Numerical Overview of Our Financial Problems
~ Mary Meeker, perennial star analyst on Wall Street, narrates a detailed and highly factual overview of the current US financial mess. It's 44 minutes long, but is one of the best and most comprehensive recounts I have seen. Please watch, or look at the slideshow. Well worth your time:
The presentation does a very good job placing context around the revenue and spending levels of our federal government as well as the historical and current drivers that got us to this point and which, left unchanged, will make our problems dramatically worse in coming decades.
A top-to-bottom review of spending is wise and is what families and businesses would certainly do, including cutting back on luxuries, deferring some expenses until debt is handled, and ensuring that all monies are spent as efficiently as possible, getting maximum value every dollar. The US could do the same, but as even Meeker points out, no amount of just spending cuts will close the gap.
There is a laudable effort to highlight one of the biggest drivers towards financial crisis—the long-term and unsustainable increase in medical expenses that far outstrips the rise in inflation or the amount of the population being covered. The presentation points out, correctly, that the US spends dramatically more than "peer" countries, but gets much less for the cost; our outcomes are worse on almost measure than comparably developed countries throughout the world. It is the clearest possible statement that, platitudes to the contrary notwithstanding, we do not have the best healthcare system in the world—far from it.
Otherwise, the suggested direction of seeking solutions is not as well done. She draws an analogy to the income and expenses of households, which is good perhaps for helping make things understandable to the typical voter. However, she skips too lightly over the business analogy of what a turn-around expert would do if treating the US as a business (USA, Inc.) by focusing almost entirely on spending cuts as the solution. The typical family would take a second job, and perhaps a renter to boost income, but no corresponding call is made for USA, Inc. to identify new revenue streams. How a business would look at innovation, and revising its product line and revenue model is touched on, and the idea that better aligning the core competencies of the business (USA, Inc.) with what has value to buyers (voters) to make something of better value is worth pursuing.
Regrettably, the idea of increasing taxes is dismissed with some very misleading statistics that focus on the declining percentage of Americans that collectively pay half of all taxes collected and the declining percentage of Americans that pay any taxes at all. From her perch on Wall Street, there's little doubt where Meeker and her collaborators on this piece fit in that taxpayer stratification. Also unfortunate is the assertion that even doubling taxes would not fix the problem (all by itself) unless one posited GDP growth rates of 6-8% for more than the next decade, impossibly high compared to the 40-year average closer to 4%. A better analysis would include a 3-4% GDP rate, more targeted revenue increases, medical cost containment (with a real health care insurance reform) and other sensible changes to defense, entitlement qualification, etc. (One tool you can use to craft your own balanced budget is here.)
I could make other quibbles too. The brief bit about cutting defense spending does single out the F-35 aircraft Congress insists on buying even though the Pentagon doesn't want it, and also notes the $80B of "pet projects" (a.k.a. pork) in the budget at the behest of individual Congressional members and delegations. This is undercut, however, by a highly misleading graph that purports to show how defense spending as a percent of GDP is below the historical average, except of course, that history conveniently starts just before the massive expenditures of World War II began. Leaving that out, or better still, extending it back to the beginning of the Republic, would materially change that average.
Nonetheless, the presentation concludes with an honest call for shared sacrifice (from "almost" all Americans) as the only way to address the problem which has been the result of a bipartisan exercise in wishful thinking for 40 years.
I would like to see this shared with every member of our federal government, and to hear their on-point and factual responses to it. Meeker is absolutely correct in pointing out that the current Kabuki in Washington amounts to little more than tinkering around the margins for political point-scoring and is way too little to address this slow-motion crisis.
It is long past time for our leaders to stop their tiresome showboating and ceaseless paeans to American greatness, and start the hard work of finding sustainable solutions. We could start by looking at what those countries who still have a AAA bond rating are doing in healthcare.