills provides more modest savings and a few more savings can still be gained, but not as much as what single payer would have delivered. In other words, a good opportunity was missed.

There's a couple of things on the video that I don't like. First, surely balancing the books involves raising revenue as much as cutting costs? Second, why stop the video there? Run numbers, tell people how deep the cuts would be. Just like wiping the Navy is absurd you'll find focusing solely on welfare can be absurdly drastic. Third, one has to look at both the Middle East adventures plus the banking bailouts to realise how urgent it is to rein in the hubris and recklessness of the establishment. The video doesn't present it that way, but the wars have added trillions of debt to the USA and the bailout skyrocketed public debt. That's not visible from the way the chart displays data.

Fourth, and this is a big peeve of mine, both the video and Budget Hero fail to mention that Social Security bypasses central government budget negotiations. It is a separate programme not subject to annual partisan fights held in Capitol Hill. It has in fact been running a surplus that was designed to shore up the coming retirement of baby boomers. The only reason it comes up in deficit talks is that the central government has gotten used to borrowing from it and those days are ending soon. But on its own Social Security is a fiscal success with funds to see it through for decades without any adjustment. Payroll goes into SS checks and little overhead is needed to make that run. The money goes from citizen to citizen; it has been more reliable than the pension plans that got wiped in 2000 and 2008 bubbles. It can still go bust one day, but as it stands it can manage for decades. Not a real urgency.

dearieme said...

Someone - Miss McArdle probably - persuaded me that the ruinous entitlement for the US Federal government isn't Social Security (i.e. their old age pension) but Medicare (and Medicaid). For State and local governments, employee pensions will often be ruinous.

That's all in addition to such delights as miltary spending which is not only very lavish but is very possibly going on the wrong things anyway.

dearieme said...

Something I certainly learned from Miss M: historically the Federal government has never (or perhaps never outwith World War periods) managed to sustain taking more than 20% of GDP in tax. So if you think raising taxes is wise, you still are going to have to come up with some unprecedented policies to raise it from the current ca 18%(if memory serves) to more than 20%. Personally I'd like the idea of finding wiser taxes rather than merely higher taxes - Hell, I thought they should have tried a Federal tax on gasoline back in Carter's time, with a corresponding cut in employment taxes.

Anyway, it's all just ordinary, morally corrupt, democracy - buy Paul's vote by promising to rob Peter to pay Paul, and then try to retain Peter's vote by taxing him less than he feared. Blair/Brown did it here, pretty transparently, and still the gormless electorate voted for them.

droog said...

Someone - Miss McArdle probably - persuaded me that the ruinous entitlement for the US Federal government isn't Social Security (i.e. their old age pension) but Medicare (and Medicaid).

I've heard similar. Pentagon and Medicare need sorting out more than anything else. As seen here, the cost of past military exploits is sitting there taking almost a fifth of yearly public expenditures. Some people like to think the cost of projecting power doesn't linger, but it does. There's a hefty overlap of welfare and defense costs as past wars lead to veterans with more health problems than the average citizen.