Fiscal Cliff – you can’t manage a budget from a spreadsheet. I have seen so many businesses fail because they manage a spreadsheet and not the business. Governments are no different. With all the fiscal cliff, debt ceiling, entitlement talk – everyone is trying to solve the US budget battle primarily talking about numbers on a spreadsheet. Cut this or that programme, raise $200 Billion in taxes here, cut $1.2 Trillion there – this is all just managing from a spreadsheet. What I am I talking about?
I once was working in an organization that was losing nearly $1 Million per month in a $50 Million gross revenue business – over -10% per year – that’s a lot. The Managing Director was going crazy trying to figure out why. His primary focus was on wading through spreadsheets of financial budgets to see where he could cut. Clearly a few minor cuts here or there was not going to suffice. Each of his directors would come to endless meetings with there spreadsheets in a dueling battle to justify their costs against the other. We were not managing the business, rather the spreadsheets. The fact is that a company’s business strategy will drive its cost structure. Different strategies will drive different cost structures. Change the business strategy and you will change the cost structure. For example, should you sell cheap shoes to the masses or high fashion shows to high income people – again each strategy will have a different cost structure. This is why business strategy is so important – otherwise you will have budget issues. Perhaps you have a similar story. Governments are no different.
Today in Congress we hear spreadsheet talk – not the country’s strategy. So lets discuss specific issues to see how this could work. Focusing on cost issues only (let’s leave tax revenue to the side for this Blog), we know that the three big budget items in the US budget are Social Security, military and health-care. Social Security, is largely funded for another 20 years and with simple adjustments any problems here could eliminate this item as a budget problem for decades. So lets focus on the latter two.
First, in order for the US to maintain its global military footprint – it must be paid for. Going around the world telling others how to live and protecting US multinational assets is expensive. The discussion should be about this policy – not the military budget spreadsheet. To change this cost structure, we will need to change our foreign/military policies. But of course it is not about the military budget its about the entitlements of the US military industrial complex war profits.
Secondly, health-care costs are currently about 18% of GDP in the US as compared to about 12% in other developed countries. We also have some of the worst health-care outcomes when compared to these same developed economies. US is the only country in this group with a privatized health care system. This health-care delivery strategy is expensive and needs to change (Obama did not go far enough with Obamacare). Health-care is an inelastic service (as explained before – click here) and if the US does not put in place a national health-care system, we will never solve the budget issues. You say private health-care systems can work – ok show me – to date the evidence says the contrary, but let’s have that discussion. The discussion should be about this policy – not the health-care budget spreadsheet. But of course its not about the health-care budget, its about the entitlements of the drug and health care industry’s profits.
The current endless budget battles will not be solved until the policies are changed to meet the needs of the US citizens – not debating the spreadsheets. And of course we hear no real discussion of this. This is why any deals made on the budget will be exercising the “kick the can down the road” strategy until the country is willing to have these serious strategic policy discussions. This is tradeable information.
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