The graph above shows the steady rise in Medicare spending per beneficiary since the program started in 1966. But that doesn’t reflect constant dollars! (I hear someone say) Here:

Not quite up to the present but it gives you the general idea. I think it tells a story.

The cost per beneficiary has grown faster than inflation over the period of the last 55 years with only a few exceptions and those exceptions are significant. Note the period between 1997 and 2000. What happened?

Congress, alarmed at the growth of Medicare spending, imposed something called “Sustainable Growth Rate” (SGR). Here’s a description from Brookings:

Under the SGR formula, if overall physician costs exceed target expenditures, this triggers an across-the-board reduction in payments. The target is based on spending growth in the economy – that’s where the “sustainable” part of the name comes from – but is not tied to quality or access to care. This year, if Congress does not act by March 31, then payments to Medicare physicians would be reduced by 21.2 percent.

What happened to upset that?

However, since 2002, Congress has stepped in with short-term legislation (often referred to as the “doc fix”) to avert the payment reduction. These patches have kept increases in physician payments below inflation over time, and have also resulted in a huge divergence between the actual level of Medicare physician-related spending and the target in the SGR formula. Consequently, the budgetary cost of permanently fixing the SGR now runs over a hundred billion dollars. For years it has been clear that both the SGR and physician payment system urgently need attention.

In other words what reduced Medicare spending was reduce the compensation rates and what increased it again was allowing the compensation rates to increase.

One last point. The annual increase in spending per beneficiary is just under 6% and has been for some time. Private insurance is about the same. When Medicare was first put in place in 1965, healthcare represented about 5% of U. S. GDP. Now it’s 18%. That means that healthcare contributes a full percentage point to inflation every year.

After the incident in which four Americans were kidnapped in Mexico (two killed; two rescued/escaped), some are calling for our military to be used against “the cartels” in Mexico. Apparently, they’re emboldened by our many successes against irregulars elsewhere in the world.

Let’s leave aside the folly of seeking health care in other countries (apparently, one of the four was seeking an elective procedure). Leave aside that Mexico is in fact another, sovereign nation and that using our military within its borders would be an act of war. Folks, this is what borders and limitations on travel are for.

Take our southern border seriously and do whatever is necessary to close it.

Update

Relevant from NPR:

Nearly 780,000 people were projected to leave the U.S. for health care in 2022, according to Healthcare.com, citing data from the medical travel website Medical Departures.

That outburst of activity got a big boost in late 2021, when the U.S. relaxed key border restrictions with Mexico.

Costa Rica is the second-most popular destination for U.S. visitors seeking medical care elsewhere, Woodman said. It’s a particular draw, he added, for people in the Northeast and Southeast.

Cosmetic surgeries are just one of the procedures that are far cheaper in Mexico — for years, people have been visiting from the U.S. to get elaborate dental work or cosmetic treatments done, or to pick up antibiotics and other medicines at favorable prices.

Many people also travel to get orthopedic work done, replacing knees or hips for less than half the cost of such procedures in the U.S.

“North American patients travel to Mexico for care primarily to save 50-70% over what they would pay in the United States for an elective treatment,” according to Woodman.

There is no such thing as a robust system of international civil law.

At Foreign Affairs Max Bergmann and Sophia Besch underscore a point I’ve been making:

Instead of galvanizing efforts to address deep structural problems in European defense, the war has only reinforced them. European forces are in worse shape than previously thought, and weapons stockpiles have necessarily been depleted to support Ukraine. As Europe seeks to rearm, it is finding that its defense industries aren’t fit for purpose. Efforts to coordinate European procurements are not working, with countries all going their own separate ways, adding to the general dysfunction. The United States has demonstrated its indispensability to European security and confirmed Europe’s dependence on Washington. European leaders have seemingly accepted this as the natural state of affairs, with many declaring the pursuit of European “strategic autonomy” dead and turning their backs on cooperation with other EU countries. The momentum in favor of reform and change that had built up over the last decade appears to have vanished.

Although proposals exist for addressing these problems, none offer the kind of sweeping initiative that would be necessary to fix them. In short, a broken status quo prevails.

The major European economies have not fulfilled their commitments. Their advocates here say, “Well, it takes time”. The authors continue:

The war has revealed the appalling state of European defense. Europe has underinvested in its armed forces for the past 20 years, and what little funding it did commit was focused on building forces for humanitarian, counterinsurgency, and counterterrorism missions far from the continent, such as in Afghanistan. European militaries thus lack the basics needed for conventional warfare in their own backyards. Most countries lack basic ammunition stockpiles. The German armed forces, for instance, only have stocks of ammunition for a few hours or days of combat. Tank fleets across Europe have atrophied both in numbers and readiness. Germany has 300 Leopard 2 tanks on paper, but only 130 are operational. And it is not just Germany: Spain also has more than 300 Leopard tanks, but one-third of them are no longer active and are largely in disrepair. Europeans lack sufficient quantities of artillery and are therefore heavily depleting their forces to support Ukraine. France, for instance, has sent more than one-third of its howitzers to Ukraine, while Denmark has sent practically all of its artillery. Although European states, to great acclaim, committed themselves earlier this year to sending Leopard tanks to Ukraine, it is unclear how long it will take to make them combat-ready.

What they don’t mention is that part of the reason that Europe is as defenseless as it is is that both we and the Europeans like it that way. We don’t have to worry about being threated by German armies and the Germans can spend the money they could spend on their military on other things—the Germans are much stricter on fiscal matters than we are.

source: tradingeconomics.com
I have long thought that was a feckless strategy on our part but that’s what we’ve been doing. I would think that we would give the Europeans a choice: defend themselves or pay us to defend them. For some reason or other we don’t do that.

Given a choice between supporting Ukraine against Russia and supporting Taiwan against China, which should the U. S. choose?

If your answer is both, you need to explain how we’ll do that with our present industrial base and fiscal situation. What do you plan to cut from the budget? If you don’t plan to cut anything, how will you realize enough revenue—just raising marginal tax rates is not enough. The federal government is already at WWII levels and there are limits to how much can be extracted from the private economy.

Update

Possibly a pretty timely first question given this report by Jeremy Herb and Zachary Cohen at CNN:

US Director of National Intelligence Avril Haines told Congress Wednesday that Chinese President Xi Jinping is likely to press Taiwan and try to undercut US influence in the coming years as he begins a third term as president.

While Beijing has stepped up its public criticism of the US, Haines told the Senate Intelligence Committee that the intelligence community assesses that China still believes it “benefits most by preventing a spiraling of tensions and by preserving stability in its relationship with the United States.”

I have no idea what “press” means in this context or what President Xi is likely to do. Russian President Putin had Russia’s military invade Ukraine shortly after his 71st birthday. How old is Xi Jinping? 69? These milestones have a way of focusing the mind.

I expected a response from the editors of the Wall Street Journal to President Biden’s plan for Medicare and I wasn’t disappointed:

President Biden on Tuesday rolled out a plan he says will shore up Medicare for decades, and we’re all supposed to believe the spin: looming insolvency averted. But this proposal is really a huge tax increase paired with prescription-drug rationing that does nothing to reform the health entitlement, and the tax ratchet is only beginning.

The White House in a fact sheet previewed a proposal for “extending Medicare solvency” in its budget outline for fiscal 2024, set for release Thursday. Mr. Biden says he’ll extend “the life of the Medicare Trust Fund by at least 25 years,” without “benefit cuts” while “lowering costs for Medicare beneficiaries.” The program’s hospital insurance trust fund is set to start coming up short in 2028.

This Medicare miracle will come mainly from raising taxes and diverting the money into what was supposed to be a self-financing trust fund. The Administration would extend the Affordable Care Act’s 3.8% surtax on investment income to business income. Pair that with jacking up the rate to 5%, but putatively only for those earning north of $400,000. The current net investment tax kicks in at $250,000 for married couples, so call the new bracket a surtax on the surtax.

They raise a good point, allied to an observation I made in my own post, linked above. It’s hard to tax the highest earners. They have devices for avoiding taxes unavailable to the rest of us and they have the wherewithal to hire lawyers to ensure their interests are protected. That’s why taxes tend to fall on us ordinary wage slaves. We’re easy to tax and we’re unlikely to fight back.

As I noted in my post I’m not opposed to either of the measures President Biden mentioned in his op-ed but they don’t do anything to solve fundamental structural problems in Medicare. So, for example, if healthcare costs rise 6%, that means that the general rate of inflation is at least 1% and it’s all healthcare. Translation: cost of living increases are different now that healthcare is a sixth (or more) of the economy.

Regardless of what some of the things I’ve written may sound like I’m actually very sympathetic to free trade. I’m probably the only person you’ve encountered who’s actually read (and understood) David Ricardo’s “On the Principles of Political Economy and Taxation” (in which the theory of trade that later came to be called “comparative advantage” was laid out). Ricardo himself also pointed out that it only applied when capital was immobile which is not the case today.

I’m seeing lots and lots of criticisms of our increasingly protectionist trade policies. Some of that is purely partisan but some is ideological.

I have a question for the free trade absolutists. How does the United States remain secure while being dependent on other countries both for manufactured goods and materials? Security is the bottom line even if it means that goods become more expensive.

My own preference is for us to be buying more from Canada and Mexico (in particular) and I find it perverse that the “Buy American” push falls disproportionately on imports from those two countries. But that’s another subject.

I think that Matthew Crawford has hold of the wrong end of the stick in his post on California corruption:

I grew up in California, moved away in the early Nineties, and moved back in 2019. One of the new things I noticed upon my return was small signs stuck to the side of a car, or printed on posterboard and erected on a street corner, advertising “DMV services”. After some intercourse with a few of these, always conducted in halting, heavily accented English, I came to understand that these entrepreneurs are “fixers”, a species that most Americans are unacquainted with. If you want to get something done in the developing world, you often need to engage the services of a fixer. This is someone who has connections in the bureaucracy, often by virtue of kinship. Being a naïve visitor without connections, you couldn’t possibly know whom to bribe, how to approach them, or what forms must be observed. These things must be accomplished with delicacy. You, brainwashed to believe in the Weberian version of bureaucracy as impersonal rationality, are too naive to navigate a real one in most parts of the world.

Any Chicagoan will feel a twinge of nostalgia about that. Until ten years ago or so that’s the way lots of things worked in Chicago. When you needed to get a variance, you went to “a guy” or what Mr. Crawford refers to as a “fixer”. “The guy” actually had a pseudo-office, a corner or bench in City Hall and there was frequently a line of people waiting.

I don’t think that globalization or multiculturalism has anything to do with it and political corruption, single party rule, and confidence that your corrupt arrangement will not be detected let alone punished have everything to do with it.

While I agree with Mark Penn and Andrew Stein’s lament in an op-ed in the Wall Street Journal:

The Brooklyn Bridge cost $300 million to build in today’s money. The price tag for the Golden Gate Bridge was $750 million. Based on those numbers, the recent $1.2 trillion infrastructure package should be enough to build roughly 4,000 Brooklyn Bridges or 2,000 Golden Gates. If you believe that’s going to happen, we’ve got a bridge in Florida to sell you.

The sad reality is that the country will be lucky if any new bridges, tunnels or major roads get built. The numbers are huge: $110 billion for roads and bridges, $66 billion for Amtrak, $39 billion for public transit, $25 billion for airports. But watch where that money actually gets allocated in the next few years. So far most of it has gone entirely to renovation, not innovation. Environmental rules, endless delays, inflation, work rules and politics all play a role in ensuring that lots of pockets get lined but few new projects move forward.

On Jan. 31, President Biden visited New York to announce $300 million in federal money toward a replacement rail tunnel under the Hudson River—one phase of a larger renovation that will cost an estimated $30 billion and be completed in another 12 years. By contrast, the original Lincoln Tunnel was built in less than four years in the 1930s and cost $1.6 billion in today’s dollars.

Despite advances in engineering, building methods and computers, one rail tunnel repair now costs 20 times what a brand-new tunnel cost a century ago and takes three times as long, if it ever happens. Construction timelines are measured in decades rather than years. Had the projects of the New Deal been done this way, they would have stretched into World War II and beyond.

I don’t think their complaint about “efficiency” actually describes what’s happening. Why do we pay more per foot of road or bridge built than any other country in the world? It isn’t “efficiency”.

I suspect there are several possibilities:

• The United States has the largest number of lawyers per capita of any country in the world and lawyers are the foot soldiers of NIMBY.
• Neither the federal government nor state governments build roads or bridges. They let contracts for private companies to do them and only a very small number of companies are deemed qualified to bid. The successful bidders are rarely motivated to hire more workers or purchase more equipment to bring the projects in faster.
• Inflation is the enemy of bringing projects in at cost and on time.

just off the top of my head. BTW Boulder Dam came in on time and under cost. When was the last time you heard of a major infrastructure project doing that?

This morning President Biden had an op-ed in the New York Times sketching his plan to “save” Medicare. Here’s the plan:

My budget will build on drug price reforms by strengthening Medicare’s newly established negotiation power, allowing Medicare to negotiate prices for more drugs and bringing drugs into negotiation sooner after they launch. That’s another $200 billion in deficit reduction. We will then take those savings and put them directly into the Medicare trust fund. Lowering drug prices while extending Medicare’s solvency sure makes a lot more sense than cutting benefits.

Second, let’s ask the wealthiest to pay just a little bit more of their fair share, to strengthen Medicare for everyone over the long term. My budget proposes to increase the Medicare tax rate on earned and unearned income above $400,000 to 5 percent from 3.8 percent. As I proposed in the past, my budget will also ensure that the tax that supports Medicare can’t be avoided altogether. This modest increase in Medicare contributions from those with the highest incomes will help keep the Medicare program strong for decades to come. My budget will make sure the money goes directly into the Medicare trust fund, protecting taxpayers’ investment and the future of the program.

I don’t object to either of those changes in principle and I actually agree with the reasoning President Biden presents:

When Medicare was passed, the wealthiest 1 percent of Americans didn’t have more than five times the wealth of the bottom 50 percent combined, and it only makes sense that some adjustments be made to reflect that reality today.

If incomes had continued to grow at the rates they had up until just about the time that Medicare was enacted, neither Social Security nor Medicare would have the problems they do now.

I’ll reserve judgment on whether those measures will produce the results President Biden says they will until after actual legislation is drafted and the Congressional Budget Office weighs in. The phrase “earned and unearned income” troubles me especially from a practical standpoint. Also, the highest earners have strategies available to them unavailable to the rest of us. That makes relying on them for increased revenue iffy.