By Charles Biderman
There are two parts to the fiscal cliff equation. Government spending on services and taxes. Unfortunately almost all the discussion about how to fix the long term problem has been about taxes.
Focusing on taxes to raise revenues to provide government services requires making a key assumption that governments can effectively provide services. But what if the real problem is that the US government by its nature is incapable of providing cost effective services? I say that government spending on services are not only cost ineffective but probably harmful to the overall economy.
Why is no one else saying that government spending is ineffective and harmful? I can even demonstrate that government control of health care has been 70% ineffective.
My evidence starts in 1960 when US health care cost $140 billion, which was 5% of the overall economy. Remember 1960 was before the start of the Great Society, Medicare, Medicaid, Obamacare, whatever. As a result of all those programs, health care costs have soared 16 times to $2.3 trillion today. That means that health care costs are now 17.5% of an overall economy that has grown by just 5 times since 1960.
To put it more simply, we are spending $100 today to get the same amount of health care that would only be costing $30 today if health care costs grew at the same rate as the overall economy and not three and half times as fast.
Why have health care costs soared three and a half times as fast as the economy? Some might answer that it is the quality of health care, and that people live longer. But if that is the case then why do people live just as long in many developed countries that only spend half of what we spend of their economy on health care compared with our 17.5%? . That does not mean that those spending 7% to 8% of their economies on health are efficient. But those countries are 20% to 30% inefficient compared with the US being 70% inefficient. Important to remember, our health care is not better. No. it is just much more expensive and the reason why it is so much more expensive is due to our government.
In other words, because of government inefficiencies, health-care costs grew three and half times as fast as the economy. So the US is now spending $100 to get $30 of health care services. And the wasted $70 is solely due to government.
Then there is the military. Since 9/11 the US has to have spent close to half a trillion dollars fighting wars in Iraq and Afghanistan. What has that half a trillion accomplished? Are those countries better off? Are we better off? Is anyone other than those who received the half a trillion dollars better off? I do not think so.
Ok. I will admit that some of that half a trillion is probably why there has been no major terrorist event here in the US. But how much of that half a trillion did that? Shouldn’t $5 to $10 billion per year have been more than enough to spend on the war on terror without the enormous waste of lives and money that resulted from having US boots on the ground in Iraq and Afghanistan?
To repeat the real problem is not insufficient tax revenues to fund the government. No, the problem is that our government should not be in the business of providing goods and services. There is no way any form of government can effectively provide services. Yes, some local entities are fairly efficient at providing water, sewage, police and fire. But that is only for some local services.
The bottom line is that many are now realizing that the western world cannot afford to continue doling out ever more money to governments for them to waste by not providing effective services.
President & CEO TrimTabs Investment Research
Portfolio Manager, TrimTabs Float Shrink ETF (TTFS)
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