The Ugly Reality On The Budget, Deficits And Debt Ceiling

As you folks all know I’ve been pounding the table for years about the fact that if we’re serious about addressing what’s wrong with our budget we must break the medical monopolies.

Indeed, there’s an entire sub-category of Tickers dedicated to Health Reform, which I started writing on when the entire Obama mess began and the discussion took off in earnest.

But lately I’ve been asked to look once again at exactly what sort of realistic budget cuts we could make, especially now that the “fiscal cliff” game has been “punted.”

Let’s remember something here folks — last calendar year’s deficit was $1,210 billion. That’s from 12/30/2011 to 12/31/2012, the last “working day” of each year, measured by the outstanding debt.

So here’s the problem in a nutshell.  Anyone can find $20 or $30 billion to cut in the budget.  That’s so trivial that it’s not funny.  $100 million here and $100 million there and you get there.  It’s not hard at all.

But it’s inconsequential, because if you cut $30 billion that’s only about 2.5% of the deficit.

Indeed, even $120 billion, or 10% of the deficit, is not enough to matter.  That would “count” as $1.2 trillion to the wonks in DC, but that’s a lie, for two reasons — there’s a new budget each year and you cannot bind the next Congress no matter what you pass, so only that which you do right now counts.

$120 billion is not enough to matter fiscally.  But this much is assured — if you try to cut $120 billion in real spending 5,000 lobbyists are going to descend on your office and make your life a living hell, no matter which party you are in.

And that, my friends, is for a symbolic change in spending that will do exactly nothing to solve the problem.

If we’re going to make a real difference we have to get to zero.  In fact we have to further and into surplus, but let’s just for a moment go with the IMF’s numbers (or the ECB’s and Eurozone’s in general), which are that a “roughly 3%” deficit is “sustainable.”  That is, let’s allow the government (for right now) tosteal the productivity improvements that you, I and everyone else make.

That, by the way, is why the IMF and Eurozone believe 3% is a “sustainable” deficit although they will never tell you that.

3% of $16 trillion (the size of our economy, roughly) is $480 billion.  To get there we must cut, this year, $720 billion from the budget.

You know those 5,000 angry lobbyists?  They’re at your door.

So let’s ignore them for a minute and ask the question — can we get there?

The answer is “Yes.”  But there is only one way to do it.

We must break the medical monopolies.

The Oklahoma Surgical Center shows us what happens when you break the cost shifting and monopoly game.

Costs come down by 80%, roughly.

Yes, 80%.

Last year we spent about $850 billion at the federal level on medical care.

What if we spent 80% less because we broke the monopolies?

We would spend $680 billion less.

Now can you find another $40 billion in the budget to cut between everything else

You bet you can.

So let’s ask the question:

If you’re going to take heat from the lobbyists and everyone else, why not actually solve the problem?

I’m not going to tell you this is some sort of panacea.  We’re talking about taking an actual $700 billion, more or less, out of the economy in the first year.  Right here, right now.  And when we do that there will be real economic consequences.  A real recession.  Real, but temporary, job loss.  A real realignment in the medical industry, and there will be lots of oxen gored.

But seniors will be mostly protected.  Those who are younger will be mostly protected.  Everyone’s costs will come way down, which means that (1) money will get spent elsewhere in the economy and in those other sectors jobs will be gained and (2) seniors and others will mostly be able to paycash for their needed care.

America will become much more internally and internationally competitive as well, as labor costs will dramatically decline.

There is no free lunch folks.  There is only the choice to either play “dog and pony” show once again, which will lead to downgrades and ultimately collapse of our economy, markets and possibly even our government, or we stop with the BS and do the right thing.

This is where the problem has come from.  It is irrefutable in the arithmetic — $53 billion for all medical spending combined by the Federal Government in 1980 to $850 billion this last year.

That’s where the problem is, and unwinding this mess is the only way to fix it.

I stand ready to help with doing the right thing.  I can help take a sharp pencil to this problem, as can many others, and I stand willing and able to do so.  But you, dear Congressperson, must be willing to take the slings and arrows, and those who are serious about this need to both press for it and be willing to sell it.

The Market-Ticker

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