Thursday, August 19, 2010


Eternal Optimist does not believe it when the Congressional Budget Office says our new health care system will be in the black.

CBO reports are not like an audit from an independent accountant. When a company gets audited, the accountants have to follow generally accepted accounting principles (GAAP). Of course, the accountants can be bribed, or bamboozled, but there are objective standards to apply. If the accountants have integrity and savvy, they will catch the problems and report them in a way everyone can understand.

CBO logo: is that really a labyrinth?
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Not so the CBO and Congress. Congress makes up its own accounting standards, and then has CBO do the math and issue reports. It is as if Enron got to make up its own accounting standards and have its in house accountants issue "audit" reports.

In fact, one of the great scandals in the Enron case was that Enron pushed and bullied its way to get changes in GAAP that helped conceal billions of real world problems. This was a sobering lesson about how bad it gets when a company hides its rotten financial condition by hi-jacking the auditing process. The lesson applies to Congress, except that Enron was a single-cell protozoa compared to the Congressional Moby Dick.

Congress makes up its own accounting rules, and the very smart people at CBO and other government accounting offices have to accept Congress' rules about how to add up the numbers. This means that whatever crackpot assumptions Congress makes, the CBO has to grin and bear it. If Congress says its new health care bill will cause Martians to invest in the stock market and pay income tax, CBO has to assume that is correct, and add up the new tax revenue from Mars based on Congressional formulas. Which means CBO reports are normally smoke-screens, sometimes more, sometimes less.

It seems insane, but that's how it works. To get an accurate accounting to the mass population, you have to rely on the media to do the hard work of digesting and fairly reporting independent accounting analysis. And if the media wants to believe the smoke-screen, that ain't happening.

Take Medicare. Tim Geithner, Secretary of Treasury, said that Obamacare has put Medicare on the road to financial soundness. But Medicare's own actuary recently said the assumptions on which the program's soundness is being predicted are ludicrous. Based on the assumptions used in previous (less crazy) years, the program is in deep trouble. Read about it here.

Geithner 'splaining. TIMMMMYYYYYY!!!!!
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The actuary said that the Medicare Trustee's Report - on which Geithner based his happy talk - radically underestimates the actual costs of the program and radically overestimates other savings. The Report does this because it is required to accept Congress' scoring and budget rules, however crazy they are.

A smart guy like Geithner comes out and says Medicare is in great shape, people can't believe he would be flatly, clearly wrong. That would be a lie, which simply does not compute. A classic text on propaganda had this to say about why big lies work better than small lies to fool the average joe:

It would never come into their heads to fabricate colossal untruths, and they would not believe that others could have the impudence to distort the truth so infamously. Even though the facts which prove this to be so may be brought clearly to their minds, they will still doubt and waver and will continue to think that there may be some other explanation.

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