Hats off to economists Steve H. Hanke and Stephen J.K. Walters for a brilliant op-ed in the Wall Street Journal on the true cost of “free” government programs.
Lying Prices Keep America Hooked on Spendingby Hanke and Walters
This is written in guest post format, but it is an excerpt.
When politicians hide the cost of government, ‘free college’ and ‘Medicare for all’ sound like bargains.
For many politicians, lying prices are actually a goal. Policies that set dishonest prices or fudge budgets can fuel the growth of government and lure voters leftward. Sen. Bernie Sanders and his socialist followers use such sleight of hand to obscure the vast costs of proposals for “free college” and “Medicare for all.”
Recent history demonstrates that the price of each new government program rarely tells the whole story. In the past decade taxpayers were charged $27.2 trillion for federal services that cost $35.6 trillion, adding more than $9 trillion to the national debt. Our tax bills told us that Uncle Sam’s good works were about 26% cheaper than their real cost.
And Sam’s nose is growing thanks to rising deficit projections and the unfunded future costs of entitlements like Social Security and Medicare. Official projections put the present value of these two unfunded liabilities at $50 trillion over the next 75 years. Boston University economist Laurence Kotlikoff calculates that the total U.S. fiscal gap is more than four times that amount and that closing it would require a tax hike of more than 60%.
It is foolish to hope that the Democratic Party will join in reversing this trend any time soon. As it has moved left, it has embraced ever more deceptive prices for reforms to government services, labor (Fight for $15!), health care, higher ed, housing and much else.
This is a cynical strategy, and it creates a dangerous political feedback loop. First, progressive thinking leads to bigger, debt-financed government. But debt-financed government, and the lying prices it embodies, also can lead to more progressive thinking. Absent honest signals about government’s full costs, more voters are likely to shrug and assume it’s a good buy.
The late economist William Niskanen documented the relationship between deficits and spending, showing that attempts to “starve the beast” of big government via tax cuts don’t work: As tax receipts decrease, spending rises. In his words, “a tolerance for deficits leads to increased government spending.” Polls confirm this trend. Since 2011 the proportion of voters who worry “a great deal” about federal spending and deficits has fallen from 64% to 51%, while the national debt has risen 45%.
Before such tolerance for debt and a concomitant fondness for “freebies” afflicts a majority of the electorate, it would be wise for the party of Lincoln to seize the political, fiscal and moral high ground, steer clear of lying prices, and rebrand: Goodbye, Grand Old Party, and hello “Honest Abe Party.” Attempting to out-lie the Democrats is, in the long run, unlikely to be successful politically, and certain to be disastrous economically.
Steve H. Hanke and Stephen J.K. Walters
Mr. Hanke is a professor of applied economics at the Johns Hopkins University. Mr. Walters is a professor of economics at Loyola University Maryland.
Mish Comments – Easy to Believe Lies
Socialists spout too good to be true nonsense. People believe economic nonsense for one simple reason: It is precisely what they want to believe.
The ideas get loonier and loonier. For example, ponder the Green New Deal by newly elected progressive illiterate Alexandria Ocasio-Cortez.
The radical plan would force families to pay more to heat, cool and provide electricity to their homes. It would raise the same costs for businesses, farmers, government and organizations, driving up their operating costs – and raising the prices for just about all the good and services Americans buy.
Under the Green New Deal, Americans would have to power their homes with renewable energy, such as wind and solar power. Every home and business in the United States would have to be “upgraded” for “state-of-the-art energy efficiency, comfort and safety.” And a slew of massive government social programs and mandates would be created.
Although no one knows exactly how much the Green New Deal would cost, a very conservative estimate is $40 trillion in its first 10 to 15 years. The Mercatus Center estimates the single-payer health-care proposal supported by Ocasio-Cortez would, on its own, cost more than $32 trillion.
Ocasio-Cortez has suggested one way to pay for these gigantic government programs would be to increase the income tax rate for America’s wealthiest earners as high as 70 percent, but even that radical move would fail to fund the Green New Deal.
Estimate vs Reality
The cost estimate to “save the planet” is $1 trillion. The reality is something like $40 trillion. Yet the Green New Deal has garnered significant attention and support from some members of the media, Congress, and even prominent senators considering 2020 presidential runs: Cory Booker, D-N.J.; Bernie Sanders, I-Vt.; and Elizabeth Warren, D-Mass.
This is precisely the kind of too good to be true nonsense that people want to believe. The message is powerful. We need to “save the planet”.
The idea is so absurd that even Pelosi can’t stand it. She put it on the back burner. But there is really only one reason Pelosi did so.
The plan is so idiotic that any Democrat running for president on that platform would lose.
Mike “Mish” Shedlock
I’m all for free college as long as it’s Single-Payer. If professors at Harvard and the rest of the private colleges think the .gov is paying 50K+ per student then they are beyond delusional. The cutbacks , the pay-cuts and the eventual deferred maintenance on their neatly manicured campuses just may be worth Single-Payer college.
I’m not deluded about anything. End the wars, corporate subsidies, and DEA and slash the CIA’s budget down to 1/50 of it’s current level and slightly bump up the top marginal rate and we will have a surplus, Medicare 4 All or not.
You buying your drugs in Fall River? Do the math before you spout such crap.
I got my figures from the libertarian Koch funded Mercatus Institute. Where do you get YOUR information from?
Like many people, I was under the impression that Medicare was free and that after the age of 65 at least the burden of healthcare payments would be lifted from my shoulders. The dirty little secret is that for most people only part A is free and it will only suffice or be enough if you are poor or willing to become poor if you become ill and run up massive healthcare cost.
For people with savings they wish to protect the cost of healthcare will remain an issue. The complex Medicare system is something most of us know little about and try not to think about until we must. Below are a few things it is important to know, and they may shock you.
There is a reason why financial types like Harry Dent and John Mauldin are relocating permanently to Puerto Rico. 4% income tax and no capital gains tax. Some hedge funds are also going. What will happen will be straight out of Ayn Rand when the beast gets starved by the top 1%. We have to get to 2030 according to John Mauldin but it won’t be pretty.
Harry Dent is truly a miracle. Man is ALWAYS wrong but still makes money selling books publishing idiotic advice.
It baffles me as well. I worked for many years selling risk management solutions to the Sell Side around the world and got to know some of the top risk experts. They differed in many things, but they had two observations in common:
How do you know statisticians have a sense of humor? They use decimal points.
Nobody knows nothing, especially about the future
These prognosticators are purely for entertainment, and should not be taken seriously. This is what drew me to Mish’s column in the first place – he examines the current reality and talks about possibilities, not predictions, for the most part.
Mauldin is a flake.
Lumping medicare and social security together in the category “entitlement spending” is a sure sign of the BAD FAITH IDEALOGUE. Social security, minus disability benefits, it not doing that bad, particularly after a decade of no interest income. The real problem is all in the absurd medical/pharma racketeering scheme which has an exemption to all sorts of laws (the kind protecting you when you get your car fixed — same price for same job — same price for different people — prices published in advance — anti-trust — anti-racketerring statues — etc etc etc.)
Actually there are TWO Supreme Court decisions saying they have NO exemption.
US just has 50 State attorney generals who are not doing their jobs and Jeff Sessions was also NOT doing his job as Attorney General regarding the medical and hospital industry.
They could be prosecuted TOMORROW and medical and hospital executives could be put into prison for doing what they are doing.
You are correct about social security. Social Security is not broke and will not be broke since the Social Security percentage taken from wages and the previous savings are enough to fund Social security.
The problem is in Medicare/Medicaid, that is massively underfunded and Federal Government just takes more debt and pays the difference.
Either all wages should have 15% deducted for Medicare/Medicaid or state attorney generals and US attorney general have to start prosecuting medical executives and hospital executives and after a few have gotten 10-20 year sentences the game playing and restraint of trade will stop and costs will drop 60%-80%.
Green New Deal
Was just reading about all the tons waste that will be produced by solar panels when they have to be disposed at the end of their useful life, apparently at best, 3 decades. Also about cadmium and lead that can leach out of the panels during their use. Read about a UK study of 3,000 wind mills which discovered they aren’t lasting near as long as expected, 12-15 years instead of 20-25. Shorter recycle time will result in higher electricity cost.
According to the left, there’s never enough money spent on education.
Where I live, they recently released a report giving every school in the state a grade from 1 to 5. 1 is the worst. 5 the best. I looked at the schools in my county and there’s an almost perfect correlation between the score and the pct of students who are white or asian. Schools with many whites and asians scored the highest. Schools with many black and hispanics scored the lowest. Also, the schools with many white and asian kids had far lower truancy rates. The local democratic government solution is to spend more on the poorer performing schools. A far cheaper solution, IMO, is to increase the number of white and asian kids in those schools.
You can spend all you want on education, but if the kids don’t attend school, don’t pay attention, don’t study, and don’t do homework, it won’t accomplish anything,
Everyone should read this:
After reading it please spread it around.
I could quibble over a couple of points, but this is such a great start that I would support it unconditionally. Though I do think that the power of AMA, AHA, and insurance company bribes and corruption has to be fixed first.
Large part of the high cost of healthcare is caused by Hospitals having to provide free care to illegal immigrants and this causes hospitals to charge Americans more so Americans needing a hospital pay for their own care and for illegal immigrants care.
This in turn causes higher health insurance costs.
Also there is massive problem in that hospitals are NOT required to bill same amounts for same services so one having insurance from a certain insurance provider pays less than a person without insurance or a person with anther insurance company.
Hospitals should be required to post prices for all services AND charge same price for same service no matter how it is paid.
Also competition should be increased so Hospitals should be FORBIDDEN to purchase nearby doctors offices and hospitals should be required to NOT differentiate between giving access to the hospital for patients coming from private doctors and doctors working for a doctors office owned by the hospital.
Furthermore government should get out of the way and allow free competition in tests so if a hospital charges 800 dollars for some tests an independent test company should be allowed to setup nextdoor and do the tests for 200 dollars.
“Large part of the high cost of healthcare is caused by Hospitals having to provide free care to illegal immigrants”
Any danger of a link to support this claim?
Hospitals have to treat illegal immigrants for 0 dollars when they show up.
There are 29.5 million illegals in USA according to MIT-Yale study reported by Bloomberg.
I repeat, can you show a link that justifies the claim that a “Large part of the high cost of healthcare is caused by Hospitals having to provide free care to illegal immigrants”?
By the same logic, the number of uninsured in the U.S. is over 30 million – and they are in the same position as the illegal immigrants, however they are probably less worried about going into a hospital and showing their identification. Thus they are an even larger burden on hospitals (i.e. more of them, more likely to use hospitals as primary care). If your concern is the impact on healthcare costs, you should be supporting Obamacare to help mitigate those costs and pissed that Trump let the skivers off with paying nothing now.
Here are some numbers to help you:
Total cost of H/C in the U.S: $3.9T
Cost of uninsured hospital visits: $0.06T (includes Americans as well as illegal immigrants)
Explain to me how a fraction of $0.06T is a large part of $3.9T?
Check out the story about how Parkland Hospital (Dallas) went broke over runups in unpaid OB deliveries. That happened before long before liberalized hospital legislation and Obunga Care.
That would be great greg, but since you didn’t post a link I had to do my own research. Parkland Hospital is doing fine – here is their current financial summary:
“At Parkland, we take our role as good stewards of the public’s money very seriously. We are one of the most financially stable public hospital systems in the country. And we work every day to find the best way to balance our financial responsibilities with our mission of quality patient care.
Parkland’s mission is to help Dallas residents who have nowhere else to go for healthcare. In fiscal year 2017, Parkland provided $879.7 million in uncompensated care. But only one-third of our total revenue came from property taxes in fiscal year 2017.”
Source (you really should try linking to real facts, it helps your credibility):
So if I am reading it right, we are providing ‘free’ care (to the tune of $880m) in one hospital in one city alone. Now add up all hospitals in all cities and tell me if it is over $100b. How is this okay when the costs are shifted to the insured and self-pay?
I’m not saying it is good that we have to provide healthcare for people who otherwise couldn’t afford it – personally I’m all for a European style system (there are several models and one would probably be a good starting template for the U.S.). However the claim was that illegal immigrants were a “large part” of the reason we have high healthcare costs in the U.S., implying that healthcare costs were overcharged to cover the losses from uninsured illegal immigrants. I’m proving this isn’t the case.
If you follow the thread (this message structure does not allow nested threads) I was replying to the claim that Parkland Hospital had gone bankrupt, which it may have done in the past, but the poster didn’t provide any links, so I posted their current status.
Extrapolating the $800M from one hospital to $100B is not a very good way to guess how much uninsured patients cost the U.S. healthcare system, a better way is to do a bit of research as I did to provide the $60B number I posted earlier. Here is a link to 2013 numbers:
We can start to fund better healthcare for all by cutting the offense (it’s not a defense) budget by 60% for starters.
Mish is correct when he rails against public unions. How can you expect reasonable results when you have a negotiation between, on one side of the table, a Federal Employee representing Government, and on the other side of the table, a Union representative representing Federal Employees? The result has been excessive pay and pensions, and work rules that make it impossible to fire people, even if they choose not to do any work at all. The amount of inefficiency that results is far greater than the entire defense budget.
My second suggestion would be to do what Carter tried to do in the 1970’s, institute zero-base budgeting. Rather than say “OK, last year your department got $1m, and there is 2% inflation, so this year, you start with $1.02m, and if you want more than that, you’ll have to justify it”, I propose saying “Your budget last year was $1m. So what? Justify why you should get any budget at all this year”.
Socialism has been buying votes since its inception way back in ye olde England. The only way the left could get into power then was to rally the lower classes to demand the right to vote. Enter full suffrage and socialism finally won its first election. Add freebies, propagandize the righteousness of humanitarianism or liberalism to the new democracy and you can stay in government for decades. Inevitably the political right has been forced to succumb to the same idiot free-money policies in order to convince the majority uneducated masses to keep voting for it. Why is anyone surprised that the national government debt is where it is and getting worse… Democracy as it is practiced globally has become a farce; a popularity contest where votes simply follow the best bullshit wrapped in the prettiest bow. Perhaps it’s time to change the constitution and qualify voters.
Yes, i remember when all the other advanced capitalist countries started providing universal healthcare and education at all levels. Then their per capita GDPs started surpassing the US, their bankruptcies due to college loans and medical bills disappeared, and the citizens were happier. Not to mention healthier and more highly unionized. Boss dont want workers like that, want ‘em dumb, weak, and scared.
Venezuela is a great place to live.
You don’t go bankrupt from college loans if fewer people go to college (as happens in “free” college countries), or you die while waiting in line for treatment (the primary “achievement” of socialized medicine).
In government pays for healthcare countries there are waiting lists for hospital operations and many die while on the waiting list especially if they are older since younger people are put higher on the waiting list even if they were diagnosed later.
Many old people do not even make it to a waiting list since for them the risks of operation are deemed too high by the doctor (and saving money is encouraged by the hospital system) so they get just pain medicine and slowly die.
Rich people can avoid this and have the operation in the private hospitals that are there to serve the rich so they can avoid the waiting lists.
Usually the best public hospital surgeons also operate in the private hospitals on their days off from the public hospitals.
As@TechDude says, the “free college” in advanced countries is for a select few….and they sure as hell dont give it to people in the country ILLEGALLY!
Free College is Free only for the smartest students since there is a limited number of places to study since government pays for the studies so average people do not go to college but they are given vocational training to get a profession.
France is proving you wrong.
Which “advanced capitalist countries” with a higher per capita GDP are you talking about? Do any of them have a population of over 10 million? Germany, France, Italy, UK, Spain, Belgium, Netherlands, and Canada, to name a few, aren’t even particularly close to the US in per capita GDP.
Public universities were essentially free, or at least very affordable, from the 1960s through the1980s. Is it impossible to return to anything resembling that model now?
I would say, yes, it is. In my opinion, things turned when they changed the law to prevent student loans from being cancelled via bankruptcy. The expected result was a boom in student lending, which happened. The unexpected result was that, with students able to get easy loans, there was no restriction on Universities’ ability to raise tuition. The result was a boom in building, wages, pensions, and other expenses. You can’t easily undo all of that, so Universities now have much higher cost structures, and likely will going forward.
In addition, in those days funding the state University was a major state commitment. These days a huge chunk of the budget goes to pay for medicaid expansion, and states, which often having balanced budgets written into their constitutions, have to take the money from somewhere else to pay for it.
University and health care + many other social benefits are free in Denmark. They are also one of the happiest countries int he world. Let’s copy what they are doing.
Yep, and they have a population of 5.7 million which is half the size of the city of Los Angeles… They also dont give those services to people in the country ILLEGALLY…
Nothing seems to shake these politicians from their destructive behavior. Maybe the ancient Irish had the right idea… Lol Maybe we should give it a try: ” The Iron Age King was responsible for the ongoing success of his people, for ensuring the land remained fertile, for the health of livestock and productivity of crops. If any of this failed, he was held responsible for that too and sacrificed to the Gods in return for better fortune. Old Croghan man, for example, had holes cut through his upper arms through which ropes were inserted to restrain him, after which he was repeatedly stabbed, had his nipples sliced off, and was then cut in half. Clonycavan man was disemboweled, bopped over the head three times with an ax, once across his body, and then had his nipples removed too. Call me cynical, but these gory stories have the makings of attention-grabbing headlines, and sensational, punter-pulling content.
Agree completely. It was common to hold leaders responsible for the good and the bad. Since the seventies, leaders as well as all levels of management, are being paid for the responsibility they carry, but the main quality all these people have is to evade responsibility for everything they bring about. As Max Keizer said, don’t recapitalize the banks, decapitate the bankers.
That is a bit too harsh.
They should be just stripped out of all of their assets when they do stupid things and if they do something criminal they should be put into prison for 10-20 years as an example for the next generation of bankers on what to avoid.
One key point that no one ever discussed is that since 1960 the tax code has been re-written many times, with various different tax rates, ranging from a top rate of 90% or so in 1960 to today’s current rates. Tax codes have been written and re-written by Democrats, and by Republicans. Remarkably, through all these various iterations of tax code, and all these various tax rates, one thing has remained constant. Year after year, decade after decade, tax receipts always come in at about 18% of GDP. Oh, there are times here and there when receipts pop over 20%, as during the heyday of the internet bubble, when people are paying excessive taxes due to capital gains, but they always drop back to 18%.
Now, if tax receipts run 18% of GDP, and spending runs 25% of GDP, do you have a taxing problem, or a spending problem?
Stop taking sense here. You’re supposed to be complaining about the liberals!
The debt will never be repaid… we’ve borrowed 3 generations into the future. I don’t think it matters much at this point. Better to give our kids free stuff than building a never-finished monument to stupidity and fear in the desert.
Replacing existing energy capacity with wind or solar is only expensive because the sunk costs of gas powered plants has already been paid. When considering adding capacity, a new energy generation source, wind and solar are pretty much on par with any other source.
You simply cannot “replace” the old-style energy generation capacity, unless you want to live with constant blackouts.
“You simply cannot “replace” the old-style energy generation capacity, unless you want to live with constant blackouts.”
I made this exact argument when discussing this with my wife a few days ago. Current “green” sources of energy do not have the capacity to replace petroleum energy.
Solar doesn’t work at night and the wind doesn’t always blow,,,
You have to have fully manned operational hydrocarbon plants on line 24hrs a day to pick up the load…
We have a generation of people who don’t think. SAD!
Solar only works when the sun shines. Energy on the grid is not “stored” when there’s low demand, it’s sold at a lower price. And batteries to “store” the energy have unique environmental and cost problems of their own; having to replace a $40K battery every decade in every home or condo would be a massive financial, logistical and environmental nightmare.
Germany shows that various forms of sustainable energy can be combined quite well on a grid. The wind always blows somewhere, demand peaks during daylight hours, wind is stronger at night. Ever heard of pumped hydro? Your objections are first glance talking points that are in practice not the slam dunk obstacles they are made out to be.
Germany is a geographically tiny, densely populated urban country with a lack of varied climate conditions (as well as a heavy importer or lots of fossil fuels — most notably, Russian natural gas).
And energy costs in Germany are vastly higher than in the much-less-dense United States.
Germany also uses a lot of coal and has built a huge natural gas pipeline from Russia called NordStream and is in the process of building a second even larger natural gas pipeline from Russia called Nordstream 2.
Electricity prices in Germany will rise a lot by 2024 when all German nuclear plants will shutdown since Merkel decided that nuclear plants need to be closed after the Fukushima nuclear disaster in Japan.
I say build a wall, that will solve it.
They will just monetize debt. Everyone gets free money and become millionaires. lol
So when Trump makes an 8 min speech the media are taking about his supposed lies, fact checkers are out left and right and people make bets and bookies make money…
Liberals tell lies and we cheer them on…
Wonderful theatre for the masses…