Some of my Loyal Readers (hi, Mom and Dad!) have expressed interest in hearing my take on all the many ways in which our government and economy are dysfunctional, but they have been too respectful of my hectic life to really insist on it (thanks). Herewith, some observations and conjectures, most of which have probably been debated in greater factual detail elsewhere, and which reflect my views as of this point in time. Unlike politicians, I reserve the right to change my mind if the facts, or my understanding of them, change!
- Public finance operates on totally counter-intuitive principles. Responsible households and companies try to forecast what their revenues will look like and attempt to calibrate their expenses accordingly. Sometimes expenses will outpace revenues for short-term reasons (e.g., the car breaks down) or long-term reasons (e.g., Junior goes to college increase his lifetime earnings potential). In such cases, borrowing that is matched in tenor to the underlying reason, and for which there is a clear path to payback, may be advisable. But, ultimately, the “top line” should drive the thinking. Government, particularly in the last decade, evidently prefers to start with the level of expenditures it wants (i.e., generally, “more”) and then hope that the economy will grow enough to bring revenue into balance (and/or hope that it will be the other team that gets stuck with the task of raising revenues). This strikes me as profoundly silly and probably intractable.
- There should be more outrage that the government’s fall-back option is always to cut discretionary spending. I’d wager that some of the best rates of “return on investment” from government dollars come from spending under this rubric. I’m pretty comfortable asserting that, compared to some schmancy new weapons program, it would be significantly more beneficial to America, for example, to triple the budget of the FDA and the US Patent Office to eliminate bureaucratic bottlenecks to innovation and improve the capacity to monitor, say, safety and effectiveness in the one case, and true novelty to weed out patent trolling (a cost to the economy) in the other.
- There is a corollary to #2 that I’m going to put in as stark and non-PC terms as possible just to make the point. Instead of making investments that will increase America’s productive capacity (and future ability to generate revenue!) we are collectively committing the public purse to keeping old people alive as long as humanly possible. This is a choice that we always want to make for our own family, but which in aggregate constitutes an extremely unproductive way to allocate resources.
- Here is another corollary to #2, also framed as starkly as possible: this is basically the Boomers’ own fault (albeit indirectly). The tax revenues generated from their peak years of productivity should have given our government an amazing war chest with which to pay for their future care. Instead, they (and their parents) elected politicians who chose to pour this money into the wealth-destroying enterprises of war and lots of healthcare for their parents. Privately, many who could have saved during their peak earning years to fund healthcare in old age also failed to do so, because they generally, in aggregate, chose current consumption. Unfortunately, the consequences of these decisions (i.e., what’s happening now) are likely to fall in a regressive manner, when they could have been funded progressively (via taxes already assessed and spent).
- An interesting dynamic related to #3 is that the current cohort of retirees and near-retirees is exceptionally rich in benefits-terms, whatever their wealth looks like otherwise. Put another way, the government’s contingent liabilities to
MedicaidMedicare [thanks Alison 😉 ] are, by accounting logic, assets to individuals that may or may not be monetized. (When monetized, of course, the cash actually goes to healthcare providers – but the right to receive services is an asset of the individual.) I wonder whether, if you offered the average 70 year-old a choice between (a) MedicaidMedicare status quo and (b) a much more limited entitlement and $100k for their grandkids, lots of them wouldn’t take (b). Right now we give the elderly no incentive to consume less healthcare, even if they might derive significantly greater joy and happiness from other uses of the funds government was willing to spend on them anyway.
- I actually think my conclusion in #5 is the general case of what’s wrong with healthcare in America. It’s impossible to rein in costs when a large cohort of consumers (i.e., the well-insured) are price insensitive. In the abstract, everyone wants above-average healthcare at below-average cost. Paging Dr. Wobegon!
- Politicians like bashing the wealthy who have done extraordinarily well but apparently have not incurred their fair share of society’s burdens. This reasoning ignores the bug (or feature, depending on your persuasion) that we tax income, not wealth. Once a person has made her fortune, we can perhaps squeeze out more at the margins, but the wealth horse has basically left the barn. The estate tax should be the principal remedy for this. Progressives should be mortally ashamed that they’ve lost this debate by allowing it to be anchored around how many small business owners will be “punished for dying” because their estate is worth some middling number of millions of dollars. This is ludicrous. Set the cap at $50 million, or some arbitrary number that doesn’t have a ‘B’ in it. Confiscatory policies are un-American, yes. But so is the entrenchment of wealth and privilege that is the destination this freight train is heading to, anyway.
- I’m more inclined than ever to think that political parties are The Problem in terms of why government can’t seem to act in the national interest instead of in political interests (and they clearly doth protest too much to the contrary). I still don’t know how to fix this. Attacking the gerrymandering of Congressional districts seems absolutely like one good way to start, although I am not holding my breath that this will be a Congressional priority…
- And, by the way, there is a lot that is profoundly screwed up and not at all in our national interest about how we as a society use prisons. Besides the obvious dollar costs, I would love to see a thoughtful estimate of how much human capital we have essentially destroyed by imposing prison sentences for minor offenses, particularly those solely related to drug possession. This may seem like a random point to make here, but the connection is that I think cornerstones of our prison system represent a massive nationwide misallocation of resources that we just can’t afford.
- That all said, I actually think a reasonable proprtion of politicians understand all of the above, but just don’t have the courage or influence to do anything about them. I hope this dynamic will change, but I am not optimistic.
I’d welcome any comments on the above – as I pointed out, these views are evolving.