Analyst Mary Meeker has compiled a lengthy (and grim) corporate balance sheet for what she calls USA, Inc. (otherwise known as the federal government). The whole report can be found here  for those who are interested in reading it. I would like to comment somewhat briefly on it, however.
There are a few aspects about the balance sheet that are particularly grim. For one, the report shows that the current balance sheet of USA, Inc. has a deficit of $1.3 trillion, with an income of $2.2 trillion and expenses of $3.5 trillion. To make things more grim, the bulk of this money is in unfunded and politically “untouchable” liabilities–Social Security, and Medicaid/Medicare. Even the large Defense budget is only 20% of the whole. In order to balance the budget over the long term, it is going to be necessary to tackle the health care expenditures.
From my visit to see my grandfather this weekend , I noticed that a portion of health expenditures is probably due to sheer incompetence. When there is no incentive for health care providers to provide useful or needed care and when they order unasked for and unnecessary tests, no one wins. Time and resources are wasted for no good end. The fact that high expenditures for entitlement programs are in place without any dedicated funding source for them (in the case of Medicaid, which takes up 14% of federal expenditures and 0% of its income), or with what look to be increasingly insufficient income (in the case of Medicare and Social Security, which are now both in deficit), as well as their political popularity (since 35% of Americans are now recipients of some form of federal entitlement), makes them a very difficult problem to wrestle. Additionally, long-term declines in savings rates are correlated very highly with increases in entitlement programs.
Interestingly enough, the report shows that certain expenditures are considered to be solid investments for government money–education, research & development, and infrastructure. Nonetheless, expenditures for these areas are declining as a society . In short, it looks like our government is insistent on spending ever increasing amounts on politically important entitlements on populations that have few (if any) other options at present, while the long-term viability of the nation’s government is threatened by the crushing burdens of a failing infrastructure, skewed tax base, and its potentially ruinous implications on inflation and interest rates.
To make things more difficult, what would need to be done to stabilize the situation seems politically impossible, like cutting Medicare benefits by 53% and/or increasing the tax rate for Medicare from 2.9% to 6.8%. Likewise, other solutions, like emphasizing prevention rather than treatment and discouraging unhealthy behavior and consumption, appear to suffer from a lack of popular will to implement, despite the widely recognized seriousness of the present situation. Likewise, solutions for making Social Security sustainable include increasing the retirement age from 67 to 73, decreasing benefits by 12%, and/or increasing the Social Security tax rate by 2%. Any administration that sought such changes to the holy grail of entitlements would probably be signing its own death warrant.
Other changes to stabilize the federal budget, including dealing with the thorny problem of public employees’ unions, and the need to “outsource” federal jobs to the more efficient (and less expensive) private sector, reversing the recent increase of the federal payroll, would also appear to trigger politically difficult situations, such as those going on right now in Wisconsin. Likewise, the need to reduce subsidies is going to be very unpopular in certain very critical locations (Iowa, Florida, California). Do we have the will to face our problems and overcome them, or will we blindly and stubbornly march to a national collapse? We will shortly see–especially if this report and others like it become part of the conversation about the approaching government shutdown over budget problems. I can’t say I’m very optimistic, though.