Tuesday, July 18, 2017

Sustainable Medicaid spending

Since the government is working on several different versions of a healthcare bill for the USA, it is not easy to know what will be legislated and how those changes will affect us. What we can know is that some folks will claim the sky will fall, and maybe it will. But since the sky has never fallen in my lifetime, I thought I would look backward in this post. This continues my wail about government addiction to debt. Lost in the preoccupation with the future is what happened to government spending and debt in the recent past. We don't really hate poor people. But we do have to think harder about how we accumulate debt. So here goes.

I got a little wild and crazy with the data. It makes me want to gulp JD and sing Blue Suede Shoes (Carl Perkins version). At the bottom of this post is one huge table with three parts.
     Part 1: Amounts for various categories of government budgeting in billions of dollars for the years 2006, 2011, 2016, 2021, and 2026. The data for 2021 and 2026 were given to me by Putin. Just kidding. They are estimates of the future based on past legislation. That is, if we do not change any legislation, that is what the Congressional Budget Office thinks will happen to spending in the future.
     Part 2: The changes, in billions of dollars, between those five-year time periods.
     Part 3: The percent changes between those time periods. The last two lines 06-16 and 16-26 summarize a comparison of 10 years past to 10 years in the future.

Let's start with the last column which shows federal government revenues. The government collected around $2.4 trillion in 2006. By 2016, it was raking in $3.3 trillion, an increase of about 36%. That seems reasonable. With no legislative changes, this would increase to almost $5 trillion in 2026 or 51% higher than in 2016.

I started with revenues because they are a benchmark for how much spending could grow without increasing the government debt. A 51% increase in the next 10 years seems reasonable. But then, if you are paying that 51% increase, you might want to argue about that. One thing we learn is that the rate of growth of federal taxes will be much higher (the rise from 36% to 51% is a 42% increase) in the future compared to the past. Don't say a word to me about austerity!

With that benchmark, we can now look at spending. Let's start with Medicaid.  Medicaid was a mere $181 billion in 2006, rising to $369 billion in 2016. So in the past 10 years, Medicaid spending rose by 104%. Review: Taxes rose by 36%; Medicaid by 104%. Medicaid will rise another 78% from 2016 to 2026. So whether we look backward or forward, Medicaid is one of the stars of government spending -- rising much faster than overall revenues.

If we want to be concerned about deficient government spending, look at the Income Security (Part of Mandatory Spending) and Discretionary changes. These components contain a lot of government programs*. After rising by 52% in the past 10 years, Income Security is projected to grow by only 21% in the next 10. Discretionary spending rose by 17% in the past and could rise by 24% in the future. Laggards!

Not to be prejudiced against Social Security and Medicare, you can see that those programs are doing their respective parts to bankrupt our country. After growing by 67%, SS will grow another 84%; Medicare will leap by 101% after growing by 84% previously.

The sad conclusion is this: As a centrist I support using the government to help people. But as a centrist, I also believe the best way to help people in a sustainable way is to not go bankrupt. These numbers help us see that we are on our way to trouble. These numbers do not incorporate any proposed increases in spending on military and infrastructure and do not incorporate any budgetary changes attendant to reforming healthcare or taxes.

These numbers suggest that Medicaid is among several key spending areas that must be addressed. It is not our national purpose to harm or kill the old and sick. But it is in our national interest to find ways to correct a problem in such a way that we can sustain programs that help the elderly, the sick and others. If ideologues scream murderer every time a program's growth is slowed -- then we will have to deal with a world in which none of the government works.

*Discretionary Spending includes spending on such items as education, scientific research, infrastructure, parks, environmental protection, some low-income assistance, public health and more.  

Table 

Social  Income  Discre- Rev-
Billions  Security Medicare Medicaid Security tionary enues
2006 544 377 181 2001017 2407
2011 725 560 275 404 1347 2303
2016 910 692 368 304 1185 3268
2021 1184 904 479 320 1306 4011
2026 1674 1390 655 369 1464 4948
Social  Income  Discre- Rev-
Change Security Medicare Medicaid Security tionary enues
6 to 11 181 183 94 204 330 -104
11 to 16 185 133 93 -100 -162 965
16 to 21 274 212 111 16 121 743
21 to 26 490 486 176 49 158 937
Percent Social  Income  Discre- Rev-
Change Security Medicare Medicaid Security tionary enues
6 to 11 33 49 52 102 32 -4
11 to 16 26 24 34 -25 -12 42
16 to 21 30 31 30 5 10 23
21 to 26 41 54 37 15 12 23
 6 to 16 67 84 104 52 17 36
16 to 26 84 101 78 21 24 51

Tuesday, July 11, 2017

US Leading in Government Deficits

Two weeks ago, I wrote a post about US national debt and deficits and concluded that past governments have put our country in a very tough place with few good options that could restore economic growth. Some friends wondered whether the US is alone is this distinction. So I found some IMF data to compare the US against other key countries.

The first line in the table below gives you US information. After averaging annual government deficits of 3.5% of GDP from 1999 to 2008, the deficit is now 4% in 2017. Thus the deficit is now worse. We had deficits in all 7 years since 2011 with the highest deficit in 2011 of 9.6%.

In all these categories, the US was worse than the EU and the other comparison countries. While all these countries are habitual debtors, Canada was slightly better since it had a surplus in one of those seven years. Germany had only two deficits in those seven years. Wunderbar!

When it comes to 2017, the US and Japan were tied with deficits of about 4% of GDP. Germany posted a surplus in that year of 0.6% of GDP. The UK, Canada, Italy, and the EU had deficits that were smaller (better) than 3% of GDP. The difference between 3% and 4% might seem small but remember we are taking these numbers as a percentage of GDP, which is $15 trillion in the USA. Also keep in mind that four is 33% higher (worse) than three. I next looked at a table with similar data for emerging markets and found that even this comparison is not good for the US. China, Russia, Mexico, Turkey and Romania among many others all had smaller (better) deficits than the US in 2017. Of course the US beat Brazil and Venezuela, Pakistan, and India. Way to go team!

The US stood out from the pack in having recorded the highest one-year budget deficit between 2011 and 2017. Japan came close with 9.1% and the UK's was 7.7%. The rest were virtually half or less than half of the US budget deficit.

Conclusion: the US tends to have larger deficits than other comparable world leaders -- both before the recession and after. We not only have larger persistent deficits but we also juice them higher when faced with a major recession. Apparently government deficits are our drug of choice.

I then found another table that compared the US to 39 other advanced nations. In 2017, there was not one single country with a budget deficit larger than the US deficit of 4% of GDP. There were 10 countries in 2017 that had surpluses: the Netherlands, Luxembourg, Latvia, South Korea, Macao, Iceland, Singapore, Hong Kong, Norway, and New Zealand. These countries typically have budget surpluses.

The US has a deficit problem whether we compare the numbers in dollars, in percent of GDP, in one year or over many. It is clear from looking at 40 major industrial countries that such behavior is neither typical nor desirable. We are hooked on the government spending drug. I think we need an AA meeting.

Budget Data for Selected Countries and Regions
Source: International Monetary Fund, World Economic Outlook, April 2017, Table A8.
Key:
2017: Budget position in 2017. Minus indicates deficit.
Fiscal Year 2017 ends September 30, 2017
99 to 08: the average budget position from 1999 to 2008
Change: Change from that average to 2017
# Defs 11 to17: How many deficits from 2011 to 2017
Highest 11 to 17: Highest annual deficit from 2011 to 2017
2017 99 to 08 Change # Defs Highest
11 to 17 11 to 17
US -4.0 -3.5 Worse 7 -9.6
EU -1.5 -2.0 Better 7 -4.2
Germany  0.6 -2.1 Better 2 -1.0
France -3.2 -2.6 Worse 7 -5.1
Italy -2.4 -2.9 Better 7 -3.7
Japan -4.0 -5.5 Better 7 -9.1
UK -2.8   -1.9 Worse 7 -7.7
Canada -2.4  1.1 Worse 6 -3.3

Tuesday, July 4, 2017

Happy July 4, 2017

When I was a kid my father used to lament that he could no longer get a Chinese meal for 25 cents. Born in 1915, he lived through the Great Depression and served in World War II. It was not easy for me to understand him because so much had changed in the 50 or so years between when he had been born and when I was a teenager. Now I am the old dude, and it dawned on me how much time has passed and how much "distance" there is between my world and that of my grandkids.

I think of that on the 4th of July 2017. Today I think of that distance as most of us seem to agree that our national problems couldn’t be worse. Most of us can’t even mention politics among family and friends for fear of starting a fight. But then it dawned on me that just like it shaped my father, time and experience have given me a perspective. I forget it most of the time but on the 4th of July, it is worth thinking about.

In elementary school, we practiced air raids by hiding under our desks in case the Soviets decided to attack us. At Ponce de Leon Junior High School in Miami, we held our collective breath as a Soviet ship carried missiles toward Cuba. Jackie Robinson had to stay in a different hotel from his white Dodgers team mates. Cassius Clay changed his name to Muhammad Ali and later spent time in prison for saying what he believed. Elvis changed from serious musician to Vegas entertainer, and Bob Dylan gave up his acoustic guitar for an electric one. I played little vinyl records on a phonograph at 45 speed, and our landline was a party-line with a human operator at one end whose name was not Alexa. I used to give my punch-card computer programs in a cardboard box to a guy called the computer operator who laughingly told me that the turn-around time would be 24 hours. Ya'll, come back tomorrow. 

The point? A lot of water has gone under the bridge. How can my grandchildren understand anything I say when I used to watch my mother hang clothes on something called a clothesline after scrubbing them on a washboard? But the truth is that on 7/4/17, much has not really changed. Today we have very challenging economic and social problems. We still find ourselves in a very scary world where our leaders cannot trust the bad guys to not make trouble. Technology both thrills and worries us. Driverless cars? Robots? Artificial intelligence? These and other innovations both fascinate and threaten. I recall one colleague telling me right after the Soviet Union fell that the future of the world would henceforth be peaceful. What was he smoking? Change is the only constant we will ever know, and any generation that thinks tranquility or the end of the world is right around the corner is fooling themselves.

The point? Lean back and take a big drag. This is as good as it gets. Appreciate the now for what it really is. Our current President doesn’t look or act like John F. Kennedy. But Kennedy almost got us all blown away playing chicken with Nikita Khrushchev, and he showed he wasn’t very adept when he messed up the Bay of Pigs invasion. Iran, North Korea, and China are threatening but we have lived through plenty of menacing situations, not to mention the the Vietnam War, Cuban Revolution, Korean War, WWII, WWI, and so on.

The economy is nothing to write home about today. But the ups and downs of the 1970s were no fun either. As we exited WWII, most people were pretty sure we would fall back into the Great Depression once the government spending stimulus for the war was retracted. While we are not now setting records for economic growth, we haven’t had a recession in almost nine years. I think we had two  recessions in every decade since the 1950s.

We worry about low inflation and interest rates. True, they have their negatives. But many of us remember rising inflation and mortgaging our first homes at double-digit interest rates. We didn’t have to take a finance course to understand the power of compound interest.

What’s the point today? The point is that we should give our family and friends a big high-five as we enjoy the birthday of America. Our land is not perfect and it is far from being safe and strong. But it has been worse before and it will probably be worse again in the future. There has never been a time when all was well and we didn’t have important things to threaten us. Our land is what it always has been – a work in progress in a dangerous world. And thus, we will always have to be aware, mindful, and ready to act to preserve what we have.

Combine that truth with the larger truth of our freedoms. We have freedom to express and share our views. We have freedom to fashion solutions for tomorrow. We have freedom to argue and to be right sometimes and wrong other times. Today let’s worry less about our troubles and disagreements and kiss the ground that gives us so much. Tomorrow let's get back to the work of making things better. 

Raise your cups of JD to the 4th!