Jobenomics Book Review Chapter 6 Entitlements

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This chapter of Jobenomics covers the costs of Entitlements and what that will mean for the skyrocketing US budget and budget deficit. According to this chapter, entitlement programs are guaranteed by law, by virtue of access to federally-funded benefits that include Social Security, Medicare, Medicaid, Income Security, Federal Civilian & Military Retirement, Veterans, and subsidies for social services, agriculture, higher education, recovery programs, military and children’s health care, FDIC deposit insurance, telecommunication and Internet services for the poor, and the like.

Other publicly-funded health care spending is for Department of Defense health care for military personnel, the Department of Veterans Affairs health care for veterans, state-run health care under Workers’ Compensation programs, and numerous programs for R&D, public medical facilities, maternal and child health services, school health programs, subsidies for public hospitals and clinics, Indian health care services, substance abuse and mental health activities, and medically-related vocational rehabilitation services.

A $500 billion total increase in what the government will incur is calculated thusly: The health care bill front-loads revenues and back-loads spending,Unrealistic transfers from the Medicare budget that will likely be funded from the general account when Medicare reserves are depleted (as early as 2017).Savings from eliminating the private-sector student loan program will not materialize with a new government bureaucracy that replaces private sector organizations.

The costs would be covered by Medicare budget cuts ($465B), increased taxes on the wealthy ($210B), health care and drug company industry fees ($107B), new taxes ($103B), premiums on new long-term care programs ($70B), penalties for those who refused to participate ($65B), and taxes on high-cost health care plans ($32B).

By cutting the number of uninsured (32 million people), insurance companies will be able to reduce premiums to the insured since they will no longer have to cover the hidden costs of emergency room care for the formerly uninsured.

If US GDP grows to the $22.6T level, $4.3T will be only 19% of US GDP.
To pay for the rest of government operation, the federal budget forecasts $1T deficit spending each year through the year 2020.

Additionally, in the last 75 years, Social Security/Medicare has morphed from a government funded, worker’s reward program to a mandatory social welfare program co-paid by workers and employers. Unless employment increases significantly (thereby producing increased tax revenue), the US government is rapidly approaching the point in time when it cannot borrow or print money to cover deficit spending.

Since aging is also an important issue, significant attention needs to be given to growing the economy via the generation of enduring, high-value jobs. More and more baby boomers are entering retirement solely dependent on Social Security and Medicare, since many have had their retirement accounts (savings, stocks, 401Ks) and home equity wiped out in the recession.

The conclusion this chapter reaches is a grim one indeed. What is affordable to the nation as a whole today probably will not be affordable two decades from now, especially if the US economy plateaus, or retirees live longer.

When this time arrives, the US federal government will be faced with disastrous options, including defaulting on obligations to seniors, super-inflation, or economic collapse. The next chapter covers way this might be avoided before it’s too late.