HERE IT IS: Your Short Course On Why The US Is Screwed

US entitlement spending

Photo: Mary Meeker, Kleiner Perkins

As we noted last week, Mary Meeker of Kleiner Perkins has published an excellent analysis of the financial condition of the United States.It’s several hundred pages long, so we’ve been highlighting parts of it in shorter form.

Here’s the big story…

If you listen to Republicans and Democrats (and even the Tea Party) bellyache about what’s wrong with the US, you can be forgiven for thinking that the problem is that we spend too much on, say, Education. Or defence.

Well, that’s a crock.

We spend a LOT of Education and defence, of course, but we arguably don’t spend too much on these things, at least as a percentage of GDP. (We certainly spend too much on them relative to what we can afford).

What really busts our budget are the mind-boggling amounts we spend on our entitlement programs–Social Security, Medicare, and Medicaid (especially Medicare and Medicaid).  These programs are wildly more expensive than any other budget items, and they’re also growing like weeds.

If we don’t get Medicare and Medicaid expenses under control, the USA will go broke, pure and simple. And yet, almost no one in Washington has the stones to even talk about this, let alone do something about it. They just kick the can down the road.

What must we do to fix this problem?

Well, as Mary’s charts show, there’s almost no chance that we can “grow our way out of the problem.”

To fix this problem, we must cut entitlement spending (or, at the very least, cut entitlement spending growth). Of course, cutting entitlement spending is taboo in Washington, which is why our wimpy “leaders” never talk about it.

Don’t believe us? See for yourself. What’s killing us is our entitlement programs. Everything else is fine.

The prior chart showed just a single year: 2010. Here's what the deficit looks like over time. As Mary Meeker observes, if a company were spilling ink like this, shareholders would freak.

Basically, over the past 15 years, we've spent an average of 8% more than we've taken in. That includes those happy surplus years, which are a distant memory.

So, what's the problem? Well, from a high level, the problem is that the government is doing a lot more than it used to. Here's how spending has changed as a per cent of GDP over the past 200 years.

And here's a look at the same trend over time: Federal government spending has soared from 3% of GDP to 24%.

And now let's start to get a sense of the portion of that spending that's coming from the Entitlement programs... They started in the 1950s. Look how fast they're growing!

We're also spending a ton on housing and healthcare, especially relative to savings.

Healthcare spending growth alone is staggering... It's growing 7X faster than GDP.

And now look at the growth of Entitlement spending: 11X over 45 years!

By the government's own estimate, Entitlement spending plus the interest on our debt will CONSUME ALL GOVERNMENT REVENUE by 2025. Freaked out yet?

All of this, of course, adds up to MASSIVE future liabilities. Here's what our unfunded Medicare, Medicaid, and Social Security liabilities look like relative to our current debt (which, alone, is frightening).

By the way, if you EXCLUDE what we're spending on Medicare and Medicaid, the US budget looks fine. In fact, we're actually making money. Don't you wish we could just exclude those things?

Want more depressing details? Click through Mary Meeker's whole presentation...

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