But Really, Fiscal Responsibility Is Easier Under a Benevolent Dictatorship
July 10th, 2008 . by economistmomBrad DeLong speaks of “real fiscal responsibility” in his post on a new policy paper/statement put out by the Center on Budget and Policy Priorities (CBPP), onto which Brad is one of the fiscal policy experts who have signed. The paper was designed as a counterpoint to a Brookings-Heritage paper, “Taking Back Our Fiscal Future” (TBOFF) released earlier this year, signed by another large group of fiscal policy experts, including Concord’s Bob Bixby. Brad summarizes the CBPP group’s criticism of the Brookings-Heritage paper this way:
[T]he methods set forth in the Brookings/Heritage/Concord “Taking Back Our Fiscal Future” proposal strike us as misguided.
Specifically:
- TBOFF subjects Social Security, Medicare, and Medicaid to the threat of automatic cuts while giving a free pass to regressive open-ended tax-loophole and tax-break entitlements.
- TBOFF thus departs from the “shared sacrifice” approach that characterized the only successful budget deficit reduction efforts–those of 1990 and 1993.
- TBOFF does not focus adequate attention on the main driver of the forthcoming budget crisis: rising health care costs everywhere, not just in the public programs.
- Thus TBOFF’s attempts to restrain public health care spending growth without taking measures to alter the dynamics of the private health care markets are misguided.
- Thus TBOFF places a large share of the burden of adjustment on the poorer members of American society: it hits the weak claimants, rather than those who have weak claims on federal spending and on tax expenditures.
- Moreover, TBOFF’s strategy relies on automatic cuts–and [C]ongress has never in the past been willing to actually let the automatic cuts written into law take effect.
We believe that rather than spending time trying to design complicated budget procedures of dubious merit and effectiveness, we should focus on concrete legislative steps: policies that raise more revenue, increase economic growth, slow the rate of health care spending systemwide and nationwide, reform Medicare, and bring Social Security expenditures into balance with Social Security resources.
I very largely agree with the policy recommendations in the CBPP paper, and I believe anyone from the Concord Coalition could have signed onto the substance in that paper just as Bob signed onto TBOFF. (Note that Concord often gets mistakenly lumped into the Brookings-Heritage mix because of our working with both groups via the Fiscal Wake-Up Tour.) But I have these observations…
First, it’s a lot easier to arrive at a list of more specific policy solutions when: (i) the group involved thinks alike and is not very ideologically, politically diverse, and (ii) you use an effective majority rule criterion to determine the set of “group-endorsed” proposals (what the CBPP paper seems to describe) rather than the unanimous consent criterion (”least common denominator” approach) that I think TBOFF/Brookings-Heritage used. The CBPP group is largely (entirely?) comprised of fiscal experts who lean Democratic/left, while the TBOFF group includes a much wider spectrum of experts, most notably, the very conservative Heritage Foundation. Having participated in the meetings of the TBOFF group in its first year (when I worked for Brookings), and having worked with Heritage in other capacities, I know that Heritage analysts must stay true to their organization’s mission, which in their own words is “to formulate and promote conservative public policies.” When it comes to promoting fiscal responsibility and working with Heritage, there’s always been a tension between the Fiscal Wake-Up Tour’s message that everything is on the table (the need to consider both spending restraint and revenue increases to address the long-term fiscal challenge), and the (mandated) resistance of the conservative members of the tour toward tax increases. So moving to the “least common denominator” in terms of solutions will naturally mean that the group as a whole becomes a bit too silent on tax policy. (Note: Nowhere in the Brookings mission does it utter the word “liberal”, suggesting that the Brookings-Heritage partnerships are naturally going to fail to be as balanced as one might wish.)
Second, I have been surprised that people have gotten so worked up about the TBOFF paper and in particular, have attached some sort of malicious intent to the budget process proposal. I honestly think the process proposal was a lot more a ”fallback” position, the strongest policy recommendation the group as a whole could unanimously agree on. I think you’d find many people in the TBOFF group who would agree with the specific proposals in the CBPP paper (I would have been one of them)–in fact, probably as many as those in the CBPP group who agree with the entirety of them (vs. just most of them).
Obviously substantive reform to the entitlement and tax programs would be better than just budget process reform–the TBOFF (Brookings-Heritage) group would agree. But getting to specifics is difficult in practice when you have to work across the aisle, and I think that’s the lesson we should take away in comparing the TBOFF paper with the CBPP paper. If people come to the policy negotiation table with preconditions about what they cannot bring to the table (e.g., Heritage having trouble bringing the Bush tax cuts to the table), then the “bipartisanship” won’t produce anything of heavy substance–just something like TBOFF.
That’s why I’m hoping that it’s not really true that Senator Obama and Senator McCain bring nothing in common to the Social Security reform table. (Does Obama really rule out benefit cuts, while McCain rules out tax increases? We have a problem here.) Or if it is true that there’s nothing currently on the common table, I hope that that’s just for the campaign season (to make clear the truly divergent philosophies of the two candidates) and won’t be the case from their future positions in the White House and (back in) the Senate, when they get down to actually negotiating and legislating.
So really, real fiscal responsibility is hard to do… unless you’re a benevolent dictator.
Mom
first, i listened to Walker in Portland on his fiscal wake up tour.
he was selling snake oil using hysteria not reason. and he gave his game away when he said the budget deficit is entirely a matter of entitlements and not defense spending.
you sound like you mean well, but your knowledge of social security is just too shallow for your arguments to be useful.
social security is a means for workers to save their own money for their own retirement. if their retirements are going to get longer, as they will, as they should, then they will need to save a little more in order to have enough. that little more looks like it will be an extra twenty dollars a week out of an income that should be at least 300 dollars a week more than it is today.
i believe i could show you this pretty rigorously, but it seems that most people would just rather wave their hands and expel their breath until they have worked up a rosy glow and feel better about themselves and everything they believe in.
coberly wrote:
i believe i could show you this pretty rigorously, but it seems that most people would just rather wave their hands and expel their breath until they have worked up a rosy glow and feel better about themselves and everything they believe in.
There seems to be a bit of a “rosy glow” to your message as well. Seriously, it’s possible to disagree without openly theorizing on how much other people like to “wave their hands and expel their breath”.
In fact, I read the Brookings-Heritage paper, “Taking Back Our Fiscal Future” (TBOFF) and thought that they underemphasized the current problem of the deficit in the general budget. They do state that the “relatively modest deficits of the recent past – $163 billion or 1.2 percent of GDP in fiscal 2007 – are now history, since deficits are expected to rise rapidly in the near-term”. However, they fail to mention that the “relatively modest” deficit of $163 billion was achieved by borrowing $293 billion from the trust funds, including $187 billion from Social Security. Hence, the actual deficit in the general fund was nearly a half trillion dollars in 2007! In addition, this deficit was over a half-trillion dollars in every year from 2003 to 2006 (see this link). Hence, the deficit in the general fund is a serious ongoing problem that requires attention now. The first thing we could do would be to stop hiding it behind the trust fund surpluses.
However, I can understand that Walker may be more concerned about the humongous $41 trillion that is estimated to be the present value of our Social Security and Medicare liabilities over the next 75 years (see this link). Now most of this is Medicare and much of that is due to the continued projected rise in health costs. Still, it’s a huge number and deserves discussion.
Should we be more concerned about a very real existing deficit in the general fund or a merely projected but much larger deficit in entitlements? I think we should be concerned about both. In any event, I think that informed people can have honest disagreements about the best way to address these issues. But I think that any discussion will be much more productive if neither side comes with the point of view that it has all of the answers and needs only to “educate” the other side.
B Davis
i apologize for my seeming arrogance. i am afraid i have been talking to too many people who think their opinions are as good as actually knowing what they are talking about.
here are some facts you could check. i recommend a close reading of the Trustees Report:
closing the projected gap on Social Security will cost 2% of payroll in 2040, not before, and no more later. That is 20 dollars on an income that will be 300 dollars (a week) higher than it is today. and the money goes to pay for that same taxpayers six year longer life expectancy: in other words it’s not a huge burden and you (the taxpayer) are going to have to pay the money anyway. all social security does is give you a chance to save for it while you are working and not lose it to inflation or bad markets or some other bad things that always seem to come up.
medicare is a somewhat different story… it might be possible to cut the medical costs in half, but even if we assume the same high costs as the Trustees… the increase in cost of medicare will amount to about 7% of income by 2085… this is on an income that will be 230% of what it is today. so it becomes not a question of a “huge burden” but of whether you want to spend your money on the best medical care money can buy, or on a trip to Las Vegas and a really bitching car. The scam is that by calling this a tax increase and comparing it to the rather low tax now they can scare you into thinking the government is going to take all your money and leave you poor. Quite the opposite. And you are still going to have to payr for that medical care. odds are that Medicare will be the cheapest way to do it.
I have to work today and may not get back soon. Sorry you are offended by my teacher arrogance… but there really is such a thing as facts. and knowing them.
and note the deficits are only “humongous” if you multiply them by 200 million people times 75 years or “infinite horizon” and, of course, only if the people are too stupid to pay their bills do they become “deficits” at all.
the general budget deficit is the one you ought to be wathing out for. your personal return on golden toilet seats for the Pentagon is nowhere near what you personally get back from Social Security, or Medicare.
Davis
as for Brookings - Heritage… these people are either lying, or they are, uh, caught in the wrong frame.
is the nicest way i can put it.
Diane,
I’m reluctant to say this because I am MUCH more inclined to comment on blogs with some challenge to a post than to simply compliment the blogger, but I just want to say that this post of yours is yet another example of your exceptional reasonableness and rational thought on these important policy matters and the difficult choices involved. It is very refreshing to see a blogger who seems genuinely committed to a rational approach with as little bias and partisanship as humanly possible. Unfortunately, the blogosphere is populated more with bloggers and commenters who are (obliviously) strongly biased and committed first and foremost to general (party or ideological) partisanship and/or commitment to a particular policy agenda, and who either have little objectivity or simply choose to oversimplify and propagandize when a more balanced or complex view (or even concession on some point) is more appropriate.
So thanks again for providing excellent posts. Your voice of reason is sorely needed.
coberly wrote:
I have to work today and may not get back soon. Sorry you are offended by my teacher arrogance… but there really is such a thing as facts. and knowing them.
Thanks for the comment. I agree that there is such a thing as facts. Likewise, I found long ago that it’s usually much more productive to try to stick to those facts and not waste too much time on trying to divine people’s deepest intentions.
and note the deficits are only “humongous” if you multiply them by 200 million people times 75 years or “infinite horizon” and, of course, only if the people are too stupid to pay their bills do they become “deficits” at all.
By that definition of “stupid”, our government has been stupid in all but four years since 1969! And if you look at the change in the gross federal debt, even those four years go away. In any case, I agree that one needs to be careful in talking about “infinite horizons”. In addition, it may be unrealistic to think that we can come up with formulas that will handle absolutely every possibility over the the next 75 years. However, we should do our best to insure that the programs are flexible enough and that the political climate will be such that the programs will be able handle any of the most likely possibilities.
the general budget deficit is the one you ought to be wathing out for. your personal return on golden toilet seats for the Pentagon is nowhere near what you personally get back from Social Security, or Medicare.
I don’t know, GOLDEN toilet seats might be a good investment these days! Seriously, I do think that both deficits are important but, with one being current and one being projected, they should be handled in different ways.
Brooks wrote:
Unfortunately, the blogosphere is populated more with bloggers and commenters who are (obliviously) strongly biased and committed first and foremost to general (party or ideological) partisanship and/or commitment to a particular policy agenda, and who either have little objectivity or simply choose to oversimplify and propagandize when a more balanced or complex view (or even concession on some point) is more appropriate.
So thanks again for providing excellent posts. Your voice of reason is sorely needed.
I second that. The internet is still a bit like the old west, populated with a large number of gunslingers. I know that I’ve been shot at from both sides of the aisle (and from a few other directions). I’m sure that it’s a great deal worse for anyone who is known or who holds a recognizable position.
On the topic of commenting on the web, there’s an interesting Time Magazine editorial on the subject at this link. As far as comments on political sites, I think that they are a healthy thing. However, I do think that you have to be careful not to get pulled too deeply into them such that you spend too much time or anguish over them. Anyhow, keep up the good work economistmom!
B Davis,
Great line about the golden toilet seat as an investment! I have a slight hangover (not because I drank much last night, but because I’m so out of practice!), but that line of yours, in that context, made me literally laugh out loud.
Also thanks for the link to Time article. As a note, in addition to http://www.SwordsCrossed.org, a few weeks ago I started blogging/commenting on http://www.TheForvm.org, which has the same basic concept as SwordsCrossed (bringing together people of any/all ideological perspectives, parties, etc.), but Forvm’s moderators and community try to get people away from attacking the commenter or from unnecessarily provocative language (e.g., “that was stupid”).
I encourage you to participate at both both http://www.SwordsCrossed.org and http://www.TheForvm.org (note that TheForvm is spelled with a “v”, not a “u”)
Davis
keep in mind that the current deficit is in golden toilet seats that you will not collect the profit on.
the projected deficit is one that only happens if people can’t see the connection between saving enough to retire and getting enough to retire. or, saving enough for future medical care costs, and getting enough to pay future medical care costs.
understanding about all the other ways to make money, save money, earn interest, and spend money… the cost of saving enough for basic (if all else fails) retirement… is a small part of your monthly pay. the cost of saving (insurance premium) enough for future “expected” (statistically) health care costs is quite astonishingly large… but small relative to future increases in wages… and perhaps only seems large in comparison to what a young person spends on medical care. may not seem so large when it is time to pay for that heart bypass surgery, or thos cancer treatments..
but the difference is with the income tax… you never see the money again.. though of course you may benefit from it.
with entitlements, the money comes back to you. you. all of it in the case of Social Security. maybe not all of it, or maybe a lot more, in the case of Medicare… but that is the nature of insurance.
was that clear?
the only way a deficit emerges in entitlements is if people try to have the benefits without paying the cost.
what the enemies of entitlements are trying to do is fix your mind on the costs so you give up the insurance. so they can sell you a plan of their own with MUCH greater risks. and of course profit to themselves.
and they sure sound to me like they are talking about diverting that money into the endless war on terror.
I encourage you to participate at both both http://www.SwordsCrossed.org and http://www.TheForvm.org (note that TheForvm is spelled with a “v”, not a “u”)
Thanks, I’ll take a look at them. I find that I’m so backlogged these days that I don’t have time to participate too much in other forums. If only I could have saved up some of my summer vacations when I was young! However, if I am very familiar with a topic and/or have just commented on it someplace else, I can often comment pretty quickly. Thanks again for the tip.
coberly wrote:
the projected deficit is one that only happens if people can’t see the connection between saving enough to retire and getting enough to retire. or, saving enough for future medical care costs, and getting enough to pay future medical care costs.
That’s the reason that I think that it is critical the Social Security and Medicare retain their pension and insurance functions. It is exceedingly difficult to figure out what you need to retire and prepare for future medical care costs. Most financial shows that I’ve heard are geared for higher-income people who can save enough to reach “critical mass” and many of them are very negative on annuities. This may be justified in the sense that many annuities may be complex and not very good deals from an expected return perspective. I can’t comment too much on them as I don’t know that much about annuities. However, I suspect that most lower-income individuals cannot afford to save enough to reach some “critical mass” that will carry them through any eventuality. They need to have some sort of insurance or annuity. On this count, Social Security and Medicare may offer them much better deals than they could find in the private market. However, this does require that the government run the programs responsibly and not promise more than they can deliver.
Daqvis
as currently run, the programs are very responsible. the “more than they can deliver” depends upon people being willing to pay about a dollar a week more in tax than they are today because they are going to be living longer… and collecting that tax back over a longer lifetime.
this dollar a week increase will be repeated over about a twenty year period, but during that time wages will be going up about ten dollars per week per year.
we can’t guaranteed that “the government”… which is “us”… will be smart enough to do this. but we can be fairly sure the bad guys will do everything they can to destroy Social Security before the people get a chance to understand what their choices are.
it is important to understand that this is not welfare. the poor are paying the tax… saving for their own retirement.
experience has shown that without the “tax” most poor people would not save enough… the psychology of “saving fifty dollars a week” or spending it on higher rent or a better car or new shoes for school is just too overwhelming for real human beings to resist. it is also true that social security is structured as insurance so those who pay their tax and still end up with too little save to provide for basic needs collect a little insurance paid for out of the otherwise higher benefits of those who were able to save much more… but had no way to know they would be so “lucky,” so they paid a little more as insurance just in case they were the ones who ended up poor.
and finally, it turns out that no one actually gets back less than they put in. the pay as you go with wage indexing design essentially guarantees that as the economy grows, everyone gets a positive return on their “investment.” they may not get as high a return as if they had invested in microsoft, but they get a better return than if they had invested in enron.
coberly wrote:
as currently run, the programs are very responsible. the “more than they can deliver” depends upon people being willing to pay about a dollar a week more in tax than they are today because they are going to be living longer… and collecting that tax back over a longer lifetime.
Do you mean that people need to be willing to pay a higher FICA tax rate? As you know, current law does not plan for any increase in the tax rate or the retirement age. According the current law, Social Security will pay out benefits according to the current formula unless and until the trust fund is exhausted and revenues no longer cover benefits. As that time, benefits will be cut to match revenues.
this dollar a week increase will be repeated over about a twenty year period, but during that time wages will be going up about ten dollars per week per year.
I’m assuming that you are saying that real wages will increase and that future workers will be able to afford a slightly higher FICA tax rate to pay for a longer retirement. I hope that will be the case but I don’t think we know that for sure. As you can see from the second graph and numbers at this link, the real average pretax income of the lower quintile of wage-earners has barely budged since 1979. The real average income of the second and third quintiles is up just 10 and 15 percent over those 26 years. Hence, I don’t think that we can plan on making up of the difference between revenues and and benefits through higher taxes. As a placeholder, we should likely plan on some combination of higher taxes, higher retirement age, and lower benefits than are currently promised. That has got to be better than the current plan of making a sudden cut in benefits.
we can’t guaranteed that “the government”… which is “us”… will be smart enough to do this. but we can be fairly sure the bad guys will do everything they can to destroy Social Security before the people get a chance to understand what their choices are.
If we could come up with combination of higher taxes, higher retirement age, and lower benefits than are currently promised, even if it were just a placeholder that could be modified later when we have more information, Social Security’s projections would greatly improve. This would likely do more to head off those “bad guys” than anything else.
and finally, it turns out that no one actually gets back less than they put in. the pay as you go with wage indexing design essentially guarantees that as the economy grows, everyone gets a positive return on their “investment.” they may not get as high a return as if they had invested in microsoft, but they get a better return than if they had invested in enron.
I think that we need to be honest and say that some high-income retirees will likely not get quite as good of a return as they would get on U.S. Treasuries. Social Security does have a progressive benefit formula so as to provide something of a safety-net for those low-income workers who cannot save enough for retirement at the current FICA rate. In addition, there is some cost to a pay-as-you-go system. However, as the graphs at this link show, even the high-income workers will get a reasonable return, likely matching or beating inflation.