Is there a way to actually place a dollar amount on how much conservative rule has cost America? Stirling Newberry has offered a “back of the envelope” estimate of the costs of four consequences of conservative rule the past 28 years:
over-financialization of the American economy, the waste of privatized health care, over militarization of the American economy, and the externalization of global warming.
The total cost of conservative rule, in today’s dollars, is a staggering $27 trillion, nearly twice the total output of the entire U.S. economy for an entire year.
Newberry uses a 15-year time frame, because that is the time frame former Bush White House economist Lawrence Lindsey used in a retrospective look at the costs of the Iraq War, in his early 2008 book, What a President Should Know ... but Most Learn Too Late. Lindsey, in case you forgot, ignited a storm inside the White House back before the invasion of Iraq, when he estimated that a war with Iraq would cost $100 billion to $200 billion. Karl Rove and his wunderkind were dismayed and outraged that Lindsey would float such a “preposterously” high number, and Lindsey was shown the door just a few weeks later. Of course, Bush did go into Iraq, and burned through $200 billion is just over a year. That was nearly six years ago, and we now know that Lindsey’s estimate was preposterously low, and can now count the cost in trillions, rather than hundreds of billions.
Privatized Health Care Wastes 5% of GDP
Physicians for a National Health Program has compared U.S. health care costs with those of other countries, and has shown that
the United States performs poorly in comparison on major health indicators such as life expectancy, infant mortality and immunization rates. Moreover, the other advanced nations provide comprehensive coverage to their entire populations, while the U.S. leaves 47 million completely uninsured and millions more inadequately covered. The reason we spend more and get less than the rest of the world is because we have a patchwork system of for-profit payers. Private insurers necessarily waste health dollars on things that have nothing to do with care: overhead, underwriting, billing, sales and marketing departments as well as huge profits and exorbitant executive pay. Doctors and hospitals must maintain costly administrative staffs to deal with the bureaucracy. Combined, this needless administration consumes one-third (31 percent) of Americans’ health dollars.
Since the U.S. spends 15% of its GDP on health care, and one third of it is wasted, that’s 5% of GDP. But is this a cost of conservative rule? Recall the legendary 1993 memo that launched Bill Kristol into the pantheon of wrong-wing heros: from his perch as chairman of the Project for the Republican Future, Kristol intoned that the Republican party should "kill", not amend nor compromise on, the proposed Clinton health care plan. The success of the Clinton proposal, he warned, would "re-legitimize middle-class dependence for 'security' on government spending and regulation", and "revive ... the Democrats, as the generous protector of middle-class interests." Kristol's memo was widely circulated among Republicans, uniting them in monolithic opposition to Clinton's reform plan.
Financialization: another 3% of GDP
Newberry points to a recent article on the Madoff scandal, in which Paul Krugman noted:
In recent years the finance sector accounted for 8 percent of America’s G.D.P., up from less than 5 percent a generation earlier. If that extra 3 percent was money for nothing — and it probably was — we’re talking about $400 billion a year in waste, fraud and abuse.
Krugman’s $400 billion is somewhat below the number estimated by John Bogle, founder and retired CEO of The Vanguard Group of mutual funds, but it’s in the same ball park. Bogle estimated, two or three years ago, that the financial sector drains around $550 billion from the real economy each year. I believe that both Krugman’s and Bogle’s estimates are far too low since financial turnover has gone from one and a half times GDP in the 1960s, to over fifty times GDP by 2000.
Bush’s Imperial Wars and Militarization: 2% of GDP
Newberry unfortunately does not offer any substantiation for his 2% of GDP for war and militarization. He links to a spreadsheet that shows federal outlays for defense have increased from 3.030% of GDP in 2000 to 3.349% in 2008. But there is a lot of fudge factor in the next component, so I’ll just take the 2% figure for now.
Externalized Costs of Global Warming: 2% of GDP
I’ll let Newberry explain this:
The cost of global warming? Harder to say, in 2005, the mean of estimates surveyed by Tol was 93 dollars a ton. The news has gotten worse since then, with many of the low estimates that dragged down the median already being disproved. But let's be cautious and take that number for the moment. That's 4% of GDP, but we have to take the present value of that first, since it is over a long time horizon - from that we get roughly 2% of GDP. I could easily double this number by tossing out the large numbers of estimates which rely on scenarios which have already been trashed by the facts.
Total Cost of Conservative Rule: 12% of GDP
So, simply total up these four categories, and we have 12% of GDP. Over Lindsey's 15 year time frame, that comes to 36 trillion dollars. Newberry then calculates what the present value of that $36 trillion is:
So what's the value of that, right now? Well, taking a real interest rate of 2%, that's the historical value roughly, and compounding monthly, that's a present value of 27 trillion real 2008 dollars. Or about twice the value of everything Americans are going to do this year. Ross Perot and others like to talk about the cost of unfunded liabilities, like Social Security and Medicare, running to a present future value of 40 trillion. It's the same kind of back of the envelope number as presented here - based on a present future value of estimates of a long term stream. This means that the cost, over 15 years, of conservatism to America, is two thirds of the supposed crisis in costs - out to an infinite time horizon. So what does this exercise mean? It's really very simple: we can afford a decent retirement and decent living standards, and decent medicine for ourselves and our children and grand children, or we can afford the casino games that we have played, and the massive parade ground military that we have built over the last generation. But not both. The costs of the war and bad economic policy flow all through the economy.