Friday, February 13, 2009

Preempting the Revolution

Update 2-16-09: Here is a link to a related article. Rather than do a new post, I'm just updating this post with the link.

Everybody knows that the US Government is going bankrupt. The only thing that has kept total insolvency at bay this long is the fact that foreigners are buying up an unbelievable volume of our government bonds.

But we could fix it.

Here is a simple plan.

Send a clear message to the American people, and to the rest of the world: Government isn't the solution to the problem. Government is the problem.

Entitlements, specifically medicaid, medicare, and social security retirement benefits will be dialed back (across the board) 4% per year for the next 25 years until they are zero percent of the federal budget. I'm not sure if I said this right. If the collective payouts for medicaid, medicare, and social security is $100, then the first year the payout would be reduced to $96, the following year reduced to $92 and so on. Across the board. So if your Grandpa is receiving $100 this year, the family is going to have to figure out how to come up with the $4 to fill in the gaps. If there is a government office that does back end administrative work for these programs. Administrative law judges who decide social security cases? Shrink shrink shrink. That office will receive 4% less funding next year. How are they supposed to get everything done? What if a medicaid provider currently gets paid $100 for an office visit? Next year the clinic will be able to charge the medicaid program $96 for the service. Market forces will adjust supply accordingly. There will be layoffs. There will be offices vacated and facilities sold to the private sector by the federal government. People will re-join the private sector.

Taxes currently used to fund these programs will be reduced by 1% per year and the 3% spread will be used to reduce our dependence on selling treasury bonds, and once revenue is in the black, will be used to buy back treasury bonds. What I mean by reducing the taxes by 1% per year is this. If the tax rate is 8% this year. Next year it will be reduced to 7.92%, and the following year it will be reduced to 7.84%.

You'll notice that the spending is being throttled back faster than the taxes. That's the way it should be done given the size of the deficits we've been running.

What about all the people currently counting on these benefits? The market signals need to be consistent. These benefits are going to shrink. If you need health care, or a place to live when you get older, it isn't the government responsible for providing the solution. Or it will still be part of the solution, but less and less and less for the next 25 years.

But why start with the entitlement programs? Ah! Exactly. We shouldn't just target medicaid, medicare, and social security. Everything should undergo scrutiny. We should target those things first though because they are the biggest approaching liability. The entitlement programs also go a long way to defining our relationship with government. That relationship needs to undergo a fundamental change. And eliminating entitlement programs will fix the current and all future budget crises. As long as it is dialed back slowly so people can adjust their lives, it's a hard decision that needs to be made.

What about the military? That's a huge part of the federal budget. I have some thoughts on this, but to be brief I think the military budget needs to be smaller than it is, more of a self funding thing, and mandatory for all males to be used as a vehicle to instill national pride, national strength, and national sacrifice. Maybe I'll write more about this in the future.

There are other huge chunks of the federal budget. They should be shrunk. All aspects of the government should be analyzed to see how we can bring in market forces to solve the problems government 'solves'.

There are lots of different sides to this debate. I don't always think market forces are the best way to solve the problems. But market forces usually are the best way, especially if checks and balances are in place to reduce opportunistic behavior and concentrations of power.

I'm about to press 'publish post'. And it makes me feel a bit vulnerable, because what I'm talking about is a pretty simplistic solution to the problem. I know its overly simplistic. If I were to go line by line and look at specifically what our entitlement budget goes toward, I probably would decide to keep spending some of that money on entitlement programs. On the other hand, it really is this simple. All it takes is leadership. We listen to the news, and talk about how tough times are ahead because the system is bankrupting itself. It doesn't have to be that way.

1 comment:

Andrew said...

Your plan is too good to actually be put into practice, because this isn't about solvency, it's about power.

The massive pork bill masquerading as an urgent stimulus package, won't take effect until 2010--just in time for the next elections.

This is about solidifying party power at the cost of our our children's economic futures. Otherwise, what you've proposed here would already be implemented.