Recommended: How Democrats Lost Their Way - And How They Can Find It Again

David Ignatius has an interesting piece in today's Washington Post: How Democrats Lost Their Way - And How They Can Find It Again. He talks about Charles Peters and his new book "We Do Our Part".  The essence is along the lines I have been suggesting - that the Democrats have to lose their fascination with and dependence on the wealthy coastal elites and reconnect with the workers in flyover country who were once the base of their party.

The interesting question is: can they do that? Or are they now too embedded in the coastal ultraliberals and their issues to move back to the center?

The Greenland ice loss issue

This week’s Economist has an alarming short article about the tremendous loss of ice in Greenland over the past year. Well, maybe….  It seems the Economist was a little selective in what data they reviewed.  Readers who really care might want to read the article What the Economist Didn’t Tell You about Greenland Ice in the Cato Institute Blog. Links to the original Economist articles can be found in the Cato Institute blog posting.

And if the whole global warming issue is a concern to you, you might also want to read the article The Limits of Knowledge and the Climate Change Debate. And perhaps the article A Climate of Science Deception which refutes the government's claim, widely reported in the press, that Atlantic hurricanes have been getting worse, presumably due to global warming, a claim based on presenting a carefully chosen subset of the data.  Also their white paper Climate Models and Climate Reality: A Closer Looks at a Lukewarm World. 

The Cato Institute's position is that the world is indeed warming (they are not climate change deniers), and that human activity is certainly a contributor to this warming, but that the climate science is nowhere near as certain of the likely outcomes as the press releases would suggest, that the climate models and the economic models built on them, and therefor the policy positions advanced on the basis of these models are highly suspect.

America as a corporation

American corporations are required by law to file annually a Form 10-K, which exhaustively details the business's operations, including its expenses, its true profits or losses, its risks, etc, etc., etc.  A short article in this week's Economist has alerted me to the fact that Steve Ballmer, Microsoft's sometime CEO, has launched a website which is, in effect, a Form 10-K for the US government. It can be found at https://usafacts.org.  The Economist article can be found here.

It is worth perusing this site, because it gives an interesting view of our government's operation. I have just begun to explore it, but already I am impressed.  And the Economist article gives a nice summary of what the government's Form 10-K reveals.

Re-evaluation

It is always interesting when I discover that I have completely misjudged a person or a situation or a group.

Years ago I heard about the Cato Institute, founded in 1979 by one of the much-reviled (by the liberal press) Koch brothers. I wrote it off, without any further research, as another one of those far-right think tanks and never gave it any attention thereafter.

Yesterday I got a letter from them soliciting memberships. I almost threw it out as junk mail without reading it, but since I was housebound with a bit of an intestinal bug and bored, I read it – and it was an eye opener for me!

The Cato Institute is not right-wing as I thought, nor is it left-wing; it is libertarian and equally critical (for good reason) of both political parties. Now I have never thought of myself as a libertarian, but when I read their positions on issues I find I agree with almost all of them:

·         They have been worried for decades about the growing federal debt (the very subject of my last few posts) and even have a website about the issue.

·         They have been a strong supporter of gay rights from the beginning, as a Constitutional matter, and even filed amicus briefs with the Supreme Court in support of some of some of the gay rights issues.

·         They are worried about the bloated size of the federal government (whose spending now accounts for 40% of the nations GDP)

·         They think climate change is real, but that the issue has become a religion to some, and that the proposed remediation policies are founded more on ideology than on science or economics.

·         They are in favor of strong gun control. As they point out, there is no way Americans are going to give up their guns (we have more than one gun per person in this country), so we had better have good gun control.

·         They are worried about the increasing militarization of local police forces, the growth of a paramilitary police, and about the need for criminal justice reform

·         They are worried about the endless wars we are involved with in the Middle East.

·         They think Trump’s focus on illegal immigrants is a diversion from the real problems that need to be addressed, since illegal immigration has actually been falling since 2007.

·         They support school choice, which most Democratic-leaning teacher unions violently oppose.

Now I can see why big government liberals vilify the Cato Institute, but in fact I find I agree with most or all of these positions. So I guess I will have to start paying attention to their books and policy papers. Who knew I was a libertarian?

Priorities VII – Summary

Well, what are we to make of the preceding posts about priorities? Here is my summary:

1.      The United States is living well beyond its means – more than half a trillion dollars a year above its means. Every federal program and federal agency has its supporters who will argue that killing it would be unfair, short-sighted, mean-spirited, and disastrous to the (choose one: economy, environment, the elderly, the young, the disabled, etc).  And they might even be right. But however worthy the causes, at our current tax rates we simply can’t afford what we are spending.

2.      If we continue to run deficits and grow the federal debt there will come an accounting, perhaps not in my lifetime (I’m old) but certainly in the lifetime of my children and grandchildren.  It may come slowly, being resolved by painful hyperinflation that eventually makes US bonds worthless, along with everyone’s savings. It may come quickly, if suddenly one day the world loses confidence in America’s fiscal position and the Federal Reserve finds it can’t roll over the debt because no one is willing to buy US bonds at the weekly auction at a reasonable interest rate.  But it will come.

3.      The solution is obvious, but probably unattainable given the way American politics works. The solution would be (a) to cut back federal expenditures to support only the most essential things – the things that keep the nation safe and the economy strong, and (b) raise taxes across the board by 20% or more, so we can pay down the debt a bit, and (c) find some mechanism to force Congress to spend the extra revenue on paying down the debt instead of spending it on popular vote-getting new programs.

Think of these things the next time some media pundit laments a Trump proposal to cut the budget for some federal agency, or the next time Trump proposes to spend a lot more money on something like a border wall.  This is not a Republican or Democratic problem, or a liberal or conservative problem; this transcends political parties. Both are guilty of leading the gullible America voters to this untenable situation, and both are equally unrealistic and irresponsible when in power. Hillary Clinton would have been no better at addressing this problem; indeed she might have been worse if Obama’s administration was any indication.

The only people who seem to have a realistic outlook on the problem are the few budget hawks in Congress, many in the Tea Party movement. It is a promising development that Trump appointed one of these, Rep. Mick Mulvaney (Rep. South Carolina), to run the OMB (Office of Budget and Management).  But there is certainly not a majority in Congress, in either party, for being responsible and undertaking the difficult and politically painful task of reducing the federal deficit and the national debt.  And Trump’s current tax reduction proposals, popular as they may be with voters and businesses, look like they will make the problem worse, not better.

But of all the issues that face America these days, I think perhaps the single most important one is getting our fiscal house in order and our addiction to debt-financed government programs under control.  And few are paying attention to it.

Priorities VII - Reducing the National Debt

The national federal debt now stands at $19.9 trillion (not counting state and local debt). The 2016 GDP (Gross National Product – the value of all goods and services created in the entire nation in 2016) was $18.56 trillion, so our national federal debt is now 107% of our GDP, well into the danger zone by most economists’ estimates. More than that, if we continue on the current deficit path we will be at 150% of GDP within a decade – that’s the range Greece is in now, and we can all see the fiscal troubles that nation has. Clearly we need to reduce it.

And by the way, the government “rolls over” the debt constantly.  That is, Treasury bonds are sold with maturities ranging from 90 days to 30 years. When these come due, the Treasury sells new bonds to pay off the old bonds, not something your average bank would allow an individual to do. The risk is that if someday buyers lose confidence in the fiscal integrity of the United States and  don’t show up to buy new bonds, we would suddenly owe back the face value of the old bonds, with nothing to pay it off with.

Where should the federal debt be? Ideally of course we would pay it all off so that we would have the maximum borrowing capacity the next time we have a financial meltdown (and there will be next times; bet on it!). But that ideal is almost certainly politically unattainable. This chart shows the recent history of the national debt as a percentage of the GDP, including the sharp increase first under President Bush and then almost doubling again under President Obama:

Suppose we aim to reduce the national debt to around 60% of GDP, or about $11.1 trillion, which is the average size of the debt relative to GDP from 1940 through 2015. And suppose we aim to do that over a reasonable period, say 20 years. That means we have to (a) immediately reduce the annual federal deficit to zero (stop borrowing half a trillion dollars a year), and (b) pay back just over half a trillion dollars a year for the next 20 years. 

Remember from part I of this series of posts that ALL discretionary spending (ie – everything except interest on the national debt and the mandatory spending – mostly Social Security and Medicare) currently amounts to $1.11 trillion, of which about $600 billion is military, and of which about $550 billion is borrowed each year.

In essence to get back to a reasonable federal debt level we would have to cut the federal budget by a bit more than a trillion dollars a year, half to reduce borrowing to zero and half for our payback schedule over 20 years. Congress will never do that of course, but it does give a clear indication of how bad a state we are in.  And it does suggest that there are lots of “nice to have” things that we simply can’t afford unless we are willing to pay substantially higher taxes.

Of course neither political party is about to either raise our taxes substantially, nor cut almost all discretionary spending. President Trump’s draft 2017 budget sharply reduces funding for most federal agencies, and lots of people in both parties whose special interests would be hurt are calling it irresponsible.

Well, it is irresponsible, but not for the reasons they think – it is irresponsible because it doesn’t cut nearly enough, as the analysis above shows. But it probably cuts about as much as is politically possible at present, and even these cuts may not survive Congress. Of course if Trump’s economic policies do manage to lift economic growth from the anemic 2% of the Obama years up into the 3½-4% range, tax revenues would go up and the problem would get somewhat easier - unless, of course, Congress just can’t resist spending the additional tax revenue instead of paying off the debt, a likely outcome.

No one is quite sure of the original source of this quote, and it exists in a number of different variations, but it certainly applies today:

“A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy.”

Priorities VI – Medicare

The other big dog in the federal “mandatory spending” budget is Medicare, on which the government spends a bit more than $632 billion per year, or about 15% of the federal budget, to help cover the medical costs of about 55 million Americans  65 or older or on disability.

About 38% of Medicare costs are covered by a 2.9% payroll tax (1.45% each from employee and employer, except for incomes above $200,000, which pay a 2.35% employee tax) on workers.  Another 13% of Medicare costs are covered by the small premium ($134) each beneficiary pays each year for part (again slightly higher for higher income people).  So roughly half of the Medicare costs are paid for employees, employers, and beneficiaries, with some minor 1-2% contributions from other sources like states.

So what Medicare really costs the taxpayers over and above any payroll taxes or premiums (ie – what comes from “general revenue” and borrowing), is in the neighborhood of $309 billion per year, or about half of what we put into the world’s most expensive military.

Of course the US health care system is a shambles, and so we all pay too much for health care.  Average US per capita health care costs are just over $9000, about double the average for other developed countries.  The next highest in 2016 was Switzerland, at $6,787 per person. Yet several different organizations rank the US last in health care quality among the top 10 developed countries. Part of this is due to our pay-for-service model, which encourages doctors and hospitals to maximize the chargeable services they prescribe. Part of it is due to the skyrocketing cost of malpractice insurance, driven by the ambulance-chasing law firms that encourage people to sue at the slightest problem. And part of it is due to the incentive structure of Medicare which provides little incentive for users to shop around for better prices, and so little incentive for doctors and hospitals to restrain costs.

Congress, as usual, hasn’t helped. Wealthy pharmaceutical corporations and insurance companies have bought favorable legislation with their campaign donations, so that insurance plans can’t be sold across state lines, Medicare is prohibited from negotiating lower drug prices, and US citizens are supposedly forbidden from ordering drugs from other countries, where the same drug from the same company may be priced at 20-25% of the price charged in the US.

We could of course charge higher premiums and increase the Medicare deductible to reduce the cost, but that really doesn’t address the underlying problem – the completely dysfunctional US health care market.  Medicare keeps threatening to reduce what they pay doctors, but (a) we already have a shortage of doctors in this country, so reducing what they make isn’t the right incentive, and (b) many doctors are simply opting out of serving Medicare patients because the Medicare payments already don’t cover their costs. My neighbor, who is a GP, tells me that Medicare has structured their pricing so that he would have to see 5 Medicare patients an hour (12 minutes a patient) just to cover his office costs and staff. As he says, what doctor can give good medical care at 12 minutes a patient?

So unlike Social Security, there really isn’t an easy fix for Medicare, and the problem will grow steady worse, and the costs will grow steadily higher as the population ages. The only thing that would work is a complete realignment of the health care system, and that will be hard because there are so many vested interests in the system the way it runs now.