If you go to the Treasury debt-to-the-penny link and plug in the inauguration dates, here's what we see:
Now, in reviewing the Clinton numbers, one has to keep in mind that the key number is NOT public debt, but total debt outstanding (which is what I show above). Total debt outstanding is public debt plus intragovernmental holdings; intragovernmental holdings include social security, civil service retirement, federal supplementary medical insurance trust, federal hospital insurance trust, unemployment trust, military retirement funds and other miscellaneous accounts. These intragovernmental holdings are required to purchase Treasury notes with their surpluses. This presents a captive source of funding used to finance government operations or service the public debt. [Personally, I would prefer that trust fund holdings be invested in a diverse set of assets; the captive investment in Treasury notes creates a moral hazard, because lawmakers don't feel as much a need to cut expenditures when they can use trust fund money to make up the difference.] The budget surplus is when federal inflows exceed federal outflows. Now we can broadly classify inflows as federal revenues (income taxes, tariffs, etc.) and trust fund contributions (e.g., payroll taxes). Similarly, we can classify outflows as federal expenditures and trust fund redemptions. Most taxpayers intuitively think of the surplus/deficit in narrower terms, i.e., federal operating revenues minus expenditures. That, in fact, never happened during the Clinton administration. Steiner notes the closest we came to an operational surplus was an $18B deficit in FY2000.
So what do you do when your mandated trust fund debt service exceeds any operational surplus or deficit? You pay down the public debt. I remember during those days some people even wondered what we would do if we managed to pay off the public debt.... [Here's a quick thought: how about letting the trust funds divest of their Treasury notes and build a lockbox of real assets?] The Treasury reports only yearly intragovernmental holdings during the later Clinton years, but we see approximately $200B annually being loaned to the government during this period.) So what does the much vaunted "surplus" really mean? The federal government was robbing Peter to pay Paul, i.e., shifting Treasury notes from the public account and putting them in the trust accounts. Simply put: an accounting gimmick.
Now here's the problem (and that's why we conservatives are so anal-retentive about entitlement solvency): as trust funds continue to pay out more money as baby boomer retirements accelerate, the government will no longer be able to depend on this captive surplus to finance the debt. (This has become more apparent during periods of unemployment above the historical mean, as we have today, because unemployed people do not pay payroll taxes.) In fact, the time is fast approaching when we will have to finance net outlays to trust beneficiaries in order to redeem Treasury notes owned by the trust funds. Assuming that we are not operating an operational surplus, this means doing the reverse of what we saw during the latter Clinton years: we need to sell public debt to meet our obligatory outlays to beneficiaries. The long-term picture is even worse because the trust funds may run out of Treasury notes but we STILL are obligated to pay out benefits to beneficiaries; that's what we refer to as an unfunded mandate. Where do we get that money? In essence, even when the reserves are exhausted, we'll still have trust fund contributions--but we will have to pay out the difference as a federal expenditure. We either have to make painful cuts in other federal expenditures or try to increase the public debt. In essence, we will have converted a trust fund to an operating budget program.
But among other things, the Clinton myth conveniently ignores the elephants in the room, namely the House Republicans whom took control over the last 6 years of the Clinton Presidency. Clinton piled up a $600B deficit during the first two years with a Democratic-controlled Congress--and that was WITHOUT passing his version of health care reform. The GOP also balked at planned Clinton budget increases for domestic spending, and Clinton received the benefit of productivity increases associated with the information technology advances and increased tax revenue of unsustainable investment gains during the stock market bubble in the last few years of his Presidency.
Obama Wants to Regulate Health Insurance Rates? HELL, NO!
I'll address some of the other expects for the Obama health care framework released today for a future post, but one of the ideas is flatly a non-starter: the idea of centralizing the regulation of insurance rate increases, which I consider flagrantly unconstitutional (tenth amendment). The fact is, states already regulate health care insurance rates. Now, of course, this is consistent with Obama Administration rhetoric, pointing out that certain carriers dominate in some markets. The theory is that the market makers will exploit the lack of competition to arbitrarily mark up premiums, translating to windfall profits. There are several things wrong with that, including the fact that windfall profits, if they are perceived to be sustainable, will draw competition. The insurance business model does not require intrinsic high barriers to entry, e.g., computer chip foundries. It bundles medical services with a markup to cover its costs, including provider reimbursements and administrative services (including qualifying and negotiating with providers and validating charges), and a reasonable profit (when applicable, because some vendors (e.g., Blue Cross) are non-profit).
Why are there high costs for health care insurance? Some of the cost trends are intrinsic, based on demographics, i.e., an aging, longer-living population, or lifestyle trends (e.g., obesity, alcohol and drug abuse, etc.) Other factors include including increased utilization of medical testing and services, advances in medicine and expensive new health care technology, broader-access plans and government cost-shifting to providers in the private sector (e.g., servicing Medicare/Medicaid patients or unrecovered costs of uninsured patients). Others reflect expensive supplemental health care benefit mandates (e.g., in vitro fertilization) or dysfunctional policies perverting the concept of insurance, e.g., no-wait-period acceptance, which essentially allows people to defer buying insurance until they have a serious medical problem and then attempt to socialize their medical expenses. In addition, escalating medical insurance costs affect the number of available providers, with relevant supply/demand implications.
In fact, it's hard to make a case of excessive profits for the health care insurers:
Overall, the profit margin for health insurance companies was a modest 3.4 percent over the past year [2008], according to data provided by Morningstar. That ranks 87th out of 215 industries and slightly above the median of 2.2 percent. With profits in many other industries depressed, health insurance profit margins probably rank higher than they normally would, compared with other industries. Pharmaceutical companies have a profit margin of 16.4 percent—seventh highest of the 215 industries that Morningstar tracks. Others segments of healthcare with margins well above the median include healthcare information (9.4 percent), home healthcare firms (8.5 percent), medical labs (8.2 percent), and generic drugmakers (6.5 percent). [You can also add medical device makers behind pharmaceuticals.]A Weiss Report, looking at 2003 data, found 69% of insurers either lost money or made under a 5% profit margin, and heath care insurers lagged behind property & casualty insurers and life insurers (just over 8% margins) by at least 270 base points.
Obama can't change the inherent cost drivers (in fact, he's selling the use of preventive diagnostic tests, some of which have been questioned from a cost-benefit approach); he also makes a disingenuous comparison of administrative costs between the government and the private sector, since (among other things) the government establishes its entitlement program reimbursements by fiat, not negotiation, does not have comparable marketing expenses, and in the past has not included standard anti-fraud measures like the private sector.
Political Cartoon
Bob Gorrell points out some executives exercise leadership and take responsibility. The Obama Administration could, at any time, exercise restraint and responsibility by slashing programs and personnel, eliminating redundancy and middle management, merging operations, freezing hires, salaries and benefits. etc. All Obama is trying to do is to create yet another panel, commission, etc.--a favorite stalling tactic of many managers unwilling to take decisive unpopular action in the short term. When we are facing solvency issues with entitlements, aggravated by falling payroll tax collections due to unemployment issues, what did Obama do? Push on strings, i.e., tackle climate change and health care reform (given a large percentage of Americans happy with their private-sector insurance).
Quote of the Day
A person who can't lead and won't follow makes a dandy roadblock. - Author unknown
Musical Interlude: Simon & Garfunkel (solo)
"My Little Town" (my favorite S & G song; this is a great solo performance by Simon)
Paul Simon, "Mother and Child Reunion"
Art Garfunkel, "All I Know"
