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How to Bankrupt a Country

The first step: follow Obama's advice about federal spending on health care.

by
Jeffrey H. Anderson

Bio

June 12, 2009 - 12:00 am
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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.

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