Continuing on the theme of federal spending from last week, I’m going to jump straight to the big daddy of them all Healthcare.  As you’re probably aware President Obama has promised significant healthcare reform and is gunning to have legislation passed as soon as possible.  But is this the right time to rush to spend money we currently don’t have?  Especially considering how much we have just shoveled out the door to help our buddies in the banking sector.  Right now our total credit market debt stands at 350% of Gross Domestic Product or GDP for short ( source with charts).

If you are unaware of what GDP means, just think of it as the total amount of revenue our economy as a whole is able to generate in a year.  In other words something like the yearly salary of the whole giant US economy.  That figure of 350% means if we took every bit of money that our economy can generate and applied it towards our debt, it would take 3 and half years to pay it all off (assuming of course that the debt doesn’t carry any interest payments on it, which we all know debts always do).  This may not seem too bad, but historically speaking it’s pretty bad.  The last time we had such a massive spike in debt relative to GDP was right before the Great Depression when we reached a peak of around 260% of GDP (see chart again).

President Obama, aware of the situation we are in, has made the promise on several occasions that any healthcare bill he signs will not add a “dime” to the federal deficit.  If you are like me, you may find it hard to not laugh when a politician makes claims like that.  So how do you give away healthcare without adding to the deficit?  Well, most current proposals are taking the route of taxing “expensive” health insurance plans.  It’s difficult to know exactly what qualifies for “expensive” since almost all insurance plans are very expensive and are only made affordable by employers paying for a substantial share of the cost as a benefit to attract talented employees.  This makes it certain that a large segment of the middle class will be affected by these taxes.

The question remains, do these taxes raise enough money for Obama to make good on his promise not to increase the deficit.  The big problem here is that it doesn’t, and instead relies on a supposed $2 Trillion in savings over the next decade to try and make up the difference (source).  This is very misleading because a lot the assumptions concerning “savings” presume that the government is going to be able to provide medical care cheaper simply by playing hardball and and negotiating for cheaper work from doctors, hospitals, and pharmaceutical companies.  This assumes of course that the federal government, who has no special expertise in medicine, will be able, through the magic of its bureaucratic wonderment, to be more efficient and effective than all those who have come before them.  Fat chance.

Obama also tries to fill the gap by pushing additional medical care responsibilities onto the states.  This would force states who cannot borrow money nearly as cheaply as the federal government, to follow its example of overspending and lead them into massive deficit spending of their own to meet the new demands.  Voters need to ask what is really going on here, as Obama and the Democratic congress are rushing to jump headlong into a new era in the expansion of government.

Is Obama planning on meeting the requirement he has set for himself or is he merely playing politics by making such promises?  According to a recent Rasmussen poll 68% of voters believe that a passage of a health care bill will lead to an increase in the deficit (source)  Additionally, many newspapers around the country (including ones that supported Obama’s run to the presidency) are reporting that the healthcare proposals currently on the table will in fact increase the deficit signficantly.  We are struggling right now to meet the growing demands of social security, medicare and medicaid, the war in Afghanistan/Iraq, and a continuing massive bailout of the finacial industry.  Does is not make sense for us to look before we leap with this new healthcare bill?  Shouldn’t we demand that Obama abide by his promise of no new deficit spending for healthcare?  The time to make yourself heard is growing really short as Congress is working overtime to get this bill to the President’s desk.  If you have something to say to your representatives makes sure you do so now.

Last 5 posts by michael2l

• Intro to Inflation/Deflation: Part 1 - October 30th, 2009
• How to Understand a Trillion Dollars - October 9th, 2009

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