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Patrick Creadon (DirectorDad) Responds to Dean Baker’s Critique of “I.O.U.S.A.”

October 27th, 2008 . by economistmom

Here is a post by DirectorDad in response to a Dean Baker critique of the movie “I.O.U.S.A.” that recently appeared on Huffington Post:

After reading Dean Baker’s critique of our documentary “I.O.U.S.A.”, I am left pondering one important question:  How could Mr. Baker have possibly come to the conclusion that our film is “one-sided”?
 
When we started making the film in December of 2006 we set out to find people who are highly knowledgeable and respected in their fields and also who have had a “front-row seat” on matters regarding our federal government and national economy.  The true hero — or “star” — of our film is David Walker, the former Comptroller General of the United States.  Mr. Walker is a registered independent and has been called “the most respected man in Washington”.  As Comptroller General Walker arguably knew more about the financial health of our federal government than any other person in the country. 
 
But we also wanted to speak to people from the business community, the Treasury Department, Congress, and the Federal Reserve.  We were very fortunate to get the following people to participate:  Warren Buffett and Peter G. Peterson are both interviewed in the film (a Democrat and a Republican, respectively), as are former Treasury Secretaries Robert Rubin and Paul O’Neill (a Democrat and a Republican), the two heads of the Senate Budget Committee Chairman Kent Conrad and Ranking Member Judd Gregg (one from each party, both of whom have called the film “excellent” and have commented that if more people saw this film it would make fixing our nation’s fiscal problems a lot easier), and former Federal Reserve Chairmen Paul Volcker and Alan Greenspan (a Democrat and a Republican).  Congressman Ron Paul also appears offering his unique viewpoints.  Though these individuals often disagree on different issues, every single one of them agrees that our country — both our individual citizens and our federal government — is living a lifestyle we cannot afford and that doing so will create serious problems for future generations.  If we choose to continue to live our lives this way we are going see a financial crisis in the not-too-distant future that will make today’s economic crisis seem small by comparison.
 
We had three main goals when we started making “I.O.U.S.A.” almost two years ago:  we wanted it to be accurate, educational and most importantly non-partisan.  When our film opened nationally in August of 2008 it was praised by dozens of film critics for being balanced.  The New York Times called our film “resolutely non-partisan.” 
 
In my opinion, the only thing that’s been one-sided about “I.O.U.S.A.” is Dean Baker’s analysis of it.
 
Patrick Creadon is the director and co-screenwriter of “I.O.U.S.A.”  The film has been called “the most important film of 2008″ by more than a dozen critics from across the country and was invited to be screened at both the Democratic and Republican national conventions.  For more information about where you can see “I.O.U.S.A.” please visit the film’s website at www.iousathemovie.com and click on “Events” to find a screening in your community.  You can also set up a free screening of “I.O.U.S.A.” at your school or community group by writing to press@pgpf.org.

34 Responses to “Patrick Creadon (DirectorDad) Responds to Dean Baker’s Critique of “I.O.U.S.A.””

  1. comment number 1 by: Matt Stoller

    Shorter ‘Creadon’: “We’ve spoken to both Republicans and Democrats with ties to Wall Street”.

  2. comment number 2 by: Jonathan Schwarz

    How could Mr. Baker have possibly come to the conclusion that our film is “one-sided”?

    How could anyone have possibly come to the conclusion that our film about the threat from Iraq’s terrifying weapons of mass destruction is “one-sided”? We had experts from both sides of the aisle, from Dick Cheney to Hillary Clinton, who’ve come together to warn America about the horrifying danger we face.

    Similarly, how could anyone have possibly come to the conclusion that our other film, about the desperate need for financial deregulation, is “one-sided”? We had experts from both sides of the aisle, from Pete Peterson to Robert Rubin, who have come together to warn America about the dangers of regulating credit default swaps.

    It’s sad, really. Americans should have learned by now to trust their bipartisan political establishment, given its impressive record of completely error- and corruption-free performance.

  3. comment number 3 by: carlosinhp

    “we set out to find people who are highly knowledgeable and respected in their fields and also who have had a “front-row seat” on matters regarding our federal government and national economy”

    I love the Alan Greenspan choice as someone who is highly knowledgeable. The same Alan Greenspan who just said “we’re not smart enough as people. We just cannot see events that far in advance” in trying to absolve himself of the mess he helped usher in. (http://www.alternet.org/workplace/104864/alan_greenspan:_who_could_have_known/) Disclaimer, its by Dean Baker, who seems to have alot smarter and more accurate things to say on this.

    hats off to you DirectorDad, bet you’re feeling pretty smart now.

  4. comment number 4 by: Brooks

    Patrick,

    First, welcome to EconomistMom and thanks for joining it. With Diane, you are in excellent company.

    Second, thanks for IOUSA. Kudos for a significant contribution to the very important effort to raise awareness of our unsustainable fiscal course and the need (or at least the extreme desirability) of acting sooner rather than later.

    As for Dean Baker, he and like-minded hyperpartisans of the left are merely the counterpart to the “free lunch” crowd on the right who think we can tax-cut our way out of our fiscal imbalance (because, they argue, tax cuts not only grow the economy, they also increase revenues — awesome! So they say to tax cuts what Seinfeld’s mom said to him: “How could anyone not like you?”). In Baker’s (and his fellow hyperpartisans’) view, there is a painless way to solve the long-term fiscal imbalance: raise taxes on the wealthy, and, to prevent the projected rapid growth of Medicare spending, eliminate or crack down on the bogeymen of healthcare (e.g., drug companies; insurance companies) and achieve enormous savings via universal coverage. They view their solution as all gain, no pain (again, just like their hyperpartisan counterparts on the right).

    On Dean Baker’s blog, Beat the Press, I (as “Brooks”) repeatedly sought a straight-forward dialogue with him on the discrepancy between his (and CBO’s) conclusion that demographics (which are unavoidable) are an insignificant factor in the growth of Medicare and, more broadly, entitlements vs. the Concord Coalition’s analysis http://www.concordcoalition.org/files/uploaded-pdfs/ff-1220-demographics.pdf. It was like pulling teeth and ultimately yielded limited results. See my exchange with him throughout this thread http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=04&year=2008&base_name=what_makes_spending_the_proble&15

    Understand where Dean Baker and his crowd are coming from. They are hyperpartisans with a streak of paranoia or at least a habit of conveniently dismissing anyone with expertise who disagrees with them as insincere (i.e, if they can’t assert that someone who disagrees with them is ill-informed or stupid, they must attack motive — anyone who disagrees must be either an idiot or a disingenuous sell-out or rip-off artist).

    I’m not at all suggesting that such people should be ignored. On the contrary, they are an impediment to sound fiscal policies, and the obstacles they lay along the road to sound policies must be cleared via a more persuasive argument combined with effective communications strategy & tactics. The hyperpartisans themselves cannot, generally speaking, be convinced to change their minds (they have too much invested emotionally and in some cases professionally), but they are not the critical audience, which is the large (probably majority) portion of Americans who are still accessible via reason.

    Dean Baker and his crowd, like their counterparts on the right, do have a positive role of, in some cases, raising legitimate challenges to assumptions and provoking thought, perhaps leading to refinement of policies, but boy do they bring a lot of bathwater with that baby.

  5. comment number 5 by: B Davis

    In Baker’s (and his fellow hyperpartisans’) view, there is a painless way to solve the long-term fiscal imbalance: raise taxes on the wealthy, and, to prevent the projected rapid growth of Medicare spending, eliminate or crack down on the bogeymen of healthcare (e.g., drug companies; insurance companies) and achieve enormous savings via universal coverage. They view their solution as all gain, no pain (again, just like their hyperpartisan counterparts on the right).

    Well put. I have looked more closely at the arguments of “their hyperpartisan counterparts on the right”. I have long been amazed at how many supply-siders seem to be totally unfazed by the fact that there appears to be no serious economic studies that support their contention that tax cuts pay for themselves. It might be worth asking Dean Baker if there are any serious economic studies (other than his own) that support his contention that the long-term fiscal imbalance can be easily solved if we can just bring the growth of health care costs under control and that the cause of that rapid growth is due to his listed “bogeymen”. Just as Baker said that he has a “more than full-time job” and did not have the time “to spend chasing down all the work that investment banker Peter Peterson funds with our tax breaks”, so do most of the rest of us have full-time jobs and lack the time to chase down all the work that Baker does for his paymasters. But I would be willing to look at a mainstream study as I suspect would many other people.

    Understand where Dean Baker and his crowd are coming from. They are hyperpartisans with a streak of paranoia or at least a habit of conveniently dismissing anyone with expertise who disagrees with them as insincere (i.e, if they can’t assert that someone who disagrees with them is ill-informed or stupid, they must attack motive — anyone who disagrees must be either an idiot or a disingenuous sell-out or rip-off artist).

    This is what bothers me most about the arguments of hyperpartisans like Dean Baker. If they were simply to accuse Concord and/or the makers of IOUSA of having made some incorrect or incomplete arguments and then provide their own arguments, I would have no problem. Instead they insist on questioning the motives of others. This does nothing to promote an honest discussion. In any case, Dean Baker’s critique of IOUSA seemed extremely sophomoric. Following are the first couple of paragraphs:

    In case you’ve missed the hype, IOUSA is a documentary making the case that the U.S. budget is hopelessly out of control and that our current spending patterns will bankrupt our children. The film features such noteworthy characters as Alan “Bubbles” Greenspan, Robert “Don’t Regulate Credit Default Swaps” Rubin, and former presidential candidate Ron Paul.

    So Baker cherry-picks the “noteworthy characters” that he likes least and gives two of them derogatory nicknames. Is he suggesting that the movie should not have spoken to Fed Chairmen or Treasury Secretaries, at least not ones that Baker doesn’t like?

    This film should be viewed as part of a larger effort to dismantle Social Security and Medicare, the country’s core safety net programs. The reality is that our budget is essentially fine, it is our health care system that is out of control. But fixing health care would require going after the drug companies, the insurance companies, and highly paid medical specialists. But those folks are all powerful, so the IOUSA crew went after old people instead.

    Now Baker cranks up the slander machine. Everyone connected with the movie is a part of the great conspiracy to dismantle Social Security and Medicare. In addition, the crew set its sights on going after old people. I suspect that Baker and his supporters would howl in protest if someone were to suggest that Baker is in the pocket of the AARP and/or involved in a plot to destroy America’s finances. However, he seems to see no problem with making similar accusations of others.

    It’s certainly fine to guard against questionable motives. But it seems to me to be totally unprofessional to make such accusations, especially when one presents absolutely no evidence to back it up. It does nothing to promote, in fact it distracts from an honest debate on the subject. Baker would do well do present his arguments on the issues in as persuasive a form as possible (he does provide a link to an article at the end of this critique). But he would likewise do well do cease his dispersions on others’ motives.

  6. comment number 6 by: David Rosnick

    CEPR is not pulling budget projections out of thin air. We’re mostly reporting what CBO has been saying for some time. CBO and GAO have budget projections with high and low health care costs, the CBO data is available online at http://www.cbo.gov/Spreadsheets.shtml

    We can quibble about details, but if you pull out the health care numbers directly from the reports, it’s pretty obvious from where the projected debt explosion comes.

    For those looking for “serious economic studies (other than his own) that support his [Dean Baker's] contention that the long-term fiscal imbalance can be easily solved if we can just bring the growth of health care costs under control”

    Start with the Congressional Budget Office’s Long-Term Budget Outlooks, for one. The latest is at http://www.cbo.gov/doc.cfm?index=8877 and I know that Brooks takes some issue with the 2007 report as opposed to the 2005 one, so the previous report is at http://www.cbo.gov/doc.cfm?index=6982

    Or how about the GAO at http://www.cbo.gov/doc.cfm?index=6982 To quote from the very first paragraph: “Simply put, the federal government is on an unsustainable long-term fiscal path. Although Social Security is important because of its size, over the long term health care spending is the principal driver”

    Shortly after that: “[T]he federal government’s long-term fiscal outlook is a matter of utmost concern, this challenge is driven primarily by health care cost growth.”

    “Although some of the increased burden is due to the aging of the population, the majority is due to increased costs per beneficiary”

  7. comment number 7 by: Arne

    Rather than refer to people who do not agree on every point as “hyerpartisan”, it seems more useful to look at where they do agree. Suggested approaches to solutions are different, but Diane and Dean seem to agree that health care costs are the biggest component of projected fiscal imbalance and that they need to be brought under control.

  8. comment number 8 by: B Davis

    David Rosnick wrote:

    CEPR is not pulling budget projections out of thin air. We’re mostly reporting what CBO has been saying for some time. CBO and GAO have budget projections with high and low health care costs, the CBO data is available online at http://www.cbo.gov/Spreadsheets.shtml

    Thanks for pointing out link to CBO spreadsheets as I was not aware of that page.

    For those looking for “serious economic studies (other than his own) that support his [Dean Baker's] contention that the long-term fiscal imbalance can be easily solved if we can just bring the growth of health care costs under control”

    I agree that Medicare and Medicaid costs are the main drivers of the explosion of debt that is projected over the next several decades. That can be seen in the second graph at this link which shows the long-run projections from the most recent U.S. Budget. It can also be seen from Figure 1-1 in the 2007 Congressional Budget Office’s Long-Term Budget Outlooks that you provided. However, I would not say that “the long-term fiscal imbalance can be easily solved if we can just bring the growth of health care costs under control”. Although it is a much smaller problem, the 2008 Trustees Report projects that the Social Security trust fund will be exhausted in 2041 (under the intermediate assumptions). The Concord Coalition and the movie IOUSA have merely discussed some of the relatively minor changes that could avoid this. As a result, their motives have been attacked. If we can’t have a civil discussion about the much smaller problem of Social Security, how do we ever hope to tackle the much larger problem of Medicare and Medicaid? Judging from what has happened on Social Security, I’m afraid that we may largely end up waiting until there is a crisis. I recall hearing George Will once say something to the effect that we would deal with Social Security the day that we are unable to mail out the checks!

    Regarding Medicare and Medicaid, following is a quote from Pete Peterson from the town hall that followed the movie IOUSA:

    20:57:36:00 I– I don’t think we should let this audience leave their respective auditoria thinking that Social Security is the principal problem. We could sit down with Bill Novelli and you and me and so forth and there are a half a dozen solutions that– that are perfectly sensible, that still preserve the safety net for the poor and so forth.

    20:57:59:00 The real issue is healthcare and Medicare. As you saw, it’s not only four times bigger but it’s ten times tougher to think through both politically, morally, philosophically, et cetera. So I– I think everybody should be focused (LAUGHTER) on that issue over the long term.

    So, as you can see, Pete Peterson is on the same page on health care costs. On this topic, I would be curious as to what CEPR thinks to be the specific factors that are driving the rising costs and the best way to address them. I noticed that page 13 of the GAO document that you referenced lists the factors of medical technology, market dynamics, and population health. In both it and the CBO report, they seem to suggest that the problems arise from the health care industry and the patients themselves and the relationship between the two. I’d be curious to see any papers that CEPR has issued on addressing this problem and/or any mainstream studies that they agree with. Thanks for your informative response.

  9. comment number 9 by: B Davis

    Arne wrote:

    Rather than refer to people who do not agree on every point as “hyerpartisan”, it seems more useful to look at where they do agree. Suggested approaches to solutions are different, but Diane and Dean seem to agree that health care costs are the biggest component of projected fiscal imbalance and that they need to be brought under control.

    The term “hyperpartisan” seems pretty tame next to Dean’s accusations that IOUSA is “part of a larger effort to dismantle Social Security and Medicare” and going “after old people”. But I do agree that it serves no purpose to publicly question other people’s motives. As you suggest, it is better to ignore such accusations and search for common ground with those who are willing to have a civil discussion.

  10. comment number 10 by: Dean Baker

    I’ve posted a response to Mr. Creadon’s note on CEPR’s wesbite [http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/response-to-iousa-director-patrick-creadon/]. People would have more respect for Mr. Creadon’s film if he were willing to present honest debates around the issues it raises, rather than stage one-sided events.

  11. comment number 11 by: Brooks

    David,

    The Concord projections in the document to which I linked attribute a substantial portion of the Medicare cost growth to demographics even per the more conservative GDP per capita cost neutrality (as opposed to GDP per worker) — 46% through 2030 and 37% through 2050. Additionally, the portion of growth in the total of the three major entitlement programs (Medicare, Medicaid, Social Security) – the drivers of our long-term fiscal imbalance — that they attribute to demographics is 57% by 2030 and 45% by 2050 (“The corresponding figures assuming a per worker GDP benchmark are 63 percent and 50 percent”). http://www.concordcoalition.org/files/uploaded-pdfs/ff-1220-demographics.pdf

    Thus, Concord’s analysis is incompatible with any claim or implication, by Dean Baker or anyone else, that demographics (the projected increase in the number of retirees and the projected increase in the age distribution within the retiree segment) are an insignificant or minor factor in the projected growth of Medicare or of the three major entitlement programs that are driving our long-term fiscal imbalance.

    Why is this discrepancy important to note and why is it important to determine who is right (or closer to right)? Well, in a nutshell, Dean Baker says “We don’t need to make sacrifices X and Y to solve our problem. X will suffice.” If X does not actually suffice, and we avoid Y, we are eventually worse off than if we accepted X and Y upfront.

    We have a variety of alternative sets of policies from which to choose to mitigate our fiscal imbalance, and the sooner we act, the better, both financially (e.g., from an NPV perspective) and in terms of the human impact (phasing in changes gradually rather than making abrupt changes). Some potential policies involve reducing eligibility (age; means-testing) and/or benefit levels of Medicare and/or Social Security. Any such changes would best be phased in gradually and with many years advance notice so people can plan and save accordingly to the extent possible.

    Dean Baker has made the argument (1) that demographics are a very minor factor in the projected growth of Medicare, of entitlements overall, and of our long-term fiscal imbalance, and (2) that his proposed healthcare “reform” can achieve sufficient savings vs. projections (with few, if any, drawbacks) such that this reform, combined with tax increases (and, I presume, Defense cuts) can adequately address our fiscal imbalance. If he’s right, then rejecting the option of reducing entitlement eligibility and/or benefits seems like a much more viable course than if he’s wrong. If he’s wrong in his first premise (as the Concord analysis indicates) – if demographics account for a very substantial portion of projected Medicare growth and an even greater portion of growth in the big three entitlements – then rejecting the option of reducing entitlement eligibility and/or benefits may leave an unsustainable (or undesirably large) fiscal imbalance.

    As a note, we also need to consider and question other premises underlying his premise #2, as the Concord document does as well to some extent. How much net savings, if any, could be achieved via universal healthcare? Would a government-run, single payer system be less aggressive on cost containment than would private insurers? To what extent would lowering fees paid to physicians reduce the supply of physicians (thus lowering availability of service, quality of service, and perhaps shifting many to a private out-of-pocket market)? To what extent would reducing patent protection for drug companies reduce innovation by them and result in fewer effective (and arguably cost-effective) drugs? To what extent would much higher (e.g., “European level”) tax rates reduce economic growth and thus standard of living and incremental revenue (considering dynamic effects)? These are not rhetorical questions – I lack the expertise to know the answers – but I consider them important questions.

  12. comment number 12 by: Brooks

    Arne,

    Re: Rather than refer to people who do not agree on every point as “hyerpartisan”, it seems more useful to look at where they do agree.

    Obviously I did not (and do not) apply the label “hyperpartisan” to people who simply do not agree on every point, so there’s no need to grossly mischaracterize my use of that label (or my related commentary). People can have widely divergent views, even positions at opposite extremes, without any of them being hyperpartisan. If you’d like to discuss what distinguishes hyperpartisans from folks with even extreme views, drop me an email.

    I was not primarily engaged on this thread in a discussion of fiscal policy (let alone with Dean Baker or anyone presenting his arguments), but rather was responding to Patrick’s question in his post:
    After reading Dean Baker’s critique of our documentary “I.O.U.S.A.”, I am left pondering one important question: How could Mr. Baker have possibly come to the conclusion that our film is “one-sided”?
    I provided what I believe to be the most likely explanation, based on Mr. Baker’s critique and my experience with his writing and with exchanges I’ve had with him on his blog, Beat the Press. As illustration, I have very conservative friends who are constantly complaining that the MSM (e.g., CNN) has a consistent, extreme left-wing bias, and very liberal friends with the opposite complaint — and both usually attribute to those in the MSM a deliberate, partisan agenda — and although I discuss the merits of their arguments with them occasionally, I often tell them that the bias exists mostly in their minds, in the eye of the beholder.

    As for: it seems more useful to look at where they do agree.

    Well, it’s useful to look at where there is disagreement as well as agreement. But I appreciate the positive spirit of your comment, notwithstanding your mischaracterization of my comment.

  13. comment number 13 by: Brooks

    B Davis,

    Re: I have looked more closely at the arguments of “their hyperpartisan counterparts on the right”. I have long been amazed at how many supply-siders seem to be totally unfazed by the fact that there appears to be no serious economic studies that support their contention that tax cuts pay for themselves.

    Oh, it’s even worse than that. Even when presented with strong evidence and arguments to the contrary, that won’t budge from their talking points (and they quickly get snarky and often downright hostile — on RedState I was repeatedly branded a “lefty troll” and worse for trying to disabuse them of their cherished myth). I often encounter such people in the blogosphere. I first try a two-pronged approach to reasoning with people who trot out that tired talking point that “tax cuts have always increased revenues (Kennedy, Reagan, Bush)”. (1) I point out to them that there is a strong consensus among even conservative economists, including the Bush Administration’s own top economists, that the Bush tax cuts (and tax cuts generally) have a net negative impact on revenues (net of positive dynamic effects that produce some revenue feedback), and I refer them to my compilation of quotes from such economists here http://logicizer.blogtownhall.com/2007/11/15/no,_the_bush_tax_cuts_have_not_generated_higher_revenues.thtml, and (2) I try to help them understand how it could be that revenues could increase following past tax cuts without establishing a strong correlation, let alone causation, explaining that revenues tend to increase, even in real terms, regardless of tax cuts or increases, because GDP tends to grow regardless of tax cuts or increases, and I refer them to this related graph http://www.heritage.org/research/features/BudgetChartBook/fed-rev-spend-2008-boc-R2-Federal-Government-Tax-Revenue.html and point out, as an example, the revenue growth following the 1993 tax increase. I explain that data can be cherry-picked, showing revenue increases following tax cuts, but if revenue changes following tax increases or absent tax rate changes are ignored, any finding of correlation is unreliable as well as any implication of causation.

    And for those even less sophisticated with regard to correlation analysis, who respond to my assertion that the Bush tax cuts have had a net negative impact on revenues (meaning that revenues would have been higher had the tax cuts not taken place) by simply saying “Revenues went up following the Bush tax cuts, dummy! So obviously the Bush tax cuts increased revenues. Duh!” I point out to them that there are all sorts of factors, not all of which are necessarily known or easily quantifiable, that could explain the revenue increases (e.g., the Fed very aggressively lowering rates). I also point out that even if I (or even economists) cannot fully identify and quantify the factors that drove revenue increases, that doesn’t mean they can’t rule out some variables or even determine that some variables most likely had a net negative impact on revenues.

    If all I get from some hyperpertisan in response to my efforts is persistent repetition of partisan talking points (usually accompanied by ironic snark), I will try a different approach designed to reveal to him and to others he is not being rational. I will say: “Let me ask you a different question: What do you think of the Reagan Administration’s strategy of “starving the beast” – the strategy of cutting taxes to force government to spend less? Do you really think it can work?” I mention Reagan and ask if they really think it can work because I know that questioning any approach Reagan took will trigger a reflexive defense of that approach, because these hard-core hyperpartisans are stimulus-response organisms, the intellectual equivalent of amoeba (with apologies to amoeba for that comparison). When he replies “Yes, of course it can work”, I will point out (or ask a follow-up question to flush it out of him) the obvious premise of “starve the beast” that cutting taxes reduces revenues, and then I’ll ask how the same tax cut over the same time period can both increase and decrease revenues. Cue crickets.

  14. comment number 14 by: Brooks

    A note regarding my reference to Dean Baker’s “bogeymen of healthcare (e.g., drug companies; insurance companies)”:

    I am not saying that there aren’t substantial potential savings from changes to our healthcare system, including changes that reduce profits of drug companies and insurance companies. I suspect there are such potential savings, although frankly, I don’t know much about this issue, so I don’t have a good sense of magnitude of savings, nor of the magnitudes of likely or potential drawbacks of changes that could produce those savings (e.g., less drug innovation if we weaken patent protection).

    Also, I do suspect adverse influence of these players on our political process via campaign contributions combined with lobbying, etc., which is one of many reasons I favor changing our campaign finance system to one of mostly public funding.

  15. comment number 15 by: David Rosnick

    Brooks,

    I have written to you previously in an attempt to discuss these issues, which I am loathe to do in a comments section because these concerns are very detailed and wonky as well as covering a considerable range of topics. Our posts will be incredibly long and probably boring if we discuss it all here.

    However, let me respond on a few points so you see where we are going with this.

    One, I don’t think that Concord and CBO are far off. In fact, I think the Concord numbers could be presented just as fairly in a way that would make demographics seem to be an even bigger part of the problem. The difference between Concord and CBO is on presentation and interpretation, and (let me be careful here– my calculations seem to agree) Concord’s are misleading.

    How so? Effects are multiplicative. Let’s take a simple calculation. Suppose that factor A in isolation increases costs by 50%, and in isolation an independent factor B by 100%. Then taken together, they triple costs ( 200%). If factor A is eliminated then costs only double ( 100%). In this sense, factor A is “half the problem” However, eliminating factor B instead of factor A, costs rise only 50%. Despite seeming to be “half the problem”, it is much more effective to attack B, and eliminate three-quarters of the total cost increase.

    Let us suppose now that the factors were really each half the problem. (Say each factor doubles costs) Then together costs rise 300%. Eliminating either removes means cost rise only 100%. Thus, managing *either* factor alone eliminates two-thirds of the cost increase.

    Two. Concord puts the demographics share of Medicaid growth at only 13-18 percent.

    Three. I think you misrepresent CEPR’s position on X vs. Y. The overwhelming factor in the scare story with respect to the deficit (especially when presented in NPV terms) is in fact health care. As you can see in our critique, the low-heath-care scenario *does not* eliminate the deficit entirely. We never said that. We have said that the low-health-care scenario doesn’t look scary and unmanageable, requiring a doubling of payroll taxes or eliminating all discretionary spending.

    See figure 3 of our report on IOUSA, for example. Or for NPV analysis,
    http://www.cepr.net/index.php/publications/reports/the-forty-four-trillion-dollar-deficit-scare/

    Oh yes. Four: The 50-something trillion dollar deficit scare number requires going well past 2050– beyond which point the demographics have had nearly all their impact, while excess health care costs are assumed to continue to spiral for decades thereafter.

  16. comment number 16 by: Nicole

    How does the combined cost of the wars in Iraq & Afghanistan plus all other overseas military presence compare to Medicare/ Medicaid?

  17. comment number 17 by: B Davis

    Dean Baker wrote:

    I’ve posted a response to Mr. Creadon’s note on CEPR’s wesbite. People would have more respect for Mr. Creadon’s film if he were willing to present honest debates around the issues it raises, rather than stage one-sided events.

    Since there are more than two views of the debt, I think that you mean that the film was not as diverse as you would have liked, not that it was one-sided. If there were only two views, then it would be a simple matter to interview people of both groups. However, it’s much more difficult to interview people of every major view and do so in a way that makes all of those groups happy with the result. Hence, I hope you will retract your contention that IOUSA and/or the Concord Coalition are “part of a larger effort to dismantle Social Security and Medicare”. I am glad to see that you seem to have taken a step in that direction in your aforementioned response where you state that “it is more important to deal with the substance conveyed in the movie than Mr. Creadon’s motives”. It was a huge improvement over your review on Huffington Post which, as I said in my prior post, seemed overly opinionated and unprofessional.

    Regarding that review though, I did take a look at the analysis of IOUSA to which you linked. I did have questions about some of the seven key points that you mention. For example, following is your first point:

    1) The national debt is not literally a generational transfer. This is easy to see because everyone who holds the debt (government bonds) today will eventually be dead, leaving the possession of the bonds to their children and grandchildren. In other words, the interest on the debt will be paid from some members of future generations to other members of future generations. (We will deal with issues created by foreign ownership below.) The debt can involve a generational transfer only insofar as it slows the economy’s growth, so that it produces less in the future.

    This sounds very much like the “we owe it to ourselves” argument. In fact, in the detailed discussion of this point, you state, “this flow of money from taxpayers to bond holders doesn’t on net make people better or worse off 100 years from now”. However, what solace is this to a future taxpayer who did not have the good fortune of being born to one of these bond holders? They will suffer the burden of paying taxes to cover the interest but will get none of the benefit of holding the bonds. Surely, you would agree that the distribution of wealth and income is important, not just the total national wealth and income. A very skewed distribution is likely to have an adverse effect on the stability of the nation.

    Also, I don’t believe that slowing the economy’s growth is the only way that debt can involve generational transfer. If that debt is used to fuel pure consumption, it will likely consume resources that will not be available to the future. As an extreme example, if that debt were used to send all retirees on a perpetual world cruise, that would almost surely end up as a generational transfer. I do, however, agree with your later comments that using the debt for education or to construct infrastructure could more than pay for itself if done correctly. I’ve long felt that the chief things for which debt is acceptable is investments and emergencies.

    Finally, you mention foreign ownership of the debt but make no mention of its current size or rate of growth. As you can see from the numbers at this link, about 44.5 percent of the debt held by the public is now foreign-held. From 2001 to 2007, the total public debt increased $1.716 trillion and the foreign-held public debt increased $1.235 trillion. Hence, in effect, about 72 percent of the total increase in the public debt since 2001 has been borrowed from foreign sources. Since 1994, about 99 percent of the total increase in the public debt has been borrowed from foreign sources. In the case of bond holders in this country, at least most of the interest will be spent or invested here. For foreign bond holder, however, that is not the case.

  18. comment number 18 by: B Davis

    Brooks wrote:

    I will say: “Let me ask you a different question: What do you think of the Reagan Administration’s strategy of “starving the beast” – the strategy of cutting taxes to force government to spend less? Do you really think it can work?” I mention Reagan and ask if they really think it can work because I know that questioning any approach Reagan took will trigger a reflexive defense of that approach, because these hard-core hyperpartisans are stimulus-response organisms, the intellectual equivalent of amoeba (with apologies to amoeba for that comparison). When he replies “Yes, of course it can work”, I will point out (or ask a follow-up question to flush it out of him) the obvious premise of “starve the beast” that cutting taxes reduces revenues, and then I’ll ask how the same tax cut over the same time period can both increase and decrease revenues. Cue crickets.

    It’s not nice to fool single-celled organisms! Seriously, I’ll have consider trying that approach some time. I’ve usually just issued the same challenge, so often that I’ve saved it to a file. Following is the long version:

    When I heard about the touted rise in revenues after the Reagan tax cut, I went and looked at the numbers myself. After all of the bragging that I’d heard from supply-siders, I really expected to find something. Instead, the numbers were pretty much what one would expect. When taxes are cut, revenues go through a quick drop and then continue to grow with the GDP as before, just at their new lower level. Hence, tax cuts are not a free lunch. They require us the weigh their benefits versus their costs, just like most things in the real world.

    I’ve posted the results of my study of the numbers at http://home.att.net/~rdavis2/taxcuts.html. For years, I’ve asked supply-siders to tell me any specific numbers or conclusions in my analysis that they disagree with. Alternately, I’ve asked them to post a link to one serious economic study that purports to show evidence of any income tax cut that has ever paid for itself. I’ve received no serious responses. If you can honor either of these requests, please do so. Otherwise, I’ll just have to stick with the data.

    The only serious response to date has been from the crickets!

  19. comment number 19 by: Brooks

    B Davis,

    Just to add to your point re: “generational transfer”, not only is foreign ownership a big “other than that” part of Baker’s argument, but so is his statement that “The debt can involve a generational transfer only insofar as it slows the economy’s growth, so that it produces less in the future.” Well, yeah(!), crowding out private capital, driving up interest rates (and I mean not only today, but in years to come if our debt-to-GDP worsens), etc., ain’t no small thing. Further, to the extent that the Fed monetizes the debt (”prints money” to pay it down or at least service it), the resulting high (and perhaps volatile) inflation rate would harm real GDP as well as potentially reducing the value of savings. So basically, other than the fact that almost half our debt is now foreign-owned, with that portion trending significantly higher, and other than the severe adverse impact that the debt can have on future GDP and assets via much higher interest rates and via potentially very high inflation, other than allll that, Baker’s got a great point.

    Also, good point re: the redistributional dynamic (transfer of wealth from future taxpayers to future bondholders).

    Lastly, Baker makes a theoretically correct point regarding the extent to which deficit-spending represents an investment in GDP growth, but our long-term fiscal imbalance is driven by current consumption — e.g., Medicare, Social Security, Medicaid, arguably Defense, etc. — rather than on investments such as infrastructure and education.

  20. comment number 20 by: David Rosnick

    I have two replies here.

    One. Why have we seen the run-up in foreign ownership of public debt? Look at the accounting identities. Private savings down, investment relatively unchanged implies lower budget deficits and/or higher trade deficits. The high dollar means large trade deficits and its mirror– an influx of foreign-owned assets, private and/or public. Foreign-owned public debt means *less* crowding out of private investment (and/or lower private savings)

    Two. Whatever the effects, these projections of scary long-term fiscal imbalances rest on national heath care expenditures approaching 50% of GDP. Yes, 50. I think we’ll have bigger things to worry about than some possible crowding-out of investment.

  21. comment number 21 by: Brooks

    David,

    Thank you for your reply.

    As to my earlier comment and your email, the question in your email seemed to be what my point was in terms of policy implications of the discrepancy between Baker’s/CBO’s vs. Concord’s assessment of the size of the demographics factor, and I addressed that in my earlier reply to you on this thread.

    To reply to your comment of 10/30:

    First, just to stay focused on the policy implications of our discussion, the policy question here is whether or not we will need to reduce eligibility (age; means testing) or benefit levels of entitlements for seniors, which include both Medicare and Social Security.

    I assume we can agree that projected Social Security spending is unrelated to the multiplicative dynamic to which you referred, since it doesn’t interact with healthcare costs and is solely a function of demographics (combined with eligibility and formula for benefit level calculations). And it is the amount of projected spending on Social Security, not the projected shortfall, that is relevant to our overall fiscal imbalance. The problem we face is our overall fiscal imbalance — total projected revenues less total projected spending – regardless of whether or not some of that revenue is collected via a dedicated tax (e.g., SS FICA).

    That aside, I understand the multiplicative dynamic to which you refer in your discussion of Medicare. I’ve also seen the charts illustrating the trend lines of various scenarios in the 2005 CBO Long-Term Budget Outlook, including Scenarios 3, 5, and 6 which I assume represent sustainable scenarios (political achievability is another matter). But let me ask you this: Are you saying that those scenarios (those cost trends as a % of GDP combined with those revenue trends as a % of GDP, including consideration of dynamic effects) are achievable (in terms of economics and math, not politically achievable) without any of the following?
    - Means testing of Medicare or Social Security.
    - Increased age for eligibility for Medicare or Social Security.
    - Reduced Social Security benefit levels vs. current formula.
    - De facto reduced Medicare coverage in some form or another (via reduced schedule of benefits, more utilization review and denial of authorizations, reduced quality of care in terms of healthcare staff, available treatments, drugs, etc.)

  22. comment number 22 by: David Rosnick

    According to CBO’s 2005 report, there is exactly one parameter involving Medicare, Medicaid, or Social Security which changes among the six scenarios. That variable is the rate of excess cost growth. CBO assumes no means testing of these programs, reductions in Social Security benefits, or otherwise reducing real medical coverage. Nor does CBO assumes any increase in payroll taxes.

    According to CBO, none of your four listed policy options are necessary to achieve any of the six scenarios.

  23. comment number 23 by: Brooks

    David,

    If, in that report, CBO simply assumes a very substantial reduction in the rate of excess cost growth of Medicare, that does not mean they are saying the measures I’ve mentioned are not necessary to achieve those savings. Are you saying that CBO explains how those savings can be achieved in any/all those scenarios? If so, please direct me to the page/section.

  24. comment number 24 by: David Rosnick

    From page 31:

    “Projections of the Programs’ Costs

    “Long-term projections of spending for Medicare and
    Medicaid are subject to considerable uncertainty from
    various sources. The dominant source of uncertainty is
    the future rate of growth of Medicare and Medicaid
    spending per enrollee relative to the growth of per capita
    GDP. For this report, CBO presents projections under
    three paths, which it terms higher spending, intermediate
    spending, and lower spending:

    “Spending per enrollee grows 2.5 percentage points
    faster than per capita GDP;

    “Spending per enrollee grows 1 percentage point faster
    than per capita GDP; and

    “Spending per enrollee grows at the same rate as per
    capita GDP.6″

    It is uncertainty about future costs in the *whole health care system* that accounts for this variation. CBO suggests that “significant pressures will be brought to bear on the entire health care system to reduce the [2.5 percentage point] differential to 1 percentage point. That assumption rests in part on the belief that much higher levels of excess cost growth in national health expenditures are not sustainable in the long run because they would lead to an implausibly large fraction of GDP being devoted to health care and that, in the long run, the per capita growth of Medicare’s costs cannot deviate significantly from that of national health care costs.7″ Et. cetera.

  25. comment number 25 by: Brooks

    David,

    That seems to me NOT to explain how excess cost growth of Medicare can be brought down to 1 percentage point , let alone to zero, nor does it preclude all the means I listed above. It could involve, in essense, rationing and/or quality reduction of some sort (see my fourth bullet point). Additionally, if excess cost growth of the non-Medicare part of the healthcare system is not brought down to either of those levels (and the likelihood of that achievement without substantial sacrifices in quantity and/or quality of healthcare provided per patient or would-be patient is a matter of controversy about which I’m not well-informed) it begs the question of whether the other means I’ve listed would be required to achieve that reduction in excess cost growth of Medicare.

    Do you agree with the above?

    Also, can you please refer me to non-partisan (and I mean non-partisan with regard to ideology as well as party) analyses indicating that we can achieve such reduction in the excess cost growth of Medicare and/or our entire healthcare system without any of the sacrifices I listed?

    As an important note, CBO’s projections assume the same set of GDP growth rates regardless of revenue levels, spending, deficits, etc. In other words, dynamic effects are largely ignored. In reality, we’d have to asume that the higher revenues associated with some of their scenarios would reduce GDP growth rates, would we not?

  26. comment number 26 by: David Rosnick

    I absolutely disagree with your premise. This CBO report does not explain how *excess health care growth* is brought down. The whole point is that CBO is taking it as given. *IF* growth in excess health care costs is brought down, *THEN* (without changes to the programs) the lower cost scenarios play out. If not, then not.

    That is, we achieve the reduction in excess cost growth of Medicare and Medicaid by reducing the excess cost growth of health care, generally.

    There are policies which will rein in Medicare and Medicaid outlays, but means testing and reduced eligibility for benefits don’t address the underlying problem. Who cares if the government is running a deficit of 15% of GDP in 2082 if the country is plunking down 50 cents of every income dollar on nothing more than health care? It’s like worrying about the dampness in your stateroom on the Titanic. A troubling sign, to be sure. But just a symptom of a larger problem. So it is with these long-term projections. The scary-looking deficits are just a symptom.

    So let’s address the illness. It can’t be that difficult. It’s already been done all over the world. The United States already spends more than twice as much per capita on health care as the Euro area, but they have better health outcomes. And our health costs are projected to keep spiraling out of control.

    If you want specific policy proposals, Dean has laid out many of them. Poke around the health care section of CEPR’s website and you’ll find all sorts of goodies.

    If you are interested in pharmaceuticals, you might see http://www.cepr.net/documents/publications/Promoting_Good_Ideas_on_Drugs.pdf

    http://www.cepr.net/index.php/publications/reports/the-benefits-to-state-governments-from-the-free-market-drug-act/

    But if you’re set on addressing Medicare, I’m sure you’ll love Medicare Choice Plus http://www.cepr.net/index.php/publications/reports/medicare-choice-plus-the-answer-to-the-long-term-deficit-problem/

    I hope that helps.

  27. comment number 27 by: David Rosnick

    (Yes, I understand that CEPR won’t meet your definition of nonpartisan… but I can’t imagine anyone who would.)

  28. comment number 28 by: David Rosnick

    As to the inclusion of more dynamic effects in the model, see, that’s what I meant about getting way deep in the woods here. Can it significantly change the underlying story?

    Hate to sound like a broken record, but fix the health care system and the scary deficits are not so scary and we don’t have to worry about dynamic effects. Again, if we cared about that as well the slowing of productivity would be a symptom which is best addressed by turning to the underlying problem. Including dynamic effects on productivity can only make fixing health care more imperative.

  29. comment number 29 by: Brooks

    David,

    I don’t know on what basis you make the assumption that no organization or analyst would meet my definition of nonpartisan.

    To be clear, I don’t need to be certain that there is zero ideological bias or partisan influence, just close enough. CBO is an example, as is GAO. I assume there are plenty of academics who would also suffice, as well as some organizations. While you may disagree, I put Concord in that category as well, but we need not debate that point.

  30. comment number 30 by: David Rosnick

    Exactly. I think I’ll have to let you go at that. There are plenty of folks talking about this stuff. CBO I’m sure has reports on the issue, even if Concord doesn’t like Orzag or Henry Aaron at Brookings. Health Affairs has had so many articles on the subject I wouldn’t bother counting. Besides, I would hope you could consider CEPR’s policy ideas for what they are.

    Regardless, we’re working from basically the same set of numbers. I hope it’s more clear now where they come from, and absolutely feel free to write me if you have questions!

  31. comment number 31 by: Brooks

    David,

    Again, if you can refer me to some analyses by (at least relatively) nonpartisan organizations/individuals that lay out the policies that could achieve those low levels of excess cost growth and that discuss the trade-offs involved, I’d appreciate it.

    Understand that I am not an economist nor do I have any relevant expertise (my knowledge is limited to introductory macro and microeconomics courses as an MBA and undergrad, various finance courses, my work as a management consultant in business strategy, my own reading on these issues and discussions thereof), and thus I look to experts to present findings based on analyses the methodology of which I can only critique to a limited extent.

    Credibility is a function of perceived expertise, objectivity and sincerity. Therefore, although I certainly consider arguments and underlying premises provided by partisan experts, common sense dictates that I remain more skeptical, generally speaking, of the objectivity and sincerity (the latter referring to not only honesty but also opennes — not just the truth but the whole truth, so to speak) of the more partisan sources.

    Thanks for the exchange.

  32. comment number 32 by: B Davis

    David Rosnick wrote:

    I have two replies here.

    One. Why have we seen the run-up in foreign ownership of public debt? Look at the accounting identities. Private savings down, investment relatively unchanged implies lower budget deficits and/or higher trade deficits. The high dollar means large trade deficits and its mirror– an influx of foreign-owned assets, private and/or public. Foreign-owned public debt means *less* crowding out of private investment (and/or lower private savings)

    The high dollar means large trade deficits? Actually, that brings up some questions that I had about the second point that Dean Baker made in the analysis of IOUSA that I referenced in comment number 17 above. Following is that second point:

    2) The high dollar (not the budget deficit) is what causes the trade deficit. No one buys foreign made goods at Wal-Mart because the government is running a budget deficit. They buy foreign made goods because a high dollar has made foreign goods cheaper than comparable U.S.-made goods. The high dollar also makes U.S. exports more expensive for people living in other countries.

    If a “high dollar” is what causes the trade deficit, then the first graph at this link implies that the U.S. had a “high dollar” for most of the years from 1800 through 1875, a “low dollar” for most of the years from 1876 through 1970, and then a “high dollar” again since then. It also implies that Japan and Germany have “low currencies” and that France and the U.K. have “high currencies” like us.

    Now it is true that a strengthening currency can negatively effect exports. The first graph at this link shows that the dollar reached peaks versus other major currencies around 1984 and 2002. The second graph at the first link above shows that exports hit a trough around both of these times. However, it also suggests that imports may be more effected by recessions in that they hit a trough during the 1982, 1991, and 2001 recessions. In any event, neither of these factors appear to have caused the long-term increase in the trade deficit. In the case of developing countries like China, the low cost of labor (as opposed to a “low currency”) is obviously a factor. But in the the case of Japan and Germany, other factors are evidently at work.

    Two. Whatever the effects, these projections of scary long-term fiscal imbalances rest on national heath care expenditures approaching 50% of GDP. Yes, 50. I think we’ll have bigger things to worry about than some possible crowding-out of investment.

    I have heard recently that some economists are concerned that the large amount of new government debt associated with the bailout may have a crowding-out effect. However, I made no mention of this effect in my prior comment number 17. If you reread it, you’ll see that I was questioning Dean’s contention that an increased debt did not “on net make people better or worse off 100 years from now” and “can involve a generational transfer only insofar as it slows the economy’s growth”.

    Regarding national health care expenditures, however, I’ll repeat what I said in comment number 8 above. I would be curious as to what CEPR thinks to be the specific factors that are driving the rising costs and the best way to address them. Both the GAO and CBO reports that you referenced seem to suggest that the problems arise from the health care industry and the patients themselves and the relationship between the two. I’d be curious to see any papers that CEPR has issued on addressing this problem and/or any mainstream studies that they agree with. Thanks.

  33. comment number 33 by: economistmom

    This debate is getting into the weeds now. I’ll try to post my perspective on the exchange that’s gone on here sometime this weekend. Thanks to all of you for a lively back and forth (esp. to the defenders of Concord)–it’s been very interesting. –Diane

  34. comment number 34 by: Pete Murphy

    Regarding the claim that a high dollar is to blame for the trade deficit, I suggest that a much more subtle but powerful factor is to blame - the disparity in population density (and thus in per capita consumption) between the U.S. and so many of our trading “partners.”

    I am author of a book titled “Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America.” My theory is that, as population density rises beyond some optimum level, per capita consumption begins to decline. This occurs because, as people are forced to crowd together and conserve space, it becomes ever more impractical to own many products. Falling per capita consumption, in the face of rising productivity (per capita output, which always rises), inevitably yields rising unemployment and poverty.

    This theory has huge ramifications for U.S. policy toward population management (especially immigration policy) and trade. The implications for population policy may be obvious, but why trade? It’s because these effects of an excessive population density - rising unemployment and poverty - are actually imported when we attempt to engage in free trade in manufactured goods with a nation that is much more densely populated. Our economies combine. The work of manufacturing is spread evenly across the combined labor force. But, while the more densely populated nation gets free access to a healthy market, all we get in return is access to a market emaciated by over-crowding and low per capita consumption. The result is an automatic, irreversible trade deficit and loss of jobs, tantamount to economic suicide.

    One need look no further than the U.S.’s trade data for proof of this effect. Using 2006 data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the trade deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided equally around the median population density, the U.S. had a trade surplus in manufactured goods of $17 billion with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!

    Our trade deficit with China is getting all of the attention these days. But, when expressed in per capita terms, our deficit with China in manufactured goods is rather unremarkable - nineteenth on the list. Our per capita deficit with other nations such as Japan, Germany, Mexico, Korea and others (all much more densely populated than the U.S.) is worse. My point is not that our deficit with China isn’t a problem, but rather that it’s exactly what we should have expected when we suddenly applied a trade policy that was a proven failure around the world to a country with one fifth of the world’s population.

    If you‘re interested in learning more about this important new economic theory, then I invite you to visit my web site at OpenWindowPublishingCo.com where you can read the preface, join in the blog discussion and, of course, buy the book if you like. (It’s also available at Amazon.com.)

    Please forgive me for the somewhat spammish nature of the previous paragraph, but I don’t know how else to inject this new theory into the debate about trade without drawing attention to the book that explains the theory.

    Pete Murphy
    Author, “Five Short Blasts”