Pain And The Camel’s Back

The November Federal Budget deficit was $154 billion, $120 billion the prior November, a 28% increase; annualized at $1.8 trillion.  Cumulative debt is racing toward $14 Trillion representing nearly 90% of the 2008 national GDP.

Personalize the problem; your family of four makes $100,000, after taxes you have about $70,000 left.  After debt you have less than $1,000 a month to survive day to day; food, energy, transportation, essentials or the equivalent in government parlance; discretionary spending.  Exactly how do you “cut” the $1,000 a month remaining, reduce your debt load and make ends meet when $1,000 is not enough to begin with?

The context of the argument is framed in large measure by public perception.  50% of Americans believe the fiction that you can balance the budget by eliminating wasteful spending.  (Kaiser Family Foundation/Washington Post, Harvard, September–October 2010.)  They may be unaware of massive unfunded entitlement commitments; $80 trillion.  Perhaps also unaware of massive State deficits, reductions in Federal revenues, bleak pension plan projections.  California is desperate and unrepentant; California is the 8th largest economy on the planet!  California could and likely will create significant pain all on its own!   

 The point is that pain is coming, one way or another. 

 Cogent engagement begs the question; when will the pain arrive?  Will it arrive incrementally by way of a Congress committed to fix the underlying financial disaster; or as a crisis?  Based on a study of natural systems, Historian Niall Ferguson sees a confluence between historic economic collapses, our current economic circumstances and the point of collapse that occurs in natural systems.  According to Ferguson it actually is one straw that breaks the camel’s back!  You just don’t know when it’s coming or which one it will be.

 We require dramatic reform of Medicare and Medicaid.  We’ve created a context where these programs could and likely will expand dramatically under Obama Care while at the same time doctors further restrict these programs as a percentage of their practice.  We can be nearly guaranteed that someone is trying to figure out how to make money on Medicare billings; could volume and minimal care be the solution?  Is the “Medicare maintenance village” in our future?   

Health Care, touted as a vehicle for cost reductions has resulted in exactly the opposite, so far.  Insurance companies are bulking up financially to withstand the onslaught due to arrive in 2013 and 2014 as Obama Care kicks in.  Obama Care may well reduce costs to the individual but it will begin to do so from a level 60% higher than it is today.

Insurance companies have moved to mitigate their mid level exposures, hospitalization deductibles soared 30%-40%; to maintain flat insurance costs one must accept dramatic cuts in coverage for employees.  Pain is coming!

Legal sources estimate that over 100,000 pages of regulation will be issued to “cover” the 2,000 page Health Care legislation; 50 pages of regulation for each page of legislation!  It remains difficult to imagine what the cost of that is,  or exactly how long it would take to question the legality or application of 100,000 pages of regulation?    

Proposals for Social Security reform remain insufficient and everyone involved knows it.  Take the pain now, raise the minimum retirement age to 67, generate means testing to modify benefits and offer younger citizens the option to participate in individual accounts; 2 year implementation period, at most.  Demographics and average life expectancy demand the change or crisis is on the horizon.

Bureaucracy is an easy target for spending cuts.  Absent from that discussion is the underlying challenge to making cuts stick.  That discussion centers on scope.  If the bureaucracy needs to be cut by 20%, 30% of what they do must roll back.  Talk of cuts absent a discussion of scope and priority is chimera.  Congress must, by way of legislation or budget guidelines demand both aggression and forced choice of priorities.  It’s not just the cost of the bureaucracy in the federal budget; it’s the economic cost of feeding that bureaucracy.  Yes, we may suffer another government shut-down to make the point; pain now or pain later?      

Simple question; dance around the pain or do what must be done in advance of financial crisis?  Weimar Republic come to mind?  Anyone? ….Buehler?  By many estimates our current debt trajectory will overwhelm Federal receipts by 2020, just debt.  That trend can be represented by a single word; bankruptcy!  If we go down so does everyone else.  If you happen to be anything short of a committed Anarchist there is no benefit to collapse.  In 1983 French Member of Parliament and former Cabinet Officer Jean Pierre Cott argued in favor of entitlement rollbacks in Europe to avoid eventual economic collapse; he made the argument to the American Socialist Scholar’s Conference.  Brave man!

Even in committed American Socialist circles, intent on the People’s Revolution, the fear of Fascism pervades they’re analysis.  They know better than anyone how Mussolini’s Socialism morphed into Italian Fascism!  They also know that collapse kills the golden goose of government largess upon which they rely.   

Judgments aside, the evolution of Social Democratic programs is undeniable.  We moved to care for the least of us and be protected from the worst of us; all requiring government incursions  to “manage” those programs and protections.  These programs became underlying assumptions we apply to our lives, as intended by their framers!  The  inexplicable belief  that somehow, despite predictable trends of change, program or protection viability was a given, or should be. 

Pain now, pain later?  Take it in another context: you have the option to take your young child’s pain away and absorb it yourself.  Do you do it? Of course you do! Gladly, willingly, how many times have we all had the thought that we wished we could do that for a child? We  have that option in the here and now. 

An attack on our perceptions is required.  Hard truth is required and somehow, someway, an agreement on facts.  There is pain coming we either manage that pain in increments or the pain will overwhelm us. 

The problem is well defined by the Tax Foundation; to erase the 2010 budget deficit each tax rate would have to be increased by 250%.  10% becomes 24%, 15% rate becomes 36% and the 35% marginal rate becomes 85%.  Sounds like a fairly large straw.

If Ferguson is correct; it takes just one straw to break the camel’s back!  We might want to consider offloading some of those straws!