http://news.bbc.co.uk/2/hi/americas/8043647.stm is the relevant article.
The relevant sections are as follows, discussed one at a time.
Groups representing hospitals, doctors, drug companies and insurance firms said they intended to cut spending by $2 trillion... over 10 years.
Exactly how big a cut is that? And what do they mean by "$2 trillion... over 10 years?" Because, as we find out later:
The US currently spends $2.2 trillion a year on medical care, which amounts to 16% of the overall economy.
Wow, that would be a pretty big cut, right? I mean, that means that after 10 years, the hospitals, doctors, drug companies, and insurance firms would only be left with $0.2 trillion. That's a big cut.
Hey, wait a minute.
The six industry groups delivered a letter to the president outlining their voluntary agreement to cut spending increases by 1.5% a year until 2019.
So I guess that means that they'll eventually have spent $2 trillion less than they otherwise would... over 10 years. Which is a cut, sure, but... 1.5% isn't so big. The way they present it, it sounds like 1.5% a year over 10 years should make a 15% reduction. Actually, assuming they keep spending constant and reduce it by 1.5% a year, that's actually a 14.0269557740856928778818359375% reduction, since you keep taking 1.5% out of a reduced whole. So at the end of 10 years, they'll be spending slightly more than 14% less than they were 10 years ago. Feel free to chime in if my math isn't right.
Bat that's not the half of it. According to my numbers, the savings per year are as follows:
- $0.033 trillion
- $0.065505 trillion
- $0.097522425 trillion
- $0.129059588625 trillion
- $0.160123694795625 trillion
- $0.190721839373690625 trillion
- $0.220861011783085265625 trillion
- $0.250548096606338986640625 trillion
- $0.279789875157243901841015625 trillion
- $0.308593027029885243313400390625 trillion
For a grand total of $1.735724558370869022420041015625 trillion. Again, that's taking all the numbers in the article at face value, a reduction of 1.5% on the total every year, and $2.2 trillion a year, winding up with spending about $1.89 trillion a year.
So their numbers don't add up according to my 20 minutes of work. So what if they don't. I'm just saying that they're trying to sell this as a big deal, when in fact it's 7.88965708350395010190927734375% of the total $22 trillion that would have been spent over those 10 years. Hell, even $2.2 trillion savings, more than they're offering, is only a 10% reduction of the total.
But I didn't come here to bore you to tears with those numbers. I wanted to prove a point that numbers are pretty much what you make of them, and these numbers, without any context, make very little for me. Percentages and "savings" are weasel words. They say what they want them to say.
But that's not all, folks! For you see, if you read carefully, you see the real weasel. Those groups are going to "cut spending increases." Remember our discussion about growth and calculus? No? Well, suffice to say that in the world of business, what this language means is that they're not going to cut spending. In fact, they're going to increase spending, but they just won't increase it as fast as they want to.
Let's take an example, simplified for the sake of not having such ridiculous numbers. Let's say your lemonade stand (I like lemonade stands, as you might have noticed) spends $100 per day (those lemon prices really went through the roof). Now, you need to expand, maybe hire another small child to watch the stand while you use the bathroom, purchase some better signs for the stand, maybe even branch out into limeade or freshly-squeezed orange juice. So you spend $110 the next day. That's a spending increase of $10, or 10%. If you keep going this way (spending $10 more each day) after 10 days, you'll be spending $200, or 100% more. It's getting expensive.
So you promise your stockholders (it's a big lemonade town) that you'll cut costs. You could reduce spending, perhaps even past your original levels. Eventually, you'd be spending less than $100, and you would actually have reduced your costs. But instead, shrewd business player that you are, you promise to "cut spending increases." Your shareholders, sheep that they are, believe that this means you'll be spending less money. Sadly for them, they didn't read this article, and thus you are free to continue spending more and more, because you not only promised to cut spending increases, but you said you'd only do it for 10 days.
So, you promised to cut spending increases by 5% every day for 10 days. That means that, at the end of 10 days, you'll be spending 50% less, right? Of course not. That means that, every day, you spend more, but less quickly. Walk through it with me.
- On the first day, you spend $110 dollars. That's the spending increase of $10 we were talking about. You get your shareholders to agree to your plan, and promise that, on the next day, you will reduce spending increases 5%.
- Today, you spend $119.50. "Wait a minute," your shareholders are saying. "That's more than yesterday." But you can prove that you only increased spending by $9.50, which is, of course, 5% less than $10.
- Today, you spend $9 more, or $128.50, because you're too young to understand compounding percentages and I'm too lazy to work out what you'd actually spend if you spent 5% less of $9.50. Okay, so it's really $9.02, but I made my point earlier about weasel percentages. You're honest about percentages; when you said 5% less per day, you meant from the original spending increase. It still doesn't change the fact that you're spending $128.50 or 28.5% more than your original $100.
- Today, you spend $8.50 more, or $137. Catching how this is working?
- Today, $145.
- $152.50
- $159.50
- $166
- $172
- $177.50
- $182.50, the last day of your little "spending reduction."
Wow, that really worked. You're spending 82.5% more than baseline, and everyone thinks you reduced spending by 50%. Because that's what you did, progressively and only on increases. See how you tricked those foolish stockholders?
Now, I'm not saying this is actually what's going on. I'm just saying that it's all about growth in business, and reducing growth doesn't mean reducing spending or much of anything else. I could come up with numbers that allowed me to "cut spending increases" by 1.5% over 10 years that would have me saving quadrillions of dollars, if you call not spending more, "saving." Which is why all my math went to waste, really, because it was trying to prove that even if all the numbers are correct and they're being scrupulously honest, the reduction of an honest, non-compounded 1.5% per year is only a savings of $1.815 trillion, which I suppose can round to $2 trillion. But those numbers have no bearing on the actual situation, which has nothing to do with cutting spending.
I would imagine that the government has checked these figures, and probably has access to information that makes my math wrong. But it doesn't make my central point wrong, which is that a "cut in spending increases" is no cut at all. They'll be spending more.
In closing, one last quote.
The White House believes the industry groups' proposals could eventually save families as much as $2,500 a year.
I believe that lots of things could "eventually" save me money. Perhaps even "as much as" 100 billion dollars every second. Especially if you count savings as decreases in growth of spending, the way business seems to. For one thing, I could die, which would result in a spending increase reduction of an infinite amount. Thus, I would be saving so much money being dead, it almost makes me wish death on certain people I could name, so they don't have to worry about their savings any more.
