Entitlement Reform

Summary

Unless we make Social Security, Medicare, and Medicaid sustainable, they will collapse and take the global economy down with them. Both Republicans and Democrats are united in their unwillingness to confront this reality.

To illustrate the problem here, I offer three stories with a single moral.

Story One:

I lived in Los Angeles during the 1984 Summer Olympics. Those were heady, halcyon days, mainly because of all the free food we were getting at McDonalds.

You may not remember, but back then, McDonalds was running an Olympic-themed promotion offering free food based on how many medals the U.S. athletes won. Unfortunately for them, and quite fortunately for me, they set up that promotion before the USSR decided to boycott the ’84 games and deprive our guys of their most serious competition, which meant that the Americans were winning everything in sight. All of those medals added up to a whole lot of complimentary Big Macs.

I ate well while McDonalds lost a fortune.

Story Two:

In the first Austin Powers movie, Dr. Evil is frozen for three decades and unthawed in a world where his ransom of “one MILLION dollars” is greeted with ridicule, due to inflation. He then adjusts his demands to “One hundred BILLION dollars.” Nice work if you can get it.

That figure becomes a problem in the second movie, though, when Dr. Evil time travels in order to return the Sixties, but he fails to return to the Sixties-appropriate ransom figure. He asks the 1960s presidential cabinet led by unlikely POTUS Tim Robbins for “One hundred BILLION dollars” or else he’ll blow up the moon. Everyone in the White House bursts out laughing, because that amount of money simply doesn’t exist in the entire world.

Story Three:

It’s an old fable, and I’ll let mathforum.org tell it:

The story goes that the ruler or India was so pleased with one of his palace wise men, who had invented the game of chess, that he offered this wise man a reward of his own choosing.

The wise man, who was also a wise mathematician, told his Master that he would like just one grain of rice on the first square of the chess board, double that number of grains of rice on the second square, and so on: double the number of grains of rice on each of the next 62 squares on the chess board.

This seemed to the ruler to be a modest request, so he called for his servants to bring the rice. How surprised he was to find that the rice quickly covered the chess board, then filled the palace! Let’s stop here, and see just how many grains of rice this is.

The number of grains of rice on the last square can be written as “2 to the 63th power”, which which can be written as approximately: 18,446,744,070,000,000,000 (I can’t write this more accurately as I have only 10 spaces on my TI-34 calculator!)

A grain of rice is approximately .2 inches long. Converting .2 inches to feet (divide by 12 inches to a foot) and then dividing that number by 5,280 feet in one mile, we get the length of the grains of rice, placed end-to-end, to be approximately 60,000,000,000,000 miles.

How far is that? Alpha Centauri, the nearest star, is located 25,000,000,000,000 miles from Earth. Placed end to end, these grains of rice would reach farther than from the Earth, across space to the nearest star, Alpha Centauri, and back to Earth again!

And now the single moral:

The United States has made financial promises that are not quite as impossible to keep as the chessboard rice payments, but they’re as silly as Dr. Evil’s moon ransom. Like McDonalds, we have tied a huge chunk of our spending to forces outside our control. Congress does not decide how much money they’re going to spend on Social Security, Medicare, and Medicaid. These programs are driven by demographics, not decisions. And that means how much we spend has been taken out of our hands.

Put it this way. The amount of money Congress can decide whether to spend or not spend is only 37% of federal spending. 63% of federal spending is mandatory – it’s McDonalds gold medal money. You get that money not because Congress decides every year to give it to you – you get it if you’re a certain age and have medical bills. So whenever a politician talks about cutting spending, they’re only talking about 37% of the budget.

Those are scary numbers. Well, here are some scarier numbers.

Last year, we spent 2.4 trillion dollars in mandatory spending programs, and 1.2 trillion dollars in discretionary spending. For those of you who are math challenged, that means we spent twice as much on programs that are McDonalds gold medal money than on programs we can control. Those numbers are slated to grow to gargantuan sizes until they eat up 100% of all the money we collect in taxes.

When that happens, even if you cut all the waste out of government, the budget will still not be balanced. Not even close. If you abolish every cabinet department; wipe out OSHA and the EPA, burn down the national parks, mothball the IRS and every other three-letter agency, you will still have a deficit. If you cut defense spending by 100%, you will still have a deficit.

And that budget deficit will continue to grow with each passing year as the population ages and the demographics keep doubling the rice on the chess squares.

Sure, you can raise taxes, which will provide some additional revenue – but not nearly enough. The Congressional Budget Office projects that, with current demographic trends, by 2038 there will not be enough money in the world to meet the financial obligations we will have. When your expenditures hit 100 billion in 1967 dollars, your civilization essentially collapses, regardless of the party in charge.

These programs need to be made sustainable. That’s relatively easy to do now, except that every proposed change, no matter how minor, is usually demagogued to death to the point where politicians eagerly kick the can down the road. We have can’t afford to do that anymore.