The CBO, Deficits & Transfer Payment Programs

"Social Security and Medicare were popular from the start and passed with bipartisan support."

That statement, buried in Fred Barnes' editorial in this morning's Wall Street Journal, jarred me.

Why, I mused, were these gargantuan transfer payment programs so popular at their inception, in contrast to the current abomination, Obama's health care proposal? Especially as crafted by the Senate, and filled with bribes to selected states whose Democratic Senators required those payoffs to vote for the bill?

A little research reminds us that Social Security became law in 1935, while Medicare was enacted in 1966. Both of those years were in eras distinctly different from our own.

Social Security was passed in the midst of the Great Depression. People were worried, extrapolating then-current experience, about providing for their aged years. The country had what is now viewed as essentially no external debt. Additionally, not a trivial point, the program was only meant as a safety net, not a universal entitlement. Ostensibly, FDR and his ilk foolishly believed that that average American would continue saving as if nothing had changed, with Social Security only intended to pay those who, through bad luck, ill health or stupidity, failed to save enough for their later years.

So much for good intentions. And a first taste of the sting of unanticipated consequences.

Medicare passed during what I view as the height of America's post-WWII salad days. I learned from people like my late father how unimpeded US business was abroad. With Germany and, for that matter, most of Europe still recovering from the war, and Japan exporting copycat transistor radios and silly little Toyota Corollas, American business reigned supreme, and American labor demanded and received extravagant promises of future pension and health care benefits.

So, ironically, our two largest social welfare transfer payment programs were passed with widespread support in two distinctly different, but each uniquely accommodating eras.

Thus, Fred Barnes' quote, so simple in its candor, expresses, really, the profound naivete of the American people and Congress in 1935 and 1966.

In the former, nobody thought it appropriate to be against such a simple, small old age pension scheme thought to only be needed for a few extreme cases. Nobody noticed that the very first Social Security check ever cut was for more than that first beneficiary had paid into the system in her lifetime. The pattern was set from the very start.

In the latter, a lucky nation mistook that luck for its lasting position as a supreme economic power spewing out uncountable wealth, and simply promised a sizable share of that presumed future wealth to oldsters for their medical care.

Everyone in business who is at all effective knows that implementation matters. It's not just superior concepts that profit, but well-implemented ones.

How often do we hear an aphorism such as, "better lucky than smart?"

Or, "Better to have a bad strategy implemented well, than a good strategy implemented badly?"

In the case of both Social Security and Medicare, stupid Congressmen designed and implemented a 'communal pot' scheme. That is, rather than providing individualized accounts for each program's transfer payments, so that individuals had a cap on benefits, and owned them, Congress just tossed all the payments into a pot, then dipped into the pot for payouts, too.

No caps nor any notion of limitations on individual claims were considered. Worse, because Social Security wasn't yet broke by the time the geniuses in Washington dreamt up Medicare, they did the same thing with that, as well.

Since then, both programs have vastly outrun their initial spending projections, and are deeply in deficit. Because they are not accounted on the federal government's balance sheet, their deeply-unfunded liabilities are not shoved in the faces of taxpayers and voters. But, like the unsightly children (Ignorance and Want) beneath the cloak of the Ghost of Christmas Passed in Dickens' A Christmas Carol,

"The live....oh they live."

And grow, as well. The deficits grow because, as Barnes noted, the programs are so popular. Yes, transfer payment programs sure do engender behavior that swells their usage far beyond the limited spending projections naive Congressmen used to pass them, don't they?

Now health care is becoming the third in a series of disastrous, ultimately economy-wrecking social transfer payment programs.

It's bad enough that Congress is still full of members who, in their majority, are too stupid to realize the necessity of individual, benefit-capped accounts.

But now they've added a new disastrous wrinkle. They lie about the program's structure, then rely on the Congressional Budget Office to certify the lies as fiscally responsible.

Yesterday morning, on CNBC, a former CBO official served as guest host. He confirmed that the CBO has two unyielding dicta: it can't question assumptions of Congressional schemes given to it to estimate costs, and; it can't make a 'good/bad' judgment.

Thus, the widespread knowledge that the current Senate health care bill is unsustainably expensive is not reflected in this morning's new CBO 'scoring' of the bill.

Rather than highlight the front-end loaded new taxes and Medicare cuts, combined with only 6 years of benefits, and explain that this results in a fraudulent 'savings' of $100B, the CBO can only state the alleged savings.

Further, the CBO is not allowed to inject the effects of realistic human behavior on the scheme. That is, seeing how Americans behaved with respect to other free-ride transfer payment schemes, i.e., Social Security and Medicare, it's reasonable to expect that Americans will overuse and overspend estimated usage of this new proposed program.

Which brings me, again, back to Fred Barnes' statement.

When government alleges it can give you something for apparently nothing, who doesn't like that? In the 1930s, nobody really grasped the long run costs of Social Security. The envisioned usage of the program just didn't seem to be very much to spend in order to keep a few oldsters off the streets in their waning years.

Instead, as long ago as 1975, when I was a freshman in college, I had a classmate who was paying for his tuition with Social Security benefits from his father's death.

Huh?

I seriously doubt that's what the Congress of 1935 ever envisioned for Social Security.

Of course there was widespread popular approval for Medicare. The US seemed economically invincible, so Congress enacted another 'bread and circuses' program to appease voters and promise to remove the burdens of health care costs in old age.

Once again, linkages between behavior and consequence, and the notion of individual responsibility affecting risky behavior, vanished.

And you wonder why we have an obesity crisis today?

Now we combine the elements of the perfect economic/transfer payment scheme storm. A misleading CBO report of alleged 'savings' for a new, vast health care and insurance transfer payment program which will destroy the private health insurance business, heap the resulting risks onto the taxpayers, promise open-ended benefits for all forever. And presume to borrow from investors in the rest of the world to fund it.

Barnes is right when he asserts that, unlike Social Security and Medicare, this new entitlement program will spark annual funding fights and crisis from the moment it passes, if it passes.

And its repeal will become the Republican party's major, focusing objective for the next three years.

As I said to my business partner at lunch yesterday, it's just possible that this bill must pass, in order for health care entitlement to finally be vanquished when it is repealed in three more years.

Otherwise, the dimwitted, gullible American public won't understand the horrifying loss of liberty and imposition of huge taxes to fund this mistake. Not to mention the fiscal emasculation of our country and downgrading of its debt, as the world wisely declines to fund our misguided entitlement programs.