“Medicine Is Swallowing the Federal Budget:” George Will at AAOS

Every 10 seconds, the U.S, government borrows another half a million dollars, explained George Will at the AAOS keynote.  Quoting Hemingway, he explained that “there are two ways to go bankrupt. Gradually and suddenly.” And we are “headed towards the suddenly part,” he said.

Brian Buntz

February 12, 2012

5 Min Read
“Medicine Is Swallowing the Federal Budget:” George Will at AAOS

Taxing the wealthy, which has been proposed as a solution to this financial problem, is a bad idea, he said. “A country that has lost $7.4 trillion in home equity needs more than a fiddle like that,” he said, explaining that if all of the wealth of billionaires in the country was confiscated, it would not pay six months of the country’s debt.

The government is larger than most people understand it to be. One fifth of American personal income is derived from the government. “There are twice as many government workers as there are people working in manufacturing.”

And much of this government debt is fueled by medical expenses. Before the healthcare reform legislation was passed, 50 cents of every healthcare dollar was from the government, he said.

Every day, from now to 2030, 10,000 more Baby Boomers become eligible for Medicare and Social Security. Five years ago, Will turned 65 and received a Medicare card. “I showed it to my doctor who said, ‘That is wonderful George, now we’ll send your bills to your children.’” That may have been a joke but it is, however, how the welfare state works, he said.

The problem is becoming more urgent as the population gets older. In particular, it is especially expensive to take care of the “very old.” The average cost of taking care of an 85 year old is five times higher than the average costs of a 55 year old.

Image from FlickR user CarbonNYC

And there are fewer people to support the elderly financially. In 1940, there were 42 workers for every retiree. Today, there are 3.1 workers for every retiree. And by the time the Baby Boomers have retired, assuming that migrant workers continue to come to this country at a sustainable rate, there will be 2.1 workers for every retiree.

“We need economic growth to throw off the revenues used to fund the welfare state to avoid the most predictable crisis in American history,” Will said. And the real problem behind this is medicine, which is “swallowing the federal budget.”

While medicine has progressed amazingly over the decades, at has come increasingly expensive. Will pointed out that he was born in a hospital in Illinois whose biggest expense was clean linen. Without things like MRI machines and expensive prescriptions, healthcare was relatively inexpensive. But, now, the country is spending close to 20% of GDP on healthcare.

A Buffet Attitude towards Healthcare

One of the main problems behind the out-of-control costs in medical care are muddled incentives, Will argued. Only 12 cents of every healthcare dollar is paid by for the person receiving the healthcare, he said. “The other 88 cents is spent by someone else.”

This expains why Americans have a "buffet attitude" towards the healthcare system. “Someone else is paying, let’s eat all the shrimp.” Practically no one goes to the doctor and asks how much a procedures and tests cost. “Most Americans don’t know, don’t care, and wouldn’t find out even if they could.”

A Problem with Incentives

While the government is growing larger in size, fewer people are paying for it. Will pointed out that under the current tax plan:

  • The top 1% of American income earners pay 39% of the income tax.

  • The top 5% pay 60% of it.

  • The top 10% pay 70%.

  • The bottom 50% of American earners pay 3% of the income tax.

“60% of Americans pay either no income tax or less than 5% of their income in taxes,” he said. It is a moral hazard that incentivizes perverse behavior. “Most people are supported by a government they aren’t paying for.” He quoted Margaret Thatcher, who said that the problem with welfare is that, sooner or later, you run out of someone else’s money.

And the tax code, as it is now set up, is expensive to enforce. “The people employed to enforce tax code compliance requires more people than the nation’s five largest employers.”

China Isn’t the Problem

Will criticized the notion that China is somehow to blame for robbing the United States of jobs. “If China disappeared, the jobs wouldn’t come back to this country. They would go to Malaysia, or Vietnam, Thailand or somewhere else.”

A better solution to our economic problems is for entrepreneurs to identify unmet needs. For instance, consider the case of Amazon, eBay, Yahoo, or Google, which, when they were launched, provided functions that did not exist at that time.

In the manufacturing sector, the United States now employs six million people less than it did in the 1970s. But, while it has lost workers in this sector, it has gained efficiency. With fewer workers, the United States now has 2.5 times the manufacturing output. We manufacture more than China does with one tenth of the workforce

Restoring Hope

While many people in this country have grown pessimistic because of the political malaise and budget problems, things will likely get better, Will said. As Winston Churchill once explained, “The American people invariably do the right thing... After they have exhausted all of the alternatives.”

All the country needs to do is to choose to get better and work to make it happen. “I think we are about to make a whole bunch of intelligent decisions.” Will predicts that the country would realize “that a benevolent government is not always a benefactor” and that capitalism not only makes us better off, but makes us better morally. That is, it inspires hard work and progress. “Americans understand that the one thing that you can do for your country is to preserve a spacious portion of life for which your country is not responsible.” He backed this assertion up by loosely quoting Robert Frost, stating “I don’t want to live in a democratized society. I want the cream to rise.”

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