Pessimism v. Optimism

[kandrathe]

These last two years are wildly exceptional. Stimulus does not work without increasing spending or cutting taxes - that's what stimulus *is*. Current expenditures will not continue, and existing one-off tax cuts with expire. This is not "4 trillion and growing".

http://en.wikipedia.org/wiki/2010_United_S..._federal_budget While the current CBO forecast shows the deficit dropping below 1 trillion by 2014 (and then rising again through 2018), I'm pessimistic that the federal budget will ever drop below 3 trillion again, and certain it won't drop below 2 trillion (unless the Tea party folks get into power and dismantle the federal spending machine).

One note on *stimulus* -- what we had passed in Feb 2009 was not very stimulative. To be stimulus, the government spending would need to encourage business and consumers to spend their money. What it did do was to pay for a litany of wasteful future projects which would have very little economic benefit even if they were all done in 2009 or 2010. For example, the 9.3 million dollars given to Harvard University to build robotic bees. http://robobees.seas.harvard.edu/ The truth is that the government doesn't create jobs unless it is by growing government bureaucracy. So, if they wanted to create jobs in the private sector, they should pretend they are like an entrepreneur and act like a new venture business incubator. Let everyone who has a good idea for expanding or building a new business come forward to present their ideas, costs, and benefits, let rational people judge the feasibility, then award either grants or low interest loans for them. But, that can also be done in the private sector.

For that matter, it's not even 4 trillion - Wikipedia has 3.518 trillion for expenditures, and 2.105 trillion revenue, FY 2009. That's a 1.413 trillion gap, which is a hell of a lot of money, but it's not the 2 trillion plus you're talking about. (Projected 2010 is about a 1.2 trillion deficit. We'll count the chickens after they hatch, but 800 billion is a hell of a lot to go missing.)

Yes, it is! Parlor tricks in accounting, but yes, we shall see. There is always a shell game with social security money, and the other shady area is supplemental spending for the war(s). I was rounding to the nearest trillion, but I fear the deficits will be above 1 trillion and closer to 2 trillion. I'm pessimistic about revenue coming in on plan, although Congress has no shortage of items to spend that newly minted money upon.

Raising tax revenue by 250% would increase federal revenues to seven trillion dollars. Perhaps you mean 150%? Even then, that's totally unnecessary. Once the stimulus spending ramps down, taxes can be raised by a much more moderate amount. Just letting the Bush tax cuts expire would itself fix a very large portion of the medium-run budget problem.

If you think 150% would do it? I fear there is a point of diminishing return though, ala Laffer. The Bush tax cuts were highest for quintiles 3 and 4, so Obama would be breaking his pledge to not raise taxes on the middle classes. The poorest 20%(Q5) don't pay much tax, but they would actually pay 11% more as well. We talked about this a long time ago... here is the chart to which I refer. Overall, it is only about a 12% (maybe about 250 billion a year) increase which I don't believe is enough to shore up the runaway spending.

In the long run, you need to take a long, hard look at entitlement spending, for sure. But even that scary looming crisis is based on the idea of perpetually increasing health care costs, based on current levels and rates of growth. I would argue that current levels could be brought closer in line with OECD average expenditures with sensible reform, and that there is no reason this rate of cost increase must go on forever. Eventually, sharp diminishing returns from health care kick in. Surely it's not worth bankrupting the nation to give people an extra 15 minutes of life after age 110.

It's pretty easy to see why costs go up. Demand is constant or increasing, supply is limited and the funds to pay for the goods and services are freely available. There are always new innovations in treatments which require new equipment or drugs, which the makers can charge large prices for and get them. People demand goods and services they cannot afford, and the government takes the money from everyone to pay it. The checks on consumer behavior are removed.

If only there was some well-known, internationally tested method of reducing <strike>health care</strike> costs...

Ah, yes, government controlled economies.

If I recall from my fridge, tomatoes depreciate rather rapidly themselves. :lol:

True, but I can make more in my own garden. A veritable (vegetable) printing press for produce.

As for the savings idea, I'm all for the creation of tax-free savings accounts for socially beneficial things like education and health care. Sounds great. However, a 5000 dollar deductible would eliminate almost all of the beneficial effects of the program. The poorest would not end up with savings, but rather, in the hole, unless they got damn lucky. For those earning a median income, that's a deductible of 10% of their annual income. For those at the bottom, that might be as high as 30% of their income. Heaven help you if you have kids. Thus, this becomes a regressive tax - if everyone gets sick equally, the poorest pay exactly the same, not as a proportion of their income, but as an absolute amount. But, of course, the poor get sick more than the rich, not less.

Then housing, food, clothing, automobiles (which the poor all pay the same price as everyone else) are regressive. There are ways to bring compassion into the system, whether it be some government contribution or some other discount on the prices of goods and services. As for families, the $5000 deductible is the per family rate, and you might also set a $3000 rate per individual if you like. The other way you might make this more progressive would be to adjust the deductible based on family income.

The system would create a strong perverse incentive to never go see your doctor until you have something truly crippling, which, from a medical standpoint, is crazy. You could at least sort of solve the problem with a buffer system - say, the first 1000 dollars of medical costs are free, then the next "X" dollars are yours to pay (preferably fixed on an income formula), and then then everything over that sum (catastrophic costs) are free.

You have the account freely available to spend on health care related goods and services. If you are pitching in $100 - $200 a month, and then you have an annual health check (~ $120) then if you are like most people you'd just use the account to pay for it. This is untaxed money, and another benefit is that the account would pay for OTC drugs you'd not usually bother an insurance company about. So, vitamins, cold medicine, birth control, and allergy relief would get cheaper too.