The conservatives are following up on their decades-old plan to use tax cuts to create terrible deficits, and then use the resulting “debt crisis” to cut government. But cutting government doesn’t mean the costs go away, it means that we each have to bear those costs ourselves, on our own, without the help of the rest of us. This is really about cutting democracy so the very rich can be even very-richer.
A Huge Tax Increase On Regular People
A government budget cut is like a huge tax increase on regular people because it increases what each of us pays for the things government does — or forces us to go without. This is because cuts in government spending don’t actually cut the cost of things, they just shift those costs onto each of us on our own.
For example, if you cut the the government’s Medicare or Medicaid budget our health problems don’t disappear, but each of us has to find ways to pay the cost of medical care or a nursing home on our own. If you cut what government spends for maintaining infrastructure, the roads/bridges/dams/schools/etc. deteriorate and we all pay for that through a less competitive economy, car-repair costs, and sometimes with our lives. And when each of us has to pay more for these things, it really does take money out of the economy. We’re spending on those things, instead of more usefully contributing to the economy.
Cuts Just Shift And Increase The Costs
So spending cuts really just shift the spending and cost of the things we have to do – and often increase those costs. This is because doing things on our own instead of collectively through our government is the smallest possible economy-of-scale. The best example of this shift-and-increase effect is the Republican plan to phase out Medicare. As I wrote above, our health problems won’t disappear just because government cuts out Medicare. But the costs of treating – or not treating – those health problems is now on us, individually, instead of aggregated through the mechanism of democracy. And that is money that would otherwise be spent elsewhere in the economy.
In Cost of Medicare Equivalent Insurance Skyrockets under Ryan Plan the Center for Economic and Policy Research (CEPR) explains what happens to the cost of health care if Medicare is eliminated. Summary: it shifts the costs to us, except each of us ends up paying seven times as much as the same care costs under Medicare. This is because Medicare covers millions, and that economy-of-scale means the government can negotiate bulk discounts, etc. that we cannot get on our own. From the CEPR explanation:
[The Republican] plan to revamp Medicare has been described as shifting costs from the government to beneficiaries. A new report from the Center for Economic and Policy Research (CEPR), however, shows that the [Republican] proposal will increase health care costs for seniors by more than seven dollars for every dollar it saves the government, a point missing from much of the debate over the plan.
… In addition to comparing the costs of Medicare to the government under the current system and under the [Republican] plan, the authors also show the effects of raising the age of Medicare eligibility. The paper also demonstrates that while [the Republicanplan ] shifts $4.9 trillion in health care costs from the government to Medicare beneficiaries, this number is dwarfed by a $34 trillion increase in overall costs to beneficiaries that is projected …
The Mechanism Of Democracy
In other words, the Repubican plan to phase out Medicare would cost the economy seven times as much as it cuts government. In this case the mechanism of democracy works seven times better than doing the same thing on our own. The economy of scale introduced by democracy — We, the People gathering together to watch out for and take care of each other — saves the economy sevenfold on costs. And that is money that would be spent by each of us but now goes just to cover the healthcare costs. This is one more reason why democracies are more prosperous for regular people than other forms of government that leave people on their own against the wealthy and powerful and drive all of the income and wealth to a few at the top.
Budget Cuts Deals Hurt Us And The Economy
When you hear that the “debt-ceiling” deal being negotiated in Washington is going to cut $4 trillion from the government’s budget it doesn’t mean that $4 trillion is is going to be saved and put into the economy, it means the opposite, and worse. It means that $4 trillion in costs will be shifted from the mechanism of democracy and onto our backs, each of us, on our own. And that means that the total costs of accomplishing the same things will go up. And that means each of us will have less to spend in the economy. Think about what that will do to jobs.
- As government health care is cut each of us will take on those costs on our own, and will be paying up to seven times what the same care would have cost.
- As infrastructure maintenance and modernization is cut, our economy will become less competitive, unemployment will increase and our wages and spending power will fall.
- As spending on education is cut, our costs of educating ourselves and our kids will increase. College costs will soar.
- As environmental regulation and enforcement is cut the costs of the resulting health problems and cleanups will increase.
- As enforcement of labor laws is cut, our wages and protections will fall.
- As etc. is cut, the costs of etc. are shifted to each of us, on our own, and the total costs of accomplishing etc. actually increase.
This Is About Democracy
In the bigger picture budget cuts are about shifting away from the mechanism of democracy — where We, the People aggregate and cover these costs in a more effective way — and instead moving costs to each of us on-our-own. And because of the effect of reduced economies-of-scale we then each face a much greater cost-per-person than if we did these things through the mechanism of democracy. This hurts our economy.
Don’t be fooled: this is really about shifting from democracy to a system where we are on our own, up against the wealthy and powerful. This is about shifting from a system where we can all be prosperous to a system where a few have all the wealth and power.
Dave Johnson (Redwood City, CA) is a Fellow at Campaign for America's Future, writing about American manufacturing, trade and economic/industrial policy. He is also a Senior Fellow with Renew California. Dave has more than 20 years of technology industry experience including positions as CEO and VP of marketing. His earlier career included technical positions, including video game design at Atari and Imagic. And he was a pioneer in design and development of productivity and educational applications of personal computers. More recently he helped co-found a company developing desktop systems to validate carbon trading in the US.
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