The State of the Union Address Ignores the 800 Pound Gorilla in the Room: Old People.

Posted by PITHOCRATES - January 26th, 2011

Old People:  God Love them but they’re Killing Us

The State of the Union Address was very similar to the one last year.  And a lot of Obama’s campaign speeches.  He still wants to invest (i.e., spend).  Even though record spending to date hasn’t helped anything.  We have record debt.  And deficits.  The nation is broke.  And yet he still wants to spend.  I mean, ‘invest’.

But we can’t ‘invest’ anymore.  We don’t have the money.  We can’t borrow anymore.  Or print anymore.  Without creating problems we can’t walk away from.  We have to reduce the deficit.  For real.  Can’t just talk about it.  And we can’t keep raising taxes.  Because that would stall the economic recovery.  If there was any economic recovery to stall.  No, we can’t indulge in these fantasies anymore (see How Obama’s speech muddied the budget debate by Robert J. Samuelson posted 1/27/2011 on The Washington Post).

What we got were empty platitudes. We won’t be “buried under a mountain of debt,” Obama declared. Heck, we’re already buried. We will “win the future.” Not by deluding ourselves, we won’t. Americans think deficits are someone else’s problem that can be cured by taxing the rich (say liberals) or ending wasteful spending (conservatives). Obama indulged these fantasies.

If deficits stemmed mainly from the recession, this wouldn’t matter. They would shrink as the economy recovered; tax collections would rise and spending (on unemployment insurance, food stamps) would fall. Unfortunately, this isn’t the case. In fiscal 2010, the deficit – the gap between government spending and revenue – was $1.3 trillion. Of that, about $725 billion was a “structural” deficit, says Mark Zandi of Moody’s Analytics. That is, it would exist even if the economy were at full employment (5.75 percent by Zandi’s estimate).

Ouch.  Even Reagan’s tax cuts of the Eighties couldn’t fix this.  There’s a problem on the spending side.  A huge problem.  We have to address this problem.  If we don’t, nothing we do on the revenue side will amount to a hill of beans.

The real issue isn’t the deficit. It’s the exploding spending on the elderly – for Social Security, Medicare and Medicaid – which automatically expands the size of government. If we ended deficits with tax increases, we would simply exchange one problem (high deficits) for another (high taxes). Either would weaken the economy, and sharply higher taxes would represent an undesirable transfer to retirees from younger taxpayers.

And there it is.  Old people.  God love them but they’re killing us. 

So How do we Reduce the Deficit and Care for the Elderly?

Old people are killing us.  There’s no getting around that.  But we just can’t abandon them in their retirement.  But we have to do something with Social Security and Medicare before they bankrupt the country.

The first thing we need to do is the easiest thing.  Repeal Obamacare.  If we don’t, it’s just going to be Medicare writ large.  We haven’t suckered anyone into dependence yet.  So just end it.  Before we do.  This will eliminate a future problem.  So we can address the current ones.

Defined benefit pension plans are a thing of the past.  They’re chronically underfunded.  And mismanaged.  Just look at our biggest cities.  Those public sector pension plans are bankrupting them.  Meanwhile, most businesses have moved away from them.  Instead, they use 401(k) plans.  Or other plans where the employee is in charge.  Not the employer.  Best thing about these?  They’re portable.  You contribute.  And the money is yours.  No matter how long you work at a company.  The government needs to move in this direction.  They need to make a transition from a defined benefit pension plan (i.e., Social Security) to a personal retirement plan (i.e., a 401(k), an IRA, etc.).  The oldest people will be more in the Social Security system as we know it.  The younger people will be in a personal retirement plan.  And don’t start bitching about the risk of putting our retirement money into the stock market.  First of all, stocks are cyclical.  They usually climb after they fall.  Second, Social Security is going belly up.  Once it does, you ain’t getting anything out of it anyway.  So it’s a moot point.  At least with the stock market, we have a chance to retire.

The government has to get out of health care.  It’s a very complex thing.  And the most unqualified people shouldn’t run complex things.  Like pensions, we need to put people in charge of their health care.  We need to transition to private health insurance.  And remove the obstacles in the health insurance industry (restriction of competing across state lines, tort reform, etc.).  We have to move away from Medicare.  People need to buy their own private health insurance policies.  The oldest people in the system can get vouchers to help them.  The younger ones just need to learn NOW that they will have to take care of themselves.  The best thing about this?  Your health insurance will be portable.  You’ll never have to work again at a place you hate because of their health insurance benefit.  You can do whatever the hell you want to.  Because you will be paying for your own health insurance.  And you’ll take the same insurance with you no matter how many times you change your job.  Your days of bitching about a change in your prescription coverage will be over.  Because you will be getting exactly what you choose to buy.

Now, doing the above is going to cost.  Because there is no such thing as a Social Security trust fund.  Or Medicare insurance.  It’s all pay as you go.  Today’s taxes pay for today’s beneficiaries.  So when the young transfer out of the existing systems, there will be a huge funding shortfall for these systems.  We will have to borrow to cover this transition period.  But we will have to show that this borrowing is a temporary thing.  So that our creditors won’t fear that we’ll be dancing with default.  And how do we do that?  By making huge tax cuts. And by making sweeping rollbacks in regulation.  You make the United States so business friendly that jobs come running back to this country.  Because business owners will see that if you want to be profitable in business, you have to locate your business in the United States.  Sure, there will be some revenue shortfalls in the beginning of the transition.  But in the long run, the economic expansion will shower Washington in tax revenue.  Even at lower tax rates.  And because businesses are being so profitable, they’ll be bidding up labor rates to get the best employees.  Because they’ll have to.  You see, in a bustling economy with portable retirement and health insurance plans, no one will have to work where they don’t want to.  Everybody wins.  Employers.  Employees.  Even government.  Because they will finally escape the huge costs of Social Security and Medicare.

Getting back to the Founding Fathers

So there you have it.  A simple and doable plan.  In bullet form, the plan is:

  • Repeal Obamacare
  • Privatize Social Security
  • Privatize Medicare
  • Cut taxes and rollback regulation
  • Live happily ever after

Simple.  And the transition pains will hurt far less than bankruptcy.  Of course, there is a downside to this simple plan.  At least for Big Government liberals.  Because this plan gives us limited government.  Like the Founding Fathers wanted.  Which isn’t all that bad for liberals.  Because in this plan they’ll lose their jobs in a booming economy where there will be other jobs available for them.  Unlike being laid off when the Great Recession turns into another Great Depression.

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