Governments have always more or less held to political satirist P.J. O’Rourke’s dictum that “It’s better to spend like there’s no tomorrow than to spend tonight like there’s no money.” Recently, however, some truly outlandish proposals have become mainstream in both political parties. These policies make one wonder whether today’s politicians misinterpreted O’Rourke’s humor as actual advice. One such proposal is the “Medicare for All” plan that is spreading throughout the Democratic Party with all the menace and energy of a wildfire.
The cost of “Medicare for All” would be, conservatively, $32 trillion over 10 years. That is $3.2 trillion year, or a near 80 percent increase in proposed federal expenditures for FY 2018. The deficit for FY 2018 is projected to be $793 billion. Deficits over the next 10 years are projected to surpass $1 trillion. Therefore, even if proponents can come up with a way to fund the $3.2 trillion in new annual spending on “Medicare for All,” we will still be left with perennial trillion-dollar deficits. When so-called “common sense” consists of adding to the budget the equivalent of the entire GDP of Germany, one wonders how common it is.
However, if we are to define “common” as pervasive in its political influence, then “Medicare for All” is fast gaining ground. Only six years ago, Senator Bernie Sanders introduced his “Medicare for All” plan with precisely zero co-sponsors. Today, you cannot run for President or be considered a leader in the Democratic Party without buying into the idea wholesale. Current supporters a version of Sanders’ proposal include presidential aspirants Senator Cory Booker, Senator Kristen Gillibrand, Senator Kamala Harris, Senator Elizabeth Warren, New York Governor Andrew Cuomo, US Senate Candidate from Texas Beto O’Rourke, and, of course, the new “democratic socialist” voice of the Democratic Party Alexandria Ocasio-Cortez.
Ocasio-Cortez has generated much attention with her claim that “Medicare for All” will save the American people untold amounts of money. Literally “untold” amounts, because the candidate for Congress has no answer for how the program will be funded, beyond a vague reference to the fact that such a single-payer system could cover funeral costs and increase administrative efficiency. (It is ironic that one of the few specific examples of “savings” Ocasio-Cortez cites involves government funding for post-death expenses.)
Senator Sanders and others have made this claim before. However, Ocasio-Cortez, as the foremost rising star of the Democratic Party, continues to bring the idea to the forefront. And now the debate has taken on a furious pace.
For that reason, it stands apart in demanding an answer. Bad ideas have a will of their own; because they so often take on the guise of simplicity and common sense. But when they are pushed to the forefront of the conversation, they take root in the minds of the uninformed and the hopeful and require great effort to beat back. The late American economist Murray Rothbard once wrote sardonically that “[i]t is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.”
Indeed, economics often is about nuance. That politicians wish their economic advisers had not so many hands with which to weigh the manifold effects of a given proposal is well-known. Yet that nuance is built upon fundamental laws of human action that hold with near certainty. And when a claim is made that is fundamentally at odds with those laws—as well as the available data and basic logic—nuance gives way to militancy in defense of clear thinking. The following facts will be presented with just such a pugnacious certainty, lest the lessons that flow from them remain misunderstood.
Medicare is already broke. The Medicare hospital insurance “trust fund” will run out of money in 2026. Demographic disparities and the massive baby boomer retiree population will ensure that current payments will only cover a fraction of current liabilities. Overall, the Medicare Trustees estimate the present value of the program’s unfunded liabilities over the next 75 years at $37 trillion. “Medicare for All” would put the program that much more in the red every decade. The federal government would need to make changes to Medicare today that yield a present value of $37 trillion to cover its unfunded liabilities. For comparison, U.S. GDP is approximately $19.3 trillion. Therefore, if we taxed away literally all gains from all production and consumption in the U.S. economy for the entire year, we would still fall almost $18 trillion short of breaking even on Medicare’s unfunded liabilities. Yes, the economy will grow over the next 75 years, but this does not belie the fact the fact that just to cover current obligations taxes must go up massively, benefits must be drastically reduced, or some combination of the two must occur to yield a present value sum of 185 percent of U.S. GDP. Moreover, this is all without adding any additional spending on “Medicare for All.” Perhaps we should figure out how to pay for what we have already promised before complicating our obligations.
Continued in Part Two.