You’re right that current spending is hovering around 23% of GDP while revenues are hovering around 14%. But the latter half of the equation is what’s really the problem, when historically, revenues have trended between 18% and 21% of GDP. And the biggest contributor to the rise is still entitlements like Social Security, Medicare and Medicaid.

And saying that limiting government spending to what it “ought” to do is a philosophical argument that, yes, we can have out, but it’s not going to go anywhere. Let’s face it, Social Security and Medicare are promises made and kept by the government for decades, people like them, and they’re not going anywhere. Beyond that, they were put in place to correct for market failures. And the method of correction (including everyone, and not just those “in need”) is economically more efficient than the other way around.

As for Medicare/private insurance fraud, studies show they’re on equal footing. If I remember right, fraud makes up about 3% of either system (I can go and find the study later, I think I’ve Googled myself to death today with all the stuff I’ve been working on).

But the distortion of health care costs isn’t caused by “government meddling,” it’s caused by 2 things:
1. Protected monopolies (that is, monopolies that are allowed by lack of government intervention).
2. Inelastic demand (people want to live, and there’s nothing “the market” can do about it).

But I will dive more into those items in the next “How to Fix America” since health care is up next.

And you can say that Reagan’s economic policies “got us out” of the economic mess we were in at the time (which included the whole “stagflation” problem), but that crisis wasn’t caused by us…it was caused by OPEC. And the economy corrected itself when the second OPEC oil crisis ended. The inflation crisis was misread since the key cause of inflation at the time was…oil. Since that crisis, we’ve developed measures to read REAL inflation versus commodity-led inflation, so we don’t have someone like Paul Volcker raising rates at the Fed when he shouldn’t have.

And here’s what really crushes your final argument. Everything in our lives ISN’T getting better. For the past 30 years…they’ve been getting worse. Real earnings have been getting worse. Income disparity has been getting worse. The cost of living and creating/maintaining a home has been getting worse. Marriage rates have been getting worse. Divorce rates have been getting worse. The rate of family creation has been getting worse.

Government intervention isn’t the cause here. But, as I’ve laid out in the original article, it can be (part of) the solution.

Budget growth isn’t inevitable. If you limit the federal government to things it ought to be doing, rather than trying to fund retirement and healthcare for every senior, we can stop the freight train. When these programs were started, most people didn’t even live long enough to collect benefits. I think a social safety net for those who truly need it will be far more sustainable than trying to do everything for everyone.

The Medicare administrative cost thing is really a small point. There are lots of things that don’t get taken into account in those analyses, such as the fact that the IRS collects all the premiums for the program. There’s also lively debate about who weeds out more fraud and how that skews the numbers. In the end, it doesn’t really make much of a difference.

I think government meddling and distortion of the market is the main cause of the huge growth in healthcare costs. When all of the normal market signals are removed and consumers are shielded form the costs of their care, the costs grow unchecked.

To say that deregulation under Reagan or attempts to shrink government are at fault for our current problems is a mistake. Reagan inherited an inflationary crisis and his economic policies got us out from under it. The size and scope of government has grown unbated for decades. This is undeniable. Debate about this issue is hardly meaningless. I think it’s the chief problem our country faces. Everything in our lives gets better over time, except for those areas that we leave to government.

Well, as I said above, raising taxes NOW will help (specifically with the debt/deficit) since the supply-side of the economy is flush with cash it’s not doing anything with. We’re in a demand-recession combined with a liquidity trap, which has a number of implications that are being completely ignored in economic policy-making.

But in times like this, we’re SUPPOSED to run a deficit. That’s Macroeconomics 101. When private demand tanks, the government has to get in to fill that gap. Once the economy is back up, revenues increase (due to increased taxable economic output) and rates will increase marginally in order to fill the deficit/debt hole back up. That’s the step we failed to take during the 2005-2007 period, when the economy was technically doing “well.”

And saying spending increases are inevitable isn’t “defeatist” thinking, it’s the deduction from facts in evidence. Specifically, a population explosion that started 65 years ago is now becoming eligible for government benefits. And not only is the number of people entering those programs skyrocketing, so is the cost of one of those benefits – health care. So even if we zeroed out ALL discretionary spending, and made deep cuts to the Pentagon, net spending will still increase over the next couple decades because of the simple fact the baby boomers are entering retirement. Some entitlement reform will be necessary to deal with the costs of this, but even at that…costs will go up.

As for the Medicare argument, well, the Heritage Foundation is where bunk is born. They’re the ones who invented the numbers that made Paul Ryan’s “budget” work (even though the rest of the economic world realized the numbers don’t add up). They take the same study that I cited above, and then take it completely out of context.

The gist of the study showed Medicare IS more cost-efficient than private insurance, just not as efficient as the government claims it to be. It then takes an analysis of the administrative costs of private insurance, but makes them look better by removing commissions, profit margins, and taxes. That’s like quoting the price of a car without tax, title, license, tires, or doors. You can technically remove all of those things, but you need them for the product to function and be sold.

So what we have is this comparison:
-For every $1.00 that Medicare receives as premiums, policyholders receive (worst case scenario) just under $0.95 in benefits.
-For every $1.00 that private insurers receive as premiums, policyholders receive (best case scenario) just over $0.84 in benefits.

Heritage can take those numbers and shake them up in a Boggle box all they want, but numbers are numbers and math is math, once all the rhetoric is removed.

For the third point, the root cause of our country’s financial crisis is NOT “out-of-control government spending.” That’s nonsense. There’s two main causes.
1. The fact that we’re in a deep, deep recession (which always causes deficits, regardless).
2. 10 years of unsustainably-low tax rates combined with 2 unfunded wars, as linked to above.

And the analogy you propose to Keynesian economics is total rubbish. For one, Keynes himself says that spending money on “make-work” is economically detrimental, and won’t help anything. That’s why he insists money be spent on useful work, like infrastructure and other things that, once completed, will contribute to the economic machinations of the recovery to follow. And saying infrastructure spending doesn’t produce a net benefit is incorrect. According to a report from Moody’s (http://www.economy.com/mark-zandi/documents/assissing-the-impact-of-the-fiscal-stimulus.pdf) spending on infrastructure produces $1.59 for ever $1 spent (see table on page 3). Tax cuts (which is what 75% of the Obama stimulus was) only produce $1.03 for every $1 spent.

Second, we’ve seen over the past several decades that tax rates and economic performance have absolutely zero correlation. One of the longest periods of economic expansion in American history was when top marginal tax rates were 91%. If you want to buy into the Laffer Curve nonsense, feel free. But understand that the Laffer “peak” is somewhere above 91%. At that point, how useful of a theory is it in practice?

Over-regulation CAN be detrimental to economic performance, sure. And that’s why it’s a good thing (I guess) we haven’t had any of that for decades. The problem is, under-regulation has the same destructive quality. To wit: Between the passage of the New Deal until the de-regulatory sweep of Reagan, we had zero financial crises. Since Reagan, we’ve had 3 (S&L collapse, tech bubble, housing bubble), each one sending the economy into recession. That’s 1 per decade. We can’t keep up this trend.

Finally, you say the areas that are most broken are those involving government intervention. I’ll concede that to a point. That point is the fact that the past 3 decades of trying to “shrink” government is what’s caused these problems. Education is in the weeds because for 30 years we have cut the flow of money going into it, and mismanaged what DID go into it. Healthcare in every other country has greatly benefitted from government intervention, in terms of cost-benefit and services provided. Right now, what we have here in the US is just a de facto subsidy to the health care sector that is encouraged to gouge, and is protected from anti-monopoly rules that every other company in the country has to follow.

The size of government is, to a large extent, a meaningless, existential point of argument with zero practical application. Yes, it can get “too large” (see Soviet Russia, Communist North Korea) and it can get “too small” (see present day Afghanistan, Pakistan, Yemen, Somalia, etc). The path to prosperity does involve minimal taxes, and maximal personal freedom. However, we have gone way under ideal levels on the former, and are in a position at present where more economic action on the part of government doesn’t impede the latter (see: liquidity trap).

So, to sum up, saying “less taxes, less government spending, more personal freedom” is great political rhetoric, but it’s meaningless in terms of actionable public policy.

As for the notion that spending increases are inevitable, it’s this sort of defeatist thinking that got us into this mess. Reform of entitlements can change the trajectory of federal spending. WIthout serious reform, Medicare will rapidly grow to the point where we’re spending more on this single program than we do on the entire federal budget today. Even if you don’t think we’re bankrupt now, you can’t possibly believe that we will be able to afford Medicare as currently constituted in the future.

As an aside, I frequently see liberal commentators like yourself assert that Medicare administration are lower than those in the private sector. This is simply false. Here’s an explanation of why:

http://www.heritage.org/research/reports/2009/06/medicare-administrative-costs-are-higher-not-lower-than-for-private-insurance

That analysis also fails to take into account that much of the administrative burden is shifted to physicians and hospitals, who have many more hoops to jump through with Medicare than with private insurers.

I think the only place where we agree is on defense spending. Our military budget, like the rest of our budget, is bloated. We spend more on defense than the rest of the world combined. It’s insane.

Now we come to your third point. Our government faces a financial crisis whose root cause is out of control spending. So what’s the solution? More spending, of course. We’ve spent hundreds of billions of dollars on so called economic stimulus. It’s done us no good and may have done great harm. Keynesian economics is inherently flawed. Among the best analogies that describe how it works: First you break a bunch of windows. Then you pay people to fix the windows. High taxes, over-regulation, absurd energy policy, the minimum wage, and various subsidies are how government breaks the windows. No amount of “investment in infrastructure” or other pretty euphemisms for increased government spending can fix these problems. The benefits are meager and the costs in terms of some combination of increased taxes or increased deficit spending are enormous.

Many of the problem areas that you are choosing to focus on in this series (healthcare, education, etc.) have one thing in common: government intervention. The parts of society that are the most broken are also those where the federal government exerts the greatest influence. This is not a coincidence. More government is not the answer. The path to prosperity is through less government, lower taxes, and more personal freedom.