Cornerstone Global Associates

Why will the next generation have to worry about the state budget?

Posted by: simona on: March 3, 2012

Simona Maria Ross, Cornerstone

Senator Mark Warner belongs to the Democratic Party and acts as the current Senator of Virginia. However, people also like to speak of him as a leader of the ‘Gang of Six’. The ‘Gang of Six’ is a bipartisan group, consisting of three democrats and three republicans. Together they assembled to solve the US budget crisis and drafted a plan, which the President agreed on without hesitation. Ironically, as Mr. Warner jokes tiredly, ” That was the worst outcome we could have had, because whenever the President is in favor of something, the rest of the House [of Representations] will be against it.”

Even so, there is little sense in placing the blame entirely on any one political party. As Senator Warner points out, the current budget crisis is simply the consequence of modern medical technology and the resulting increase in life expectancy. In 1889, when Germany established its social insurance program under Germany’s Chancellor Otto von Bismarck, Germany set the retirement age to 70 years and later to 65. At the time, the concept seemed sound, because the average life expectancy was lower than 65 years. In contrast, today the average life expectancy is around 80 years in most industrialized countries. Further, at the early beginning of social insurance programs, the ratio of working people versus people that received entitlements was 16: 1. In comparison, current numbers are around 3: 1.

Another change that has to be tackled is the rise in interest rates. So far the United States enjoyed one of the lowest interest rates in the world. A rise in interest rates would inflate the budget deficit tremendously, and any attempt to decrease the budget deficit would come at a cost of decrease spending in areas such as Infrastructure, education and research. Given that these areas are necessary for global competitiveness, such austerity measures efforts, while consider a short-term solution, would create many long-term problems.

The largest expenditures however are tax cut and tax benefit programs, followed by defense, homeland security and entitlements. Health care does in fact play a big role too, but there are many other programs that acquire a much larger percentage of the budget. Additionally, it is only 5 % of the population that causes about 50 % of the health costs. This group of patients is representative of the chronically-ill. So far the cost reimbursement in the health care system is based on the volume of prescriptions and the number of hospital and physician office visits. In order to achieve more efficiency in the cost and outcome process, the current healthcare system should move toward to a cost reimbursement system based on general health care quality and its outcome.

Mr. Warner also criticizes the political system in the United States. He claims that every third year, during the election campaign, it is the case that politicians take a whole year off. “A whole year long it seems like the political life is on hold,” Warner says. Politicians are too afraid to fulfill their duties and make the right decisions. Sometime those decisions include things that may not have the desired effect to become elected, but they may be essential to the next generation’s future. They choose to do unfavorable necessities in the next year. However, it is not going to be easier to solve the budget crisis next year. Especially considering the fact that it will still be the same old, dysfunctional system where all political institutions are independent, but the system requires them to work together. Every day their passive attitude adds another 4 billion dollar to the national debt of the United States.

Some people argue that they are waiting for the big ‘crash’ that will finally force people to act. However, such an event is not going to bring about any solutions. Even though the economy currently seems to be fragile, it is still the private sector that holds most of the capital. Mr. Warner thinks that business leaders have to also bear some responsibility and have to give up their tax breaks. More and more business managers have already been ready to step forward and choose to actively face global financial challenges.

It is questionable however whether today’s society is ready to give up certain privileges in order to ensure our children’s future.