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Saturday, July 30, 2011

Who are the adults in the room?

As the Tuesday deadline approaches, the finger pointing and exchange of accusations will reach a crescendo as the game of financial and political chicken escalates beyond what any of us imagined when this process began. There are so many angles and perceptions that it is possible to read various perspectives on the history and possible solutions and discover that although each contains an element of truth and yet they have essentially no common ground.

Perhaps the best place to start is the cold hard facts of the financial reality. If the debt ceiling is not raised, the federal government estimates it will have about $180 billion in receipts to cover about $315 billion in promises for the month of August. Just think about this. If this were my or your budget, the claims on your monthly earnings would be close to double your receipts. This is not sustainable nor defensible.

I do not know sufficient specifics of the various plans to write an intelligent critique at this point. However, there are some obvious general conclusions and implications which can be drawn from the irrefutable numbers above. First, something has got to give, if not now, then sometime in the not too distant future. I find it intriguing that one of the major criticisms of the Boehner plan from Democratic leadership is that it will place us of having to discuss this again in the not too distant future since it only creates a brief fix of the debt ceiling.

Well duh! That should not be a criticism. We can view this as a safety mechanism in that the proposed bill will automatically bring it to our attention again. This is such a critical problem it should be front and center of our political leaders until it is addressed sufficiently. In my estimation such an approach which does not kick the can down the road for someone else to deal with is a plus, not a minus.

In addition, the stark numbers demonstrating  the huge delta between what is required to fulfill promises made by the Feds and the actual tax receipts should prompt us to think about which populations and what entities have become unhealthily dependent upon federal largess to fulfill their missions. Given the stark math and the likelihood that anyone or anything which receives federal dollars will take a haircut in the near future, whose business plan is so dependent on this support that is makes survival unlikely if needed cutback occur. This list is mind boggling. In addition to the Defense Department (which we would probably not want to have an option other than public funding) we now have additional federally dependent entities...every state and major municipality; most institutions of higher learning; almost every health care entity; all medical residency training programs; the aerospace and defense industries; and I am sure I am missing something.

The world I know best is healthcare and healthcare without or at least with substantially fewer federal dollars is an industry that will undergo cataclysmic change. Start with residency training. There is basically no other mechanism which will pay for residency positions. While there may be scattered positions funded via other mechanisms (such as the Mayo model)  there is no other financial model which is widely deployed and validated. Furthermore, the rules dictated by Medicare have pushed one to be all in or completely opt out. Most have elected to be all in and are woefully unprepared to adapt to loss of federal monies. The same holds true for the research enterprise, and although less so, clinical care. The impact of the haircuts will be huge but likely unavoidable.

Similarly, when the federal social safety net becomes the norm rather exception, it creates a similar unhealthy dependence on a single source for essential resources. It prompts larges segments of the public to place a huge bet on one source. What happens when promises made are simply not supportable? The fallback of those who promote such approaches is to increase taxes on the rich and corporate sources. While one can come up with various justifications based upon social justice, the problem is that the math does not work. Steeply escalating progressive tax rates on personal income even under the best of circumstances will harvest only a fraction of the revenue needed to pay for future obligations and those targeted will respond in ways which will decrease their taxable incomes. Increased corporate taxes may raise monies in the short term but their long term effects are generally to decrease capital available for investment, economic growth, and job formation. You end up with Greece.

Any person or business which becomes overly dependent upon any single source of essential resource sets themselves up for loss of viability. The largess of the Federal government is in historical terms a very recent and likely transient phenomena. That entire industries or segments of industry have built their business model on such a narrow resource stream is clearly unwise and almost certainly unsustainable. To suggest that the "children" in the room are those who are now saying that we need to address this is amazingly short sighted. They are not the ones who have created the problem and their efforts insisting that we begin to address this problem now are courageous, not childish. These efforts may turn out to be politically unwise in the short term but that reality should be viewed with embarrassment by us, not with smug self-righteousness.

The real adults are those who have the courage to raise the hard questions and have the difficult conversations. The conversations will not get any easier right up until the point where the conversations will become irrelevant. Let us hope we do not get there.

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