Second Law of Budgets

After attempting to digest the First Law of Budgets, I suspect not many politicians or members of the public would have much stomach for the second course. How annoying it must be to be told that you have to pay for everything. But for those of you who do, the Second Law is more esoteric and insidious. The Second Law of Budgets deals with the principle that in managing money the system is imperfect, you cannot attain a perfect conversion of a quantity of money into an exact equal value of whatever you equate it to. In other words, with every financial transaction there is an inequality of the exchange. Now the bookkeepers will contend that they can and do balance the books; that every penny, rupee, yuan, or pound is accounted for and that the ledger balances. But that is accounting, not money or value. The natural law that we are dealing with here, with regard to budgets, is that as money (value) flows from one region to another, or within the total system itself, that every movement includes a small (or not so small) loss to the parties engaged in the transaction. This loss can come from many factors and there can be more than one of these incremental losses nibbling away at the value of the exchange.

An example would probably be helpful. If you spend a $1,000 to buy a flat-panel TV and the value of the TV was agreed by all to be $1,000 then the exchange seems equal, balanced and exact. Except that there are additional costs that the buyer has to account for. There is typically going to be a sale-tax (both local and state), there is a cost to have it delivered or to transport it back to you abode, there may be an installation/set-up fee, and there is an immediate loss of market-value once you take it out of the box. You might even want to account for other value factors. If you gave the delivery person(s) a tip for their service then that was an additional value for the TV that is neither in its inherent value nor recoverable.

This gradual but continuing erosion of value within the exchange process is simply the operation of the Second Law of Budgets. Whatever you establish as your acquisition target there will be more and more cost bites added on to the value of what you desire or need with every person, action, and stage that the transaction encounters as you move closer to completing the purchase. In the end, you will possess the goal object but you will have spent more money for it than it will be worth at the moment of ownership/possession. As C. P. Snow would say about the Second Law: “You can’t break even.”

Now this should provide our budgetary heralds with some intriguing insights into the difficulties that Congress has to include in their reasoned and unbiased deliberations on what needs to be done by the government and what will be cared for by the private sector. I am sure that they will appreciate that every calculation of value that they think they are making will be reduced more and more by the little but persistent nibbles. The nibbles will come via the Second Law through each individual exchange along the chain of purchases, acquisitions, and trades that are the magic of the economy. Congress will learn that the best and most efficient exchange process is not in fact determined by simple and ideological approaches. The free market nor the government program set in any fixed relation to one another, and neither will ever perform as expected by the masters of the budget.

Let’s turn Medicare into a voucher/premium-supplement supported market-based insurance program. Nibble, nibble. Let’s raise the age or retirement. Nibble, nibble. Let’s reduce taxes on the wealthy to create jobs. Nibble, nibble. Let’s stimulate the economy with tax-credits and bailouts. Nibble, nibble.

What Congress doesn’t comprehend is that they are mostly a nibble, just another aspect of the Second Law of Budgets. Not only can you not get as much out of what you’re taxed as you pay in, but Congress insures that you get less. And they do so in the most inefficient manner. Democrat or Republican, they just keep nibbling and nibbling. Even when they tell you that they want to do less and tax you less, they haven’t figured in the non-government nibbles. Maybe you’re taxed too much, maybe you are not. That’s the wrong issue, it always has been. It’s just another one of their nibbles, it’s not like they have figured out that there are other nibbles out there that if not understood are worse than the one’s they want to try and change.

The national debt is in part a Congressional nibble. The deficit is a Congressional nibble. The declining entitlement programs funding is a Congressional nibble. Defense spending adds its own nibbles. Nibble by nibble the nation’s problems grow because Congress doesn’t understand the Second Law which leaves them vulnerable to it. It’s not that they make mistakes; they don’t even know the rules. They don’t make mistakes, they make actual bad decisions.

Congress Can't Empty A Boot With Instructions On The Heel

The Republicans have passed a federal budget proposal that demonstrates once again that whether the ideas in Congress come from Republicans or Democrats that the American people can depend upon Congress and its denizens to get it wrong. It's not that they're stupid, well it's not just that anyway. Congress' problem is that they fashion their policies, programs and plans from the ideological puffery that endears them to their core constituencies. Their attempts to beat their accursed foes consistently takes the fore in their efforts, leaving the matter of serving the public either in the background or completely out of the picture. It is in this context that Paul Ryan has set out his plan for 'The Path to Prosperity'.

The plan is not very long and does repeat itself a lot; much like a political speech at a fund-raising rally. In it he explains that if you take a lot of money out of government spending, that the government will spend a lot less. This may be math beyond the understanding of most Americans, but I am not sure that it would dazzle any 8th graders. He also refers to other areas where he would save money by cutting many of the items that have been noted by others here and there, including the bi-partisan committee that issued a set of recommendations for how America should deal with the national debit.

Ryan included in his plan a proposal for saving Medicare. He is sure of his plan working because he has some principles, some beliefs, that will resolve the problems that the current program is unable to deal with. And this one aspect of his plan illustrates the very reason that you cannot rely upon any one in Congress, Republican or Democrat, to solve America's problems. Ryan, our case study object of scrutiny, has put his faith in his “beliefs”, his “principles”. It's the free market, competition, and the ability of individuals and their own doctors in making the best decisions concerning their health care that Ryan knows in his heart will reduce the cost of Medicare.

My first issue with Ryan's claims is that his feelings and beliefs are the stuff of mom, home and apple-pie. I don't dislike his feelings and beliefs; but they don't constitute a plan, they don't assure anyone (except perhaps Ryan) that this will work better then the current abysmally run system, and they don't do anything like coming close to reducing the cost of Medicare. So once again we have a Congressional “Prince Vagueness” charging to the rescue with his plan to kill the evil dragon of government Medicare. He is going to replace it with the kind, generous and benevolent corporate behemoths that always do everything in their power to serve the public. And the government will be there to insure that the health care industry is fulfilling its role through the control of the government subsidies to public health care that they will manage on our behalf.

Say! Haven’t we seen this movie before?

I don't care what Paul Ryan believes. I want his plan to stand on something more firm and practical then a Congressman's intellect, particularly one warped and distorted by political ideologies that haven't worked before.

What will the free market guarantee under Ryan's plan. It will guarantee what a free market always guarantees. It will insure that the price will be what the market will bear. It may or may not be cheaper than one that is constricted by governmental involvement. Let's hope that it will be as efficiently and effectively run as say the financial institutions were over the last decade, or that the CEO's of the health care industries won't suffer too much with salaries and bonuses that will probably only be 200 to 500 times what the average American makes. Surely the public will not find the premiums to high to accommodate such sacrifices made by the officers and board of directors of these companies. Besides the public will receive a government provided subsidy to help off-set the higher costs of delivering services via for-profit institutions. Of course, the subsidy comes from our taxes, so we are getting subsidized with our own money again. Unless you are too well-off, then your money will be used to help support those who earn less. Well! At least the government won't be redistributing wealth like other plans would.

Maybe, it's the competitive factor that will insure Ryan's plan is cheaper and better than the current Medicare program. Now why is this? Because the insurance companies have boards that review and oversee what costs are covered or not under their plans. They seek to pay as little as possible for what they do pay for, and that must be how the insure that the price will go down. Well, I am glad that I won't be facing a government death-panel and can instead rely upon these corporate review boards to determine if the drug, procedure or cost of treatment is acceptable versus deciding on letting me die. And in medicine, we also always see that the price a medicine goes down with competition. Except in those cases where there is no competition like a patented drug, or a procedure performed by a capable surgeon, or the profit made by everyone if the patients have the greatest number of everything: drugs, treatments, tests, …

The reliance on the patient and doctor making the best decision thus leading to the lowest cost. You have got to be joking. If you don't see the falsifies in this logic then the drugs are not going to help you.

And now the really sad part. Ryan got close to an approach to revamp Medicare. He almost saw the way through the fog. But I think his 'feelings' got in the way. His 'beliefs' blinded him.

Ryan will be just another politician who stumbled down the road and took the wrong 'Path'. He isn't headed to Prosperity; he's on his way to Perpetuity, a place where Congress just keeps trying to get it right but lack the knowledge, skills, tools and understanding to have a chance. A pied-piper so to speak.

Ryan The Republican – Another Comic? You Wish.

We can all relax now. The 7th term Paul Ryan (R-Rep. from Wisconsin) has seen the way to fix the health care system. Well, not really fix the system, but to get rid of the unsustainable Medicare program. Ryan proposes that the Government limit Medicare to people who are now 55 and older, and to create a new system that will provide subsidizes to future retirees who will select from private companies’ insurance plans. Not government vouchers, which Ryan the Republican knows is an unacceptable concept/term; but government subsidizes for insurance premiums. Because we all know that a voucher is a designated amount of money collected from our taxes, whereas a subsidy is a designated amount of money from our …? Well, anyway a subsidy which will solve our Medicare problem.

Ryan’s plan solves the Medicare problem because after about 40 or 50 years, the Medicare problem will be uhh! ... dead. And because Medicare is over, there is no government funding problem and no Medicare entitlement program. I am not sure Ryan has thought about it in detail yet, but there will be a new Government program and bureaucracy for administering the Ryan Economic Administration and Management Entitlement Department (REAMED) to collect the taxes required for the vouchers (sorry, subsidies), to maintain records of payments by individual, determine eligibility and allocation of payment amounts to individual retirees, and to engage in all the other governmental, legislative, bureaucratic, and budgetary activities that are necessary to have a government program, particularly an entitlement program. So that is one way the Ryan’s plan is different than Medicare.

But surely when we examine his plan in greater detail, we will see that there are many ways that it will reduce health care costs for the American public. For example, instead of using the leverage that the Government has under Medicare with health care providers, it will rely upon the insurance companies to not really care about the cost of services rendered. Fortunately, the additional cost that private insurers will impose on the health care industry segment, the providers will spontaneously and wit a self-sacrificing spirit reduce their costs. This is not to even mention the additional costs for insurance and health care that will be funneled into political contributions to support even more legislative efforts to reduce any leverage that a tax payer would have against the health care industry.

I also suspect that unlike Medicare, which collects taxes from current wage earners and spends these funds immediately for those retirees needing payouts to cover their incurred health care expenditures. The new Ryan plan would collect taxes for a number of years and then after you retire return those funds back to you. Oops! Who pays for the Medicare costs incurred during this transition period? Oh, yes. You do. Those funds collected will I suspect be spent and then Ryan’s plan will be spending it’s incoming taxes on the out-going subsidies (vouchers) just like Medicare.

Al least we won’t have the same issues with the current system. Ryan’s plan doesn’t involve creating the dreaded ‘death panels’ the Republicans’ terrorize those ill-equipped to relate to reality. His plan employs two paths simultaneously. First, those who can’t afford a private plan can just expire, the self-directed death panel so to speak. Second, the pre-existing private health insurance companies’ claims review/approval boards, the corporate death panels who are eager to kill grandma to insure a good bottom line, will execute their profit-motivated approaches as they do today.

There are going to be many similar superior differences just like those mentioned above that will make the Ryan Plan clearly different from the Medicare system. I am overjoyed with the prospects of such a wondrous plan. Fortunately or unfortunately, I am already too old to have such governmental largess granted to me.

What does annoy me is that Rep. Ryan, just as ineptly as any Democrat, does not understand the problem. He has the answer though, a feat that cannot be matched by the best minds in any other field or area of life. What a remarkable individual he must be to be able to solve a problem without a clue as to what the problem itself actually is. It never amazes me to see politicians take an important issue and turn it into a political platform without any notion of what they are doing or what its consequences are. The short-view of the small minded to address the complexity of a problem that has eluded his peers for generations, and which cannot seek a solution that would be more profitable for the private sector, more effective for the medically in need, and far cheaper for the American people.