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Wednesday, April 25, 2012

Cut 2% Annually From Federal Spending

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There are some estimates that around 10%... maybe more... of government spending for major programs go to waste and fraud.  A Cato testimony to Congress showed:

Medicare and Medicaid are rife with fraud and other types of improper payments. The Centers for Medicare and Medicaid Services estimates that Medicare made at least $48 billion in improper payments in 2010.9  That figure does not include improper payments in Part D, which auditors believe is also highly susceptible to abuse.10  Nevertheless, $48 billion amounts to more than 9 percent of total Medicare spending and nearly four times the combined profits of private health insurance companies.11  CMS also estimates that the federal government alone made $22.5 billion in improper Medicaid payments in 2010, making the combined total of improper payments in the two programs somewhere north of $70 billion per year.12  In one infamous case, a New York dentist once billed that state's Medicaid program for 991 procedures in a single day. In 2005, the New York Times reported that New York's Medicaid program "has become so huge, so complex and so lightly policed that it is easily exploited," and that "a chief state investigator of Medicaid fraud and abuse in New York City said he and his colleagues believed that at least 10 percent of state Medicaid dollars were spent on fraudulent claims, while 20 or 30 percent more were siphoned off by what they termed abuse, meaning unnecessary spending that might not be criminal."13  Some experts estimate that improper payments are even more prevalent in these programs. Harvard University's Malcolm Sparrow estimates that improper payments account for 20 percent of spending in federal health care programs.14  
That suggests Medicare alone makes $100 billion in improper payments annually. The Government Accountability Office has for two decades designated both Medicare and Medicaid as posing a high risk for fraud.15
Add to that the waste and fraud around military expenditures, dubious energy subsidies to unproven technologies, wasteful agricultural programs, and all manner of spending for special interests in nearly every bill that crosses the Oval Office desk... and we're beginning to talk real money.

So, here's the answer: an across-the-board reduction in SPENDING by 2% annually for the next 5 years.  Not 10% all at once.  2% annually for 5 years.  Let each department determine how to absorb the cuts... either through better auditing, better planning, or through better management... I like the last part.  But we mean REAL CUTS, NOT CUTTING ESTIMATED INCREASED SPENDING.

Let the GAO and a consortium of private accounting firms be the watchdogs.  Then we can see where the wheels are squeaking the loudest after 5 years.

If there is that much waste and fraud in government spending, a guy in a trailer park in Arkansas could figure out how to manage 2% cuts.  After all, it still leaves him 98% of the money to screw around with.

UPDATE:
While the above seems like rather small potatoes and 10% of $3.8 trillion is only $380 billion... over five years of projected growth, the annual government expenditures would be about $4.5 trillion.  If the 2% annual reductions were implemented from a base of $3.8 trillion, then the annual savings in five years would be $1.1 trillion per year.  That's not small potatoes.

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There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
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- O. Henry
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FEDERAL RESERVE & HOUSING

SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006
Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
November 28, 2007 FED VICE CHAIRMAN DONALD KOHN
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."
http://www.reuters.com/

December 11, 2007 Somehow the Fed misses the obvious.
fed_rate_moves_425_small.gif
[Image from: CNNMoney.com]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's Economy.com. "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)