weblog/wEssays     archives     home

What's Different Now   (July 12, 2007)

We often read about "how it's different this time," meaning that prosperity will never end because, well, for the first time in recorded history, the business cycle has been banished for good. There'll never be any more down, only up, never any hangover, just permanent good times, no retrenchment of debt, just ever more risk-free borrowing.

Well, the pundits got the first part right: it is different this time, but it's worse--much worse, than it ever was in the past. Here we have a little chart which guarantees certain financial doom for the U.S. Yes, this is the double-whammy which will bankrupt the nation just as surely as the sun rises in the morning: entitlements promised to 76 million Baby Boomers and out-of-control medical care costs.

This combination is rather like a fission and a fusion nuclear weapon. A fission bomb explodes when a radioactive isotope of uranium is pushed together at high speed; a fusion weapon greatly amplifies the destructive force of the fission chain reaction by wrapping an isotope of hydrogen around the fission bomb. The spray of radioactivity from the fission causes the hydrogen atoms to fuse into helium, releasing tremendous energy in the process.

The staggering unending rise in all healthcare costs is like the fission bomb; now wrap 76 million people hungry for their entitlements and you get a thermonuclear destruction of the Federal budget and the U.S. economy. That's 25% of the entire U.S. population, and they start qualifying for Social Security in 2008 (1946 + 62), and for Medicare in 2011. Roughly 4 million more people per year are going to be tapping the Federal revenues from 2008 through 2029.

Rising healthcare costs threaten our entire economy as it is; We spend far more, but our health care is falling behind; Australia, Canada, Germany, New Zealand, U.K. spend less and do better job, studies say. It's become so well-known there's little more to say, but let's recap just how Third World our "healthcare" has become:
  • 45 million citizens lack any insurance or coverage
  • another 50 million have such minimal coverage it's practically equivalent to zero
  • we spend 15% of our stupendous $13 trillion GDP on "healthcare," compared to 10% for other advanced democracies who somehow cover their entire citizenry for 1/3 less expenditure
  • We don't have "healthcare," we have "sick-care":
  • "Ours is really is a sick-care system. We have tremendous technical capabilities to deal with people with serious illness," Thorpe said. He argues, though, that it is far more cost-effective to prevent people from getting sick or at least catch illnesses early through better monitoring.
    This is not to say that thousands of hard-working people aren't doing their best to care for patients--they are. The point is: how does the system help or inhibit that care, and is all of the billing affordable to the individual and the nation as a whole?

    If set out to design the worst system possible--horribly inefficient, dreadfully ineffective, astoundingly unfair, wasteful of resources, arcane in its bureaucracy, visibly unethical, stupendously corrupt and riddled with shameless profiteering, and larded with powerful disincentives to efficient care and egregious incentives for political meddling and profiteering by "providers" and drug pushers--this is the system you'd design.

    But never mind all that, because we've run out of time to dither over details--our system will bankrupt us while we argue about how wrong Michael Moore is about everything. It doesn't matter if socialized medical care is horrible, too, or if the states are going to start their own plans (with borrowed money)--the whole ship is going down the moment foreign entities stop funding all our debt by buying most of our bonds.

    Once we can't borrow enough to pay for it all--then we'll have to start dealing with reality.

    As the marketing slogan has it: But wait--there's more! Yes, all our local governments are facing stunning increases in the healthcare and pension costs of their retirees. S.F. incurs huge costs for public retirees Governments begin to grapple with unfunded health care.

    While a few municipalities are still reporting surpluses, the majority of state and local governments are facing pension and retiree healthcare increases which they have to fund out of tax revenues. In my neck of the woods, this "contribution" amounts to roughly 13% of the entire city budget: (and even higher in 2007) Pension Contributions Explosion Causes Berkeley Budget Woes:

    In 2005, $15 million of Berkeley’s $115 million general fund will pay for contributions to the California Public Employees System (PERS). Last year, the city spent $8 million on retirement benefits. The year before, when the state Legislature passed the bill that allowed Berkeley to improve the pension benefits, the city spent only $2.8 million.

    Berkeley Police Lieutenant Sherrie Aldinger, who is retiring after 28 years on the job, will receive 84 percent of her highest annual salary from the city for the remainder of her life. The salary for a Berkeley Police Lieutenant ranges from $104,568 to $119,136.
    So the city's pension contributions rose from $2.8 million to $15 million in three years, and there's no end in sight to the rise? Hey, I'm all for rewarding law enforcement officers, but couldn't they wait to 62 like the rest of us? And couldn't there be some cap on total retirement costs, including healthcare and "after retirement consulting" double-dipping?

    The woes run even deeper if you look at the city payroll:

    Relative to the size of our population, the number of city employees is almost 3 times greater than other comparable East Bay Cities. Berkeley recently elected to purchase the 1947 Center Street Building at a cost of at least 28 million to house this ever increasing number of city employees. While Council members and staff publicly talk about a hiring freeze and a ban on overtime city departments continue to hire for replacements and even for new positions. Some employees who retire are also being rehired as consultants. They receive full pay through their pensions and also receive equivalent amounts or even more as consultants.

    Is the new pension plan which guarantees retirement pay equal to 85% of top salary at age 50 for police and fire employees and 81% at age 55 for all other employees after 30 years of employment something that the city can afford? All employees also receive SRIP (supplemental retirement income pension) which is fully paid for by the city and they can voluntarily contribute to a third pension plan, similar to a 401K. With these three pension plans retiring employees, many of whom can choose to stop working in their fifties, will have a greater income during retirement for a period as long or longer than their time spent working for the city.
    This is "real life" for public employees: a fatter paycheck in retirement than when they were working, and a pension longer than their work career. And please don't tell me how underpaid everyone is; there are plenty of schoolteachers and police officers in my extended family, and $65,000 for 9 months work is not underpaid. Low-skill clerks at UCSF make $45,000 a year; that's also not "low paid." They get their medical benefits for life after a mere 5 years of employment, as do all employees of the City of San Francisco.

    Uh, can you spell "municipal bankruptcy"?

    In the last standard-issue downturn/recession in the early 1980s, the nation did not face an avalanche of retirees, nor was it in the grip of runaway medical expenses. Municipal retirees received affordable benefits, not retirements in which they receive more than their working pay. The Great Bull Market of 1982 - 2000 enabled cities and states to pay retirement benefits out of rising stock and bond portfolios; now that easy gravytrain of wealth is ending.

    Yes, it's different this time--but not in the way the cheerleading pundits blather about.

    For more on this subject and a wide array of other topics, please visit my weblog.


    copyright © 2007 Charles Hugh Smith. All rights reserved in all media.

    I would be honored if you linked this wEssay to your site, or printed a copy for your own use.


      weblog/wEssays     home