Sunday, September 11, 2011

The US Government: An Insurance Conglomerate Protected by a Large, Standing Army?

Pictured Above: President Geico?

Although I rarely see eye to eye with  Ezra Klein, I was impressed with a recent article of his in the Washington Post. After analyzing the budget, he concluded that the federal government is increasingly becoming an insurance conglomerate protected by a large army. Federally administered insurance (Social Security, Medicare, Medicare, etc.) account for more than 40% of spending, military accounts for more than 20% and interest payments on the debt over 6%, leaving little more than a third for discretionary spending. And what's more troubling is that these very programs are projected to experience significant growth in the near future. Although his figures were a little off (see 2010 spending chart ), slightly understating social spending and overstating military spending, his analysis was sound. So, clearly both parties are engaging in budgetary kabuki when they claim that the budget can be balanced by cuts to discretionary spending without significantly reforming entitlements and reducing military spending. And while waste and fraud are certainly noxious, their elimination would have a negligible fiscal impact. Perhaps Mr. Klein's most insightful observation is that it's so difficult to curb the said programs because of their popularity. Any politician that dares discuss entitlement reform is accused of wanting the elderly to eat cat food. And anyone who seeks to scale back bloated military expenditures is accused of being unpatriotic and conspiring to hand the United States over to Al Qaeda. I say that if we are going to allow our federal government to become an insurance conglomerate with an army, we might as well make the Geico spokeslizard our next president. Surely he's a better choice than the other candidates!

The U.S. Government: An insurance conglomerate protected by a large, standing army

By Ezra Klein
Budget graphinsurance.png
American politics is one long argument about what government should or shouldn’t be doing, and how it should or shouldn’t be doing it. It’s rare that we step back, take in the larger picture and ask what it is doing. The release of the president’s proposed 2012 budget is a good time to do that. If you want to know what the federal government is really doing, just look where it’s spending our money.

Two of every five dollars goes to Social Security, Medicare or Medicaid, all of which provide some form of insurance. A bit more than a buck goes to the military. Then there’s a $1.50 or so for assorted other programs -- education, infrastructure, environmental protection, farm subsidies, etc. Some of that, like unemployment checks and food stamps, is also best understood insurance spending. And then there’s another 40 cents of debt repayment. Calvin Coolidge once said that the business of America is business. Well, the business of the American government is insurance. Literally. If you look at how the federal government spends our money, it’s an insurance conglomerate protected by a large, standing army.

But you wouldn’t know it to listen to the debate over the budget. When House Republicans talk about cutting spending and the Obama administration talks about freezing spending, neither group is talking about the vast expanse of the government’s commitments. They’re looking at a small corner of the budget, the 12.3 percent known as non-defense discretionary spending. The stuff that’s not Medicare, not Medicaid, not Social Security or the military. It’s the odds-and-ends, so to speak.

And it’s a bad place to focus cuts. Politicians don’t take the axe to non-defense discretionary spending because they think Teach for America or the food safety infrastructure -- both of which the Republicans are proposing to cut dramatically -- is more wasteful than the Pentagon or the health-care system. They do it because Teach for America and the food safety system is less politically powerful than the Pentagon or Medicare beneficiaries. The budget ends up like the yard of a man who owns only a lawnmower: The grass is trim, but the trees are overgrown and the ivy is everywhere and the gazebo is falling apart. Yet we keep mowing, because that’s what we feel able to do.

Cutting government spending is a grim and unpopular business, at least when you get specific about it. A Pew poll released last week asked Americans whether they’d like to increase or decrease spending in 13 areas. In all but two, Americans wanted to see spending go up, not down. And those two -- unemployment insurance and foreign aid -- are mere rounding errors in the budget. It’s like dieting by swearing off canapes: It’s something, but I wouldn’t rush out to buy smaller pants.
Politicians get this: Deficits are unpopular, and so are the specifics of deficit reduction. So they’ve developed a few ways to sound fiscally responsible without committing to anything politically damaging. The term “waste, fraud and abuse,” for instance. There is plenty of waste, fraud and abuse in the government, but there’s little agreement on what that waste, fraud and abuse is. Farm subsidies, for instance, don’t seem like waste to farmers. The defense budget looks tighter to hawks than it does to doves. Gov. Mitch Daniels was right when he told the crowd at CPAC that waste, fraud and abuse are worth little when it comes to cutting the deficit. Focusing on the three items “trivializes what needs to be done, and misleads our fellow citizens to believe that easy answers are available to us.”
Promising to freeze non-defense discretionary spending has also come into vogue. It has the dual advantages of sounding tough while remaining vague. But the single biggest chunk of that spending is on education -- and education, according to the Pew poll, is the part of the budget that Americans are least interested in cutting. As more specifics of these freezes emerge, and more of the people who depend on or favor these programs protest, we’ll see how they fare.
Either way, it’s time to admit that there’s little in the budget that’s truly unpopular. If it was unpopular, it either wouldn’t be there in the first place, or it would’ve been zeroed out when politicians went hunting for offsets to pay for programs that interested them more. Anything that’s survived Congress’s occasional spasms of fiscal responsibility and constant hunger for easy money has some sort of a constituency behind it.

And though cutting non-defense discretionary spending might buy us some time on the deficit,
we’re eventually going to have to do as legendary robber Willie Sutton did when he started hitting banks: We’ll have to go where the money is. That means our social insurance programs, and our military. Of this group, Social Security is in the best shape, and is by far the most efficient. It should be last on our list. Not, as it often seems to be, first.
The military remains largely untouched -- and that is true in the budgets released by both the Republicans and the Democrats. This is one case where politicians are lagging behind the public: In the Pew poll, military spending was the third-least popular category of spending, even though in Washington, it’s frequently considered politically unassailable. But perhaps we’ll see more action on this soon: A bipartisan group of legislators including Reps. Barney Frank (D-Mass.) and Ron Paul (R-Tex.) created the Sustainable Defense Task Force to look at ways to reduce our military spending, and the plan they developed could save us a trillion dollars over the next 10 years.
That said, it’s Medicare and Medicaid that pose the largest long-term threat to the budget. They’re big -- about 20 percent of the budget right now -- but the real problem is the speed with which they’re getting bigger. Left unchecked, they’re projected to double in size over the next 30 years. The health-reform law makes a start on curbing their growth, namely through experiments that encourage paying for quality rather than volume and the creation of an independent board able to imposecost-controlling reforms without getting tied up in Congress. But it’s just a start, and it’s under constant threat of being undone or rolled back. The reality is we need to go further and faster. We’re an insurance company now, and we can’t continue to dither when it comes to righting our core business.
By Ezra Klein  | February 14, 2011; 10:44 AM ET
Categories:  ArticlesBudget
Posted at 10:44 AM ET, 02/14/2011

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