Federal Budget Math: We Can’t Repeat the Past

June 22nd, 2011
in econ_news

Econintersect:  The Congressional Budget Office has gone on record stating "fiscal policy cannot be put on a sustainable path just by eliminating waste and inefficiency; instead, changes will need to significantly affect popular programs, people’s tax payments, or both.

The basis of this statement is that over the last 40 years:

Follow up:


  • Revenues have averaged about 18 percent of GDP, with substantial variation around that level but no trend.
  • Older Americans have received:

– Cash payments that have risen with average wages (through Social Security),
– Health insurance with a significant defined-benefit subsidy (through Medicare), and
– Additional subsidies for health insurance and subsidized longterm care (through Medicaid) for many of those with very high medical costs or little income and assets.

  • The costs of Social Security, Medicare, Medicaid, and the Children’s Health Insurance Program have risen substantially relative to GDP, from 4.3 percent in 1971 to 8.7 percent in 2007 (before the recession).
  • Defense spending has fallen substantially relative to GDP, from 7.3 percent in 1971 to 3.9 percent in 2007.
  • Outlays for all other federal programs have shown substantial variation relative to GDP and a slight downward trend.

In other words, the budget is growing because of social security, Medicare, Medicaid, and the Children's Health Insurance Program.  The rest of the USA budget is declining or flat in comparison to GDP.

The CBO concludes:

The question is not whether to change current policies, but when and in what ways.  There are trade-offs regarding the timing of implementing policy changes, but there are important benefits and few apparent costs to deciding about those changes soon.

source: CBO









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1 comment

  1. derryl says :

    In the same way that "bailing out Greece" really means giving money to the German and French bankers who hold otherwise defaulting Greek debt, "escalating health care expenditure" really means giving money to the medical/insurance industrial complex whose customers cannot afford the price of their services. And just as low interest rates and mortgage insurance enable real estate price inflation because at low rates buyers qualify for larger mortgages, health insurance enables medical price inflation because users qualify for more expensive treatments.

    I am not a rabidly antigovernment market fundamentalist, but in real estate and health care the existence of the aforementioned subsidies has been driving up prices far beyond what the unaided consumer would be able to support from his own income. The subsidies enrich the supply side while making real estate and health care vastly more expensive for the demand side. The subsidies drive up costs which makes the subsidies necessary in an unsustainable inflationary loop.

    The demand side is not paying directly; they pay indirectly as taxpayers when government pays for health care and bank bailouts. Removing subsidies from real estate and health care markets would drive down prices to the point where users could afford them and taxpayers wouldn't have to subsidize them.

    Alternately, because the current unsustainable prices in subsidized health care are unintended consequences of government policy, government has a responsibility to limit industry cost inflation in order to regulate supply prices.

    Conservatives delude themselves that HMOs are "free market" businesses. But as in virtually every other corporatized industry, firms religiously avoid competing on price. So while 'market competition' may improve the product (health care), it does nothing to control wildly escalating prices as cost growth (incomes paid to corporate managers and employees) is not constrained by competition for the finite sum consumer dollar.

    Real free markets drive down supplier prices as they improve quality because always constrained consumer income cannot support supply price inflation. Markets that are subsidized by government policy and taxpayer money are not "free" markets so the 'hands off our free markets' jargon is simply delusory.





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