Tyrant for a Day

Pursuant to a backchannel discussion the Outside the Beltway associate bloggers have been conducting I’m going to engage in a little thought experiment. How would I change the federal budget given plenipotentiary authority (which God forbid!) and freed from political constraints?

I believe that it’s frivolous to enter into such a discussion as a mere mathematical exercise, detached from considerations of what sort of country you would like this to be, so I’ll start there. I would like a country that, while zealous in maintaining its own security, intervenes less in other countries. I would like a country in which gaming the system is less important than creativity and effort. I would like a country in which large institutions, whether those of government, business, labor, or any other facet of society, have less influence over our daily lives than they do now. I would like a country that balances a commitment between people undertaking responsibility for their own lives and destinies and not allowing people to fall into desparate circumstances due to age, illness, infirmity, or just plain bad luck. I would like to see a country that supports robust economic growth by creating a reasonably level playing field rather than by attempting to pick winners and losers. Hopefully, the choices reflected in this post will be consistent with those objectives.

Let’s deal with the revenue side first since it’s the easiest. I would abolish all forms of federal taxation in favor of a consumption tax somewhat along the lines of the FairTax. All goods and services would be subject to the tax and the tax, would be taxed at the same rate, and would be prebated in such a way as to ensure progressivity of the tax. Whether the tax would be handled as a straightforward sales tax or a VAT would be a logistical decision that I’m not prepared to express an opinion on right at this moment. I suspect there would be good reasons for it to be handled as a VAT.

The spending side is much thornier. Here’s how current spending breaks down:

There’s an old principle of optimization that your best targets for optimization are where there’s something to optimize. Obviously, “Other”, which includes interest on the debt, the porkbarrel spending referred to as “earmarks”, and all other expenses of government is not a particularly fruitful target. This is not to say that I wouldn’t like to eliminate certain programs, e.g. agricultural subsidies. It’s only to point out the obvious, that we can’t make great headway just by cutting earmarks.

I should also mention that although waste, fraud, and abuse are perennial objects of ire there is no line item on the budget for waste, fraud, and abuse. You address them where you find them and, frankly, although I think they need to be addressed when found I doubt that there’s nearly enough there to get us where we need to go.

The three best targets are defense, pensions (federal employee pensions and Social Security), and healthcare.

I would cut defense spending by reducing our overseas commitments, re-unifying the Air Force and Army, and reducing the size of the air force and the standing army. I would leave the Navy largely untouched. I would eliminate programs that don’t contribute directly to the conditions in which we find ourselves today (I could name names on this but doing so would bring this post to too great a length). Withdrawing from Afghanistan or (my preference) reducing our objectives in the country to minimalist objectives and cutting the force there back to between 20,000 and 50,000 would probably save $100 billion on its own. I would eliminate or reduce the size of our bases in Europe, the Middle East, and Asia. The target level of spending should be between 2 and 3% of GDP. As I’ve said elsewhere I would assess the actual pragmatic value of our involvement in NATO and reduce our commitment there appropriately. Europe is capable of taking care of itself and too many of our NATO allies have reduced their spending on defense below 2%, a level too small to satisfy their commitments to the alliance.

Federal employee pensions should be entirely a defined contributions plan rather than the hybrid plan it is now. Essentially, the FERS annuity should be abolished in favor of a defined contributions plan. The minimum changes that should be made to Social Security are that the Social Security retirement age should be raised and there should be something intermediary between disability and ordinary Social Security for those performing physical work and, consequently, unable to work until full Social Security retirement age. It might be sufficient to redefine disability.

My preference would be to means-test Social Security as well. I’m not sufficiently conversant with the numbers to be sure whether it would be required if the SSRA were raised.

The most difficult of the knotty problems is healthcare. The greatest gift that the U. S. federal government could give to the world and American state and local governments would be to reform our healthcare system in such a way as to reduce costs. Let’s be very explicit about this. There is no mystery. We spend a multiple of what any other country in the world spends for healthcare on a per capita basis because prices are higher here.

This post is limited to breaking the laws of politics. We can’t break the laws of mathematics or physics. We can’t go back in time and undo all of the policy errors of the last 50 years. Or the last century for that matter. How do we reduce healthcare costs going forward?

It would be nice if we could implement a system here similar to the French system. If I could do it, I would reduce prices here to levels commensurate to those paid in other OECD countries and implement a French-like system. I’m not certain that even that would be enough.

I could go into a more substantial analysis here of more market-based systems as opposed to less market-based ones. As long as the providers’ oligopoly is in place and the insurance companies are in the picture, I’m skeptical that healthcare costs can be reduced sufficiently. I’m also skeptical that good public health can be maintained without leaving the providers’ oligopoly in place.

I’ve nattered on for long enough about this for one blog post. Feel free to submit your own preferences or to critique mine. If you elect the latter, please be gentle and courteous.

46 comments… add one
  • john personna

    I like your statement of goals, paragraph two, and can endorse that. I can’t endorse FairTax dreaming, because it is really just a convenient distraction. Sorry, but the pattern really is “rather than talking about what to fix, let’s talk about something else entirely.” That the “something else” is politically impossible really just strengthens its value as a canard.

    FWIW, what I’d do is strip out subsidies and tax credits wholesale, reducing corporate and individual tax to a more uniform and non-distorting value. I’d phase out the home buyer credit(s) and make revenue neutral reductions to the tax rates. I’d phase out the corporate R&D tax credit, and again make revenue neutral reductions to tax rates.

    I’d love to see Apple and Exxon pay a straight corporate tax rate.

    (I like R&D but I know that (a) everyone needs to do it and still will, and (b) a crazy long list of people are now calling their normal business operations R&D.

    Remember high frequency trading? Developing those programs was R&D, and got the credit.)

  • It’s all dreaming since we’re not worrying about what could actually get through the Congress. I don’t think that discussion of consumption taxes are a distraction. They have many advantages including that a consumption tax would tend to rebalance our economy away from retail, something that needs to happen.

    Once you start talking about the practicalities of a consumption tax, e.g. regressivity, its potential as an unlimited cash cow, etc., you begin to cover territory that others have already covered. That’s the only reason I brought up the FairTax. It’s one of many consumption tax plans out there and it addresses some of the practical considerations.

    Eliminating the corporate income tax and FICA are other key components. For one thing that would eliminate a lot of gamesmanship.

  • Maxwell James

    Interesting post. Although I feel like I’ve disagreed with you a fair amount recently, I actually agree with pretty much all your spending cut choices. I like the idea of redefining disability to manage the physical/office labor retirement problem.

    I’m less sure about the taxation system. I can see the appeal of the Fair Tax, but am not at all sure it could be implemented effectively, at least not without an IRS equivalent to police gaming – which might ruin the fun for many of its proponents. At present I think I would prefer a much simplified, still progressive income tax system with a lot of the deductions eliminated. And replacing the corporate income tax with a carbon tax. I’d maintain the estate tax.

  • john personna

    Well, on the other hand I agree with you pretty much on the spending, and health care side.

    (Watch though, FairTax and the like tend to pop up from folks who don’t really want to think about what tax level, in our current structure, is required for our current costs. It’s easy to punt, and talk FairTax.)

  • Andy

    Dave,

    I think you’ve got a pretty good base there. Regarding defense, I’d do things a little bit differently. I don’t think combining the Air force and Army will save much money. Instead, I’d enforce more standardization across all the services, particularly the personnel systems. There’s several billion at least in redundancy and they are antiquated. Most of the Army and Air Force I would turn into National Guard or Reserve units which would save a lot of money. Their main purpose would be to large, infrequent wars. Like you, I would keep the Navy (and Marine Corps) mostly as it is as the nation’s expeditionary forces.

    I would separate military R&D money from procurement and only buy weapons once the technology is reasonably mature.

    Finally, I’d also pass a constitutional amendment requiring a war tax anytime the reserve or guard forces are mobilized except when they are supporting domestic disaster relief.

  • PD Shaw

    I’d agree with most of Dave’s suggestions and those offered by the above comment, except probably Andy’s Constitutional Amendment (maybe good idea for wars of choice, but wouldn’t want wars involving existential threats hampered by the Constitution).

    I’m wondering about what Chris Christy has been saying about the importance of Republicans _NOT_ telling the electorate what they would cut. He campaigned in Illinois making this point as cover for the gubernatorial candidate. Tyranny? Or have people been adequately informed of the potential risks?

  • PD Shaw

    above comment = above comments

  • Hall and Rabushka’s flat tax has pretty much most of the same benefits as a VAT.

    Let’s deal with the revenue side first since it’s the easiest. I would abolish all forms of federal taxation in favor of a consumption tax somewhat along the lines of the FairTax. All goods and services would be subject to the tax and the tax, would be taxed at the same rate, and would be prebated in such a way as to ensure progressivity of the tax.

    The Fair Tax taxes the sale of all final goods and services, intermediate goods and services are not taxed.

    In contrast a value added tax (VAT) taxes the value added to goods through the production process.

  • Oh and calling the discussion of how taxes are to be collected a distraction suggests a deeply flawed understanding of incentives, equity, efficiency and so forth. For example, our current system of income tax discourages savings and has a huge efficiency loss. As I’ve pointed out, not sure it was here though, savings is what drives investment. Our lack of savings is what is behind the current accounts deficit. And not only that we compound the problem with Social Security, Medicare and fund these to programs via a payroll tax which discourages work and imposes another deadweight loss on top of the efficiency losses associated with the income tax.

  • That the “something else” is politically impossible really just strengthens its value as a canard.

    Did you miss the primary assumption, the issue of what is and is not politically feasible is a non-issue Dave is telling us how he’d fix things if he had dictatorial powers. As such pleasing the electorate is about as important in this context as Kim Jong Il pleasing the electorate in North Korea.

  • john personna

    Anything that has a snowball’s chance is a distraction.

  • john personna

    Posting at the same time as Steve V – obviously I’m challenging the game to be useful.

  • Andy

    PD,

    maybe good idea for wars of choice, but wouldn’t want wars involving existential threats hampered by the Constitution

    If it’s really an existential war I don’t see how a tax is going to be a Constitutional barrier.

  • Icepick

    Anything that has a snowball’s chance is a distraction.

    Well then, that rules out everything but part of Dave’s Social Security proposals. It’s a thought experiment. One can tell because Dave actually states that in the first sentence of the post.

  • Icepick

    obviously I’m challenging the game to be useful.

    Stating that the game is useless hardly constitutes useful criticism to the players.

  • Drew

    I apologize in advance that this has to be a hit and run. But this stuck out:

    “I believe that it’s frivolous to enter into such a discussion as a mere mathematical exercise, detached from considerations of what sort of country you would like this to be, so I’ll start there.”

    Maybe I’m over-reading the observation. I certainly agree that there have to be real suggestions underlying the numbers, but speaking as a owner/manager of businesses, if you don’t set some numerical objectives you’ve lost the battle before you start. There will allways be constituencies and impassioned arguments for why such and such cannot be done. Without the cruel reality of numerical objectives you lose the ability to make the hard choices.

    Setting aside the political element, this is why government never controls expenses.

  • BTW, I’ll reference my previous comment in a previous thread here….

    Economic policy is not about finding the best solution or even a state that is an improvement over the current situation…I think certain responses here highlight that.

  • Jimbino

    How about a country that:

    1. Prosecutes war criminals like Henry Kissinger?
    2. Stops transferring wealth from the childfree and single to the married breeders?
    3. Privatizes public universities so that the blacks and browns among us stop subsidizing white women?
    4. Sells off all public parks and forests to folks like Ted Turner who actually know how to conserve lands and raise buffalo? And rebate the proceeds to all the blacks and browns among us who never go to national parks and forests?
    5. Charges Walmart, eBay or Amazon to deliver health care and publish the prices in a competitive market?
    6. Kills off affirmative action for women who can’t play chess or do science, math or auto mechanics?

  • john personna

    What on earth does Steve V think he is accomplishing with this sentence fragment?

    “Economic policy is not about finding the best solution or even a state that is an improvement over the current situation”

    Is it an utter disillusionment with all market democracies? Because they all do certainly attempt economic policy to improve their current situations, whatever they are.

    If you feel that disillusioned, why would you even bother to comment on economics and politics? Why not just take up wood working or organic gardening and be done with it?

    I get the fun of the “tyrant for the day scenario.” As a Terry Pratchett fan, I even the use of “tyrant” in the scenario. Just the same, I think it’s fair to talk about how these things do, or don’t contribute ultimately to solutions.

    I guess Steve is telling me to give up on that part of it.

  • john personna

    BTW, Pratchett’s Tyrant does introduce many economic reforms (economic policies) on his medieval city. In one book (Making Money, or Going Postal?) he has an Igor in the basement building an economic model using flasks and pipes, and running on water.

    Imagine my surprise when I learned that such a thing had been built in England:

    t is 2 metres (7ft) tall, 1.5 metres wide and a metre deep. It runs on water and most of the time it is screened off at the back of a lecture room in Cambridge. But when the nine members of the Bank of England’s monetary policy committee announce their latest decision on interest rates today they will owe a debt of gratitude to the computer built in a garage in south Croydon by Bill Phillips – an engineer turned economist from New Zealand – almost 60 years ago.

    A sensation when it was unveiled at the London School of Economics in 1949, the Phillips machine used hydraulics to model the workings of the British economy but now looks, at first glance, like the brainchild of a nutty professor. Where the Bank’s team of in-house economists are equipped with state-of- the-art digital computers, the profession’s first stab at modelling was very much a do-it-yourself affair with a whiff of the Heath Robinson about it.

    http://www.guardian.co.uk/business/2008/may/08/bankofenglandgovernor.economics

    Of course, Pratchett’s water model had the spooky ability to influence the outside world’s economy. Igors will add extra features like that.

  • Maybe I’m over-reading the observation.

    You are. Numbers are essential. However, merely manipulating numbers without reference to the values and preferences that the choices they represent instrumentalize is just a dry intellectual exercise, of limited value.

    I would be the last person to reject an empirical approach to decision-making.

  • Brett

    Feel free to submit your own preferences or to critique mine. If you elect the latter, please be gentle and courteous.

    1. Withdrawal from Afghanistan. There’s no point staying there in force if we’re not willing to do full-press on COIN, since a smaller force only doing strikes in the border regions won’t be likely to get much in the way of intelligence or local support.

    2. Close most of the overseas bases. “Europeanize” NATO, converting the US role down to merely promising nuclear retaliation against an all-out invader or nuclear attacker.

    3. Drastically shrink active-duty Army numbers. Shrink Marines slightly, but not too much; it’s useful to have a rapid reaction force in case we need to send 25,000 troops somewhere on short notice. Keep the Navy at its current size or expand (and expand the Naval Aviation side of it). Shrink the Air Force, and move it back towards a strategic nuclear deterrent role (we don’t really need most of the fighter squadrons outside of homeland defense if we don’t have the overseas bases, and have a larger Naval Aviation force) .

    4. Not sure on the pension/Social Security issue. The Chilean system seems to offer some good options.

    5. Singaporean-style health care coverage. Mandatory contributions to an HSA-equivalent, with government-subsidized or -provided catastrophic and “over-the-top” coverage in single-payer form. Subsidies for the accounts of those who are poorer. Possibly allow people to use some of the HSA account money to purchase supplementary insurance.

    6. Replace progressive income tax with progressive consumption tax, where what’s taxed is Income minus Savings & Investment. Eliminate payroll taxes, increase gas taxes (and create a carbon tax), implement VAT or sales tax (preferably whichever one has less distorting economic impact).

    I’m undecided on whether or not to abolish corporate income tax, as well as capital gains taxes. It seems like the type of thing that could very well lead to lots of “gaming” of the system, where people set up a dummy corporation that then “leases” their services/labor to someone else.

  • Is it an utter disillusionment with all market democracies? Because they all do certainly attempt economic policy to improve their current situations, whatever they are.

    John,

    Seriously, financial reform is going to entrench the system of bailouts that got us into this mess. Does that even sound like rational policy let alone policy that is an improvement over the current situation?

    Dave has noted a number of times the ACA is almost surely not going to address costs while at the same time increasing the government’s obligations in regards to health care. Government has shown, over time, that when it comes to health care spending it does a poor job of controlling costs.

    Two recent “land mark” pieces of legislation appear very much to do pretty much nothing to improve our current situation and if anything may further enhance our risks of a fiscal crisis.

    Maybe I am disillusioned, but with good God damned reason, IMO.

  • john personna

    Maybe you are suffering the disillusionment I went through with the second Iraq invasion. It was a forcible conversion from my mild cynicism/optimism that democracies might not always choose best, but that they didn’t go far wrong.

    They do go far wrong from time to time, and their real strength is that the can reverse course and try something new without bloody revolution.

    As it happens, the majority of American people are now close to where I started on Iraq. Maybe they are right now. Maybe that’s something we can never know.

    So, American government has bungled success (pre-2007) and then bungled failure (post-2007). That’s a given.

    The only question is whether course can be reversed, or is it all down hill from here?

    Well, using Iraq as a model, we know that people can come around to an opposite position.

  • Drew

    Dave –

    “You are. Numbers are essential. However, merely manipulating numbers without reference to the values and preferences that the choices they represent instrumentalize is just a dry intellectual exercise, of limited value.”

    Fair enough. I’ll make this observation: its not “merely manipulating numbers.” In business, if the results of your “preferences” result in a company that is insolvent – you are in bankruptcy. Done.

    In government, if the results of your “preferences” result in an economy that cannot produce satisfactory GDP/job growth, you are, well, Greece. Effectively done.

    If you have cancer, and radiation is the determined protocol, if you can’t take the rads required to eradicate the problem, you die.

    Numbers matter very much, and are not a dry intellectual exercise of little value. We measure all of a nation’s economic health in numbers: GDP, unemployment, debt to GDP, poverty rate and so on. I would posit that if you can’t meet a set a congruent numerical parameters that result in a successful economy………..you have engaged in a dry intellectual exercise, of little value. A wish list.

  • Let me try explaining again. Let’s say we have two different strategies for reducing the federal budget. They’re mathematically equivalent, say $600 billion. One consists of completely eliminating the defense budget. The other consists of reducing Social Security by $600 billion.

    Mathematically, the two are identical. Which you choose (or neither) represents different priorities. I don’t think it’s enough to come up with a formula that mathematically balances the budget. What you cut, how taxes are adjusted, and so on reflect priorities and the choices should be consistent with those priorities and further them.

  • John,

    So, American government has bungled success (pre-2007) and then bungled failure (post-2007). That’s a given.

    It isn’t just that. Look at Social Security and Medicare, they have been set up very badly. I’m not saying that the programs shouldn’t exist, lets save that for another argument. Lets be like biologists who take life as a given; we’ll take the existence of these programs as a given. Now, is the current system the way we’d really like to do it? I’m going to argue no given that both systems are in trouble and that they have massively increased the U.S.’s liabilities.

    So even it isn’t something new or even a periodic departure from some reasonable range of policies. I still see plenty of evidence to think that the way our country has been evolving over time has not been a good one.

  • There is no mystery. We spend a multiple of what any other country in the world spends for healthcare on a per capita basis because prices are higher here.

    Healthcare is a superior good, meaning that the richer a society becomes the more of their income they’re willing to spend on a particular good.

    Prices are higher here because we have more demand for health services balanced against a physician/population ratio that is typical for most nations, resulting in a higher per unit cost for medical care.

    Look, what we need is severe price discipline and a realignment of expectations with regard to services provided for monies paid. Even then though we’re still left with the problem of healthcare being a superior good and the US being a richer nation than many others, so it’s going to be very difficult to bring our aggregated medical expenses down to the levels seen in, relatively poorer, Western nations, which have different consumption behaviors which are constrained by income and wealth factors.

  • Healthcare is a superior good, meaning that the richer a society becomes the more of their income they’re willing to spend on a particular good.

    We pay more per capita than other countries that are richer than ours (and there are some). Although I think the supply bottleneck is an important part of our problem, I don’t think it’s all of it.

    As I’ve written here before I think it’s largely historic—based on sharp increases in prices that took place about 30 years ago.

    Look, what we need is severe price discipline and a realignment of expectations with regard to services provided for monies paid.

    I agree with that. What are the alternative processes that would have that result?

  • We pay more per capita than other countries that are richer than ours

    I would think that we’d need to correct for scale. For example, comparing the medical expenses versus national income of the US against Lichtenstein, presuming that Lichtenstein has a higher per capita income than the US would ignore that Lichtenstein is the size of Greenwich CT or some other wealthy enclave within the US. All sorts of confounding factors arise from the scale disparity, never mind the factors that arise from population variance.

    My position is really one that is narrowly argued – in a multivariate analysis, healthcare is a superior good. Control for all factors, and as wealth increases so too will consumption of medical services. Lichtenstein is wealthier than the US but their lower consumption of medical services is quite likely a result of lack of scale – a small population can’t amortize as many specialized services as a larger population, etc.

    What are the alternative processes that would have that result?

    1.) If everyone who drove a car in the US had to drive a Mercedes the national income spent on personal transportation would be much higher than the amount spent now when vehicle choice is available.

    2.) If everyone who drove a car had all of their gas and maintenance paid for by a uniform insurance premium charged to everyone, there would be no constraining factors limiting gas usage or car maintenance.

  • Although I think the supply bottleneck is an important part of our problem, I don’t think it’s all of it.

    I don’t think that the supply bottleneck is the entire problem either. I think that there is plenty of rentseeking built into the medical sector, and wealth generated for the rentseekers produces suboptimal economic results.

    Secondly, cost containment in other systems usually involves centralized decison makers making rationing decisions. We lack that feature, and at best we make due with decentralized rationing decisions and as a culture we’re less tolerant of rationing decisions, so we reduce instances of rationing and simply pass the cost onto others. That dynamic can only function for so long before it becomes unsustainable.

    Rationing is needed. Obama’s approach favors the Death Panel method, my choice is that rationing be enacted through pricing and individual decisions.

  • That’s not really the question I was trying to get at. What I was trying to ask is how do we accomplish “severe price discipline”? One person’s healthcare costs are another person’s healthcare income. Unless you assume that healthcare providers are willing to take a pay cut and unable to prevent it, any reductions in utilization will be matched by price increases (or, alternatively, additional procedures being prescribed).

  • Ah! I see you’ve answered my question in your follow-up comment. Frankly, I don’t think you can contain costs without centralized decision makers. That either means single-payer or full-on nationalized healthcare. I think that any market-oriented approach founders on the supply bottleneck.

  • That’s not really the question I was trying to get at. What I was trying to ask is how do we accomplish “severe price discipline”? One person’s healthcare costs are another person’s healthcare income.

    Here’s my roundabout answer to your question.

    Before people can develop a solution to a problem they need to really understand the problem.

    The way I see it, the crisis in medical spending is one that is best defined as what individuals have to spend on insurance plans so that the medical expenses of others are covered and there is much less concern about what the actual costs of their own consumption amount to.

    The way our system is structured, insurance plans pay for everything. There is little price discipline involved. There would be more price discipline if insurance covered catastrophic care and all other expenses were borne by individuals. This way we can separate the issues of healthcare costs that we pay that cover strangers and healthcare costs that we pay that cover ourselves and our loved ones.

    If people, as they grow wealthier over the course of their lives, are willing to spend ever increasing amounts of their income on their own healthcare, then current trends are not a problem and are simply a result of healthcare being a superior good. What else would people be spending their money on if not healthcare? Do we look at the increasing size of houses over the last number of decades as a national crisis? Housing too is a superior good. Would today’s middle class be content to live in the homes that were typical in 1948?

    If however people begin to object to spending a lot on their own healthcare, then the workforce in the healthcare sector will have to be downsized, work processes will have to be rationalized to achieve greater output per unit of labor input or medical processes will have to be foregone or the processes will have to change in order to yield greater health outcomes per unit of labor input.

    In a nutshell, the outcome depends on what the people of a nation, with individual choices aggregated, want.

  • Frankly, I don’t think you can contain costs without centralized decision makers.

    I think that the outcome is entirely achievable without invoking centralized decision makers so long as we alter a few premises.

    The premise that healthcare must be financed by an insurance plan which covers ALL, major and minor, expenses has to be altered.

    The premise that the quality of care and the quality of equipment must be uniform regardless of ability to pay also has to be altered.

    The premise that the financial sacrifices that need to be made to remedy a person’s health are better born by strangers than by the individual affected by ill-health also needs to be altered. What I mean by this is that if a person isn’t willing to spend $30,000 of their home equity or their retirement savings on a medical procedure to better their health then why should strangers be compelled to foot the bill and allow the patient to insulate their wealth from paying for the procedure? There should be a greater alignment between costs and benefits – right now the costs for major and minor procedures are widely shared and the benefits flow only to the patient. This system distorts decision making and it distorts values. We’re all going to be sick many times over our lives and we’re all very likely to each experience some major medical costs and some of us will also face catastrophic situations. For most of our medical needs, we can pay for ourselves and when we pay for things we care a lot more about price and quality than is the case if other people pay. This means that we, in effect, become rationers of our income and capital, just as we see in the automobile market – not everyone is driving a Mercedes and not everyone is billing all their automobile operating expenses to a central payment authority (if everyone was mandated to bill all their operating expenses to a central authority, then there would likely be a need for a central rationer to set conditions on automobile operation because their would be no price discipline working in the market.)

  • steve

    Home late. Dont you guys work? Anyway, I think Dave is correct in his opening. We need to decide what we need to have government do, then fund it appropriately. His mission statement is close to what I would write. I also agree on some kind of consumption tax, plus a death tax. Eliminate everything else for the most part. Maybe a Pigovian tax or two, like a carbon tax or sin taxes.

    Ont the spending side, I am with Dave on the military. The Air Force, I was in it, she be broken up and spread to all of the other services. The need to work together better anyway.

    On Social Security, I would have the retirement age at 66. Means test at 66. Full bennies at 70 or 72.

    On health care, the most important thing is to get everyone into the same kind of system. That way groups cannot be played against each other. If the health care system suffers, everyone suffers. I am fairly agnostic about whose system we adopt.

    I would also suggest we need to permanently keep a firmer handle on the banks. Strict credit limits and downsizing seems a good start. As Lord Acton said.

    “The issue which has swept down the centuries
    and which will have to be fought sooner or later
    is the people versus the banks.”

    Finally, I would like to make an addition to the Pledge of Allegiance. Every day kids should have to recite that large tax cuts seldom pay for themselves and usually need to be offset by spending cuts. You did say I get to be dictator for a day.

    Steve, The Oligopolist

  • On health care, the most important thing is to get everyone into the same kind of system. That way groups cannot be played against each other. If the health care system suffers, everyone suffers. I am fairly agnostic about whose system we adopt.

    I too favor the same system for everyone but I would be more comfortable with there being 10-20 permanent insurance pools precisely so that they can play off each other. Put in protections so that a pool can’t kick people out but allow the pools to compete on terms they offer, coverage they offer, selection of the people admitted into the pool, management of processes, management of financial resources, management of client health and lifestyle or not, etc with provisions that people that all pools pass over will be randomly assigned to pools or some other anti-rule gaming provision. Regulate rates so that those who sign into a pool early in life get better rates than those who sign in late in life because there is a.) a longer period of low medical usage for young people where they pay more into the pool than they withdraw, and b.) there is greater uncertainty as to the medical conditions that they may, or will, face later in life. Allow people to switch between pools as the pools work to balance their actuarial portfolios by attracting various insured profiles into their pool mix but again prohibiting pools from dropping people. Also let the pool management be put out to bid for 10 year periods, so if an outside group thinks it can operate more efficiently, then they bid to take over management and they bring their external finance and management expertise to bear.

    In the end, I think that the process of having multiple pools but conditioned on mandatory coverage achieves the goals of those who seek one universal pool and it avoids the pitfalls associated with monopoly.

  • steve

    To be clear, a system with multiple, private insurance companies would work fine, as long as they are all in the same system. Several European countries have such systems.

    Steve

  • john personna

    “Dont you guys work?”

    Retired, and for the past week, rained-in. They say rain is coming again tomorrow.

  • john personna

    BTW, on putting numbers on things, did you see Justin Fox’s back of the envelope estimate for deficit ex-recession?

    In my no-financial-crisis, no-bailout, no-recession, no-stimulus scenario, spending kept growing at 6.22% a year, and revenue kept growing at 3.45%. You can see from the difference between the two numbers that this was an unsustainable path. But it clearly could have been sustained for a few more years.

    Where would it have left us in fiscal 2010? With $2.843 trillion in federal revenue and $3.270 trillion in spending, leaving a deficit of $427 billion. The actual revenue and spending totals for 2010 were $2.162 trillion and $3.456 trillion. So spending was $186 billion higher than if we’d stuck to the trend, and revenue was $681 billion lower. In other words, the giant deficit is mainly the result of the collapse in tax receipts brought on by the recession, not the increase in spending. Nice to know, huh?

  • In other words, the giant deficit is mainly the result of the collapse in tax receipts brought on by the recession, not the increase in spending. Nice to know, huh?

    Disingenuous tripe. The bailouts, stimulus, etc. are slated to take place over years. Sure, the collapse in revenue is a big factor this year. But next year and the year after? How about the year after that? We have trillion dollar deficits for quite a nice time horizon. For example, next year CBO projects revenues going up 500 billion, but the deficit shrinks by a bit less than 300 billion. While the single data point he points too is not incorrect, he is ignoring the trend.

  • steve

    “While the single data point he points too is not incorrect, he is ignoring the trend.”

    Which is almost entirely due to entitlements.

    Steve

  • john personna

    What I think he’s getting at is that the emotional, man in the street, response, is due to the deficit hitting trillions, but those trillions do really tie to the crisis. Ex-crisis, we’d still be in billions territory.

    Now, billions were still bad, and the trend was still bad, sure.

    And of course the challenge in addressing the trend is that the crisis is not at all helpful.

  • Jimbino

    Do the flat-tax or fair-tax proponents contemplate taxing a person’s savings that have already been subjected to the income tax? What would keep a person from spending his money in another country to avoid paying the flat tax on savings? A 20% tax on $1,000,000 in savings would provide incentive enough for lots of people to move to Mexico.

    How about lowering all health care prices by forcing healthcare providers to publish their prices for everything, as Amazon does? That alone would reduce prices by half, I estimate.

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