federal budget deficit

Radical Capitalism: A Noble Experiment We Ought to Try

by Michelle Minton on August 17, 2010 · 2 comments

in Deregulate to Stimulate, Economy

Earlier this month, Bloomberg published an article by Boston University economist Larry Kotlikoff in which he declared that the U.S. was bankrupt and headed toward an economic disaster that would be “worse than Greece”:

Last month, the International Monetary Fund released its annual review of U.S. economic policy. … the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

…Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt. This gargantuan discrepancy between our “official” debt and our actual net indebtedness isn’t surprising.

We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars. Yes, our economy will be bigger in 20 years, but not big enough to handle this size load year after year.

In an article published in the July/August 2006 edition of the Federal Reserve Bank of St. Louis Review, Kotlikoff suggested that the only way to deal with the United States’ impending fiscal disaster would focus on productivity growth, which would translate to wage growth, combined with limited requisite tax hikes and an expanded tax base. While I can’t agree with all of Kotlikoff’s suggestions for reform (in particular his bid for mandatory enrollment in a universal health care system), he provides insight and intriguing options that the U.S. government must consider. One suggestion seems particularly viable: radically increase China’s ability to directly invest in the U.S.

It seems almost silly that up until this very day the federal government has hesitated to allow the second greatest holder of U.S. debt to directly invest in our economy. Presumably, allowing greater direct investment would increase China’s desire to see the US economy grow.

As I said, I certainly don’t agree with all of Kotlikoff’s suggestions, but he is is right in declaring that the time is now (or the time has passed) for U.S. regulators to take action to prevent economic collapse.

Perhaps it is time to take a chance on radical capitalism. It appears that the quality of life in the U.S. is bound to decrease no matter what steps we take to right the economy. So, is it not worth it to take a chance on radically cutting back government programs in an attempt to reduce the budgetary shortfall and see if the free market will pick up the slack?

There are plenty of books and articles that detail how capitalism has improved the quality of human existence, but perhaps it is time to consider how we might escape slipping into a fiscal dark-ages by letting the the invisible hand take the wheel of some of government provided services and focus government activity on protecting rights of individuals rather than directing lives and providing goods. Housing, education, retirement, food and drug oversight and enforcement–many of these services could easily be handled by free market enterprises and some shouldn’t be government priorities at all. If the quality of life in the U.S. is going to deteriorate one way or the other, why not give the open market a chance to assume the role as provider of some of these unessential goods and services. Who knows, it just might turn out that the quality of these goods and services increases rather than decreasing.

New ObamaCare Version Claims Not to Increase Federal Deficit, But It Explodes State Deficits, and Relies on Mythical Savings and Unlikely Medicare Cuts

by Hans Bader on October 8, 2009 · 1 comment

in Healthcare, Nanny State, Personal Liberty, Politics as Usual

Democrats are cheering a Congressional Budget Office decision to “score” the Senate Finance Committee’s version of ObamaCare as not increasing the federal budget deficit. But it pays for some of ObamaCare’s massive cost by expanding state Medicaid programs, shifting its cost to the states. That will radically increase state budget deficits. Moreover, this version of ObamaCare, while cheaper than the four other versions, still relies on mythical cost savings and massive cuts to Medicare that are likely to be canceled after ObamaCare is enacted, to avoid enraging seniors and doctors. Rather than keeping costs down, ObamaCare outsources them to state governments and people with insurance.

This version of ObamaCare “proposes to spend more than $800 billion in the midst of an explosion of federal spending and debt to create a new entitlement program, the cost of which CBO says will grow at more than 8 percent a year (faster than health care costs grow now), and to raise taxes by almost $200 billion in the midst of a recession. It then proposes to make up the difference by massive cuts in Medicare which, as CBO notes, are unlikely to actually materialize.”

The Congressional Budget Office “scored” the bill as not increasing the deficit, but in doing so, it admitted that the bill does not even exist except as a concept, and that its details have yet to be fleshed out. Senate leaders intend to have the Finance Committee vote on the bill before its text is even available, and to have the Senate vote on the bill with virtually no advance notice, after major changes are made to the broad outline of the bill approved by the Committee (to add a potentially-costly “public option”).

ObamaCare would pay to cover some currently uninsured people by expanding state Medicaid programs.  Tennessee Governor Phil Bredesen (D) is criticizing Obama’s health-care plan as “the mother of all unfunded mandates,” saying it will force states to spend so much that they will have to either massively raise taxes, or run large budget deficits that violate state constitutions.

Some people who currently have employer-provided insurance or individual insurance policies will lose that insurance under ObamaCare.  In states that adopted major provisions of ObamaCare, the number of privately-insured people fell, as the cost of their insurance skyrocketed.   “The Congressional Budget Office analyzed” ObamaCare “and said that by 2016 some 3 million people who now have employer-based care would lose it because their employers would decide to stop offering it.”  Some of these people will wind up on Medicaid, which ObamaCare will expand to cover some people who are not poor enough to be covered now.

While the CBO has scored this version of ObamaCare as not increasing the federal budget deficit (unlike the 4 other versions of ObamaCare pending in Congress, which the CBO admits would explode the deficit), some of Obama’s own advisers are more skeptical.  Earlier, adviser Martin Feldstein said that Obama’s health-care plan would explode the federal budget deficit and lead to “crippling deficits,” as well as “higher taxes, debt payments, and interest rates” that would cut America’s standard of living.  Feldstein also noted that Obama’s health-care plan would harm people with insurance, and predicted that it would lead to massive tax increases.  Other analysts have predicted that it will drive up medical costs and inflation.

Obama is relying on $2 trillion in imaginary savings to pay for his health care plan.   He is also relying on tax increases, which breaks Obama’s campaign promise not to raise taxes on the middle class.

Fact-checkers say Obama is lying about health-care. CNN Money says ObamaCare would take away 5 freedoms.

Deficit Rises $880 Billion to Record $1.3 Trillion, Due to Massive, Unprecedented Government Spending

by Hans Bader on August 8, 2009 · 9 comments

in Economy, Employment, Healthcare, Politics as Usual, Sanctimony, Stimulus to Nowhere, Trade

The federal budget deficit has already risen by $880 billion to an unprecedented $1.3 trillion. Most of the increase is attributable to recent increases in federal spending, including Obama’s $800 billion stimulus package, which the Congressional Budget Office says will actually shrink the economy in “the long run,” and which ended welfare reform, destroyed thousands of jobs in the export sector, and substituted welfare for productive investments.

Ironically, Obama had campaigned on a promise, since broken, to make a “net spending cut” in federal spending.

The increase in the deficit is driven largely by reckless federal spending, even though federal tax revenue fell at the fastest rate since 1932 thanks to the recession.

The Obama Administration wants to pile on even more federal spending, including a health-care “reform” proposal predicted to cost at least $1,000,000,000,000 ($1 trillion). In reality, Obamacare will likely cost far more than predicted, the way past health-care expansions always have.

One of Obama’s own advisers says the Obama Administration’s health-care plan will harm people with insurance while raising their taxes. CNN says Obamacare will take away 5 freedoms. It will also destroy many affordable health-care plans while breaking Obama’s campaign promises.

ObamaCare also contains affirmative action and subsidies for left-wing community organizers, and preferences for illegal aliens, who are exempt from its taxes and penalties, but may be able to access its benefits due to lack of meaningful eligibility verification safeguards.