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State: Speak more to this matter of fiscal irresponsibility.
DW: We’ve had larger deficits as a percentage of the economy
before, like in the 1980s. But we
got something for them. We bankrupted
the Soviet Union, won the
Cold War, and then declared a peace
dividend. In the early 1990s we also
passed a number of bills including
implementation of stringent budget
controls to help restore fiscal
discipline. Those actions and strong
economic growth allowed us to go
from significant deficits to significant
surpluses. Then those surpluses
“burned a hole” in everybody’s
pocket, as our mothers would say,
in spending increases, tax cuts, and
entitlement expansions. That has
taken us from significant surplus to
significant deficits. Furthermore, all
the major budgetary controls that
existed from the ‘90s have expired. As a result, we are running
large and imprudent deficits, most of which are not related to
Iraq and Afghanistan–although those expenditures don’t help.
Our long-range fiscal imbalance is much worse than in the ’80s
and it’s much closer to becoming a reality because the first
baby boomer reaches 62 and is eligible for Social Security on
Jan. 1, 2008, and three years later the first boomer becomes
eligible for Medicare.
When this happens it will result in a tsunami
of spending that unlike most tsunamis will never recede.
It’s a permanent change in the economic, social, and demographic
picture that, unless we end up changing course, could
swamp the ship of state.
State: How severe is the health-care burden?
DW: First of all, the Medicare imbalance is five to six times
greater than Social Security in current dollar terms. The prescription
drug benefit alone has a larger unfunded obligation
than Social Security. The irony is that when the prescription
drug bill was passed in 2003, Medicare already faced a $15–20
trillion unfunded obligation. That added another $8 trillion and
now we are up to about $33 trillion for Medicare alone. Social
Security is a little over $6 trillion.
Our total liabilities and unfunded commitments have gone up
from about $20 trillion in 2000
to $50 trillion in 2006. They are
growing faster than the economy,
faster than household income, and
faster than Americans’ net worth.
The other thing we must keep in mind is that, while Medicare is a major problem for the federal government, it is but a subset of the health-care challenge. You also have Medicaid, not only a major problem for the federal government, but state governments as well. Then you have employer-sponsored health-care arrangements. The federal government is the largest employer in the world, with responsibility for both civilian and military health care, disability, and other programs. Furthermore, health care is the single largest competitive challenge for American business.
So from a practical standpoint, we are going to have to dramatically and fundamentally reform our entire health-care system in installments over a number of years, and we must start now.
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