I’ve been away for a while. I hoped that when I returned I would have something funny and non-political to rant about. Alas. And this has the makings of a long one.
I’ve had very little direct interaction with the Tea Party. I have one friend who’s a member. He’s a great guy, very smart and very reasonable. He tells me that when he goes to Tea Party events, he’s in the company of people who are deeply bothered by how much of their wealth the government confiscates, how much more it borrows, and the seeming endlessness of those appetites.
I get that. I’m in the category of people who believe that being $17 trillion (yes, trillion) in debt, borrowing $2 billion more every day, and being one of the handful of countries whose public debt is larger than its economy (which puts us in the noble company of Greece, Grenada and Lesotho) is a bad idea.
I have grudging respect for a perspective that says, “You’re so deeply in debt that if you want me to let you borrow more, you have to at least show me how you plan to stop, even if I have to shut you down to make you tell me.” That may be inelegant, but there’s a nice, logical harmony to using the debt ceiling to force a conversation on the debt. And I thought it was good that the Tea Partiers were willing and able to bring this issue to the top of the national agenda.
What’s going on now, though, is completely beyond me. I have my issues with Obamacare. I like the exchanges because they at least start to move us away from our anachronistic reliance on employers as the providers of health insurance. I’ve said in previous posts that the only actual role employers play is to provide insurance companies with randomized pools of people to insure, that the burden they bear for playing this role is enormous and distracts them from their real work of building competitive enterprises, and that there are much easier ways to create such pools. The exchanges at least begin to address that issue.
Beyond that, I continue to believe that for any healthcare system to work, it needs to address two underlying realities. One is that healthcare intrinsically lacks the essential characteristics of a market, which are the ability of multiple buyers and sellers to make informed decisions about whether to do business with one another and the ability to place a dollar value on the benefit of the product or service. The other is that most of what we call health insurance is really the confiscation and transfer of wealth from young, healthy people to older, less healthy people. Thus the need for the individual mandate. Healthcare has much more the character of a pension system than it does, say, car insurance.
Since Obamacare doesn’t deal with either of those issues, I think it is likely to fail. I would love to be proven wrong.
Those are my beliefs. I hold them strongly. But not strongly enough to go nuclear.
I don’t pretend to know what’s in the minds of the Tea Party contingent in Congress. From where I sit, it sure looks like we have a group that is small but just large enough to be obstructive, and that thinks shutting the government down is either fun or a good idea, or maybe just another political tactic. It sounds like “Hey Gang! Time to shut the government down again! What excuse will we use this time?”
More broadly, I don’t understand why believing that it’s a bad idea to be one of the world’s great debtor nations should bring with it a larger agenda that’s essentially anti-knowledge.
On that note, my other direct interaction with the Tea Party happened a couple of years ago, when my neighbors and I were embroiled in a zoning dispute with a Muslim group that bought a property behind ours and set out to turn it into their worship center. The dispute was about parking spaces, and the neighbors who objected worked very hard to make sure it stayed about only that, despite the best efforts of many, including the press and the Muslim group itself, to make it about everything else.
Late in the game, the president of the local Tea Party chapter showed up at a Zoning Board hearing, got sworn in, and launched into a rant about national security. Uninvited, unwelcome, uninformed and unhelpful. When the County Board sided with the neighbors and the Muslims went to Federal court (where – spoiler alert – they won on summary judgment), she was Exhibit A.
This particular Muslim group is composed of people who fled Iran for the U.S. right after the Shah did the same thing. Failing to understand what that says about their politics is simple ignorance.
I’d like both my conservative and liberal friends to remember that I am, or at least try to be, an equally opportunity ranter. The last time we went through this, I commented that having gotten a significant tax concession from the Republicans, Obama owed them a dose of entitlement reform in return. Didn’t happen.
This is just a plea on my part for a little touch of thoughtfulness, rationality and good will. Wanting that, I suspect, puts me in the company of the vast majority of Americans. On the other hand, we’re the ones who keep electing these knucleheads.
Carp Diem 
I could not have said it better myself. I am not sure how we, collectively, have elected this group to run our nation. It seems like we can, and should, do better.
Dan,
I had to read the sentence below twice to unravel what you were saying but I still don’t get the anti-knowledge thing.? Sent from my iPhone
There were almost 900 words in that post. Shame on me for writing any that had to be read twice.
This particular contingent seems to revel in positions that are based on strong belief in the absence of information. The chapter president’s testimony to the county zoning board is an example. Their collective reaction to global warming might perhaps be another?
Some Anti-Anti-Knowledge and then nothing but questions…
Dan, thanks for the clarification.
The proposition is this: “Being one of the handful of countries whose public debt is larger than its economy is a bad idea.” So Dan teaches his business clients that the way to resolve and issue is to first dig, dig, dig to define what the real issue is. That would be our first step. Perhaps it would be fun to do. After all, maybe our reaction to this debt is knee-jerk!
Then lets just think about what we’d have to do just to hold the debt where it is, much less reduce it. Today the federal government spends about $3.8 trillion, of which $1.6 trillion is borrowed money. We’d have to stop borrowing new money to hold the debt where it is. Thus, we’d either have to cut 1.6 trillion out of government spending, or increase taxes to make up the difference. Today, about 2.2 trillion of the federal spending comes from taxes with half of it coming from individual taxes, another 36% from social security tax, and 8% from corporate tax. These three account for 91% of tax revenues. To make up the difference at the current spending levels would require we raise taxes by at least 73%. If we were able to cut 25% out of federal spending somehow, we would only need to raise taxes by 30% to say even. That doesn’t reduce our debt, it just lets us swim in the debt level that exceeds our annual GDP. Could we raise individual incomes by 30% to keep people whole? Keep in mind that 80% of our GDP comes from services, how much more of those services can we consume?
What are our options here? Well, we have some good foundational elements. First is the strongest, most advanced military. We are the third largest oil producing nation, the second largest natural gas producing nation. We are the worlds largest manufacturing country, accounting for a fifth of the world’s manufacturing. We have a very diverse population, that is generally well educated and productive, and underutilized at the moment. The USA is the world’s second largest exporter behind China. China is running a strong trade surplus but without the USA importing from China they go into a trade deficit.
So, what’s the real problem? What really happens if we don’t address it? And what are all our alternatives?
How weird. I just sent out a much more crazy rant about exactly the same things and the moment after I sent Steve’s World I read this!
Steven Smolinsky
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Dan, as always, thoughtful, insightful and provocative. Thank you for the perspective. The silent majority probably thinks like you. As Bil points out the problem is much deeper than what the leadership in Washington is willing to dig into to find a solution. The solutions sought are shallow, not thought through, and often, self-serving.
Keep the blogs coming. Infrequency is not a bad thing. The good thing is the insight you share when you do write. Keep it up!
Great assessment of the debt problem, Bill. I’d like to think that my comments about healthcare represent a decent shot at getting to root causes. I wasn’t planning on taking on the deficit in this post, but I’m glad you did.
30 years ago, I heard George Will say that the nature of our debt problem is that every year the American people demand $300 billion of service from their government that they’re not willing to pay for. I don’t think he used the term “root cause,” but that strikes me as a pretty good shot. I don’t think anything has changed since then except that the problem has gotten much larger and therefore much harder to solve, for precisely the reasons you cite.
What happens if we don’t address it? I would say that debt service (which grows exponentially) will continue to consume a larger and larger portion of the Federal budget (it’s now around 20%), which will make the choices you outline even harder. It also will allow us to keep hiding from the fact that our economy is much less competitive than we’ve been pretending, for 35 years, than it really is. And since we’re mostly borrowing money from other countries so that we fund consumption, much of which involves imports from those very countries, what we’re really doing is systematically exporting our national wealth. The end of that road is national bankruptcy. See “Greece.”
What do we do about it? I don’t know but (shocker!) have some thoughts.
The first is that we have to focus on where the money goes. 30% of it goes to defense. 40% of it goes to entitlements. 20% of it goes to debt service. 10% goes to everything else. My favorite economist, Willie Sutton, would tell us we have to focus on defense, entitlements and debt service because that’s where the money is.
Regarding defense, I’m woefully out of date. 30 years ago, I was doing defense policy work for a member of the US Senate, and I had a very good handle on how we spent military money. I don’t know how it’s changed. The key trends at that time were that we spent tons of money on weapons systems we didn’t need, and tended to spend that money on technology that was so bleeding-edge that it was extremely unreliable. So we had lots of expensive hardware that we had to spend even more on trying to keep it operational. Pulling back a little from the bleeding edge offered the prospect of spending much less and having a much more effective military. We also spent tons of money maintaining a standing military designed to fight the Russians in a land war in Europe while simultaneously fighting a major land war somewhere else. Perhaps what we need now is a much leaner military designed to conduct surgical strikes to fight terrorism? I don’t pretend to know, but agree that we need to ask these kinds of questions.
Regarding entitlements (Social Security and Medicare), we have to spend less. Social Security could be privatized (unlike healthcare, this is something the private market actually CAN do), and backed up by a welfare safety net just in case. Or we could raise the retirement age in a meaningful way. We’re currently in the middle of an imperceptible (phased in over 20 years) increase of the retirement age from 65 to 67. If it had kept pace with the increase in life expectancy since Social Security was created, it would be 83. Regarding Medicare, we will need a concerted effort to reduce the cost of healthcare, and also make some tough choices about what we pay for and what we don’t. I don’t pretend to know those answers either. I think it’s important because I believe that we will eventually wind up paying for most healthcare through a government-run single payer system. One idea. . .since 20% of what we spend on healthcare goes to people in their last year of life, as painful as it would be, we can and should decide what we’re NOT going to pay for beyond a certain age. Another, create a co-pay system that gives people powerful incentives to maintain their health (since half of what we spend goes to people with chronic diseases that are largely the result of lifestyle choices). I’m sure there’s more. It will be tough.
Regarding debt service, the only solution is to reduce the debt.
That leaves taxes. Perhaps if we adopted a flat 15% or 20% tax we might increase actual revenues while eliminating all the incentives that currently exist to hide wealth rather than create it. That would also return to the productive economy the thousands of tax lawyers and accountants who get paid to find ways to hide wealth. Or perhaps it would just increase unemployment.
These are only thoughts/ideas. Yes, this is the kind of dialog that we need, that is sadly lacking, and that we seem to lack the will to have.