Chickens Coming Home to Roost

Manweller—2/27/08

One of the problems democratic societies face is that our representatives are elected in two and four year cycles, but the problems we face require long-term solutions. Public Choice theorists call this “institutional myopia.” I predict this myopia will prevent either Senator Obama and Senator Clinton’s health care plans from being enacted (if either wins). Both Democratic candidates are promising some form of universal health care. Neither will be able to deliver, even if Democrats maintain majorities in both houses. It won’t be due to a lack of political will, it will be due to its fiscal impossibility.

According to the Congressional Budget Office (CBO), entitlement spending now makes up 45% of the budget, and it is growing. In 1966, Medicare and Medicaid made up 1% of the budget. Today it is 20%. Again, the CBO reports that spending on the “Big Three” (Medicaid, Medicare and Social Security) has been rising $50 billion a year. Without reforms it will start growing $100 billion a year. Health care analyst Brian M. Riedl argues that without some type of entitlement reform, by 2050, federal income taxes will have to increase 57% or we will have to eliminate every other federal program except The Big Three. Every single one.

Given these numbers, there is simply no room for another massive government entitlement program. That’s not an ideological argument. That is a mathematical argument.

The Clinton plan, which is the more draconian of the two, with mandates to everyone—citizens, insurance companies, and government is the most expensive. Liberal analyst Jonathan Gruber of M.I.T put the initial costs at $125 bill a year. Liberal columnist Paul Krugman agrees with those numbers. They both underestimate. Because the plan gives free insurance to people who don’t have insurance, it will create an incentive not buy insurance and get it free from the government. Over time, more people will join the government plan. Costs will go up. That’s not an ideological argument. That’s an economic fact. In the end we are looking at additional costs of about $1 trillion every four years.

Ironically, the fiscal gridlock that will prevent universal health care is partially of Obama and Clinton’s own making (I said partially—Bush’s spending habits didn’t help either). Back in 2005, President Bush tried to confront the growing costs of Social Security. By having the courage to put Social Security reform on the table, he put his reelection political capital on the line and in some ways, his entire second term. It was a gamble that failed because of myopic senators. Rather that show political leadership, both Senators Clinton and Obama attacked the plan, offered no alternatives or solutions of their own, and then demagogued the plan to death. This strategy helped their political careers but left the problem to fester for the next president.

Oops. They may be the next president. Their own institutional myopia may come home to roost. Won’t it be fitting if they can’t pass universal health care because they refused to face the serious problems of entitlements while they were sitting senators?

Some will counter that eliminating the Bush tax cuts or ending the war in Iraq will free up enough funds to pay for universal health care. Maybe in the short run. Not true in the long run. Remember the numbers above. Even if we eliminate the entire military budget, all education spending, and close down the E.P.A. we can’t pay for the “big three” by 2050. Even if we raise taxes 57% (ouch!) we sill only meet the minimum financial obligations for the “big three.”

The “moral” of this story is a frustrating one, especially if you are a political scientist. There are problems right in front of our face. We have known for years that Social Security is going broke. Everyone (on both sides of the aisle) ignored that problem for years. But in the end, representatives need to get elected “next year” and big problems don’t need to get fixed “for a few years.”