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Home Publications Blogs Beat the Press Blognote in Honor of Thomas Friedman: Spending on the Commerce Department Is Going to Bankrupt the Country

Blognote in Honor of Thomas Friedman: Spending on the Commerce Department Is Going to Bankrupt the Country

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Wednesday, 22 June 2011 03:59

The United States has to cut back spending on the Commerce Department or it will bankrupt the country. Okay, I have no evidence for this and it really doesn't make any sense. The Commerce Department's budget is about $10 billion a year, less than 0.3 percent of total spending, but this note is written in the spirit of Thomas Friedman.

Just as Thomas Friedman can tell readers that Social Security and Medicare are bankrupting the country with no evidence, in my blognote I get to blame the Commerce Department. The reality of course is that Social Security is fully funded by its own dedicated tax revenue through the year 2036, meaning the program on net imposes no burden on the government.

Under the law, if nothing is done to increase revenues SS will only pay about 80 percent of scheduled benefits in years after 2036. It is prohibited from spending any money beyond what it collects in taxes. The projected shortfall over the program's 75-year planning period is equal to 0.6 percent of GDP, about one-third of the increase in annual defense spending between 2000 and 2011. It is difficult to see how a program that can only spend what it takes in from taxes could bankrupt the country, but this is Thomas Friedmanland.

There is more of an issue with run-away Medicare costs, but everyone outside of Thomas Friedmanland knows that this is an issue of run-away health care costs. If the United States paid the same amount per person for our health care as people in Canada, Germany, or any other wealthy country we would be looking at huge budget surpluses, not deficits.

This means that if we fix the U.S. health care system, then there will be no Medicare or budget problem. On the other hand, if we fail to fix the system, health care costs will bankrupt the U.S. economy even if we eliminate Medicare and other public health care programs altogether. People know this outside of Thomas Friedmanland, but in Thomas Friedmanland, you get to just make things up.

Comments (6)Add Comment
Friedman at last Friedman at last
written by coberly, June 22, 2011 9:18
Now, Dean,

you know that they don't just make stuff up. They tell them to each other, so they can say "everyone knows that..."

...
written by S. D. Jeffries, June 22, 2011 4:33
Once again a columnist invokes the plan put forth by the co-chairmen of the Simpson-Bowles commission as the answer to this country's deficit/debt problems. Did all these self-righteous columnists get together over a three-martini lunch one day and decide that Alan Simpson and Erskine Bowles were devinely inspired? Or is the basic premises of the co-chairmen's plan the only offering that fit the narrative "cut taxes on the moneyed interests and cut access to health and retirement security for everyone else"?

If it wasn't the three-martini lunch, it had to be mass delusion on a scale unseen since general acceptance of the Laffer curve. Reading Thomas Friedman over the past few years, and knowing 3-martini lunches are no longer 100% tax deductible, mass delusion seems the most plausible explanation.
Professor of Economics
written by Barkley Rosser, June 22, 2011 4:53
Unfortunately the cut in payroll taxes makes SS not so well funded. Sure, that is supposed to be a temporary tax cut, but so were the Bush tax cuts. Try and take that payroll tax cut away now. I fear Obama's deal to get START and end Don't Ask Don't Tell in December has unpleasantly defunded social Security.
2010 Social Security trust fund accounting, in Billions.
written by AndrewDover, June 22, 2011 6:30
The 2% cut in 2011 employee payroll taxes has no total effect of SS funding. It just moves some from "Payroll tax" and puts it into "Reimbursement from General Fund"

A similar thing already happened in 2010; $2 billion was removed from employer payroll taxes for newly hired workers, and the general fund reimbursed it. That was Public Law 111-147, which has now expired.

You can see the effect below:

544.8Payroll tax
108.2Interest on OASI bonds.
22.1Taxation of Benefits directed to OASI
2.0Reimbursement from General Fund
------
677.1 OASI total income

584.9OASI benefits
92.2Increase in OASI trust fund assets.


So in 2011, there will be a large amount of General Fund reimbursement from Public Law 111-312.

Source: Table II B1 of
http://www.socialsecurity.gov/...tr2011.pdf
not so fast on the quick fix...
written by charles, June 22, 2011 10:41
You say
"If the United States paid the same amount per person for our health care as people in Canada, Germany, or any other wealthy country we would be looking at huge budget surpluses, not deficits.This means that if we fix the U.S. health care system, then there will be no Medicare or budget problem. "
If you look at job creation in the healthcare sector (for instance here http://globaleconomicanalysis....story.html ) you will see that the contribution of healtcare to job creation is very significant. Fix the U.S. Health care problem, and you will loose these job, which means that you will have a jobs problem and therefore still a budget problem.
...
written by Jay, June 23, 2011 10:09
Charles, you raise a good point. It is clear our policy makers do not care about jobs. Although, I don't know if jobs will necessarily be lost as a whole.

Is the growth related to the escalated costs in healthcare due to a lack of competition and educational entry barriers that allows the seeking of ever increasing profits? Or is the growth related to an increase in the number aging boomers in our population?

Conversely, even if we paid the same amount per person wouldn't that expand the healthcare market to the underserved and healthcare professionals that strive to serve the less well to do. Although, it would take away money from insurance companies that don't have much sympathy for people that file claims in order to get well. It comes down to an ethical question.

Do we feel everyone should be entitled to live a healthy and productive life even if they cannot afford healthcare? It's a simple question. If not, then why not? Don't mean to go on a rant but why are we so apathetic towards our neighbor? We spare no expense to take life but clinch our purse strings when comes to maintaining or saving lives.

Our policy makers do not value education either. Education is too expensive. Today, the cost of medical school is outrageous and in many instances they need these outrageous salaries to some day pay their student loans. There is a general sense of apathy about people amongst our policy makers and political appointees.

The general welfare of the people is ignored. Our policy is to encourage people to fend for yourself even it you're given a knife in a privately contracted missile fight. Are we still stuck on Social Darwinism? There's all this talk from the right about change being socialism. Seriously, they get to make arguments from an era when people had to fight for civil rights and freedom of speech? Black people had separate water fountains when that was relevant argument.

We allow unregulated capitalism to happen and we still end up with a limited number of people controlling the resources that disproportionately impact of the lives of the people. The same people that bought the global economy to its knees still get to control policy. It's incredible. In effect, we still have the same problem regardless of our political structure because the politicians get to use their old straw men, slippery slope arguments from a different generation, different era to represent the interest of businesses rather than people.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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