We have long argued that at its core, modern society, at least on a mathematical basis - the one which ultimately trumps hopium every single time - is fatally flawed due to the existence, and implementation, of the concept of modern "welfare" - an idea spawned by Otto von Bismarck in the 1870s, and since enveloped the globe in various forms of transfer payments which provide the illusion of a social safety net, dangles the carrot of pension, health, and retirement benefits, and in turn converts society into a collage of blank faces, calm as Hindu cows. Alas, the cows will promptly become enraged bulls once they realize that all that has been promised to them in exchange for their docility and complacency has... well... vaporized. It is at that point that the final comprehension would dawn, that instead of a Welfare State, it has been, as Bill Buckler terms it, a Hardship State all along. Below we present the latest views from the captain of The Privateer on what the insoluble dilemma of the welfare state is, and what the key problems that the status quo will face with its attempts at perpetuating this lie.
From The Privateer
It appears that the "Captain" is on to something here. A few short hours ago none other than Goldman Sachs was forced to come out with a report attempting to justify this most fundamental social illusion, in "Is Health Spending Unsustainable" - that only Goldman, and potentially the San Fran Fed, could put this question for serious debate when it is well known that the unfunded liabilities associated with such luxuries is in the triple trillion digit ballpark, speaks volumes. Yet, since even Goldman is now floating various "trial balloons", we can only assume that this is about to become a big issue for policy, especially ahead of the Supreme Court's hearings later this month on the constitutionality of the national health care law.
The Great Delusion - “Welfare”
For the best part of the last two decades, it has been accepted as an indisputable fact even by the mainstream media that the two great pillars of the welfare state - medicare and social security - will break the government which offers them. Today, every nation in the world makes at least some pretense of providing “welfare” to its citizens. Since the “developed” (or “rich”) nations are those where these systems are most “developed”, these are the nations most at risk of crumbling under their burdens.
Welfare has many antonyms, but “hardship” is particularly apt in this context. Wikipedia’s entry on “welfare” ends like this: “... this term replaces “charity” as it was known for thousands of years, being the act of providing for those who temporarily or permanently could not provide for themselves.” As usual, the defining characteristic is missed. Charity is voluntary. “Welfare” as practised by government is compulsory. This makes the two terms opposites. It also brings about the opposite results. Charity is a voluntary act made by those who have a surplus to assist those who do not. “Welfare” is a system guaranteed to end up in hardship for everyone but particularly for those who are forced to be “charitable”.
The insoluble dilemma of a “welfare state” is twofold. First, it results in a situation in which the majority of people who vote are partially or wholly dependent on the state for their sustenance. In every “advanced” nation today, those who vote for a living outnumber those who work for one. It is true that not everybody, or even a majority of those eligible in many cases, bothers to vote at all. It is equally true that the “wards of the state” have much more incentive to vote than do those who are to provide for them.
The second dilemma is the issue of the unfunded liabilities. The US government divides its budget into discretionary and NON discretionary items. The bulwarks of the welfare state, social security and medicare, fall into the second category. They are considered untouchable. There are only two problems here. First, the unfunded liabilities of these two programs are somewhere in the order of $US 80 - 120 TRILLION. Second, any talk of sharply lower annual deficits (let alone talk of a return to a budget balance) are puerile without MAJOR surgery being performed on medicare and social security. They are gigantic millstones around the neck of the US economy as they are on the economies of all other nations.
In the hands of government - “welfare” becomes its antithesis - “hardship”. Today, this is being illustrated in real time in Greece. But no nation can afford a welfare state in the long run.
From Goldman Sachs
I. Is Health Spending Unsustainable?
Health spending in the US exceeds that of any other developed nation, topping the next largest spender by nearly half again as much (as a share of GDP). Spending has also tended to grow faster in the United States than elsewhere (Exhibit 1). Unchecked spending runs the risk of destabilizing public finances, reducing competitiveness with trading partners, and ultimately crowding out other productive uses of resources. This is particularly the case if health spending is inefficient (Exhibit 2).
However, the case that health spending is “unsustainable” isn’t as clear cut as the debate has sometimes made it out to be. After all, dedicating a larger share of future income gains to improving health could be a more productive investment than increasing other forms of personal consumption. Moreover, while health spending within federal programs is clearly unsustainable under current policies and growth trends, whether broader health spending should also be deemed to be growing too quickly depends on whether increased spending improves outcomes and whether it affects the ability of the rest of the economy to grow.
What Drives Health Spending?
From 1970 through 2010, nominal health spending grew at an average annual rate of 9.7%, well in excess of nominal GDP growth of 6.8%. Excess growth was greatest in the 1970s and 1980s, declined in the 1990s, and reaccelerated somewhat in the last decade (Exhibit 3). Continual growth in excess of GDP growth has led health spending to reach 15% of GDP (Exhibit 4). Notably, this has occurred while the out of pocket costs to patients and consumers have declined, replaced by indirect costs such as insurance premiums and taxes that fund public programs, as well as federal borrowing.
There is no single cause for excess growth in health spending, but a large body of research has focused on the drivers of growth and has reached qualitatively similar conclusions, as shown in Exhibit 5:
Technology. Advancement in the state of technology typically increases cost over existing products or procedures, though it may produce savings in other areas. Academic work has typically attributed residual spending growth to technology, after accounting for other measurable factors. More recent work has tended to find a slightly smaller though still large contribution from technology to total health spending.The exact magnitude is necessarily imprecise in any case, given substantial interaction between the availability of new technology and willingness to pay for it due to rising incomes and greater insurance.
Income. Differences in income explain a good deal of international variation in the health spending to GDP ratio (Exhibit 6). This implies that as societies become richer, they devote a greater share of additional income gains to health rather than other forms of consumption. We find that regressing excess cost growth through 2010 against real GDP growth with a one year lag produces a statistically significant coefficient similar to the estimates shown in Exhibit 5.