Tuesday, December 29, 2009

The Failure Of The Left To Understand Double Counting

Say that you received a certain sum like $1000 from some older relative for the specific purpose of buying a new computer. But at the same time you really want to go away on a trip. Common sense would tell you that you can't use that $1000 for both a computer and a trip (assuming that both cost exactly $1000 each).

But the Democrats in America has invented a new form of accounting that would enable you to do so. The trick is to establish two separate accounts. First you have a computer account which you put the $1000 in, so that you can meet the payment a year or so from now. Then you have a "unified" account which also receives that $1000 and which immediately spends it.

Most of you would recognice that the $1000 has been double counted to pay for both bills even though it can only pay for one of them.

But the Democrats would then respond that the unified account abides by cash payment accounting, and so it can spend that money now, and this has nothing to do with the fact that the money is really reserved for the computer account. But in reality you can't use the same money for two purposes, so even though one can say that the unified account now borrows from the future account, this only means that the unified account will have to borrow from others to pay back to the computer account later, and that the trip will create a need to borrow in the future from others, something which according to proper accounting principles should be attributed to the present time since this is when the cost occurs.

Substitute "Medicare" for "computer" and you have the fallacy of the Democrat's fraudulent double accounting in their health care bill clarified. Yes there are savings in Medicare and tax increases, but those savings and tax increases can't be used both to cover projected Medicare deficits between 2017 and 2026 and to pay for health insurance subsidies now. That Dean Baker and the New York Times fails to understand this is just embarrasing to them.