Me Not Scared of Big Numbers!

December 29th, 2011 at 9:24 am

Look, it’s important to recognize that we face an unsustainable budget outlook.  The two key points are 1) in the medium term—over the next decade–we can’t bring down the deficit without new tax revenues (in the very near term, we temporarily need larger budget deficits to help complete the recovery from the great recession).  Spending cuts alone won’t work.  And 2) in the long term, we must slow the growth of health care spending.

I’m not saying either of these imperatives are a piece of cake, but them’s the facts and pretty much all else is noise.

Like this.  It’s one of those pieces that throws around big numbers to scare the heck out of you, with no context to understand them.

In fiscal 2011, the cost of the promises [of Medicare and Social Security] grew from $30.9 trillion to $33.8 trillion. To put that in context, consider that the total value of companies traded on U.S. stock markets is $13.1 trillion, based on the Wilshire 5000 index, and the value of the equity in U.S. taxpayers’ homes, according to Freddie Mac, is $6.2 trillion.

OK.  Forget that you’re comparing a 75-year obligation with point-in-time values.  Forget that you’re squishing together Social Security and Medicare, when the pressures on the two systems are very different, with Mcare a much tougher problem.  And forget that it’s not even a Medicare problem we face per se—it’s an economy-wide health care spending problem—in fact, cost control is considerably worse in the private sector.

The thing that should immediately make you put such articles aside is the huge dollar figures with no reference to the rest of the economy, which we can also expect to grow a bit over the next 75 years.   In fact, as a share of GDP, that $33.8 trillion shortfall amounts to less than 4%.  The Social Security part comes to 1%.

These shares were in the same table (Table 8) as the dollars, but I guess the thinking is that 4% isn’t scary enough.  For that matter, you could do the math and say, “of course, the net present value of cumulative GDP over this period will be $900 trillion” but I’m not sure that helps either.

Again, I’m not saying we should swim in de-Nile when it comes to these fiscal challenges.  To the contrary, I’m saying that in order to realistically grasp the problem, we should avoid 75-year, or infinite horizon, calculations, especially those without regard to the overall growth we also expect to accrue over those years.  Then we can start thinking solutions.

For example, the long-term shortfall in Social Security amounts to about 0.8% of GDP; that’s about the same magnitude of the highend part of the Bush tax cuts.  Medicare’s far from bankrupt either, but cannot survive without major reforms, as discussed here.  Some of these reforms are embedded in the Affordable Care Act, and we will have to see how effective they ultimately are.  If they fail to deliver, we’ll need to try other measures…after all, every other advanced economy is way ahead of us in this regard, and there’s no reason we can’t achieve similar savings.

But we’ll never see clearly with all these huge, un-contextualized numbers bouncing around.

 

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12 comments in reply to "Me Not Scared of Big Numbers!"

  1. Michael says:

    Okay, people seem to be confused about the depth of this crisis.

    If we started bank prosecutions and running a trillion dollar deficit RIGHT NOW, it’d be three years, easy, before we get back to full employment.

    If we don’t, it’ll be fifteen, twenty, maybe more.

    That is not “very near term.”


  2. davesnyd says:

    So the line that jumps out at me is:

    “in the long term, we must slow the growth of health care spending.”

    There’s the money shot. Progressives want to slow the societal cost of health care.

    Conservatives– Paul Ryan et. al.– want to slow the amount of government spending on health care.

    It’s a difference worth painting as distinctively as possible. Conservatives don’t appear particularly concerned with getting total health care costs down– just the amount that is financed, subsidized, or otherwise expended by the government. With, presumably, the remainder falling on individuals.


    • Michael says:

      They don’t particularly want to slow government spending on health care — recall that Medicare Part D was passed under Bush.

      They want to destroy everything, it’s true. But trying to impute some sort of consistency leads to madnefs.


  3. cat says:

    I do my best not to hang out with the wrong crowd so I dont know much about the background of people like Bryan R. Lawrence, the author of the article. So when I see writing like this I always wonder, was there some course in college I missed on how to write propoganda? Or is he just devilisly clever and figured out if he applied the inverse of good writing he could intentionally mislead people?


    • Petronius Arbiter says:

      I love this question. Back in the late 1950s I read a textbook for freshman English titled “Language In Thought And Action,” by S.I. Hayakawa. Now Mr. Hayakawa was a really interesting figure himself. Originally he was member of a kind of cult called General Semantics based on the writings of a man who called himself Count Alfred Korzybski which held that proper use of language would give his followers super-powers or something like that. Later, Hayakawa became a professor of English and then the president of San Francisco State College (IIRC) and later yet one of the Senators from California. Anyway, his book devoted quite a bit of space to explaining the linguistic terms “denotation” and “connotation.” The thing that stuck with me most was his homework assignment, write two newspaper stories. In one, describe briefly the situation of the valuable members of our community who are suffering, through no fault of their own, loss of a job and how the community is banding together to help them out until the economy gets better and they can find useful work again. The other story was to be about the lazy bums who were rightfully kicked out of their jobs and now want to live off other peoples’ hard-earned money through welfare. That’s really all you need to know to write propaganda successfully.


  4. Geoff Freedman says:

    Its clear that the last stimulus was not large enough, and also did not address some of the structural problems that also must be addressed if we are to start climbing out of this mess. Just stimulus, doe not address trade issues, income inequality, the financial favoritism that wall street gets, the banking de-regulation mess, the trade issues, the decline of the working class and unions in this countryand the public and private debt overhang.

    Without short, medium, and long term plans and goals we are simply not going to get out of this mess for a decade or so, if then.

    How you are going to address the Health Care issue without universal health care (public or private)to spread the risk; along with medical models based on effective treatments rather than the current cost by procedure model and controlling the cost of pharmacuticals is beyond me.

    Both Democrates and Republicans try to paint a picture in simplistic terms that simply skirt the deep substance of the issues.


  5. Bumpa says:

    Question: when exactly was it that healthcare became a FOR PROFIT industry? Didn’t that happen under Reagan?


  6. Fred Donaldson says:

    David Walker was on 60 Minutes this past Sunday, perhaps a rerun, talking bout Medicare, and his most frightening statement was to the effect that everyone should be allowed to BUY any kind of treatment they want, but Medicare has to make decisions on which procedures will be allowed, depending on age, cost, etc.

    The rich will get the best healthcare in the world, and meanwhile the deficit vultures will decide who lives or dies.

    Part of the nonsense is that destroying Medicare will make us better shoppers. Folks are already going bankrupt with the 20% co-pay for many Medicare services, and a sensible change would be to open up the program to younger people, and dictate what procedures are really worth.

    Another tv program examined why folks can get a hip replacement overseas (one of many similar examples) for a fifth the price here – and I’m talking about not just India, but high end places like Singapore. The reason for the ripoff here is a combination of factors – including the end of nonprofit, charity hospitals, and what could be considered collusion between providers.

    To pay $10,000 for one drug injection tells the whole story. It’s not the fault of an old lady not shopping; it’s greed rampant in the healthcare industry or by the financiers who invest in drug dealers, many hospitals and clinics. Huge education costs for doctors here is another factor, as it forces higher fees for repayment of student loans.

    Watching Walker is an exercise in regulating the urge to throw shoes at the TV.

    The only person who would hire such a wretched man is Petey Peterson’s grandfather. And for the record, I did see Petey on tv – Bravo channel’s salute to the very rich preppies in Manhattan. That was the show, where I almost cracked the LCD screen with a fast slipper.


    • jeff montanye says:

      u.s. citizens pay twice to three times what citizens of other advanced nations pay for health care while getting no better or arguably worse results. it’s not greed by the industry per se. as with too big to fail, it is regulatory capture led by our corrupt system of campaign finance. nearly pure and simple.


  7. Pat says:

    “Problems explained / Simplistic view”

    This rather brilliantly cuts thru all the political doublespeak we get.

    This puts it into a much better perspective .

    This shows how long daddy government can still fund the banks messed up behavior:

    * U.S. Tax revenue: $2,170,000,000,000
    * Fed budget: $3,820,000,000,000
    * New debt: $ 1,650,000,000,000
    * National debt: $14,271,000,000,000
    * Recent budget cuts: $ 38,500,000,000

    Let’s now remove 8 zeros and pretend it’s a household budget:

    * Annual family income: $21,700
    * Money the family spent: $38,200
    * New debt on the credit card: $16,500
    * Outstanding balance on the credit card: $142,710
    * Total budget cuts: $385″.

    Simple huh? But wait, there’s more! This uses the total debt figure of $14 Trillion (now over $15 Trillion) but in reality if you include the “off books” debt, the total is over $100 Trillion. So using this example above, the family making $21,700 per year has a credit card balance of roughly $1 Million! Of course the credit card’s interest rate is at the very low current “teaser rates” but what will happen to this family ( US, as in all of us!) when the teaser rates expire and are replaced with modest market rates of say…6 or even 7%? At 7% interest rates, a full one half of government tax revenues will go to paying off interest…and ONLY INTEREST!


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