The NY Times is at it again. Their economic reporter Leonhardt writes about the US and its economy is akin to Greece. I lived in Greece, I ran a company in Greece, I speak Greek, and Mr. Leonhardt, the US is no Greece.
The NY Times in the copy on the photo in the Leonhardt article states:
In Greece and the United States, citizens expect the government to provide social services like Medicare.
That is, in my opinion, utter and complete nonsense in the US. It is in my opinion false and an outright distortion of the truth! Why? In the US we pay for an insurance plan, which frankly if we were to die we would never collect on, and the plan agrees to pay for Social Security and Medicare. We paid for that you folks at the Times, we do not get it free and we do not expect the Government to provide what we have already paid for! What utter nonsense! Frankly in my opinion that clap trap from the Times detracts from the words of Leonhardt!
Yet Mr Leonhardt has some very valid points which could be made clearer if not shrouded in the Greek metaphor.
Mr. Leonhardt states:
The numbers on our federal debt are becoming frighteningly familiar. The debt is projected to equal 140 percent of within two decades. Add in the budget troubles of state governments, and the true shortfall grows even larger. Greece’s debt, by comparison, equals about 115 percent of its G.D.P. today...We have not figured out the kind of government we want. We’re in favor of , , good schools, wide highways, a strong military — and low taxes. Dealing with this disconnect will be the central economic issue of the next decade, in Europe, Japan and this country...Seven percent of G.D.P. is about $1 trillion today. In concrete terms, Medicare’s entire budget is about $450 billion. The combined budgets of the Education, Energy, Homeland Security, Justice, Labor, State, Transportation and Veterans Affairs Departments are less than $600 billion.
The NY Times in the copy on the photo in the Leonhardt article states:
In Greece and the United States, citizens expect the government to provide social services like Medicare.
That is, in my opinion, utter and complete nonsense in the US. It is in my opinion false and an outright distortion of the truth! Why? In the US we pay for an insurance plan, which frankly if we were to die we would never collect on, and the plan agrees to pay for Social Security and Medicare. We paid for that you folks at the Times, we do not get it free and we do not expect the Government to provide what we have already paid for! What utter nonsense! Frankly in my opinion that clap trap from the Times detracts from the words of Leonhardt!
Yet Mr Leonhardt has some very valid points which could be made clearer if not shrouded in the Greek metaphor.
Mr. Leonhardt states:
The numbers on our federal debt are becoming frighteningly familiar. The debt is projected to equal 140 percent of within two decades. Add in the budget troubles of state governments, and the true shortfall grows even larger. Greece’s debt, by comparison, equals about 115 percent of its G.D.P. today...We have not figured out the kind of government we want. We’re in favor of , , good schools, wide highways, a strong military — and low taxes. Dealing with this disconnect will be the central economic issue of the next decade, in Europe, Japan and this country...Seven percent of G.D.P. is about $1 trillion today. In concrete terms, Medicare’s entire budget is about $450 billion. The combined budgets of the Education, Energy, Homeland Security, Justice, Labor, State, Transportation and Veterans Affairs Departments are less than $600 billion.
This is why fixing the budget through spending cuts alone, as Congressional Republicans say they favor, would be so hard. Representative Paul Ryan of Wisconsin has a plan for doing so, and it includes big cuts to Social Security and the end of Medicare for anyone now under 55 years old. Other Republicans have generally refused to endorse the Ryan plan. Until that changes or until the party becomes open to new taxes, its deficit strategy will remain unclear...Democrats have more of a strategy — raising taxes on the rich and using health reform to reduce the growth of Medicare spending — but it is not nearly sufficient...What would be? A plan that included a little bit of everything, and then some: say, raising the retirement age; reducing the huge deductions for mortgage interest and health insurance; closing corporate tax loopholes; cutting pensions of some public workers, as Republican governors favor; scrapping wasteful military and space projects; doing more to hold down Medicare spending growth.
Let's look at the data and then make a few suggestions.
First the revenue to the Government.
A major source of income to the Government comes from personal income and the taxes on it. The chart above shows what has happened to this source. It was growing very nicely and then the Banking fiasco hit. Should was assume it will be stuck in the mud forever or should we assume that wit proper Government hands off it will grown again. Given what we know now and the pressure and confusion from Washington we can but assume slow recovery. That is the problem. Unlike Greece the US pays taxes.
Yet we have to have income upon which to collect taxes. Income assumes jobs, jobs assumes a favorable economic environment and limited to zero Government intervention. Progressives have never created jobs, they redistribute what income there is but for the most parts the records of the progressives is that of job destruction.
The above shows the cause of the income drop, reduction in employees. There appears to be a glimmer of hope but we are well below five years ago in total employees and thus the large unemployment rate.
Yet if we look at retail sales they are growing faster than income and clearly faster than employees. Income is growing due to the lack of hiring and thus the increase in overtime. No one wants to hire and thus take on an added Government imposed burden. Yet the consumer seems to feel more comfortable to drive up retail sales. This in turn will drive demand and hopefully drive up employment, yet income will grow then more slowly.
Now to the real problem alleged by Leonhardt. I believe that this chart tells the tale. Remember we have seen a drop in income and thus receipts. Let us examine what this does for Medicare.
First we assume that 3% of gross personal income goes to Medicare. We will forget the fact that Congress stole all previous funds for the moment. Look back five years and we see a small gap in receipts and costs. Then we start to see the problem.
1. Costs of Medicare grow at a rate in excess of the rate of growth in income.
2. Unemployment dropped income and thus created a dramatic gap between receipts and costs thus exacerbating the problem.
3. If the economy recovers this gap may close somewhat but Medicare still has expanding costs.
Why? Because of several factors. One is that there are people on Medicare who should not be, and they should be removed. These are the hidden retired. Second, yes Medicare should be modified, namely the age should slowly rise to say 70 over the next fifteen years. Say six months per year. Secondly the Medicare tax should go to 4% from 3%. Thirdly, Medicare should focus on catastrophic care and "chronic" management and the recipients should have a larger out of pocket for regular care.
Thus Leonhadt states some correct conclusions but lacks the facts which should allow policy modifications. The real "now" problem is unemployment. The real "future" problem is cash flow and expanded entitlements. The first is a slight tax increase and the second is a careful recognition of our changing demographics.
As for the total debt, well frankly it is not Medicare nor Social Security. It is the expanding entitlements and costs resulting from the Government's gross negligence.
First the revenue to the Government.
A major source of income to the Government comes from personal income and the taxes on it. The chart above shows what has happened to this source. It was growing very nicely and then the Banking fiasco hit. Should was assume it will be stuck in the mud forever or should we assume that wit proper Government hands off it will grown again. Given what we know now and the pressure and confusion from Washington we can but assume slow recovery. That is the problem. Unlike Greece the US pays taxes.
Yet we have to have income upon which to collect taxes. Income assumes jobs, jobs assumes a favorable economic environment and limited to zero Government intervention. Progressives have never created jobs, they redistribute what income there is but for the most parts the records of the progressives is that of job destruction.
The above shows the cause of the income drop, reduction in employees. There appears to be a glimmer of hope but we are well below five years ago in total employees and thus the large unemployment rate.
Yet if we look at retail sales they are growing faster than income and clearly faster than employees. Income is growing due to the lack of hiring and thus the increase in overtime. No one wants to hire and thus take on an added Government imposed burden. Yet the consumer seems to feel more comfortable to drive up retail sales. This in turn will drive demand and hopefully drive up employment, yet income will grow then more slowly.
Now to the real problem alleged by Leonhardt. I believe that this chart tells the tale. Remember we have seen a drop in income and thus receipts. Let us examine what this does for Medicare.
First we assume that 3% of gross personal income goes to Medicare. We will forget the fact that Congress stole all previous funds for the moment. Look back five years and we see a small gap in receipts and costs. Then we start to see the problem.
1. Costs of Medicare grow at a rate in excess of the rate of growth in income.
2. Unemployment dropped income and thus created a dramatic gap between receipts and costs thus exacerbating the problem.
3. If the economy recovers this gap may close somewhat but Medicare still has expanding costs.
Why? Because of several factors. One is that there are people on Medicare who should not be, and they should be removed. These are the hidden retired. Second, yes Medicare should be modified, namely the age should slowly rise to say 70 over the next fifteen years. Say six months per year. Secondly the Medicare tax should go to 4% from 3%. Thirdly, Medicare should focus on catastrophic care and "chronic" management and the recipients should have a larger out of pocket for regular care.
Thus Leonhadt states some correct conclusions but lacks the facts which should allow policy modifications. The real "now" problem is unemployment. The real "future" problem is cash flow and expanded entitlements. The first is a slight tax increase and the second is a careful recognition of our changing demographics.
As for the total debt, well frankly it is not Medicare nor Social Security. It is the expanding entitlements and costs resulting from the Government's gross negligence.
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