How to Bankrupt a Country

What if you found that your personal income this year will be $55,000, but you will spend $100,000 — even though you had no prior savings? And what if next year’s picture looked similar, and the year after that, and so on?

If President Obama were your personal financial advisor, he’d say, “You’re on the path to prosperity.” However, he would add, with some urgency, “But we also need to keep in mind that it’s very important that you take whatever it is that you are overspending on the most, and spend more on it.” And, he’d tell you, it’s very important to do so right away: “Spending more is going to be a heavy lift. I think everybody understands that. But I’m also confident that we can get this done this year.”

At least, that’s the advice that the president is currently giving to the American people about U.S. federal spending, particularly federal spending on health care.

Only $55,000 of every $100,000 in federal spending this year is being paid for by federal revenues. Incredibly, the rest is being borrowed against the future. We are spending $4.0 trillion this year. Federal revenues make up just over half of that: $2.2 trillion. The other $1.8 trillion is deficit spending — borrowed against future tax-revenues, with interest.

Since 1970, federal spending has risen almost 50% as a percentage of our gross domestic product (GDP). During that same period, federal spending on Medicare and Medicaid has more than quadrupled versus GDP. In comparison, defense spending has dropped by more than half versus GDP. I am not making an argument for or against defense spending. I am merely stating a fact: Since 1970, spending on Medicare and Medicaid has risen eightfold versus defense spending and has tripled versus federal spending as a whole. It’s clear what’s driving the deficit bus.

President Obama’s own White House budget director, Peter Orszag, agrees. Orszag says that every other federal program’s impact on future deficits will be “swamped” by the effects of Medicare and Medicaid.

Enthusiasts of government-run health care like to try to explain away Medicare’s skyrocketing costs by noting that health-care costs are rising nationwide. They are – but not nearly as fast as Medicare’s. Since 1970, Medicare’s costs have risen more than 1/3 more, per patient, than the combined costs of all health care in America apart from Medicare and Medicaid — the vast majority of which is run by the private sector.

To make matters worse, Medicare’s soaring costs will soon be paid by a shrinking pool of people. With the baby boomers’ retirement, the number of workers per Medicare beneficiary will fall from today’s figure of nearly 4, to just 2 1/2. Far fewer people will pay far higher costs.

And yet the president’s advice to the American people is not to worry. The only thing we need to do is increase federal spending on health care. We need to launch a new government-run health-care program, a form of “Medicare for all” called a “public option.” If we do that, our federal spending will somehow be brought under control.

This has to be among the most mind-boggling pieces of advice ever given by any financial advisor or president. The United States government is running horrendous deficits. Medicare and Medicaid are driving those deficits. All we need to do to fix this is to launch another huge Medicare-like program. Can any reasonable mind follow this train of logic?

Just how bad are our deficits without adding a massive new federal health-care program? Current deficits look worse in actual dollars because of inflation. They also look bad in real (inflation-adjusted) dollars because, as GDP has risen, government spending has also risen. So let’s be kind and look at them in the most favorable light: as a percentage of GDP.

Even in that light, our deficits over the next several years will be higher than any of the earlier deficits run during the two Bush presidencies, which were not exactly eras of frugality and fiscal restraint. This year’s deficit is not only higher, but twice as high (12% of GDP versus 6% of GDP) as the highest deficit of the Reagan-era Cold War defense buildup (money well spent, but still spent). It is higher than any deficit since the Great Depression. And, incredibly, it is higher — even as a percentage of GDP — than any deficit we ran during the Great Depression itself!

Take 1933, when the Great Depression was at its worst and the GDP had dropped by almost half since 1929. Our GDP is now about 250 times higher than it was then. But our deficit is now about 400 times higher than it was then. I’m not talking about our cumulative debt, which today is staggering. I’m talking about a straight year-to-year comparison. In that comparison, our 2009 deficit is higher, even as a percentage of GDP, than our deficit was in 1933, amidst the full flurry of Franklin Delano Roosevelt’s New Deal spending at the height of the Great Depression.

To be running higher deficits than the worst deficits we have even run outside of fighting world wars or a civil war, higher even than during the Great Depression itself, is almost unfathomable. And yet it gets remarkably little publicity. Perhaps this is because both parties share the blame. Congress passed this budget under President Bush and increased it under President Obama. So neither party wants to draw attention to it.

But it demands attention, and now. We can’t control where we are, but we can control where we’re headed. Like an overextended private citizen who is spending way beyond his or her means, we can make a change, or compound our error. We can listen to President Obama’s financial advice, or let sanity and reason reign. We can acquiesce, or we can fight ObamaCare, viewing it as something that would do at least as much damage to our country as any idea we’ve heard in the last quarter-century.

Jeffrey H. Anderson was the senior speechwriter for the U.S. Department of Health and Human Services under Secretary Mike Leavitt. He was a professor of American government at the U.S. Air Force Academy, holds a Ph.D. from Claremont Graduate University, and is currently an independent writer.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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