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The news last week that Stockton, Calif., declared bankruptcy was overshadowed by the Supreme Court’s decision to uphold the Affordable Care Act. But both stories have something in common. They point to the reality that if the United States continues on its current course, the country will go broke.
As I have written before, the U.S. spends $2.5 trillion per year on healthcare costs. That’s money the debt-burdened country already doesn’t have -- and those costs will grow to $4.5 trillion in just 10 years. So, the total projected increases over the next decade reach a staggering 10-year summed total of $10 trillion. This is far more than the U.S. spends on defense, education, or anything else. The debilitating losses from the subprime meltdown don’t even match this amount.
I am convinced America is going broke first and foremost because healthcare costs have been allowed to spin unimaginably out of control.
Regardless of what you think of the Supreme Court’s decision, the healthcare law, while expanding coverage to some groups, is primarily about how insurance money gets moved around, in my view. I doubt the law will have much of an impact on the big-picture problems in America -- national indebtedness; possible bankruptcy; and incalculable numbers of broken health-benefit and pension promises to employees, bondholders, soldiers, teachers, police officers, and on and on.
So, if America is going broke in large part because of healthcare, what exactly does broke look like? This is a timely question -- America goes broke one important city at a time. Stockton is now your poster child and a portent of things to come. Stockton’s leaders made promises to city workers about health coverage -- as well as other benefits and retirement payments -- that they couldn’t keep. The city is $700 million short because they overpromised workers and now bondholders.
Now, imagine this suddenly happens in a few other cities, then 100 cities, and then 1,000 cities, and you have a national economic Armageddon.
The solution for Stockton, though it is a little late right now, is to create an economic engine of GDP growth or the people there don’t have a chance. And the city’s leaders had better quit promising workers more money in health and other benefits than the amount raised in taxes they collect. A city’s math has to work. And the math in all U.S. cities has to work because, simply put, those cities make up the American economy. America will suffer or thrive with the prosperity or poverty of its cities.
You may be thinking Stockton is an outlier, but there are some 480 cities in California alone, and any number of them could be going broke today, but have yet to declare bankruptcy.
City leaders everywhere -- not just local elected officials, but business executives, philanthropists, investors, and anyone else who cares about their town’s fate -- had better take a long, hard look at Stockton and ask themselves: “Are we, too, overpromising what we can deliver to our workers in health and other benefits?” More importantly, “Do we have a plan to create sudden, quality GDP growth -- to drive our city’s sales and economic future (and build the kind of tax base that can pay for health benefits in the first place)? Is our city going to be a great place to work and do business?”
Leaders who ask these questions, then set out to find the right answers, are not only great city leaders -- they’re great Americans.
Monday, July 2, 2012
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26 comments:
Problem is the public sector unions will never, never back down on increasing wages and benefits. Unions destroyed the US auto industry and will bankrupt whichever public sector they negotiate with.
I have seen my salary flatlined for ten years.I'm not in a union. I am waiting for the corporate interest who are doing great to notice that I'm not,and trickle some of that largest down to me.In the meantime(before deregulation) allows the big boys to give me a cost of living raise.I struggle on.Anybody got some spare change??
"Problem is the public sector unions will never, never back down on increasing wages and benefits."
Have you ever tried to take food from an animal? How do they respond? It's a threat - you're trying to take something that represents their survival.
The Unions are reacting in the same way. They are in non-thinking, reaction mode.
So, if you want to see "dialog" with these folks to find a solution that works for everyone, first figure out how to get their thought process adjusted to a different reality - like ALL of us suddenly starving. Then maybe we won't be "treated" to more spectacles such as Wisconsin's recall attempt & all the hoo-haw that went along with it.
@Marion Garnett
You should feel lucky you have a job. Those that are unemployed have seen their salary drop to the size of the "magnanimity" of their new masters called 'elected officials'. Many have been streamlined out of a job trying to support more regulations w/o adding anything to the economy.
The ACA has several reforms aimed at con tolling health care costs from enhanced record keeping to access to preventative care to delivery reforms to ways to lower the trajectory of Medicare costs (including most especially many of those demagogued to death by the right, e.g. the Medicare advisory board). Most of these are not scored by the CBO as saving money simply because the there isn't enough information to know what savings they would produce notwithstanding the clear promise they hold out. Maybe these will not deliver what their designers seem to hope. However, whatever else is true about the law, it most certainly is NOT about moving costs around.
That's misinformation count one. Count two is the absurdity by which you whistle pass the graveyard of how Stockton came to the road to bankruptcy- it had for some time the highest foreclosure rate in the entire country. Higher than Vegas. Higher than Phoenix. Higher than South Beach. And all courtesy of the wayward underwriting and speculating practices of private sector retail and investment banks, brokers, rating agencies, monolines, hedge funds etc. Yes, the folks that brought us the subprime crisis.
Now you want to spin this legacy of that private sector fiasco as being down to overly generous health care benefits? Is there a Republican on this earth left with a shred of intellectual honesty??
In the next decade or two as more Baby Boomers retire there will be a new evaluation of the government's role in providing lifetime benefits for Social Security and Medicare. Stockton's bankruptcy as well as the recent votes in San Jose and San Diego are the tip of the iceberg of overextended taxpayers throwing up their hands and saying "Enough. We can't afford this anymore."
@Anonymous
"You should feel lucky you have a job. Those that are unemployed have seen their salary drop to the size of the "magnanimity" of their new masters called 'elected officials'. Many have been streamlined out of a job trying to support more regulations w/o adding anything to the economy"
That's a total copout. Explain to me how the rich keep getting richer, how corporate profits are now bigger than ever, and those of us who work hard and pay our bills are getting squeezed constantly?
Really, that dogma you're spewing is almost as rancid as the crap that comes from the people on left who think they "deserve" free stuff courtesy of Uncle Sam. Those of us in the middle need to round up all the extremists from both sides and send you all packing.
Your closing statement is very true. It applies not only to City leaders, but Federal as well. Most importantly, those of us who are union leaders - shop stewards, officers and negotiators - also need to look forward.
What many fail to realize is that unions are in place to protect the rights of the worker. We need to remember to balance that against the job of those we represent. Unfortunately, when negotiating a contract, I think the unions have continued to negotiate against persons with inferior skills. I know that in my City, the City representatives have not been schooled on negotiations whereas the union team has. Is that a fault of the union or the city? How about the individual?
Bottom line, get educated. Be the best you can be every day. If we all act like this, making informed choices, it will get better.
How about taking some of the pay from professional athletes and paying educators more? This might incent folks like the MBA types to take a different path. Better educated population= better economy.
Well, it's a bit late for city negotiators to get educated. The unions don't give a hoot if a city has to hike property taxes by 500% as long as they get theirs first. Homeowners will simply walk away from their mortgages because they can't afford a $30,000 a year property tax bill and can't sell the home.
Cops and firemen are precious, however paying out 100% of a highest salary (of say $150,000 per year) at age 50 for life is clearly unsustainable, yet the unions will still not budge.
It will simply take the cities, counties and state flat out running out of cash, bonds, federal transfer payments or additional revenue to where the employees and pensioners get IOU's instead of checks. It "will" happen. At the very least, pensions must be cut back in the short term and moved to 401K style systems.
The real answer is to do away with public employee unions. The obvious corruption of using taxpayer money to fund reelection campaigns to support further union contract largess must end or it will sink this country.
Public employees are important, but math is more so.
Also, I do find it ironic that a lot, maybe most California pensioners leave the state after they retire to avoid paying high taxes to the state that gives them what no private employee could hope to attain in their retirement.
The rich keep getting richer because they work hard and do not wait around for free handouts or live on the unfullfilled promises of others. The rich are not to blame. Life is pretty simple, do not spend more than you make, get out of debt, and take control of your own life. I'm worn out with everyone blaming everyone else for the condition they are in and thinking that the government is the solution
The real problem is that most Americans (myself included, for the most part) gripe about all things political but fail to take action, get involved, demand change. Our whole system now is all about special interests- unions, corporations, minorities, one specific issue. Until we get smarter and demand that our elected officials serve ALL of us better, we'll continue to see these types of things going on.
We're also, as a country, fairly comfortable. We've lost sight of what it means to sacrifice. We've been at war for the past decade and has our food been rationed? Has there been a draft? Have we had to melt tin cans? No. I'm not suggesting those are good things but we are a country who craves convenience and comfort and that means we don't like anything to be harder or costlier. We all need to realize that things are going to get worse before they can better.
Bankruptcy is a way for cities to get out from underneath the unsustainable promises they've made, and that's a good thing.
It is interesting to see the comments posted as a direct reflection of the article. Although the article is a subtle call to action, it mostly focuses on a doomsday scenario for America based on relatively sparse facts and assumptions.
Balancing the budget is paramount for all cities, but government leaders come in different flavors and clearly not all are created equal nor have the right intentions or ability. Thankfully that's why we have a democracy.
However, based on the tone and message conveyed by this article, readers are quick to ignore the true problem but instead look for scapegoats and ignore the point- how to create a sustainable cost infrastructure to promote a healthy society. We know leaving it to private business isn't helping. Government programs won't solve the problem either, so for most, what is the alternative but finger pointing.
There are plenty of solutions out there and we need to take the initiative to help make changes as Americans, not because we are rich, poor, conservative, liberal, union, government or some other convenient stereotype. And no group is to blame for city budget explosions, its the cost of healthcare increasing 100 times the cost of normal inflation every year that is sinking the ship.
Only in America do you see conversations about "överpromising" penned by CEOs talking about tax bases of cities when the same group is happy to export jobs and aviod taxes.
Time to look at economies that actually work for the society as a whole like scandinavia germany or even my own australia.
why does no one question why "the best healthcare in the world" as the GOP keep saying costs the most - 17% of GDP where every other advanced nations delivers "socialist" universal healthcare for 3-6% of GDP.
This article is a vote for romney by the elite. Unions are not the problem the competive society is, this is the age of collaboration & information old paradigms are finished so choose left/right,conservative/progressive, Fox/lamestream and watch the world leave you behind money or no money.
Please bear in mind your "negotiation" skills gave us the worst recession since 1929 due to YOUR lack of regulation.
Good luck in november you will need it
So true. Governments are forced into a corner by short-sighted, "What's in it for me" collective bargaining groups. Is it any coincidence that many of the industries now suffering (auto, public education) are unionized? It's time to break the unions and move toward fiscal conservancy.
Disgruntled - the anger in your comments to Anonymous (a diff Anon than I) betray your viewpoint.
The truth is there is nothing wrong with wealth. There is something wrong with HOW some people have achieved it - but not all. Punishing ALL wealthy people because some people have raped the system is the wrong message and the wrong solution. People who get wealthy by creating jobs and growing the economy should be rewarded. It is the bankster gangsters and the elected officials and the crony capitalists - which is substantially different from true capitalism - that is the problem.
Pay to play politics is what has ravaged us and given the unions the power they have today. When elected officials who decide the salary and wages of unions get pay-offs from the unions (those pay-off to primarily Democrats) from OUR TAX DOLLARS is an unending cycle that puts the cost of the political campaigns and the union benefits on the back of the working middle class.
Jim,
Maybe I am miss understanding what you have wrote but it is almost a contradiction in saying the health care cost are causing "America to go broke". Then go on to site a governmental system and its leaders/workers that were a major cause the whole well being of Stockton and its participants to go broke on the backs of the taxpayers. It is the taxpayers that are getting the short end of the stick. Can you say "Boston Tea Party". It is the contributors not the takers that support the city and are at the heart of the problem. Get the picture?
I try to look at the root of the problem which is obviously a lot deeper than what we all realize sometimes and we try to simplify when a lot of times things are not simple. What I do know is that healthcare in the private sector is being paid for by private sector workers via the companies they work for. Companies work to be competitive when they bid out health care providers for their workers which helps keep the system somewhat honest. I feel it is the free enterpise workers that pay for the healthcare and are taxed to support their government entities. It is part of the company's expense for the work they provide. It is the non-contributing groups (takers) that add the additonal expense to the system. I do think the medical profession needs to be reeled in but by increasing competition. I also believe the non-contributing groups need to be reeled in as well.
To say that the Supreme Court ruling will not have an impact on America in the future is a hugh stretch. You are vastly under estimating the mood of the country when it comes to government intervention. There is a large group of citizens like myself that believe government should first and foremost not be that important in our lives. Secondly, it is about liberty and private freedom. America has fought wars over what the Supreme court did. Stockton, as wisely stated, is an example of the bigger picture in the US. Bringing Obamacare into law will move us to exactly what Stockton has done in the past and now you see the result. The only difference is that the Federal Government can print money and the city and states cannot. The capitalistic system along with charitable organization, though not perfect, is much more efficient, productive and compassionate in the long run to the the overall well being of the country from a healthcare standpoint. The contributors need to reel in the takers before everyone goes bankrupt.
What elected official will have the courage to admit that the taxpayers can not afford to provide automatic wage increases, retirement pensions, and healthcare for public sector employees? Few republicans. No democrats. They would prefer to face bankruptcy and foist the blame for necessary cuts and shakeouts on previous administrations throughout the bankruptcy process. In this way, elected officials can keep their position and power - which constitute the whole of political ambition today. Where are the statesmen?
One fact you all are missing is that public REVENUE has gone down for both state and federal levels, and that hurts everyone... all people, all cities. If it weren't for all the new tax breaks started by Pres Bush, and tax cuts pushed by all repub legislators, we wouldn't have this revenue problem. We could have paid off the trillions in war debt we presently have. We could still have all hard working US citizens working to earn their living (instead of jobs eliminated in both pub & priv sector), and have them all paying taxes, so that we could still afford good public schools, libraries, parks, police officers, health care, etc...that is IF we were ALL still paying taxes at the same rate we used to in the 1980's or even later while Pres Clinton was in office. If you keep cutting budgets.... well, you get what you pay for, and your public schools will disappear. This would be disastrous… do we really want any of the kids in our country uneducated? Ask anyone attending a public university... when state funding disappears, and tuition goes up by 5-10% per year, year after year, it becomes unaffordable for the middle class. At the higher ed univ I work at, the state funding we receive per student has been REDUCED TO THE SAME DOLLAR AMT WE GOT PER STUDENT 25 YEARS AGO!!! (IF WE ADJUSTED FOR INFLATION, IT WOULD BE EVEN LESS/WORSE, BUT I DIDN’T ADJUST!) What do you think that does to tuition and fees, and affordability?!? And don't give me that baloney about public employee wages. We've had 8 years of wage freezes here, that means no bonuses, no COLAs, nothing... meaning our paychecks go down every year. We contribute to our own 457B plans, without employer match. It kills me that you all stereotype thinking we have some great pension plan, or some great health insurance. It's tough all over. I pay over $5,000. out of pocket every year for my health insurance. But my friend over at Wells Fargo has prescription copays for only $3.00; wish I had that; (and her employer is contributing virtually nothing towards tax revenue as they should). But I shouldn’t be wishing for me to have what she has… that’s what’s causing all this mess, hurt, and fighting. You see, WE ALL DO BETTER, when WE ALL do better. We should want everyone in our country to be doing better. If we are all spending, going to restaurants, on vacation, buying school supplies for our kids, etc, etc, it will help our economy. But if you keep cutting wages, cutting jobs, cutting tax revenue, cutting services, it hurts us all. Let's stand together... if you work full-time like me, or if you are retired and used to work full time, or if you are disabled or veteran and can't work full time, or if you are in any other way middle class working America, than can we please stand together for a change with the top 2% that wouldn't even notice or feel pain if their taxes went back up to before their Bush cuts, and stop letting the top companies in our country get by with paying zero taxes when they still have plenty of funds for lavishness and to pay all CEOs and employees raises. Why are we giving handouts to the wealthy, called tax cuts?!?! We should ALL be paying taxes!!! My degree is in Business Economics, and I could go on for hours. I admire people like Robert Riech, Van Jones, and Rachel Maddow. I wish they had time to give their two cents on this article!
Why do we have Unions anyway for government sector jobs? Why do we need unions protecting workers from the most benign employer in the world (or much of it anyway)? Gov't jobs should be for those who can't get private sector jobs and gov't workers should aspire to get a good paying PRIVATE SECTOR job. The problem is government jobs are now FAR superior to private sector jobs; great pay - the AVERAGE wage now for a firefighter in Clark County, NV is $150,000, great benefits, and a great retirement. And the checks always cash. But what really irks me is that many gov't employees are incompetent as well! We need politicians with TRUE GRIT like Reagan who will simply fire them ALL!
Stockton went broke for one reason... revenues were too low when compared to expenses. You don’t need a bachelor’s degree in Business Economics, like I have, to understand this. I do agree with your thoughts on “healthcare costs having been allowed to spin unimaginably out of control” as being a large contributor to our country’s problems. But I think you are way off base to blame the city of Stockton “employees.” Is it any employee’s fault that pharmaceutical companies can charge $1400 per month for prescriptions for a breast cancer survivor, or that heart surgery for my newborn daughter totaled $1.3 million? Is it the city or state employee’s fault that their health insurance companies care more about profit than health care, and are charging more for premiums & deductibles, while still treating their execs with large salaries? If we can agree that expensive health care is a problem, then let’s try to discuss getting the profit out of health care.
“The current course our country is on” exists because we have spent trillions on war, and given tax cuts to everyone at the same time. But yet we refuse to invest in our people and let them work for a living. Businesses build new buildings, and cut or outsource workers to do it. Who wants new empty buildings? I want goods and services.
One fact you all are missing is that public REVENUE has gone down for both state and federal levels, and that hurts everyone... all people, all businesses, all cities. If it weren't for all the tax cuts and shrinking public budgets, we wouldn't have this revenue problem. We could still have all hard working US citizens working to earn their living (instead of jobs eliminated in both pub & priv sector), and have them all paying taxes, so that we could still afford good public schools, libraries, parks, police officers, health care, etc...that is IF we were ALL still paying taxes at the same rate we used to pay. If you keep cutting budgets.... well, you get what you pay for, and your public schools will disappear. This would be disastrous… do we really want any of the kids in our country uneducated? That’s just going to create more families living in the slums, more crime down the road, etc., to bother the rest of us. Let’s get everyone off welfare, get rid of all fraud, get everyone educated, and get everyone working and paying taxes.
Please stop letting the wealthiest 2% in our country pay less than I do in taxes. Please stop allowing companies in our country get by with paying zero taxes when they still have plenty of funds for lavishness while paying their CEOs and employees raises. Why are we giving handouts to the wealthy, called tax cuts?!?! We should ALL be paying taxes and then there would be no more city bankruptcies like Stockton.
"Explain to me how the rich keep getting richer, how corporate profits are now bigger than ever, and those of us who work hard and pay our bills are getting squeezed constantly?"
Many of the wealthy and captains of industry are feeding at the government trough. The federal government, aided and abetted by a complicit central bank and large banks and corporations borrows and prints money that is distributed first to the big corporations and banks.
Those at the very bottom (the 40+ million currently on food stamps) receive token payments from the same government making them dependents of the state. Those in the middle, as you aptly point out, simply get squeezed by stagnant wages and rising costs for everything (healthcare, energy, food, etc.).
Fix the corrupt monetary system. Work with state legislatures willing to stand up to the federal government and simply say "enough." Short of this, we are simply left with mob rule where the only beneficiaries are those at the very top of society who can promise and deliver the goodies to bribe enough of the electorate to stay in power.
There is a simple fix: bar government employee unions. Even as stalwart a liberal as FDR recognized the error in allowing public sector employees to unionize. The states first allowed it and now look at the mess. Unions have an incestuous relationship with the liberals to whom they donate. No negotiating skills are required on their part. Unions simply turn to the politicians they paid for (primarily democrats, but all liberals) to "nudge" negotiations their way.
Another step to take is to end SS, Medicare, Medicaid, and repeal oBUMacare in its entirety. All of these do NOTHING to improve the lives of Americans as they all diminish freedom. The larger government has to be (because of faulty programs such as these), the less freedom exists. Their existence also dampens Americans' use of their genius for taking care of themselves and each other.
Finally, churches and church organizations, as well as secular non-profits must give up their tax-free status. This will unshackle them from the onerous burdens placed upon them by government.
When we've done those things, we will find that making government smaller and responsible for only those things government is meant for is infectious. Americans can and will run their lives without government oversight, and government won't feel compelled to overpromise and overspend.
Our medical costs are so high because we don't promote health, we treat illness, a model that continues to guarantee a siphoning of the public treasury to the insurance and pharmaceutical companies' coffers. We ignore the best data and make FDA dietary recommendations based on the input of the food industry. We aren't forthright about how much exercise it takes to maintain health. We spend our research money developing medications instead of identifying the reasons for disease and then effectively communicating them to prevent disease. About 1/4 of seniors in this country have diabetes, and about 1/3 of the adults in the U.S. have prediabetes, facts probably related to dietary and activity choices misguided by profit motive. 1 in 70 boys born today are on the autism spectrum, a fact that is probably related to pollution. We distribute "health care" effectively only to the well-employed via health insurance benefits, a shrinking pool that has the least probability of needing the care, and to seniors via Medicare. We spend the most, by far, and have poor results to show for it. I imagine that if we examined other aspects of the costs of what we do, we'd find plenty of similar examples of decisions made to enrich the wealthy rather than to accomplish the public good.
Well, all these comments have been interesting. Reminds me of the old saying "We're just shuffling the chairs on the deck of the Titanic." Perhaps Guy Odom has the most accurate perspective - all nations rise and fall. And our nation is in the last of ten generations of the rise and fall cycle. End of story.
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