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Friday, December 2, 2011

Here Is How To Balance The Budget And Reduce The Deficit

The U.S. Congress continues to act like a Ship of Fools!!  They selected a panel of members to produce a deal on the budget now, and the deficit long term.  And they utterly failed.  Absolutely failed!

And the great pity, and the really scary thing, is that the job was really very easy, if anyone cared enough to actually deal with reality and the facts.  Here are the four things that they could have done to erase the deficit this year and start paying down our huge debt.  And stopped borrowing FOUR dollars out of every TEN we spend.

ONEThere is no question that health care costs are the single biggest problem we have to face.  The actual amount is staggering, 16%-18%, depending on who is counting, of our GNP (Gross National Product, e.g., our total income).  That is roughly twice as much as any other developed country, and we get worse results than almost any other developed country.

The really troublesome aspect of health care costs is that they are growing 4%-6% annually.  That is faster than inflation and is on track to reach 30% in a few short years.  At 30%, the country would be basically bankrupt.

There are five major activities that must be started as soon as possible to get health care costs under control.

1)     The majority of health care costs are incurred at the end of life.  There have been four major, scientifically sound, studies on the problem.  They used different definitions, but all four can be summarized as, 60%-80% of all health care costs are incurred in the last two years, two months, two weeks of life.  What is amazing is how little it would cost to dramatically reduce this expenditure.  Paying for Living Wills, Do Not Resuscitate (DNR) orders, and consultations with patients while they are still healthy by doctors and counselors, about the choices available before the decision is required, will significantly reduce the expenses associated with the end of life.

The Wicked Witch of the North ran around screaming “Death Panels”
 three years ago.  That was, and is, complete nonsense.  The real Death Panels are those nameless, faceless clerks in health care companies who make life and death decisions about which procedures are to be  paid for and which will not be paid.

2)     Chronic diseases are the second major source of savings in health care costs.  While end of life expenses are self ending costs, chronic diseases can be very, very long term costs.  Diabetes is a perfect example of a life long disease that is very, very expensive to treat.

 One-third of all U.S. adults are over-weight and another one-third are clinically obese.  Well over half of all Americans are prime candidates for type II diabetes, heart failure and a host of other medical problems.  And the number of teenagers and children who are over weight, or obese, already is truly frightening.

          While the approach to the end of life costs are relatively simple and straight forward, dealing with chronic disease costs is horribly complicated.  The cause of over weight and obesity is pretty straight forward—over eating.  But changing the eating habits of 200 million Americans is a daunting task.  Over eating is primarily caused by the fact that a lot of stuff just plain tastes good.  The minute the government attempts to attack this problem, it will be going toe to toe with the fast food industry and all food processors, and all their campaign contributions.

 And then there is the question of the “nanny state”.  What role does the government have in the very personal actions of people in their own homes?  And fast food restaurants.

 But the fact remains that unless something is done to slow down, and then reverse it; the problem of over weight and obesity health care costs will continue to grow faster than the economy.  (See for some good news.)

3)     The next source of waste in health care costs involves the continued use of ineffective treatments and ineffective medicines.  This happens because there is no central clearing house for such information.
Peter Orsag, former director of the Congressional Budget Office, has worked for years to establish such a clearing house.  He estimates that the savings would be huge.

You can find out more about his work at and look at Health Care Reform there.

 In the meantime, keep this fact in mind. The identical procedure that costs $100,000 at the Mayo Clinic costs $200,000 at the UCLA  Medical Center.

4)     The typical operating margin of U.S. healthcare companies is 24% of the cost of doing business.  In all the developed countries with really good health care delivery systems operate with a 2% margin, which, incidentally is what it costs to administer Medicare.  The point is that there are huge, demonstrable savings in administrative costs.

      5) And there is a huge amount of graft and theft in the Medicare system that demands attention.  However, nobody much seems interested.

TWO:  The next big budget item is Social Security.  Here the solution is laughably simple.  Just remove the cap on earnings and let everyone pay the same percentage of their income no matter how large it is, and the “problem” goes away forever.  Use any assumptions you wish.  Use any math you like.  It doesn’t make any difference.  The “problem” goes away forever, period.  Bernie Sanders, Senator from New Hampshire and Robert Reich, former Secretary of Labor will tell you the same thing.

THREE:  Then there is the Defense Department budget.  It is huge and getting bigger.  Every time someone raises the question of the Pentagon’s budget, somebody else goes ballistic about security.  Well, the truth is that we have 1,200 overseas military bases (that we know about) that were built when the Soviet Union was the enemy, and we bought security by ringing the Soviet Union with bases.

The real enemy now is a guy with an American Express card and a halting command of English.  There is no way we get security by dropping a bomb on him.  There are enormous savings to be found in a complete re-thinking of the mission of the Defense Department.  But be prepared for what Dwight Eisenhower warned about, the Defense, Military, Congressional complex.  There are real dollars at stake here and the fight will be bloody.

The late Chalmers Johnson, formerly Professor at the University of California, San Diego, spent three decades warning about what the cost of maintaining those bases is for the U.S.  Read either of his books, Blowback or Nemesis, for a complete understanding of the waste involved, and most importantly, the unintended consequences.

And yes, someday we may have to play push back with China, but we have six complete carrier battle groups and 120 nuclear submarines.  How many is enough??

FOUR:  End all agricultural subsidies, period.  We transfer a huge amount of our money directly to the coffers of SIX huge agriculture companies.  The six companies are recording record profits from this exchange.  We need to end it immediately.

It particular, the corn subsidy for ethanol is simply ABSURD.  Not only does it reduce soybean acreage and thus raise the price of soy products, it also raises the price of blue corn meal in Mexico, a staple of peasant diets.  And the ultimate irony is that the more you blend ethanol into gasoline, the more you reduce the mileage the car gets.

And there you have it.  Four places that need serious budget cutting, and the way to go about it.

Let me know when you hear of someone in Congress talking about any of these ideas.

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