Friday, September 23, 2011

Why Eliminating the Deficit is Technically Easy but Still Politically Impossible

Why Eliminating the Deficit is Easy but Impossible

Below I address the big federal government expenditures and tell how they could easily be reduced without much causing much pain.  

Social Security

Social Security is one of the biggest areas of federal spending. If we are looking to reduce federal government spending Social Security is a good place to start. The first fact that stands out with Social Security is that it is a rob Peter to pay Peter program.  What I mean is that it takes money from all of us to give to all of us.  In fact it takes more money from the higher earners and gives more money to the higher earners but, if you ask people why Social security exists they will tell you that it exists so that no one will be destitute in retirement.  And make no mistake about it in a rob Peter to pay Peter program, if you are middle class you pay the full amount for yourself plus the  cost of inefficiency and dead weight losses.  

Here are some excerpts from the Social Security web site:

The maximum benefit depends on the age a worker chooses to retire.  For example, for a worker retiring at age 66 in 2011, the amount is $2,366.  This figure is based on earnings at the maximum taxable amount for every year after age 21.

The average monthly Social Security benefit for a retired worker was about $1,177 at the beginning of 2011.  This amount changes monthly based upon the total amount of all benefits paid and the total number of people receiving benefits.
BTW I learned some thing from doing this research, I learned that there is no minimum Social Security benefit so it does not even cover some of the neediest people at all.  

So if we want to keep people from becoming destitute in retirement but want to be more efficient and not discourage work and saving, what can be done with Social Security to save money?  Means testing the benefit in retirement is out because that would discourage saving. What you could do is select an amount below the average benefit and give that to everyone. So how about we give everyone on the program $800/month that would reduce spending on the program by of over 32 percent.

The big obstacle to this sensible change is that people are fooled into thinking that they are getting something for nothing from SS, and old people vote.


Schooling is another big Government expenditure and though most of the spending is at the state level a big reduction at the state level would allow the federal government to remit less to the states and localities.

The average cost per student per year is now up to $13,00.  I pay $4,000 per year to send my son to private school.  If you ask why the Government runs the schools a common answer is because otherwise people would not be able to afford to send their children to school.  but lets face it if you earn median income or better you are probably paying the full $13,000 through taxes.   I like to ask women if the state would pay you $10,000 each to educate your children would you home school them.  The simple money saving solution is to start to charge families based on income for each child that they have in government schools.  Poor people would use government schools for free and as income goes up the charge would go up more slowly as to not make it better to make less.  At some point above the median income people would pay the full $13,000 per child.  this would push people to find cheaper ways to educate their children.   Of course this is politically impossible now because the median voter being rationally ignorant thinks that school is free paid for by the rich.  

The big problem here is that people are fooled into thinking that they are getting something for nothing but I assure you that you cannot subsidize everyone and you cannot subsidize the middle class they pay every penny.  On top of that the system is so inefficient that we can all be better if we just focus on subsidizing the poor rather that trying to subsidize everyone.  

Recently there was a big press story about changes in Medicare leading to "death panels" but it there is strong evidence that at least half of all healthcare spending is for care that net out negative on the harm verses benefit scale.  The Rand Health Insurance is one big piece of evidence and differences by area on spending show the same results that is places the spend half as much per medicare patient often get better results that areas that spend more.  Further no one is saying that you cannot opt for aggressive expensive care just that medicare should refuse to pay for it if it does not net about positive among the population.  We evidently do to much medical and so medicare needs to have panels that decide what it will cover in what circumstances.  This can easily knock medicare expenses down a third and still there would be waste.  

Also between Medicare medicaid and plans for government employees government currently spends more that half of the money that is spent on medical care in this country.  It therefore has considerable market power and so can more affect in market prices than it does.  It could simple negotiate lower prices.  Most of the difference in spending between the USA and Canada is due to higher prices not less care.  

Licensing is an issue that also needs to addressed.  It is currently to difficult and long a poses to become an MD, PA, NP, RN and LPN.  The evidence is that this does not improve quality does push up prices.  One piece of evidence is that PA, NP and midwives get as good outcomes as MDs.  Generally with a reasonable range of qualifications it is not better people that improve outcomes but better systems.  

Making it easier to become a provider would make for more competition and make it cheaper get care. 

The big problems here are that people think that they are getting something for nothing and old people vote.  People are also convinced that Doctor quality drive outcomes and that schooling it a very accurate way to screen for better doctors.    


In reality we won the wars in Iraq ans Afghanistan within weeks of the invasions and those invasion are a good deterrent against allowing the establishment of Al Queda again in those countries.   We could save considerable money by admitting victory in those countries and leveling them to work out their own salvation with fear an trembling.  

Also we still have bases in Germany and Japan long after the end of the cold war.  

The USA spends about what the rest of word combined spends on defense.  We spend more 2x what number 2 China spends and there stuff is not as good as ours and much of there spending is wasted on foot soldiers nor does China look like a threat to us but like an ally.  

We could easily cut military spending in half without compromising security.  

Other Smaller Areas to Cut:

Energy has been an area of interest t me since my college days when I majored in resource economic believe me when I say that the Department of energy has accomplished nothing and should be completely eliminated.   The same goes for the Department of education.  

Why it cannot be done until a sever crisis hits:

The median voter thinks:

  1. That corporations pay the corporate tax
  2. That Warren buffet is under taxed 
  3. That schools are free to him
  4. That SS is not a welfare program.  

Related Issues for Other Posts:

Medicaid puts huge marginal taxes on the poor.  Better huge deductibles that vary with income.  

The corporate tax is paid by the people, either the stock holders, employees or consumers.  

It is very hard to really tax the rich.  

Hidden taxes everywhere don't be fooled if you are middle-class you pay every penny for every program/benefit that you receive from Government and then some.  

Why we should just have a consumption tax.  It hard to tax the rich.  How to make a consumption tax progressive and keep wives in the in taxed labor force.  

1 comment:

M. Simon said...

Fixing medicine is not hard. Legal cannabis would cut medical costs by 10% to 75%.

That is quite a haul.

For starters

* Cures for some (all) cancers
* Preventive or palliative for Alzheimer's
* Preventive or palliative for Parkinson's
* Diabetes

And there is lots more.