President-elect Joe Biden, a moderate by nature, will have his hands full keeping his party together over the next few years. The far-left progressives muted their tone somewhat during the campaign to help him win, but now that he has been elected they are already starting to build pressure for him to swing far-left and support things like Medicare-for-all and free college and forgiving all college loans. What is there to say about these sorts of far-left progressive proposals?
Garret Hardin in his seminal 1986 book Filters Against Folly: How To Survive Despite Economists, Ecologist, and the Merely Eloquent proposed that one should ask three basic questions of any proposal: (1) Do the ideas make sense? (2) Do the numbers add up? and (3) What then? (what are the unintended second- and third-order effects)
Let’s assume the ideas make sense. What can be wrong with providing medical insurance for everybody, or a post-secondary education for everyone who wants it? We do need a national conversation about just what the government owes every citizen. We already assume it owes them police and fire protection, K-12 education, and basic infrastructure like roads. Does it owe them health care? Does it owe everyone a job, whether they are competent or not? Does it owe everyone housing? Does it owe everyone a car? A paid vacation to Cancun? The psychedelic drug of their choice free? As you can see, there really is a spectrum here, and while it is easy to see the things the government clearly does or does not owe people, there is a big gray area in the middle that needs rational discussion and debate (but won’t get it).
The third question also needs rational discussion and debate. If we give everyone government-subsidized health care, that will probably increase the demand for health care. By how much? Where do we find the doctors and hospitals to take up the increasing demand, since we are already short of both? Will people stop worrying about life styles and diet if there is free medical care to make up for their poor choices? There are similar questions to be asked about the second-order effects of a free college program. But I won’t deal with that here.
It seems to me all these expensive progressive proposals stumble at question 2 – do the numbers make sense? Britain’s one-time prime minister Margaret Thatcher summarized the issue nicely when she said “The problem with socialism is that you eventually run out of other people’s money”. Put bluntly, the US can’t pay for the government programs it already has, and is surviving by borrowing vast amounts each year and never paying the debt down, so how is it going to pay for expensive new programs?
We now have a federal debt of about $27 trillion (includes debt held by Social Security and Medicare trust funds), in addition to an estimated $57 trillion in unfunded Medicare promises, $44 trillion in unfunded Social Security promises, and about $8.5 trillion in federal pensions and health care liabilities. The last few years we have been borrowing just under $1 trillion a year to cover the budget deficit, but now of course we have borrowed an additional ~$3 trillion for CORVID stimulus, and will probably borrow another $2-4 trillion next year for the same purpose. And yet our total annual federal income is only about $3.5 trillion.
Take Medicare-for-all. Bernie Sanders, when he proposed it, told us it would cost us $30-40 trillion over ten years. He probably low-balled the cost. Most politician’s proposals do that. But let’s take his own figures. That comes to $3-4 trillion a year additional spending, as much as we are spending to manage the COVID crisis, and about the size of the entire current federal budget, or a bit more. Where does that money come from?
Increased taxes? Well, taxes (payroll and corporate together) amount to about $3.4 trillion a year, so we would have to more or less double everyone’s taxes to pay just for this, let alone offset the rest of the ~$1 trillion annual deficit or begin to actually pay down the debt a bit.
Soak the rich more? This is always a popular one on the campaign trail. Assuming we actually could outwit the ranks of tax accountants and attorneys who help the rich avoid taxes (a questionable assumption, especially since the IRS has been strapped for budget and personnel for years), would it make a difference? Well, there are about 1.4 million households in the top 1% income bracket (over about $539,000 a year in income) in the US, and they have an average annual income of about $1.7 million. So if we confiscated ALL the annual income of the top 1% earners in the US, that would yield about $2.3 trillion the first year (the next year most will have left the country). Not enough to cover the cost. So much for this idea.
How about some of the other progressive ideas? Free college for all (based on the College for All Act of 2017 introduced by Sen. Sanders and Congresswoman Pramila Jayapal) is estimated by independent sources to cost on the order of $1 trillion a year. President-elect Biden’s climate plan, another progressive wish-list item, is estimated by the Biden campaign itself to cost about $2 trillion over 4 years, and again is probably a low-ball estimate. And so on.
So I would argue that all these wonderful-sounding progressive ideas will founder on cost, on question 2. Of course European countries manage to implement many of these ideas. How do they do it? Simple. First, they tax their people much more heavily. It is not easy to do a side-by-side comparison of US vs EU tax rates, because their tax brackets differ, their income distributions differ, and their demographics differ from nation to nation. But roughly, Europeans pay twice as much in taxes or more.
Second, they arguably offer a lower level of service. In the UK the National Health Service current average waiting times are 18 weeks for standard treatment, 12 weeks for new outpatient appointments, and 6 weeks for key diagnostic tests. Average waiting time in the UK for a hip replacement last year was 19.3 weeks, and for a knee replacement was 20.5 weeks. Would Americans stand for a six-week wait to get an electrocardiogram if they had chest pains? (We actually knew a person in the UK some years ago who reported chest pains and was scheduled for an electrocardiogram some weeks later --- she died that night!)
So the reality is that American taxpayers aren’t willing to pay enough taxes to cover the government services they are getting now – how likely is it that they will accept a doubling or more of their taxes to pay for these wonderful new services? How likely is it that we can keep borrowing trillion of dollars each year and never pay down the debt without eventually having a painful – even disastrous - reckoning?
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