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Today’s Alice Williams’ last day working at the President’s Council of Economic Advisers. Alice is retiring after 51 years of federal government service!  David Wessel posted a nice Wall Street Journal blog about Alice’s retirement and the party thrown for her (which was pretty amazing to attend with all those CEA chairs and staff who had spanned all those decades of Alice’s tenure). I had the privilege to work with Alice for just one year at the end of the Clinton Administration, but the good fortune to know her and “soak in” her wonderful personality ever since.  She is truly an inspiration and honestly a better role model for me than any economist has been–well, with the possible exception of another “Alice” (Rivlin).  What I’ve always loved about Alice Williams was how she both works hard and plays (dances!) hard and does both so capably and with such joy.  (Check out this Washingtonian story on ballroom dancing that features Alice…turns out it is easier to “google” Alice via references to dancing vs. references to the CEA.) My fondest memories of Alice will be seeing her donning her sneakers, walking laps around the grand hallways and staircases of the Old Executive Office Building, every lunch hour of every business day, as a way of getting her exercise in while staying close at hand for the “fire fighting.”  Yes, the woman has great legs–besides a great head!  Congratulations, Alice!  (I hope our get-togethers from now on will center around a dance floor whether I come see you dance or you help show me how!)

I should have been horrified by the story in yesterday’s Washington Post about rising college costs:

Even before the financial crisis intensified the upward pressure on college costs, the price of a degree was soaring. Since 1980, the average cost of tuition and room and board has grown by a staggering 121 percent while median household income has risen a mere 18 percent, according to federal data. But the credit boom earlier this decade provided some relief for families.

Wall Street financiers packaged student loans into securities and sold them off to investors, who could trade them just like stocks. That, in turn, provided more money for lending, helping to make student loans cheaper and more available. Even people with poor credit histories could easily get a loan.

But during the last academic year, private student loan volume fell by half as financial firms became wary of lending to students, who generally do not have long credit histories. Officials from Sallie Mae, the industry leader in student lending, said they expect another significant decline this year.

Nor have families been able to keep borrowing against the value of their homes, which seemed for years to appreciate with no end in sight. Second mortgages have been shrinking along with real estate values. Money made available by banks to homeowners through home-equity lines of credit has fallen by 25 percent, to $538 billion, since the end of 2007, according to federal data.

About a decade ago, financial planners began to tout the benefits of 529 plans, which invest families’ savings in the stock and bond markets with the aim of keeping pace with the growth in college expenses. Even before the crisis, these plans couldn’t keep up. Then, in 2008, the average 529 plan lost 20 percent of its value.

And no longer can students count on the credit cards once available so freely, often by salespeople who lined campus walkways, offering free T-shirts and coffee mugs with their plastic. Many students used the cards to pay for books, meals and more…

But being in the midst of my own daughter’s college application process, I realize that the high and rising cost of college is just going to force us to evaluate and compare the benefits of her different college options that much more carefully.  In many ways, access to cheap credit causes people to behave as if the money is “free”–and often to make poor economic decisions because the standards for the benefits to be obtained from that household spending are correspondingly too low.

So I think having a tighter budget constraint may be a good thing.

This is well illustrated in this story about how real families have been forced to make adjustments to their family budgets during this recession:

As crazy as it sounds, losing a $70,000-a-year job has been good for Marty Morua’s finances. The former Wall Street stockbroker says the setback forced him to scrutinize his family budget and snip away at expenses. And soon, even with less income, their savings grew.

First, he and his wife decided to live on her salary so he could be home with their 5-year-old daughter after school. Without a nanny, they saved $12,000 a year. He dropped services he didn’t use on his cellphone — texting and video games — to pocket $250 a year. He took a defensive-driving course for a 10 percent discount on his auto insurance and dropped car-rental and roadside-assistance coverage, for an extra $150 a year.

For holiday gifts, he turned to thrift stores and gave home-baked cookies.

“When I was working, I didn’t look at the price tag,” he said. “In a strange way,” he added, losing the job “has been a blessing to teach me how to become aggressive and wise about saving and ways to save — areas I never would have thought about.”

The recession has caused a seismic shift in the consumer culture, converting die-hard spenders into savers. A growing number of people, either smarting from a job loss or spooked by the financial crises of others, are scrambling to get out of debt, establish emergency funds, and add to their retirement and savings accounts.

…And it’s why I think we really have to figure out how to make the budget constraints that the federal government faces “bind” more.  Such as via a “fiscal commission” or “task force” or “advisory board” or whatever we might call it so that politicians might stop freaking out so much and start realizing it would actually a good thing to have more constraints placed on their policymaking.

Happy Holidays to all my readers!  I will be posting less frequently over the next week–but have no fear, I will be back with a vengeance around New Year’s with some EconomistMom “resolutions.”  Until then, just want to make sure you all saw the Concord Coalition’s new issue brief on the “end game” on health care reform.  As summarized on Concord’s Tabulation blog:

With the House having passed its version of health care reform (H.R. 3962) and the Senate on the verge of passing its version (H.R. 3590), the outline of a final bill is beginning to take shape. In our new Issue Brief, we look ahead at the fiscal considerations that will likely be the subject of conference committee discussions and “end game” negotiations. These include the cost of expanding coverage, the methods used to prevent that cost from adding to the deficit, and the prospects for systemic reforms to reduce cost growth over time.This issue brief gives The Concord Coalition’s perspective on how the bills measure up, what the risks are and how these risks could be lessened. We conclude that:

•    Both bills establish an important benchmark by achieving deficit reduction according to official cost estimates by the Congressional Budget Office (CBO). However, the fiscal outlook remains on an unsustainable track even with the modest deficit reduction achieved under either plan.

•    There are clear risks that some of the methods used to achieve deficit reduction in the official scores may not hold up over the long-term.

•    The revenue package in the Senate bill holds more promise to reduce the deficit than the House version because its largest component — the high-cost insurance excise tax — will better keep up with the growth rate of health care spending, and will also work to lower health care costs.

•    Both bills contain many promising reform strategies to achieve long-term cost control. However, these strategies remain unproven and cannot be counted on to produce timely, reliable savings without a strong cost control mechanism such as the Senate’s proposed Independent Payment Advisory Board (IPAB).

The “Fiscal Risks” mentioned in the discussion include:

• Doing nothing
• Spending offsets that are not maintained over time
• “Curve benders” that don’t pan out or are not adopted more broadly
• Failure to include an effective cost control mechanism
• Lagging revenue increases
• General revenue bailout of the CLASS provision
• Inadequate premium subsidies, weak penalties, and a poorly designed exchange

In our conclusion we discuss the possible changes that could be added to the legislation to lessen these risks and further promote fiscal responsibility.

To read the full issue brief, click here: http://www.concordcoalition.org/issue-briefs/2009/1223/health-care-reform-end-game-fiscal-considerations

Len Burman (who is now at the Maxwell School at Syracuse, contrary to what the Washington Times printed) has a “festive” and “spirited” take on fiscal policy for the holiday season: he argues that Republicans and Democrats and their fiscally irresponsible ways are like two “evil Santas”–”evil” because these are:

two Santa Clauses who borrow from children to give gifts to their parents.

The two Santas came to Washington in 2000 and threaten to never leave. If we don’t send them packing, Christmas Future could be very bleak indeed…

[I]t’s past time to run the evil Santas out of Washington. Tax cuts don’t pay for themselves. And cutting federal revenues does not restrain the growth of spending (another baseless theory used to justify tax cuts). Instead, tax cuts create the illusion that government services can be purchased at a discount. As Cato Institute President Bill Niskanen has pointed out, that has led to more government, not less.

Democrats have figured this out. It’s a lot easier to expand government if nobody seems to have to pay the price. To his credit, Mr. Obama has insisted that his major domestic initiative — health reform — be offset by spending cuts and tax increases, but he did not impose the same standard on his new tax cuts. And Democratic activists deride those who lobby for fiscal sanity as “budget scolds” (or worse) because they fear that honest arithmetic will undermine their agenda.

I have more to say about the “derision” of “budget scolds” Len speaks of–some recent examples come from Paul Krugman and even friend-and-former?-budget-scold himself, Stan Collender.  But at Concord we’re now scrambling to get out our take on health care reform today before the Senate votes tomorrow morning–and before Santa visits.

…otherwise, Senator Reid’s “manager’s amendment” to the health care reform bill would be a “wash” for them. A snow-day CQ story by Richard Rubin exposed the sillier side of how a health care reform bill is made (emphasis added):

The amendment also would replace a proposed 5 percent excise tax on cosmetic surgery with a 10 percent excise tax on indoor tanning salons. The new tax raises $2.7 billion, instead of the $5.8 billion raised by the cosmetic-surgery tax, or “Bo-tax,” as it was known.

“Basically, the docs, to get their support, didn’t want Bo-tax, but they’re fine with tanning,” said Baucus, who specifically mentioned the support of the American Medical Association. “Tanning’s a bad practice. It causes cancer. Tanning beds should be taxed.”…

The amendment also slightly changes the proposed excise tax on high-cost health insurance plans. Longshoremen would be specifically added to the list of high-risk professions that get a higher threshold before the 40 percent tax takes effect.

This Dow-Jones story by Martin Vaughan offers an “interesting” (ok, silly and ridiculous) justification for removing the cosmetic surgery tax and describes the “interesting” (ok, silly and ridiculous) new debate it’s spawned between the plastic surgery lobby and the indoor tanning lobby (emphasis added):

Senate leaders dropped from the bill a 5% tax on all elective cosmetic surgeries that had been in an earlier version. Allergan Inc. (AGN), along with Medicis Pharmaceutical Corp. (MRX), and other firms lobbied against that tax, arguing that it was unfair to working women…

The indoor tanning industry has been fighting its own public relations battle as the U.S. Food and Drug Administration in recent weeks has sharpened its warnings about the risks of ultraviolet rays from indoor tanning beds. The tanning excise tax would raise $2.7 billion over 10 years for federal coffers.

John Overstreet, executive director of the Indoor Tanning Association, lashed out at plastic surgeons in a statement.

“It is not surprising that one primarily cosmetic business is trying to throw another under the bus by transferring a tax from rich doctors and their wealthy customers to struggling small businesses,” Overstreet said. “The irony is that ultraviolet light at least has proven health benefits where botox treatments have none.”

OK, let’s just call it the quest for the perfect “you look maaa-velous” (and obviously have too much discretionary income but not enough lobbying influence) tax.

And I do not normally find myself agreeing with the Wall Street Journal editorial page (I’m always calling for taxes to be increased after all), but when even they find themselves complaining about tax preferences that are based on political lobbying power rather than economic merit, I have to say they’re right:

Start with the special tax carve-outs included in the “manager’s amendment” that Harry Reid dropped Saturday morning. White House budget director Peter Orszag has claimed that the bill’s 40% excise tax on high-cost insurance plans is key to reducing health costs. Yet the Senate Majority Leader’s new version specifically exempts “individuals whose primary work is longshore work.” That would be the longshoremen’s union, which has negotiated very costly insurance benefits. The well-connected dock workers join other union interests such as miners, electrical linemen, EMTs, construction workers, some farmers, fishermen, foresters, early retirees and others who are absolved from this tax.

In other words, controlling insurance costs is enormously important, unless your very costly insurance is provided by an important Democratic constituency.

The Reid bill also gives a pass on the excise tax to the 17 states with the highest health costs. This provision applied to only 10 states in a prior version, but other Senators made a fuss. So controlling health costs is enormously important, except in the places where health costs need the most control.

If only the WSJ editorial page (and those who normally agree with them) would see how their logic might apply to the large tax preferences (really, “tax entitlements”) granted to the oil and gas industry/lobby, or to the farm industry/lobby, or to seniors (who don’t even need lobbyists but still have a pretty great one in the AARP).

I’ll have more to say on the not-so-silly aspects of tax policy in the House and Senate health reform bills later this week.

Bo Obama in the snow outside the White House today (photo by Getty Images from washingtonpost.com).

Despite the record snowfall here in DC, the Senate made it to the office today by God (most of us couldn’t even make it past our driveways), and they made some progress on health reform, with Majority Leader Reid securing the crucial “60th vote” from Senator Nelson of Nebraska. Looks like there will be a Senate-passed bill by Christmas.

Negotiating for that 60th vote didn’t necessarily make the bill any “better” though.  (Note the official “purpose” of Leader Reid’s so-called “manager’s amendment” as written at the top of the legislative text:  “To improve the bill.”)  The Congressional Budget Office expresses some continued skepticism about the cost control that will be achieved under the bill, despite their official scoring of the bill as deficit reducing even beyond the prior version of the bill (emphasis added):

These longer-term calculations assume that the provisions are enacted and remain unchanged throughout the next two decades. However, the legislation would maintain and put into effect a number of procedures that might be difficult to sustain over a long period of time. Under current law and under the proposal, payment rates for physicians’ services in Medicare would be reduced by about 21 percent in 2010 and then decline further in subsequent years. At the same time, the legislation includes a number of provisions that would constrain payment rates for other providers of Medicare services. In particular, increases in payment rates for many providers would be held below the rate of inflation. The projected longer-term savings for the legislation also assume that the Independent Payment Advisory Board is fairly effective in reducing costs beyond the reductions that would be achieved by other aspects of the legislation.

Based on the longer-term extrapolation, CBO expects that inflation-adjusted Medicare spending per beneficiary would increase at an average annual rate of less than 2 percent during the next two decades under the legislation—about half of the roughly 4 percent annual growth rate of the past two decades. It is unclear whether such a reduction in the growth rate could be achieved, and if so, whether it would be accomplished through greater efficiencies in the delivery of health care or would reduce access to care or diminish the quality of care.

And a CQ story [accessible via subscription only] explains part of what turned Senator Nelson around (emphasis added):

As expected, the manager’s amendment to the bill (HR 3590) would drop a new government-run insurance plan, or public option, that is dear to liberals…

The amendment also tightens restrictions on insurance coverage for abortion…

Nelson also won an assortment of smaller changes to the bill that would assist rural hospitals — important to his state — and increase payments for Nebraska’s Medicaid program. “I will vote for health care reform because it will deliver relief from rising health care costs to Nebraska families, workers, rural communities and employers,” he said in a statement…

[T]hanks to the manager’s amendment, Nebraska would receive 100 percent federal financing for new Medicaid beneficiaries in perpetuity…

Majority Leader Harry Reid, D-Nev., said he negotiated with Nelson over a period of “many, many weeks,” but played down the idea that Nelson received special treatment not afforded other senators. He said the manager’s amendment reflected “a number of different interests” of various senators.

“You will find a number of states are treated differently than other states,” Reid said. “That’s what legislation is all about. It’s compromise.”

Reid said the legislation included various provisions designed “to get a number of different people’s votes.”

So ’s no day to stop working, but maybe it’s the perfect day for a “snow job” on how politics as usual is producing better government?…

Getting rid of our debt? Why, all it takes is some alchemy, animal cruelty, and a really creative stimulus plan for Detroit…talk about bang for the buck!

I’m prepared to be buried in snow for a couple days (here in the DC area), so I expect I’ll have more writing time than usual this weekend. And perhaps some of my readers will have more reading time than usual, too… between online shopping, I mean.

The Center on Budget and Policy Priorities issued this report this week, which claims that “President Obama Largely Inherited Today’s Huge Deficits.”  The headline chart is shown above, which proves the point that President Bush’s deficit financed tax cuts and deficit-financed wars account for most of the projected deficits.  But the chart also demonstrates CBPP’s generous definition of what “today” is in “today’s huge deficits”–and that’s apparently the ten-year budget window of 2010-19, I guess another version of how “the future is now.”

Pretty much everyone understands–even without the Obama Administration’s constant reminders–that President Obama inherited the debt left behind by President Bush’s fiscal irresponsibility and record deficits; in fact, President Obama inherited the cumulative fiscal legacy (cumulative deficits) of all past presidents.  But President Obama didn’t “inherit” the projected deficits over the next ten years; those deficits are largely in President Obama’s control, as the chart shows.  Sure, the economic conditions might be largely out of the Administration’s control, but the choice to deficit-finance the cost of the wars and to extend and continue to deficit-finance most of the tax cuts “formerly known as Bush tax cuts” are President Obama’s own–as President Obama laid out in his very own budget.

That’s why this passage in the CBPP report has it exactly right (emphasis added):

While President Obama inherited a bad fiscal legacy, that does not diminish his responsibility to propose policies to address our fiscal imbalance and put the weight of his office behind them. Although policymakers should not tighten fiscal policy in the near term while the economy remains fragile, they and the nation at large must come to grips with the nation’s deficit problem. But we should all recognize how we got where we are today.

…and why the concluding passage is way too easy on President Obama–too kind to the Administration in falling under their “policy-extended baseline is what matters” spell (emphasis added):

[W]e estimate that President Obama’s proposals would lead to deficits of about $10.2 trillion over the 2010-2019 period, which is about $750 billion below the [Bush-policy-extended] baseline [but at the same time is more than $3 trillion above current-law baseline deficits]. For various reasons, CBPP believes that  estimate is conservative, but the conclusion is clear: the President’s budget would reduce deficits compared with a continuation of current policies.

If I had written the concluding passage of the CBPP paper, it would have instead read:

…the conclusion is clear:  the President’s budget chooses to continue most of the Bush legacy of deficits and debt by choosing to continue the most costly of President Bush’s deficit-financed policies.

President Obama can’t change the past, but he can change the future–at least a lot more than he seems to be (yet) trying.  It strikes me that blasting the irresponsibility of President Bush’s fiscal policies, and then praising President Obama for doing “a little better” than President Bush, isn’t the way to get President Obama to live up to his potential and his promise as an agent of “change.”  So I’m not sure what CBPP hoped to accomplish in writing their piece–other than trying to comfort President Obama and tell him it’s “ok” for him to be running big budget deficits and behaving like a slightly-better version of President Bush.

Ezra Klein observed this morning that the Rockefeller-Whitehouse-Lieberman amendment on the Senate health reform bill puts some “teeth” back into the Medicare commission:

Joe Lieberman’s successful effort to tank the public option and Medicare buy-in does not mark the end of his involvement in health-care reform, But his next major initiative is actually good: He’s partnered with Jay Rockefeller and Sheldon Whitehouse to save — and even strengthen — the Medicare Commission.

As attentive readers will remember, the Medicare Commission lost much of its bite when Reid merged the HELP and Finance bills. Among the biggest problems was that the commission now exempted hospitals for the first decade, contained a provision ending recommendations in 2019 if the rate of growth in Medicare spending fell behind that of private spending (which it often does), and lowered the savings the Commission was tasked with pursuing.

The Rockefeller-Lieberman-Whitehouse amendment repairs these flaws and, in fact, strengthens the Medicare Commission beyond the original proposal. Hospitals are no longer exempted and the language cutting off recommendations in 2019 is deleted entirely. The targeted savings are raised to 1.5 percentage points in 2015 and the schedule for Congress to consider the annual recommendations is moved up from August to June…

Now, [the commission] will have to submit a recommendation package in all years…[and] is also empowered to offer recommendations that are applicable to the private sector, and the Secretary of Health and Human Services will have the power to apply these changes to plans operating within the health insurance exchanges…

Taken together, these recommendations would be a huge step forward for cost control in the bill. It’s a shame that Lieberman mounted his most aggressive stand against the public option rather than in favor of this proposal, but even so, Rockefeller, Whitehouse, and Lieberman are all pushing in the right direction here. Whether other senators support this amendment will say a lot about how committed they actually are to controlling costs.

And note that that’s (Sheldon) “Whitehouse”–not the (Obama) “White House”–although I suspect that the Obama Administration likes this amendment because it’s more consistent with their vision of how a Medicare commission ought to work (a la their “IMAC”).

UPDATE (1 pm Thursday):  Here’s the Concord Coalition’s position on it.  (It reminds me of the old Life cereal commercial and “Mikey”–”he won’t eat it; he hates everything”…But no, “he likes it!”…)

I find this story in today’s Washington Post troubling, because it contains the names of quite a few Blue Dog Democrats or otherwise fiscally-responsible Democrats I’ve worked for at the House Budget Committee and House Ways and Means Committee.  From the story (my emphasis and references added):

House Democrats got a jolt Monday when a fourth lawmaker in a matter of weeks announced his retirement, leaving party officials and strategists fearful that they represent the leading edge of a wave of departures that could leave the Democrats vulnerable to significant losses in the 2010 midterm elections.

The most recent retirement came when Rep. Bart Gordon (Tenn.) [a Blue Dog Dem] decided not to seek a 14th term. While Gordon emphasized his desire to pursue other opportunities after 25 years in the House, party insiders acknowledged that he was swayed by the prospect of a highly competitive contest next November.

Gordon joins Reps. Dennis Moore (Kan.) [a Blue Dog Dem and member of the House Budget Committee during the last Congress], John Tanner (Tenn.) [a Blue Dog Dem and member of the House Ways and Means Committee] and Brian Baird (Wash.) [a member of the House Budget Committee last Congress] as Democratic members in swing districts who have announced their retirements in the past two weeks…

“Four retirements in and of themselves isn’t enough to create a big problem,” said Martin Frost, a former chairman of the Democratic Congressional Campaign Committee. “If there were to be 10 or 15 retirements like this, that is a problem for the DCCC.”…

Gordon’s retirement in particular came as a psychological blow to Democrats. Party strategists who pay close attention to House races anticipate that a number of longtime House members, particularly those in swing districts or areas of traditional Republican strength, will poll their districts early next year and decide after that whether to seek reelection.

Among the names mentioned as potential retirements if the political environment does not improve are Rep. John M. Spratt Jr. (S.C.) [current chairman of the House Budget Committee (and my previous boss)], Vic Snyder and Marion Berry (Ark.) [a Blue Dog Dem and current member of House Budget], and Rep. Chet Edwards (Tex.) [current member of House Budget].

My concern is less about the usual mid-term turnover of the President’s party and more that by losing the Democrats of above-average fiscal responsibility, the Democratic Party overall will become less fiscally responsible–and just at a time when we need leaders who can be viewed as allies of the party in power and yet push for fiscal responsibility in a way that’s credible and compelling, both to the leaders of the party as well as to the American people.

Many of those members listed above are people who over the past decade have spoken passionately and persuasively about the need to get back to living within our means in the federal budget.  They are policymakers who lived through the Clinton era and know that the fiscal responsibility of that era paid off.  And they are policymakers who during the last Bush Administration were truly horrified over the deterioration in the budget outlook.

In my opinion we just can’t afford to lose any more courageous Democrats.