Belmont Club

Zombies We Have Known

It was conceived by a dead man, sustained by phantasmic means; it will never come to life and yet it cannot ever be killed.  It is based on an unnatural supposition in order to benefit people who may never even use it. It is one of the centerpieces of the Obama administration’s health care program, something Washington insiders  are calling “the zombie in the budget”. The best thing is about is that despite the fact that it doesn’t exist it will produce $80 billion of “savings” in the next ten years.

The creature is called CLASS, the Community Living Assistance Services and Supports program.  The program was the brainchild of the late Senator Edward Kennedy, “who envisioned a voluntary, long-term care insurance plan sponsored by the government, without the overhead costs of private insurers, or the rigorous pre-screening they require”.  It was like getting something for nothing, but there  was only one problem. It required an endless supply of chumps to keep it going.

But a central design flaw dogged CLASS from the beginning. Unless large numbers of healthy people willingly sign up during their working years, soaring premiums driven by the needs of disabled beneficiaries would destabilize it, eventually requiring a taxpayer bailout. …

It’s a long-term care plan the Obama administration has put on hold, fearing it could go bust if actually implemented. Yet while the program exists on paper, monthly premiums the government may never collect count as reducing federal deficits.

There it remains; a program too caring for anyone to oppose, for beneficiaries that will never exist, running on a prospective basis that is too dangerous to implement and  producing savings that are entirely illusory. What could be better? The best part is that is completely unkillable.

Why? Government needs to keep up the pretense of phantom savings to prevent a worsening in the deficit. If you don’t count the money you’re really not saving, then you might actually have to save money to replace the money you only imagine that you are saving.

Don’t expect CLASS to go away easily. If the congressional supercommittee tackling the debt decides to recommend repeal, the panel would have to come up with about $80 billion in other cuts — possibly real and painful — to offset the hypothetical savings from CLASS.

But the solution to the problem should be easy. All the government needs to do is to print more money. Anyone who has met a man afraid of pink elephants knows it is only a matter of giving him an equally imaginary pink elephant gun to allay his fears. If you’ve ever met a man playing solitaire with invisible cards, why sit down and and offer to engage him in a game of imaginary blackjack. It works every time.

All Ben Bernanke needs to is start up the presses and they can create whatever savings they want. They will be as real as the one provided by CLASS. It really isn’t hard to be a superlative public policy wonk.  You just need imagination.

Back in 2008 I remarked that the financial crisis was really a crisis of information. There are two sets of interest: There is the set of real goods and services and a set of enumerators that is placed in correspondence with it. The first we may call the “real world”. The second is the financial world. It consists of money and financial instruments of all sorts.

Claims on things on the real world are calculated by manipulating the financial notation. We don’t actually cart real world things around. We send people financial instruments, whose operations are such that if everything cleared, all the objects in the real world including expected but (real) inflows from the future would be accounted for. Thus, if you spent all the financial instruments in the world they would clear against all the objects in the world. When the smoke cleared it would all even out: you would own what you were supposed to own and be able purchase what the money said you could purchase. All would be right on heaven and earth.

Except that now our set of enumerators is all screwy. The system won’t clear and the keepers of the books know it. If it were allowed to clear then the wrong entries would have to be written down, which means that people who are “rich” according to the enumeration will actually be very poor or even in debt. While it would make perfect sense to conform the financial world to the real world, such an adjustment would create political havoc. Too many important people would suddenly stop being important. That would cause a revolution and the keepers of the books know it. So to “fix” things, a background process is entrained to gradually re-equilibrate the system.

This is called deficit reduction and it is like pulling teeth. Every effort will be made to ensure that spending isn’t cut, borrowing is not limited and deficits are not increased. It’s impossible, but when your goal is not to rile up the powers that be, then don’t step on any toes. Keep the fiction going, and going, and going while the real adjustments go on just under the surface.

This “fix” consist of many little nips and tucks from here and there so that the ordinality of the system is preserved. In other words the ideal solution is to maintain the fiction until by means various it can be made into fact. Until the people who are supposed to be rich really are rich. And the people who should borrow can really borrow.

The problem is that always pits fiction against fact; the system will only be solvent in the future after the fix. And the fix is really a form of retail robbery, but as long as nobody notices …

For the present it is bankrupt should it be made to clear. What we are watching is the fancy footwork of the fictionalists trying to keep one step ahead of the facts. It is marvelous to behold, like the Thriller dancers in the video their caperings are antic. But how long can the bankrupt system keep covering up its tracks, keep kiting its checks, keep borrowing from part to pay off the other part?

That’s what we’re about to find out.

Storming the Castle at Amazon Kindle for $3.99

No Way In at Amazon Kindle $3.99, print $9.99

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