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The Progressive Case for Deficit Reduction

September 30th, 2009 . by economistmom

…or not… I’ll hear about it either way today (Wednesday) at an event here in DC called “Progressives and the National Debt” hosted by the Center for American Progress and the Center on Budget and Policy Priorities.  On that conference website you can see the impressive lineup of experts who will be speaking, and you can watch the event live (8:30 am to 1:45 pm).

I’m not sure what the consensus “progressive view” of the dangers (or not) of deficits and debt will be, but I’ve always believed two main factors make the “progressive case” for deficit reduction:

  1. Deficit financing of government spending or tax cuts typically involves a more “regressive” burden than the distribution of the alternative means of financing via tax increases or even (well-considered) benefit cuts. The burden of the federal debt via compounded net interest grows faster than the overall economy (the definitionof “unsustainable”) and especially faster than the growth in incomes for lower-to-middle-class households, and “backed-into-a-corner fiscal discipline” is more likely to resemble a sledgehammer that hits all Americans very broadly (and indiscriminately) rather than a fine-tuned set of policies that better targets the burden to those who can most afford it.
  2. The overall tax-and-transfer system is progressive by income level–that is, the rich tend to receive net negative transfers (on net, pay taxes) over their lifetime, while the poor tend to receive net positive transfers.  (For lower-income households, incomes after federal taxes and transfers exceed incomes before taxes and transfers.)  If the (progressive) federal tax-and-transfer system is on a fiscally unsustainable path, then the (progressive) federal tax-and-transfer system might not be sustained.

But we’ll see what the experts say.  I may have to try some “tweeting” from my seat in the audience!  (Oh, boy…)

4 Responses to “The Progressive Case for Deficit Reduction”

  1. comment number 1 by: Brooks

    Diane,

    Don’t forget the matter of intergenerational fairness. I’m not saying that caring about fairness to future generations is something progressives would care about more than others, but I assume it is something they care about.

    And I’ll re-post the following:
    Stanford economics prof (and now blogger*) takes David Walker’s intergenerational morality rhetorical tactic (a slide he uses) a step further http://www.youtube.com/watch?v=7X0jC3GvPYo&feature=channel_page

    * http://johnbtaylorsblog.blogspot.com/

  2. comment number 2 by: AMTbuff

    I was intrigued by the comment, made by two speakers in the limited time I spent watching, that progressive programs were in danger of meat-axe cuts after the crisis hits, especially if non-progressives are in power.

    This concern makes sense, but I have yet to see any solutions. Medicare and Medicaid are not sustainable, therefore they will not be sustained. (Apology to Herbert Stein.) To prevent crisis-induced meat-axe change, it should suffice to change these programs to a sustainable form.

    Everybody knows that the root cause of the cost explosion in health care is that patients don’t know or care what anything costs. THAT is what must change. Current reform plans don’t change it. Progressives don’t WANT people to make health care decisions based on cost, but in the long run there is no other viable option.

    True reform MUST involve patients financially in cost/benefit decisions, making patients the watchdogs on price and quality, just as they are in every other service they purchase. This is the bullet that progressives need to bite, sooner rather than later. It’s the change that can save Medicare and Medicaid. It’s change that we, the numerate, can believe in.

  3. comment number 3 by: SteveinCH

    AMT,

    I strongly agree that greater use of the price mechanism is the best solution to managing health care cost inflation for two reasons. First it is the most efficient way to manage down costs and second, if people are spending voluntarily and with full knowledge or pricing, we cannot spend too much by definition.

    I actually find the debate about how much of GDP is spent on health care somewhat amusing. If individuals (through their employers for the most part) choose to spend 15 or 20 or 25 precent of GDP on health care, so be it. It is indicative of how individuals choose to allocate resources. This argument holds a lot more water if people are paying themselves with price transparency than it does in the current system of course.

    One thing you said I don’t agree with. I do not believe that putting the patient in charge of health care decisions is the only way to limit cost expansion. It is entirely possible to ration through managing supply through capacity rather than demand through payment or in the alternative to price discriminate by refusing to cover cerrtain things while covering others. Like you, I agree a price mechanism is the best way to do this.

    I also suspect you are wrong about progressive motivations. I would think many progressives would have two issues with using price mechanisms. First, by definition, they produce very unequal outcomes (these are, by definition to many progressives, not fair). Second, they allow individuals to make “bad” choices, bad being defined by what someone sees as being in their best interest.

    To use one of our fellow posters as an example, Brooks (no progressive in my book) thinks the government should guarantee health care to children because their parents might not choose to do so if they had to pay for it. Undoubtedly this is right, some parents would not choose to give their children all the health care that some people think they should and that would be a “bad” outcome to some, inlcluding me. What I struggle with is whether and how to put the government in the role of final arbiter of what constitutes a bad outcome and what the remedy should be.

    Most progressives with whom I’ve debated see it as the moral obligation of government to prevent people from making bad choices, even choices that are limited to them or their sphere of influence. I think that desire to manage outcomes on behalf of an uneducated or ill-intentioned citizenry is part of the progressive case against using price mechanisms to ration the provision of services.

  4. comment number 4 by: AMTbuff

    Steve, thanks for the insightful comment. Unfortunately for progressives, their reasons for disliking price mechanisms are irrelevant to the fact that there is no sustainable alternative.

    Rationing takes you down the road that England and Canada are on, a progressive deterioration of quality and quantity of care, ultimately leading to mass abandonment of the system and loss of political support for its continuation. This is no coincidence: Rationing encourages waste to grow without limit, and taxpayers will tire of paying for the waste.

    The speakers at the event argued for sustainability first and foremost. I’m arguing that sustainability requires a price mechanism. For progressives, that’s a difficult pill to swallow. But it beats having the programs eliminated after they collapse due to the lack of any price mechanism.