Anisotropic Perspectives

Michael Leavitt, Secretary of Health and Human Services, prepared some disturbing remarks on the (not so bright) future of Medicare.

When I was born, [health care] was four percent of the economy. When my son was born it had doubled to eight percent, when my first Grandson was born two years ago, it had doubled again to 16 percent… Every piece of evidence shows the trend continuing. The problem is beyond the fact that medical cost growth is faster than that of any other part of the economy… Today, 12 percent of the population is 65 or older. By 2030, nearly 20 percent of us will be seniors.

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The real pressure on this problem starts between now and 2019 when the Medicare Hospital Insurance Trust Fund is projected to become insolvent. There is no backup plan in the law to ensure that hospitals continue to be paid when the Trust Fund is depleted.

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The typical household is going to see its healthcare spending basically double in the next twenty years – from 23 percent to 41 percent of total compensation. At the same time, we are going to nearly double the share of federal spending that goes to pay for Medicare, from 13 percent to more than 23 percent. And we are going to do this while the number of working people per Medicare beneficiary is sliced nearly in half, from 4 to 2 and a half.

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At the beginning of the 20th Century, Argentina was one of the wealthiest countries in the world — wealthier even than the United States. Over the next 50 years, successive governments constructed, and then expanded, an ever-generous system of social benefits, nationalized industries, and created a vast and bloated public administration. Yet protectionist policies and a failure to invest in innovation in agriculture and other key industries meant the world economy began to change while Argentina’s didn’t. Its productivity suffered. But the country kept on spending, content and confident it was better-off than its neighbors.

As it turns out, Argentina had been operating for many years on money borrowed from the financial markets and organizations like the World Bank and the International Monetary Fund. By the 1990’s, the mortgage outstripped the country’s ability to pay. Creditors told Argentina, “no more, unless you fix your entitlements.”

Frankly, Argentina had started down the path of reform late, and once the government started, the political pain was too much–the nation could not sustain it. The government developed a solid monetary policy, but could not change its fiscal or spending practices.

A few years later, Argentina was in political turmoil, with a rapid succession of governments, a currency in free-fall, and a rapid spike in unemployment. The country teetered on the verge of civil unrest. Why? Because Argentines had put off hard choices for so long they were forced to make change too quickly, and they simply didn’t have the political strength to do it.

Why do we keep electing invertebrates to public office?