We're Going Broke Anyway, So Why Not Spend Like Drunken Sailors?

I have to say, I'm woefully underimpressed with the argument that I am now hearing to the effect that "Medicare will bankrupt America anyway if we can't cut health care costs, so we might as well do health care reform."

Anyone who has dated a manic-depressive has heard some version of this argument.  "I can barely make ends meet now, so I might as well use my tax refund check to buy a boat!  After all, if I can't figure out a way to fix my budget, I'm going to go bankrupt anyway."

And anyone who has dated a manic-depressive knows where this ends.

I have no idea why anyone would think that there is no difference between going bankrupt now, and going bankrupt later, which is assuredly untrue.  Bankruptcy is a really quite traumatic event with very far-reaching consequences, and you should always try to maximize the distance between it, and you.

I also have no idea why anyone would think that there is no difference between going bankrupt for a huge sum, and going bankrupt for a smaller amount.  I mean, there's sometimes no difference for the debtor, but of course, there are a whole bunch of creditors who are also people, and who are not going to be paid back, some of whom may end up in bankruptcy themselves if you default.  Since in this case, many of the creditors are the American people, I would think that even the most corporation-hating, bank-despising, littleguyophilic liberal would sort of worry about this.

If we pass this health care reform bill, a bunch of people are going to leave their employer health insurance under this plan for some subsidized plan--millions of them, according to the CBO.  If the government goes bankrupt, millions of people will lose that subsidized coverage and be much worse off than if we'd done nothing.

And as any competent bankruptcy attorney could tell you, adding a powerful new creditor also makes it harder to "resolve" the bankruptcy--i.e., to figure out who isn't getting what they're promised.  Which is to say, each new entitlement means that you have more interest groups to negotiate with, and also that our prior unsecured creditors--Social Security and Medicare recipients--will have to have their entitlements cut even deeper when the crisis comes.  Since those people have structured their lives around the promises of the US government, this is no small thing.

Naturally this all assumes that the premise is actually true--that without deep cuts, bankruptcy is 100% inevitable, so that buying something new with our "refund check" (the tax increases and Medicare cuts) cannot make it any more likely that we declare bankruptcy.

This is wrong in several ways.  First, bankruptcy is not inevitable; it is theoretically possible to raise taxes to cope with Medicare growth, though it would be extraordinarily painful to do so.   In the face of fiscal crisis, it might also be possible to make Medicare cuts that we have otherwise been unable to stick with.  But as any competent development economist will be happy to tell you, every dollar you add, or interest group you create, makes it less likely that this sort of resolution will happen.

Assuming that it is not actually 100% certain, this statement is obviously nonsense on stilts. Bankruptcy becomes much more likely, and more rapid, once we have used up the easiest source of funds we had to cope with our existing obligations.  This is true whether those funds are refund checks, or politically difficult spending cuts.

Too, our new boat health care plan may have unexpected maintenance costs, as health care plans, and boats, are wont to do.  Since we've already spent our spare source of cash, and our budget has no margin for error,  our new purchase obviously places us at much greater risk of fiscal disaster.

Just as a possible bankrupt would be better off putting the cash in the bank than spending it on some new desire, we would be fiscally better off doing nothing, than we would in taking on a gargantuan new entitlement.  Yet, most of the responses to those of us who worry about the fiscal effects have so far been about the same as you get from your favorite manic depressive:  "But think how great it would be to have a BOAT!"