If you start from a $138 billion surplus.
Just as my head was spinning from reading a bizarrely insulting post claiming that Douglas Holtz-Eakin (DHE) was lying about the Obama health care plan, anon/portly sent me this perplexing post by Brad DeLong. But at least DeLong doesn’t call DHE a “vile” liar.
Let’s start with DHE’s claim that, because of accounting gimmicks, the $138b projected surplus from the health care bill is actually likely to result in an extra $562b deficit over the next 10 years. Notice the difference between those two numbers. Now reread the title of this post. Let’s see how many of you can figure out DeLong’s mistake:
Yep. It’s twue! It’s twue! BUT, DOUG, 463+123+114 DOES NOT EQUAL 562!!!! Has the New York Times no arithmeticians? Has the American Action Forum no calculators? Oh, the problems with writing your op-eds too quickly…
Well, someone is writing posts too quickly. I recall that DeLong once claimed to have 8 arms. Unfortunately, he can only use one brain at a time. DeLong continues:
What do I think? I think the Medicare cuts dominate. Over the first ten years the net effects of the bill on the deficit are not a big deal. Thereafter, the swings in Medicare spending overwhelm the net impact of everything else. If any appreciable fraction of the Medicare spending growth rate reductions written into the bill come to pass, it is a huge present-value deficit reducer. I think that they will. So I view this bill as a severe long-run reduction in Medicare spending growth–through cutbacks to provider incomes, administrative changes that will hopefully get more care for the money, and increased cost-sharing–made palatable to a Democratic majority by the insurance reforms and the exchanges.
Let me get this straight. We’ve been told for many years by economists of all political stripes that Medicare and Medicaid were on a tragectory to bust the budget, and something would eventually have to be done. Of course in the past when Congress promised to cut Medicare, they generally reneged on their promises. But let’s give DeLong the benefit of the doubt, the commission in the bill really does have more teeth than usual. But does that make DeLong’s argument correct? I don’t see how. If Medicare was projected to bust the budget in future decades, then doesn’t it stand to reason that we already needed to cut Medicare and use the money for deficit reduction? But Obama is basically saying; “we propose to have future governments do what everyone knows has to be done at some point anyway, but instead of having the Medicare cuts used for deficit reduction, we propose they be used to increase medical spending in other areas, such as subsidies for health insurance.” Someone please explain to me how that makes this deficit neutral. Imagine I was a gambling addict and was rapidly bankrupting the family. Then I promised that in a few years I would set up a commission to restrain my gambling addiction. Since that problem will soon be solved, let’s use the saving from my future reduction in gambling for a family vacation in Cabo. Somehow I’m missing the logic in all this deficit reduction talk. If you spend more money on government programs, you aren’t reducing the budget deficit. And if you also promise to at some future time cut a program that was already unsustainable, and which was inevitably going to be cut anyway, I don’t see how that changes the picture. (BTW, I think I may have plagiarized this example from Mankiw–if so I apologize.)
Brad DeLong continues:
As I see it, Eakin’s (vi) is wrong–the student loan provision is a real deficit-reducer, and is not a gimmick.
The issue isn’t whether it is a deficit reducer. The real question is what is it doing in the health care bill? At any given time Congress is doing many unrelated things that add to spending, and many unrelated things that save money. A new weapons system adds to the defense budget, and base closings provide savings. Why not put base closings in the health care plan as well? To get serious for a moment, something belongs in the budget calculations if it is an integral part of the bill being considered. But wasn’t the student loan reform something Congress was going to do anyway? Don’t the Dems claim it is good public policy? If so, it has no business being used to offset higher health care spending. If there is one concept that all economists can agree on, it is opportunity cost. The only relevant cost question is: How much will the health care plan increase the deficit, as compared to not passing the health care bill? I claim they would have reformed student loans anyway, hence it is irrelevant.
[As a side issue, I recall hearing some progressive on NPR talking about all the wonderful education proposals that would be funded by the saving from government student loans. How many different places is this money going to be used?]
Eakin’s (v) is wrong too–some but not all of the increased Social Security taxes are associated with higher Social Security benefits in out-years.
He’s right that $53 billion is an upper limit on the future benefits incurred. It still is an accounting gimmick, DHE is right about that, but we don’t know how large. DHE should have said “between zero and $53 billion.”
Eakin’s (iii) is wrong as well–the $70 billion is real, and the extra costs of long-term care after year 10 are more than paid for by reductions in Medicare spending growth. (i), (ii), and (iv) are properly classified as gimmicks–but they are small change in the context of the overall federal budget, and attention should not be focused on.
I don’t buy this at all. It’s clearly an accounting gimmick, but DeLong suggests it doesn’t matter because the massive Medicare savings in future decades will somehow wipe out these extra long-term care liabilities. So we keep making promises to cover more and more conditions in the future–promises made to specific people, and at the same time we keep promising that there will also be huge cuts in Medicare, many of them dubious or unspecified. When the Republicans suggested that the Dems might be planning to follow the European model, that is pull the plug on granny when the cost-benefit analysis says the procedure isn’t worth it, the Dems got all indignant, claiming the GOP was using scare tactics. They probably were. But I’m not scared about plugs being pulled, I’m scared the cost savings won’t materialize and we’ll end up with European-style taxes. Of course Krugman says there’s nothing wrong with that. I suppose he’s right, if you don’t mind a 25% cut in (PPP) per capita GDP. My hunch is that the American people won’t look at things that way.
As somebody-or-other said, this is budget nihilism: if we assume that congress will reverse all actions it takes to reduce the deficit and yet require that congress only pass bills that reduce the deficit nevertheless, we are asking that congress pass nothing at all. Perhaps that’s what Douglas Holtz-Eakin thinks: that because we live in the Sewer of Romulus the best congress is the one that passes nothing at all. But if that is his argument, he should make it–and back it up. If that isn’t his argument, he should explain why he believes that “congress is likely to continue to regularly override” the reductions in Medicare spending growth in the bill.
I think both sides understand that this is really a debate about the projected Medicare cuts. Just to review why the right has stronger arguments here than the left:
1. Congress has generally reneged in the past on these cuts.
2. It’s always been understood that Medicare was unsustainable, and had to be cut to keep the deficit from exploding. Now they are planning to cut it in the out years, but use the money for insurance subsidies, not deficit reduction.
I say we should blow up the whole system, and start over with DeLong’s huge HSA plan, financed by forced saving and government subsidies. Then add a mandatory catastrophic plan, I don’t much care if it is single-payer public catastrophic insurance or private insurance, as long as people have the option of topping it off with extra private insurance. DeLong recommended HSA plans so large that most people would pay for almost everything out of pocket. Then get rid of everything else, Medicare, Medicaid, tax breaks on health insurance, state insurance regulations, etc. Indeed I’d go back to the pre-FDA days, and let everyone do what Rush Limbaugh did. Treat grown-ups like grown-ups. Yes, I know it’s an impossible dream. In the 21st century we’ll all be children. The pioneer days are gone forever.
Just so I don’t get accused of “nihilism” I will take a wait and see attitude on Medicare. If there really are reforms that save a lot of money, then I’ll give Obama credit. I’m not a doctrinaire Republican, indeed I’m not a Republican at all. Obama has done some good things in the war on drugs, the space program, and a few other areas. But right now I see definite spending increases, and possible savings in a program that was unsustainable anyway. I don’t regard that as “deficit reduction.” I hope I’m wrong.