What Is The Federal Government's Most Disastrous Program?

I know you are thinking that the question is impossible to answer because there are just too many to choose from.  So I'll give you some criteria:  to be considered as the "most disastrous program," a program must (1) cost a staggering amount of money, (2) accomplish next to nothing, and (3) be permeated by vast amounts of fraud.  On these criteria, the winner by thousands of miles has to be Medicaid.  Of course, given that the socialist/progressive response to failure is always to double down, we are in the midst of a huge expansion of Medicaid as part of Obamacare.

The staggering cost of Medicaid is undeniable.  Final 2016 spending numbers are not yet in, but the federal Medicaid budget for 2016 was about $345 billion.   Throw in a couple of hundred bil  for the state share of Medicaid spending, and you get to around $550 billion total.  That's enough to notice!  And spending on this program continues to explode, as it has exploded more or less continuously since inception in 1965.  As recently as 2014, total spending on Medicaid (federal + state) was only $476 billion, per the Kaiser Family Foundation.   First year expenditures in 1965 were about $1 billion.  OK, in inflation-adjusted dollars that would be more like $8 billion.  It's still more than six doublings of spending over 49 years, for a compound annual growth rate in constant dollars of around 9%.  Whew!

But surely, Medicaid accomplishes something -- doesn't it?  That depends what you are measuring, and how you measure.  I would suggest that there are two appropriate criteria to consider as to whether Medicaid accomplishes anything:  improvement in numbers of people in poverty, and improvement in health outcomes.  On those criteria, Medicaid is a spectacular disaster.

Consider the effect of Medicaid on numbers of people in poverty.  That is a highly appropriate criterion to consider, because Medicaid is billed as an "anti-poverty" program.  Indeed, Medicaid is far and away the largest "anti-poverty" program, consuming about half, or a little more, of the $1+ trillion of total federal + state + local anti-poverty spending in the U.S. each year.  It would be rather ridiculous, wouldn't it, to have a massive trillion-dollar annual budget for alleviating poverty, and spend fully half of it on a program that doesn't reduce poverty at all?  Yes, it would be completely ridiculous.  And of course, that's exactly what we do.  In the official measurement of "poverty," in-kind spending like Medicaid does not count.  The Census number crunchers measure "poverty" only based on what they call "cash income," and nothing about Medicaid counts as cash income.  Thus, Medicaid does not reduce the number of people in official "poverty" by a single soul.

If you think that's ridiculous, I have something even more so.  Recognizing the vulnerability of Medicaid to the criticism made here, some defenders of the program a few years ago felt a need to do a study to show that Medicaid actually does reduce poverty.  So in 2013, researchers named Sommers and Oellerich did a big study published in the Journal of Health Economics purporting to apply a sophisticated new methodology to evaluate whether Medicaid actually reduced poverty.  Of course the first thing their new methodology had to do was to avoid use of the regular Census methodology for measuring poverty, because it's a given that Medicaid does not and cannot reduce poverty under that definition.  (Instead they used the "new Coke" Supplemental Poverty measurement that Census had just come up with.  This is the definition of "poverty" now used by all good progressive advocates whenever the traditional measure gives the wrong answer.)  I won't go through all of Sommers & Oellerich's methodology (you can find a more detailed description at the link), but I'll cut to the breathless answer:  "Medicaid kept at least 2.6 million Americans out of poverty in 2010."  Exciting!  The result gets cited repeatedly in the progressive world, for example here by the Center for Budget and Policy Priorities in 2015.  

Really???  $400 billion (approximate 2010 spending level) to keep 2.6 million people out of poverty?  That's around $160,000 of spending per person relieved from poverty!  And this in a world where the official "poverty level" is under $12,000 for an individual, and around $6000 per person in larger families.  If the goal here, or any part of it, is to reduce poverty, it would be literally impossible to design a less cost-effective method even if you set out intentionally to do just that.  Medicaid is the perfect illustration of progressives treating the federal government as the infinite source of free money, without any concept of real costs or trade-offs.

But at least Medicaid must improve health outcomes, right?  Don't bet on it.  For decades literally everybody just assumed that having healthcare "coverage" must somehow improve health outcomes.  Then came the randomized study out of Oregon, published in the New England Journal of Medicine in 2013.  Result:

This randomized, controlled study showed that Medicaid coverage generated no significant improvements in measured physical health outcomes in the first 2 years, but it did increase use of health care services, raise rates of diabetes detection and management, lower rates of depression, and reduce financial strain.   

After this, the best the defenders of Medicaid could say was basically, two years of data are not enough.  (But if heart attacks, or strokes, or diabetes, or other such things were actually going untreated among the uninsured, why wouldn't that turn up as at least somewhat increased mortality within two years?) Anyway, Oren Cass, in an article for the Manhattan Institute in June, points out that now longer term data are available, and the results haven't changed:

Critics of the [Oregon] study claim that two years isn't long enough for positive effects to materialize. But a longer-term statistical analysis published earlier this year found no significant correlation between health-care access and life expectancy for low-income households across different geographies.

So, on what measures is it even possible to try to defend the staggering expenditures on Medicaid?  Well, here's an article from the Huffington Post from July 27, written by Edwin Park of CBPP.  Park gives 10 reasons why Medicaid, supposedly, "works."  Not one of them has anything to do with either reducing poverty or improving health outcomes!  So what the hell are they?  Number one is "provid[ing] quality health coverage."  Number two is "cut[ting] dramatically the number of Americans without health insurance."  (Aren't those two the same thing?)  Number three is "Medicaid participation is high."  (Same thing again!)  Number four is "Medicaid has improved access to care . . . ."  (Same thing yet again!)  And so forth.  You get the idea:  "coverage" is the Holy Grail, even if it costs a bloody fortune without achieving any measurable improvements in either poverty or health outcomes.  Maybe this would make a little sense if the cost was $10 billion per year, or even $50 billion, or maybe even $100 billion.  But $550 billion per year???  

Oh, and let's not forget about the fraud.  Kevin Williamson has a post up on this subject at National Review Online, titled "The Facts about Medicaid Fraud."  I'm not sure he's got his facts perfect, but here is the key quote:

In September, the Department of Health and Human Services sent out a warning that improper payments under Medicaid have become so common that they will account this year for almost 12 percent of total Medicaid spending — just shy of $140 billion.

The $140 billion would be more like 25% of Medicaid spending than 12%, so I'm assuming that he must  be including Medicare as well.  Whatever.  Even at half the $140 billion level, the number is breathtaking.  And this is what the government admits to.  You could not go wrong betting that the real number is far higher than what they admit.

Medicaid is just the classic case of designing a program by feel-gooderism without any consideration of cost-effectiveness.  Once in place, it grows on auto-pilot, without anybody looking at it or considering whether the tens of billions of dollars of added spending every year are accomplishing anything meaningful.  Entrenched interests grow rich, while alternative uses of the money -- whether alternative government spending or returning the money to the private sector through tax cuts -- get pushed off the agenda.  

Have you noticed any mention by either side of the presidential campaign of the need to look at Medicaid for cost-effectiveness?  Neither have I.   

Why Government Cannot Work To Increase Prosperity

Private enterprises are forever engaged in the maelstrom of creative destruction, where businesses and jobs that are insufficiently productive are destroyed by powerful economic forces and replaced with higher-productivity undertakings.  And thus we have Manhattan, at the center of the world's best natural port, having not one remaining active freight pier or longshoreman's job.  The space became too valuable for that.  Instead we have burgeoning digital media, tech firms, investment banks, and, at the very top of the food chain, hedge funds.  The Port Authority's massive former freight-transfer building is now the New York headquarters of Google.   All this is located in a place where most employees must cross a mile-wide estuary every morning to get to work and again in the evening to get home.  Would any central planner ever have come up with this?

In Obamacare they think they have an alternative model where the cost of healthcare can be reduced (that's a form of increased productivity) through study and direction from the all-knowing experts in the federal bureaucracy.   For example, now that you have finished reading the first 3,021 sections of the Affordable Care Act and have made it to Section 3022, you know that the ACA establishes so-called "Accountable Care Organizations."  Here is a law firm web site with a good description of how this is supposed to work, and a further link to the statutory text.  (You can try reading the statutory text if you want, but believe me it is incomprehensible.) 

To summarize, the basic concept is that healthcare providers like doctors and hospitals can sign up with HHS to become an ACO.  In the first instance, the providers must submit reams of data.  Then the geniuses at HHS analyze the data for ways to save money.  If ways are found, the government mandates use of the new cheaper methods through Medicare/Medicaid reimbursement and the ACO providers receive payments for the "shared savings."

And then there is the new Innovation Center of the Centers for Medicare and Medicaid Services, funded to the tune of $10 billion under the ACA to (according to Gina Kolata of the New York Times) "discover how to most effectively deliver health care."   How could we not have realized before that the millions of people already in the healthcare industry could not figure out "how to most effectively deliver health care," and that it could only be done by bureaucrats funded with $10 billion of federal money?  Anyway, now we know.  Take that, capitalism!

Well, these things are barely under way, and already some are starting to realize not only that they can't work, but in the grand tradition of government they will be designed and implemented to declare success and keep the funding going even as they are failing spectacularly.  Megan McArdle at Bloomberg has a report covering developments on both initiatives.  Perhaps most interesting about her report is that she cites articles from both the New York Times and the Washington Post.  If those two can spot the problem, it must be pretty glaring.

The Washington Post article, from Jenny Gold on January 31, deals with the government's first reported results from the ACOs, and is headlined "Medicare won't give a straight answer on Obamacare cost savings."   Seems that CMMS put out a big announcement on January 30 claiming that the ACOs had "saved a total of $380 million in the first year."  But OK, compared to what?  They say that the savings came from 54 of the 114 ACOs that had lower spending than projected.  So what about the other 60?  From Gold of the Post:

It’s . . . unclear whether the savings figures factored in any losses from some of the ACOs that did not do well. And the agency did not release information about which ACOs saved money and which did not.

McArdle accuses CMMS of engaging in the famous "Texas sharpshooter fallacy," where the sharpshooter first shoots at the side of a barn and only then draws the target and bullseye where the bulk of his shots had hit.  Well, fallacy is one possibility, and intentional deception of the public is another.  I'm not so quick as Megan to give the benefit of the doubt.

And how about that Innovation Center?  Kolata of the Times reports:

[N]ow that the center has gotten started, many researchers and economists are disturbed that it is not using randomized clinical trials, the rigorous method that is widely considered the gold standard in medical and social science research. Such trials have long been required to prove the efficacy of medicines, and similarly designed studies have guided efforts to reform welfare-to-work, education and criminal justice programs.  But they have rarely been used to guide health care policy — and experts say the center is now squandering a crucial opportunity to develop the evidence needed to retool the nation’s troubled health care system in a period of rapid and fundamental change.

I have a quibble with Kolata, which is that "randomized clinical trials" are only the "gold standard" in the world of bureaucratic government evaluations; in the real world, the gold standard is the definitive up or down delivered by a marketplace of people spending their own money.  But put that quibble aside, because Kolata at least has a point that randomized trials might deliver some real information.   Yet instead we have a series of so-called "demonstration projects" where nobody needs to face a competitor and everybody gets to declare success. 

Question:  When they've run through the initial $10 billion, will they be back for another $10 billion?  You can task them to find and implement better and cheaper ways to do things, but in actual practice they will just set up a useless bureaucracy and then fight to the death every year to maintain and increase the funding.

Shall we take up an Exhibit B for today?  That would be President Obama's designation last week of VP Joe Biden to lead an "across-the board reform" of federal job training programs to get rid of those that are ineffective or redundant.  HAHAHAHAHAHAHAHA.

There just can't be a better illustration than job training programs of federal spending that is ridiculously ineffective and redundant and yet somehow can never be cut.  The Wall Street Journal had an editorial on this on Monday following Obama's announcement last week.  The WSJ cites the most recent (2011) big GAO study as identifying 47 (!) federal job training programs with total spending of $18 billion in 2009.

It seems that GAO previously did, or tried to do, a big study on the effectiveness of the various job training programs back in 2003.  I say "tried to" because the report is full of statements like "Little Is Known about What the Program Achieves," and "No nationwide data exist on whether the Food Stamp E&T Program is effective in helping participants get and keep employment," and "While there are no nationwide data on the characteristics of Food Stamp E&T participants, state and local officials we spoke with in all 15 states said their Food Stamp E&T participants have multiple characteristics that make them hard to employ," and "We were unable to obtain unduplicated data for fiscal year 2001 from Florida," (and same for numerous other states), and so forth.  Wow!  You'd think this is about as bad as it could possibly get for federal programs.  Well, guess what?  By the time of the 2011 study eight years later, the number of federal job training programs had increased by three, from 44 to 47. 

Here's my prediction for Biden's effort:  there will be a big announcement of some consolidation and rationalization.  The number of programs will be reduced somewhat, maybe by half or so.  But the number of federal employees working on this and the level of funding will remain at least the same or grow.  Nobody will get fired.  And the bureaucrats will continue to make 100 percent sure that there are no data collected sufficient to show the complete ineffectiveness of their efforts.

You just have to understand the bureaucracy's version of the Brezhnev Doctrine:  Once a government program is in place, it must never be eliminated, or its funding reduced by even a dollar.  All collection of data must be done in a way to support continuation and increase of all programs.  That's the way it works.  And despite the fancy-sounding names and statutory mandates of the new ACA programs, that's how it will work for Obamacare.

Sorry, But "Income Inequality" Is About To Increase

Yesterday, New Year's Day, new Mayor Bill de Blasio was sworn in on the steps of City Hall.  He gave an inaugural address reiterating all his major campaign themes.  Chief among these was what he calls the "crisis of inequality."

New York has faced fiscal collapse, a crime epidemic, terrorist attacks, and natural disasters. But now, in our time, we face a different crisis – an inequality crisis. . . .  It’s a quiet crisis, but one no less pernicious than those that have come before.  Its urgency is read on the faces of our neighbors and their children, as families struggle to make it against increasingly long odds. To tackle a challenge this daunting, we need a dramatic new approach. . . .   A city that fights injustice and inequality — not just because it honors our values, but because it strengthens our people.

There were no specifics in the speech as to what de Blasio intends to do about the crisis, or why he thinks he can solve it, if indeed it is a problem.

I have a prediction for de Blasio that he might not like:  income inequality, as measured by government statistics,  is going to increase over the next four years, both in New York and in the United States as a whole.  That will occur literally no matter what de Blasio does, no matter how much in the way of taxpayer resources he devotes to the issue.  The reason is that government policies beyond his control, largely at the federal level, have a powerful effect of increasing measured income inequality.  The big three policies driving measured income inequality are food stamps, Medicaid, and Obamacare.  The third has just begun to work its destruction.

President Obama is also all over the income inequality issue.  He gave a big speech on the issue in Kansas on December 4 (where he called income inequality "the defining challenge of our time"), and the smart money is betting that this will also be the big theme of his upcoming State of the Union address.  And of course government benefits for low income people have exploded during Obama's five years in office.  So has measured income inequality increased or decreased on Obama's watch?  The answer is that it has increased.  Not only has it increased, but it has increased faster than it increased during the eight years of GW Bush.  Among many articles discussing this seeming anomaly, here is one from the Huffington Post of September 1, 2013.  An excerpt:

The difference between America’s median and average wages grew at a rate of 0.28 percent under President Bush, while it’s grown at a rate of 1.14 percent -- or about four times that -- under Obama, according to The New York Times. The median wage is the midpoint of all workers’ wages, so it only ticks up when everyone is earning more. While a small group of people earning higher pay can push the average wage up.  So, as the difference between the two rises, it means that those at the bottom of the income scale are making fewer gains compared to those at the top.  This data point is one of many that illustrates that in Obama’s America the rich are gaining while the rest of us are struggling to get by.

How could this possibly be?  The answer is that increases in government benefit programs are actually the main cause of the increase in measured income inequality.  This happens because the government benefit programs have the effect of suppressing the measured income of the lowest tiers of the income distribution.

To understand why, you need to know two things: (1) government in-kind benefit programs do not count at all in the measurement of "income" that then goes into the measurement of "income inequality," and (2) at the bottom tiers of the income distribution, government benefit programs seriously discourage the formation of families with a breadwinner.  And thus we have large numbers of single-parent households, living largely or entirely off government benefits, all of which count as zero income.  No amount of new jobs in the economy, no amount of increases in minimum or average wages, no amount of union organizing, and for that matter no amount of increases in the in-kind government benefits, is going to provide these families with measured income. 

The increase in measured income inequality on Obama's watch corresponds to the explosions in food stamp and Medicaid enrollment during this period.  This is not a coincidence.  Put yourself in the position of a woman who has had a couple of children at a young age without marrying and has been able to make a go of it with a suite of government benefits, including housing, food stamps, and free medical care.  All of those things count at zero in the income statistics.  Now a hard-working young man comes along, interested in being with you, and he has a lower- to middle-class income, say $30,000 to $40,000 per year.  You would be out of your mind to marry this man.  Instantly you are disqualified from all the benefits (or in the case of the housing, your rent shoots up).  And why, when you can hang out with the guy four or five or six days a week, you keep the apartment and the food stamps and the Medicaid and he keeps the money (and maybe gives you some of it on the side)?  Ninety-nine percent of people facing this situation are going to make the same choice.  As more people get the benefits (the number on food stamps has increased by about 20 million since Obama took office), more will make the decision to perpetuate an income-free family unit to keep the benefits flowing. 

Meanwhile, at the higher reaches of the income distribution, income continues a slow but steady rise.  The effect of that, combined with government-caused stagnation at near zero levels at the bottom, is steady increases in measured income inequality.  

Suppose now that the government substantially increases all the benefits that it provides to the poor.  This has absolutely no effect on measured income inequality, since none of the benefits count in the statistics.

And into this mix, now throw Obamacare.  Beginning basically today,  Obamacare offers very substantial subsidies on medical care premiums to households depending on where their income stands relative to "federal poverty level" (FPL).  Subsidies continue all the way up to 400% of FPL, which for a family of four now approaches $100,000.   Here is a basic summary of the workings from Kaiser Health News.   To put it in simple terms, lots and lots more people are going to find it to their major economic advantage to not be married, which will in turn mean that there will be lots and lots more low and zero income households that previously would have been combined with other households to make middle income families.

So starting now, a young lady just getting started with a low income from freelancing and a little waitressing goes to healthcare.gov to look for a plan, and they ask her her household income.  Does she include the live-in boyfriend's income or not?  That could easily be a $5000 or $10,000 per year issue.  I'm guessing that maybe 97.23% opt for not including him.  OK, if she's really conscientious about honesty maybe he has to go and stay with his parents one or two nights a week.

There is no question but that Obamacare is going to have a large effect on increasing measured income inequality.  Sorry, Bill, but there is nothing you can do about this.  The good news is that little or none of it is real; it's just an artifact of the statistics.  But of course, de Blasio doesn't know that, or at least he hasn't shown any awareness of these issues in anything he has said to date.

Medical Insurance Is About Asset Protection, Not Health

Before I had this blog I used to talk (my wife would say "pontificate") about my theories to anyone who would listen.  In the health insurance debate leading up to Obamacare a few years ago, one of the points I would make endlessly was that "medical insurance is about asset protection, not health."  Of course, like my famous prediction in the 80s that Communism would shortly collapse, there is no written record of my saying this.  But I do have many witnesses.

Anyway, additional results from a major randomized study out of Oregon are just in, and to summarize the results in one short phrase:  medical insurance is about asset protection, not health.​

Whether medical insurance is about asset protection versus health is a big deal.  ​The argument justifying massive government intervention in health insurance is almost entirely about alleged improvement in health outcomes, as in "By refusing to allow government to provide health insurance for all, you are causing people to die!!!!!!!"  That argument goes away if the health outcomes for the insured and uninsured are basically the same.  A few people (most notably the execrable now Senator from Massachusetts Elizabeth Warren) have made the different argument that government has an interest in providing health insurance even if it is not about health, because lack of health insurance was causing millions of "medical bankruptcies."  But I never understood why that was a good argument for universal medical insurance -- if a person has substantial assets, such as large equity in a house, and chooses not to buy medical insurance, why exactly shouldn't he have to contribute that value to his own medical care before the taxpayers step in?  If you have substantial assets, by definition you can afford insurance to protect the assets.  If you are uninsurable, use your brain and don't keep major assets in your own name.

When I made my point about health insurance a few years ago, the main evidence cited against me was a large study from the Institute of Medicine in 2002 called "Care Without Coverage."   That study purported to show that lack of health insurance led to 18,000 additional deaths per year among the uninsured population.  When I got the Institute of Medicine study, it looked like so much hocus pocus.  There was no randomized trial, but rather a meta-analysis of some hundred or more studies in the medical literature.  There is extensive recognition in the report of numerous confounding factors that I would say make it impossible to come up with any number like the supposed 18,000 additional deaths from any study of this sort.  For example, the insured tend to be wealthier and more educated than the uninsured, and to smoke less.  How to weigh such factors in a study of this type is not a matter of statistics, but rather entirely a judgment call, here made by people who were clear advocates of universal health insurance.  But none of that slowed the authors down from making their highly politicized conclusion, and claiming the imprimatur of the IOM brand for their conclusions.  The report was not funded by the government, but rather by the Robert Wood Johnson Foundation.  That's the Johnsons of Johnson & Johnson -- do you think they might have any interest in increasing government spending on health care?

The run-up to Obamacare in 2009 then led to a frenzy of advocates putting out increasingly imaginary numbers as to the "additional deaths" among the uninsured.  A report from the Urban Institute in 2008 upped the IOM's number to 22,000 additional deaths per year.  If you look at their abstract, the result comes entirely from an assumption that the uninsured have a mortality rate 25% higher than the insured.  The basis for that?  They claim to rely on the IOM's previous hocus pocus.   In September 2009, as the Obamacare bill approached its end game in Congress, Harvard released a study purporting to estimate the additional annual deaths at 44,789.  Again, no randomized study.  This time it is based on an assumption of 40% increased risk of death among the uninsured.  Perhaps we should note that two of the three authors were co-founders of something called Physicians for a National Health Program.

Meanwhile, a guy named Richard Kronick, who had been a senior health policy advisor in the Clinton administration, and became chief of the division of Health Care Services at the Department of Family and Preventative Medicine at the University of California at San Diego, did his own careful review of the IOM's findings and published a paper in 2009.  His conclusion:  after adjusting for demographic and health factors (such as smoking), the uninsured were at no greater risk of dying earlier than people who had employer-sponsored group insurance.  I don't even remember coming across Kronick's study at the time.  As a former Clintonista, he clearly would not have minded coming to the opposite conclusion, and he should be congratulated for his honesty.  But he was drowned out by advocates making up their own numbers.​

Anyway, the world has been waiting for the results of an actual randomized controlled experiment.  (Actually, there was one previous randomized study, done by the Rand Corporation in the 70s.  It found no mortality benefit from health insurance according to Megan McArdle here.)  ​Recently Oregon has handed the world an opportunity for randomized study, in the form of a 2008 Medicaid expansion that was underfunded, so they allowed people into it by lottery.  Two years of data are now in, and the results of analysis of that data were published in the New England Journal of Medicine last week.  Conclusions:

This randomized, controlled study showed that Medicaid coverage generated no significant improvements in measured physical health outcomes in the first 2 years, but it did increase use of health care services, raise rates of diabetes detection and management, lower rates of depression, and reduce financial strain.

​Hmmm.  "No significant improvements in measured physical health outcomes."  And as to that business of "reduced financial strain" -- do we get to count financial strain on the government here?  How many trillions are we spending on Obamacare again?

​As I said, medical insurance is about asset protection, not health.

How Does A 25 Year Old Look At Economic Policy In The Age Of Obama?

Since the election, I've been trying to ponder the worldview of the twenty-somethings who voted for the re-election of Barack Obama.  According to a nationwide exit poll conducted by Edison Research, the 18 to 29 cohort voted for Obama by 60% to 36%.  Is there any possible theory that can make sense of this overwhelming support?

The obvious hypothesis is that the twenty-somethings accepted Obama's sales pitch.  A fair summary of that pitch was: "free stuff."  Prominent examples touted during the campaign included:  stay on your parents' health care until you are 26; SNAP (food stamps) for all; extend unemployment insurance again and then again; continue a subsidy for student loan interest; add lots of subsidies for the uninsured under Obamacare.  Sandra Fluke toured the country for the campaign stressing the importance of contraceptives available under health care plans without any deductible  - that could save you $100 per year right there!

Meanwhile, did any twenty-somethings notice that on the current trajectory of public spending, the 18-29 cohort is completely screwed?  Government debt, entitlement and insurance obligations are rapidly accumulating up to a crushing level, and Obama is doing absolutely nothing about it.  Forget the fake $16 trillion cash in cash out basis debt -- soon to be at least $20 trillion after four more years of Obama -- that everyone cites.  The twenty-somethings also must pay for their own $1 trillion of student loans, and the retirements (social security and Medicare) of the baby boom generation, and must discharge every other unaccounted-for insurance obligation the government has taken on (readers of this blog are familiar with the long list).  Add those obligations to the bonded debt and the real number faced by the twenty-somethings is at least $100 trillion. Obama resists the very idea of touching any of these accumulating obligations.

Since there are about 60 million people in the 18-29 cohort, $100 trillion of total obligations comes to about $1.7 million apiece.  Compared to this gigantic hole being dug for the twenty-somethings, the "free stuff" on offer in the campaign was completely insignificant.  The $1.7 million per head is a fair approximation of the total lifetime earnings that one of these twenty-somethings can hope to achieve.  And don't forget, the Federal government will still need to pay its ongoing expenses as well; and so will the states and local governments.  It's not looking like there's going to be much left for food.  Sorry!  But you did save $100 on your contraceptives.

A letter to the editor of Barron's, making its way today around the internet, summarizes the intergenerational transfer that the twenty-somethings have signed on for with their votes for Obama:

This 50-something, white, conservative Republican wishes to thank America’s youth for sacrificing their financial futures and standard of living so that boomers, such as my wife and I, can look forward to a long and comfy retirement, which we could easily have afforded on our own. Now we have the youth as our guarantors and providers of a little something extra. . . . 

Prior to Obama’s re-election, I believed that it was morally wrong for my generation to pass a crushing national debt on to the next one. . . . With the president’s electoral crushing of Mitt Romney [with overwhelming support from the 18-29 cohort], my overriding sense of morality and guilt have vanished. Thank you, kids!

So are the twenty-somethings just dumb -- selling their votes for $100 each while they get stuck with a per capita obligation of around $1.7 million?   I like to believe that voters in the aggregate are not dumb, so I'm searching for an alternative theory.  The best alternative theory that I have imagined to explain the votes of these young people is this: when you are in a Ponzi scheme, the best thing you can hope for is that it implodes as soon as possible.  The longer it goes on, the more will be lost and the more destructive the final implosion will be.   Perhaps Obama is just crazy (or incompetent) enough to blow this whole thing sky high in the next four years.  This theory is not completely crazy.  A prompt implosion of our existing entitlement Ponzi scheme would not be a bad result for the 18-29 cohort.  They could stop paying for the entitlements now in return for the entitlements not being around for them when their turn comes.  Probably very few of them expect the entitlements as currently configured to last another 30+ years anyway.

But that's attributing a level of cynicism and sophistication to the twenty-somethings that I don't believe they had in this vote.   And is there a plausible scenario in which the United States has a prompt implosion that enables leaving the unsustainable obligations behind?  Unfortunately, when a sovereign can pay its obligations in its own currency, history does not offer many examples of prompt and total implosion.  (The best example may be Russia after the Soviet Union, and the restart from that implosion is not an example that is worthy of emulating.)  The far more common scenario is protracted, slow, painful decline.  Think Argentina -- from one of the richest countries in the world to lower middle class over 70 years, with multiple bouts of extreme but not quite hyper inflation along the way.  Our future? 

Conclusion:  If I were 25 I would be shouting from the rooftops that this must end now!  Are any of them going to wake up any time soon?

Big And Small Bubbles

Anyone who follows markets knows that bubbles, and succeeding crashes, are a recurring phenomenon.  Famous historical examples include the Dutch "tulip mania" of the 1630s, the French Louisiana Company bubble and British South Sea Company, both around 1720.  More recent examples include the American stock market bubble of the 1920s (and crash of 1929) and the Japanese stock market bubble of the 1980s (and crash of 1989).

Getting to the more recent time, we have the housing bubble of the early 2000s that led to our current economic difficulties.

It's easy to spot bubbles in hindsight.  But a better question is, are we in any bubbles right now, bubbles that have blown up really big and are getting ready for a big crash?

Over at Instapundit, Glenn Reynolds has a long-running series on what he calls the "higher education bubble."  The thesis is that the cost of higher education has soared under an umbrella of Federal spending and easy student loans, and that that bubble is set for a big crash over the next few years, as students realize that the education is not worth the cost and debt, and as internet alternatives replace ridiculously costly in-person college courses.  I'm willing to bet he's right.  On the other hand, higher education is only about 3% of U.S. GDP.  If that suddenly got cut in half over the course of a few years, it would be rather hard on colleges and professors, but not nearly the scope of the bursting of the housing bubble a few years ago.

But is there any other bubble out there that is much larger, a big multiple of the size of the higher education bubble?  Here's a hint:  private economic activity, although subject to bubbles, is also subject to self-correction.  There are limits to how large bubbles can blow up without the government credit card to back them.  With the backing of the government credit card, a bubble can start taking over an entire economy.

Here's my nominee for the really big bubble, the one whose bursting will be a multiple of anything previously seen:  health care.  In 1960, before Medicare and Medicaid, according to this article U.S. spending on health care was about 5% of GDP.  Today, 18%.  Those numbers are somewhat exaggerated compared to what I've seen elsewhere, but suppose it's 7% and 17%.   At 10% of GDP, we have $1.5 trillion of annual spending in play in excess of the best evidence of what private spending alone would support.  And, the 17% is rapidly increasing.  Medicare and Medicaid have grown at about an 8% CAGR since inception, and are not really showing signs of slowing down.

Proposition One:  Something that can't continue, won't.  Proposition Two:  When this one ends, it will not be pretty.

I do think that the higher education bubble will burst first.