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“Loosey-Goosey” Anxiety Over Health Reform

November 30th, 2009 . by economistmom

doctor_goose_by_jkbunny

A story by Lori Montgomery in today’s Washington Post offers an interesting critique of those of us who worry about fiscal sustainability in the context of health reform (emphasis added):

As the long battle over health care is rejoined in the Senate this week, experts remain deeply divided over whether the legislation would rein in soaring health-care costs or simply add millions of people to a system that is already driving the nation toward bankruptcy…

[Senate Majority Reid's bill] would not deliver on Democrats’ most ambitious claims, the CBO found. While the package would not worsen the nation’s record deficits, it would not significantly improve them, either now or in the future. Reid’s bill would shave less than 2 percent from deficits projected to top $9 trillion over the next decade. And it would make only “small reductions” after that, the CBO said — about 0.25 percent of GDP — to deficits projected to balloon to roughly 14 percent of the economy by 2035…

Many budget experts also worry that lawmakers may not have the stomach to keep the new taxes and spending cuts intended to pay for the package. Republicans are already planning to offer an amendment to strike more than $400 billion in proposed Medicare cuts from the package, a move that would blow a huge hole in financing for the bill.

In merging bills drafted in committee, meanwhile, Reid significantly watered down two of the most important cost-containment provisions: a tax on high-cost health insurance policies that was opposed by labor unions and an independent commission that had been designed to automatically and methodically restrain Medicare spending. Senior White House officials have called those provisions critical, but House leaders are adamantly opposed to both.

“I do give them credit for shooting for deficit reduction as a target,” said Robert L. Bixby, executive director of the nonprofit Concord Coalition, which promotes a balanced federal budget. “But this bill is not bending the cost curve. Even if these things work, it’s not of the magnitude that is needed to prevent us from going over the cliff.”

As the Senate prepared to return to the debate, the White House pushed back aggressively against such criticism, touting endorsements from outside experts…White House Budget Director Peter R. Orszag questioned the expertise of the administration’s critics, telling reporters in a hastily arranged conference call that their “loosey-goosey” anxieties were ill-informed.

But the article goes right on to explain why Peter thinks critics (or rather “skeptics”) are being unfair (emphasis added):

In a separate interview, Orszag said health reform was never intended to reduce deficits immediately, but rather to set in motion a process that would avert a fiscal catastrophe decades down the road. The president will propose additional steps for reducing the short-term deficit in his next budget, Orszag said, though he declined to offer details. Calls are growing louder in Congress for a bipartisan commission to rebuild the tax system and cut spending on Social Security, Medicaid and Medicare, and Obama has expressed support for the idea.

But with health costs poised to swamp the federal budget, Orszag said, such additional efforts would be almost pointless without reform.

“The legislation is reflecting all the ideas that have been put forward in health policy circles for years and creating a feedback-and-continuous-improvement loop that will allow us to learn as we go,” Orszag said. “When someone says it’s not guaranteed to work, my response is: Doing nothing is guaranteed to fail.”

Well, it seems to me that with all our hopes pinned on those future and as-yet-unspecified (and unspecific) policies that will successfully “bend the cost curve,” it can’t be rational to assume that doing anything is guaranteed to make things better (and not worse).

So we’ll get more specific about our anxiety over (or confidence in) health reform and the overall fiscal outlook as soon as the proponents of health reform (the Obama Administration included) get more specific about their proposed solutions and show us how willing they are to follow through on their specific plans.

Until then, if all we hear about are “loosey-goosey” plans to “bend the cost curve” and “loosey-goosey” talking points that presume health care reform will be a net positive no matter what (because “doing nothing is guaranteed to fail”), then we can only offer “loosey-goosey” criticism and skeptism.

“Loosey-goosey” out, “loosey-goosey” back at ya.

The Problem with Deficit Financing a War

November 28th, 2009 . by economistmom

ww2-warbonds-christmas-ad(War bonds ad from the 1940s, from “Found in Mom’s Basement” blog.)

As Bruce Bartlett explains in his Forbes column, when a war is deficit financed, people tend to (way) underestimate its economic cost (like all other things that are deficit financed), and that tends to tilt the subjective cost-benefit analysis done in the heads of Americans in favor of engaging in war–or at least not opposing the war:

[George W.] Bush and his party, which controlled Congress from 2001 to 2006, never asked for sacrifices from anyone except those in our nation’s military and their families. I think that’s because the Republicans understood, implicitly, that the American people’s support for the wars in Iraq and Afghanistan has always been paper thin. Asking them to sacrifice through higher taxes, domestic spending cuts or reinstatement of the draft would surely have led to massive protests akin to those during the Vietnam era or to political defeat in 2004. George W. Bush knew well that when his father raised taxes in 1990 in part to pay for the first Gulf War, it played a major role in his 1992 electoral defeat…

In his 2008 book, What a President Should Know, [former Bush economic adviser Larry] Lindsey said that lowballing the cost of the war was a “tactical blunder” because it allowed Bush’s enemies to claim that he lied us into war. But at the same time, Lindsey acknowledges that the administration never rose to “Churchillian levels in talking about the sacrifices needed.” He also says that asking for sacrifice in the form of spending cuts and tax increases would have served the important purpose of involving the American people in the war effort. As it is, war is largely out of sight and out of mind…

Well, just like my former boss, Charlie Rangel, tried to reinstate the draft as a way of getting the war back in the sight and mind of all Americans (several years ago when the war was a new war that wasn’t even supposed to last very long), now David Obey, the House Appropriations Committee chair, is calling for a tax (on Americans broadly, not just the richest Americans) to pay for the additional costs of the war in Afghanistan for largely the same reasons.  As Bruce explains it (emphasis added):

The White House has given no indication of how it plans to pay for expanding the war in Afghanistan. More than likely, it will follow the Bush precedent and just put it all on the national credit card. But at least some members of Congress believe that the time has come to start paying for war. On Nov. 19, Rep. David Obey, D-Wis., introduced H.R. 4130, the “Share the Sacrifice Act of 2010.” It would establish a 1% surtax on everyone’s federal income tax liability plus an additional percentage on those with a liability over $22,600 (for couples filing jointly), such that revenue from the surtax would pay for the additional cost of fighting the war in Afghanistan.

It’s doubtful that this legislation will be enacted. But that’s not Obey’s purpose. He will probably offer it as an amendment at some point just to have a vote. Republicans in particular will be forced to choose between continuing to fight a war that they started and still strongly support, or raising taxes, which every Republican in Congress would rather drink arsenic than do. If nothing else, it will be interesting to see those who rant daily about Obama’s deficits explain why they oppose fiscal responsibility when it comes to supporting our troops.

What Bruce fails to recognize or at least doesn’t mention is that the Republicans don’t actually “rant daily” about Obama’s deficits, because “Obama’s deficits” aren’t really Obama’s deficits–as the Obama Administration has been quick to repeatedly point out.  The “deficits” under the Obama budget are not from new policies that Obama is proposing (those policies he actually pays for), but from the fiscally irresponsible policies of the George W. Bush administration that the Obama Administration now wants to both blame and extend.  The Republicans are ranting daily about Obama himself and Obama’s policy priorities–not “Obama’s deficits” or Obama’s fiscal irresponsibility.  The Republicans don’t “oppose fiscal irresponsibility” as long as it’s attached to policies they favor–whether it be war or tax cuts or more checks for seniors.

Come to think of it, the Democrats also don’t often “oppose fiscal irresponsibility” as long as it’s attached to policies they favor–whether it be economic stimulus or universal health care…or (come to think of it!) more checks for seniors… ;)

In fact, Bruce points out (I believe correctly) that David Obey’s objection to deficit-financing the war has more to do with the “war” part than the “deficit-financing” part–and that Obey’s worried mainly about spending on war “crowding out” other government spending–no matter what the effect on the budget deficit (emphasis added):

Obey makes no secret of his motives. He knows that deficits need to be reduced at some point and this will put pressure on spending programs he supports. “If we don’t address the cost of this war, we will continue shoving billions of dollars in taxes off on future generations and will devour money that could be used to rebuild our economy,” Obey explained in a press statement.

He is not alone in his fear that war presents a threat to the Democratic agenda. As Boston University historian Robert Dallek told Obama at a White House meeting earlier this year, “war kills off great reform movements.” He cited the impact of World War I in ending the Progressive Era, World War II in killing the New Deal, the Korean War in terminating Harry Truman’s Fair Deal program and the Vietnam War in crushing Lyndon Johnson’s Great Society.

So the problem with deficit financing a war is that deficits get bigger and the war goes on unscrutinized, just like everything else that’s deficit financed.  (Bruce says the historical evidence shows that deficit-financed wars drag on for longer than tax-financed ones.)  And our kids and grandkids get stuck with a big bill for something they didn’t ask for and maybe even their parents and grandparents didn’t want either but didn’t realize they were supporting by voting for “fiscally responsible” politicians who want to keep taxes low at all cost regardless of what they want to do on the spending side.

And the scariest part is that letting a deficit-financed war go on for too long because it’s deficit financed has much larger costs than letting something like economic stimulus or tax cuts (or even a prescription drug program or a “doc fix”) go on for too long because they’re deficit financed–because the toll isn’t just economic but human.

Happy Thanksgiving!

November 26th, 2009 . by economistmom

Happy Thanksgiving!  As I get ready for a happy day full of cooking and catching up with my kids (human and canine!), I went back to my post last Thanksgiving (“Giving Thanks”) and realize that the big things in life that I was so grateful for last year I am still lucky enough to have in my life this year:  my family, my friends, my “work”–all of which continue to give me profound joy.  There have been some big changes and new challenges, but fundamentally, I am blessed.

A special thanks to you readers who have been so supportive, enthusiastic, and encouraging of me throughout the past year–whether it be dealing with an internet hack attack on my site, personal attacks of my integrity from not-so-sweet readers, or kudos from the Wall Street Journal.  I still “engineer” and “pilot” this blog on my own as a complete novice, so this ride has always been a bumpy one, but I still LOVE it.  It’s starting to open up new opportunities for me that I am so grateful for, if only I could get my butt into gear and seize them (before they disappear)–so I already know what one of my New Year’s resolutions will be.

Just for fun, I post above the video of the President doing his “official duty” of pardoning the White House turkey.  Apparently this year he pardoned an unprecedented two turkeys (urged by his daughters), but what I find even more amusing is that one of the turkeys he pardoned is named “Courage”–so I guess you could say he’s bailing out [on?] Courage and sending it to Disneyland (literally).  Chuckle…

Hopefully the President will keep at least little Courage on the homefront though.  He’s got a lot to tackle over the next year with the economy still struggling and a lot of huge fiscal policy issues to resolve–as the President spoke of this morning in a special Thanksgiving edition of his weekly address.

What’s Best for Our Breasts?

November 25th, 2009 . by economistmom

OK, I’m jumping into this controversy about screening for breast cancer (mammograms, self exams, and the under- versus over-50 issue) a week late, but not because I haven’t been following the stories.  It’s kind of hard to know how to talk about one’s breasts when one has the perspectives of both an economist and a woman. Health care is like no other economic good, and breasts are like no other part of a woman.

I’ve been listening to/reading all the arguments, and I am fascinated by all the chatter on this topic from male columnists/pundits (but should I be, really?…I mean, a chance for them to think about breasts as an important “public policy” issue?), but I found Howard Kurtz’s compilation of some very varied thoughts from female commentators most enlightening (and often entertaining) and provoking of my own opinions on the issue.  I am one of those women in question–over 40 but under 50–who the U.S. Preventative Services Task Force now says shouldn’t bother with routine breast cancer screening, whether via mammograms or even self exams.  Their judgment is that for the broad group of “women in their 40s” who do not have genetic predisposition for breast cancer (unfortunately I do), the “benefits” of such screening don’t outweigh the “harms” (costs).

To me this is a very curious (and odd) proposition.  As explained in this New York Times article by Gina Kolata, the task force’s new position basically says that more information, even if free via self exams, can be a bad thing–not because the actual gathering of that information is risky, but because of how women might react to that information (with anxiety) or choose to act on that information (with potentially unnecessary surgery, perhaps with the encouragement of their doctors).  My understanding is that the health risks from the (minimal) radiation produced by mammograms is (not coincidentally) very minimal.  And of course there are no health risks from the process of self-examining one’s breasts.  So the task force is not saying that the process of gathering the information is risky; they’re saying that how women might choose to use that information is risky.  It’s a “save me from myself” argument.

But I still don’t get it.  From a pure health perspective, the potential net benefits of early detection of breast cancer–even netting out the risks associated with the various surgical and chemical treatments for the disease–can be quite large.  Not gathering the information increases the likelihood of “false negatives” and disease that goes untreated, the potential cost of which is death.  The argument against gathering the information for those women who have lower risk on average (the under-50 crowd) is that it increases the likelihood of “false positives” and overreacting with treatment that is unnecessary, has potential complications, and which can be drastic–for example, cutting off a breast.  But the decision about whether and how to act on a positive result is a woman’s personal decision, taken under the advisement of her physician who presumably helps her evaluate her own personal physical health risks (and emotional costs as well) of treating versus not treating.  I have heard stories of women with such a strong genetic predisposition to breast cancer that they opt to have double mastectomies to preempt the disease, and I assume that those women have done their own personal cost-benefit calculation and decided that they (personally) were willing to “pay” two breasts in order to guarantee they would live a full life.

My own personal story about breast cancer screening has no such drama, although I’ve had routine mammograms since age 40 and on my own had found a small lump many years ago (which has never gone away but has also never grown) and have had a needle biopsy on it that I admit wasn’t a lot of fun.  But it’s always been a no brainer for me, the only issue ever being “do I have time”  or “can I remember” to get my annual mammogram–not whether getting it is worth the “risk” of learning something I might act upon or the “cost” of some temporary physical discomfort from seeking even better information (via the needle biopsy).  I weigh the various “costs” or unpleasantries to myself against the benefits of detection, knowing that breast cancer runs in my family, but also understanding a lot about the potential complications of the potential “next step” of treatment–including watching my mom currently dealing with the complications of what had been expected to be an uncomplicated lumpectomy.  (My mom is tough though; one of her mottos has always been “deal with it.”)

But would I choose for myself to purposely not know about my lump because I’m afraid of making a dumb decision about what to do about it?…

For me, my experience during my four full-term pregnancies and deciding whether or not to have an amniocentesis to screen for Down’s syndrome was much more a case of weighing the risks of getting the information against the possible benefits of having the information.  The potential health “cost” of the procedure was the small risk of premature labor or even miscarriage, but the potential “benefit” of having the information was even smaller–because had I found out my baby had Down’s syndrome it would not have changed my carrying out the pregnancy but would have only helped me prepare (psychologically and practically) for having such a baby.  (Given that calculation, I never had an amnio with any of my pregnancies, but opted for less informative, but also much less risky, screening methods instead.)  My decision about the screening of my own pregnancies was about very personal costs weighed against very personal benefits and not some aggregate evaluation of the cost versus benefit to someone “like” me, in my broadly-defined “risk category”.

This strikes me as a fundamental policy challenge in trying to save money by using “comparative effectiveness” research; the government can present the public with evidence that on aggregate or average some procedure is not effective enough and hence should not be supported (and by that I mean not subsidized and not not allowed), but the subset of the population for whom it is effective (no matter how narrow) will surely balk at the suggestion, and policymakers will be very reluctant to take away any kind of health benefit from anyone who actually benefits from the benefit.  I’ve suggested this before: wasteful spending is in the eye of the beneficiary.

Now, it’s true that this sort of aggregate calculation of costs versus benefits has to be done if we’re going to make any progress in paring back public health spending in as “smart” a way possible, and health care subsidies by drastically reducing personal out-of-pocket costs certainly work to tilt every insured individual’s own cost-benefit analysis in favor of doing too much screening and testing.  I’m just saying “good luck” coming out with the recommendations on which procedures and protocols will no longer be government recommended and subsidized without hearing from “lobbyist advocates” representing every narrow subset of people for whom the personal cost-benefit analysis doesn’t jive with the aggregate one.  It’s going to be awfully hard.

Finally, while we’re on the topic of breasts, I feel like pointing out the irony of the Senate health reform bill now having a tax on elective cosmetic surgery–including “boob jobs” presumably.  (Yeah, I know–it’s just another way to tax only “rich” people.)  Hopefully reconstructive surgery is not considered “elective” (I haven’t read over the legislative text), but I suppose there are “grey areas”…for example, if one used to be an A cup and after “reconstruction” is a C cup, then at least some of that is obviously “elective”–and maybe some “pro-rata” portion of the cost of surgery should be taxed!  (I see this as a potential tax avoidance strategy giving tax planners “more material” to work with.)

I could tell more stories and make more analogies here, but I will resist the temptation lest the additional information have negative net benefit to you readers–at least on average.  ;)

Falling for Teasers and Not Squirreling Away Our Nuts

November 23rd, 2009 . by economistmom

squirrel-eating-a-nut-31

I like Ed Andrews’ New York Times article on how we’re running out of ways to cheaply finance our federal debt.  Ed explains:

The White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, the Treasury has to refinance, or roll over, a huge amount of short-term debt that was issued during the financial crisis. Treasury officials estimate that about 36 percent of the government’s marketable debt — about $1.6 trillion — is coming due in the months ahead.

To lock in low interest rates in the years ahead, Treasury officials are trying to replace one-month and three-month bills with 10-year and 30-year Treasury securities. That strategy will save taxpayers money in the long run. But it pushes up costs drastically in the short run, because interest rates are higher for long-term debt.

Adding to the pressure, the Fed is set to begin reversing some of the policies it has been using to prop up the economy. Wall Street firms advising the Treasury recently estimated that the Fed’s purchases of Treasury bonds and mortgage-backed securities pushed down long-term interest rates by about one-half of a percentage point. Removing that support could in itself add $40 billion to the government’s annual tab for debt service.

Why have we been living with a false sense of security about the seemingly-low costs of borrowing?  Because, as my boss puts it:

“The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.”

And Ed’s quote from Bill Gross is I believe the first time I’ve seen fiscal irresponsibility described in squirrel’s terms:

“What a good country or a good squirrel should be doing is stashing away nuts for the winter,” said William H. Gross, managing director of the Pimco Group, the giant bond-management firm. “The United States is not only not saving nuts, it’s eating the ones left over from the last winter.”

And another problem:  our government’s largest lender, China, might also be starting to worry we’re not such good squirrels, a la this past weekend’s opening sketch on Saturday Night Live (warning: not totally “G rated” so I’m not embedding it).

The Economist Magazine on Why We Have to Be Biased Toward Tax Increases in the Short Term

November 22nd, 2009 . by economistmom

economist-cover-fiscal-hole-112109

The cover story in this week’s Economist magazine discusses “dealing with America’s fiscal hole.” The “hole” is described not as something we’ll have to dig ourselves out of in the far-off future, but something we’re already too far in now.  (The story quotes Bill Gale and Alan Auerbach’s line on it:  “The future is now.”)  While the article describes “the elephant in the budget” as entitlements and how most of the effort to control deficits after 2019 will have to be focused on entitlement reform, it acknowledges that any such entitlement reform even coupled with other spending-side cuts won’t do enough to help the fiscal outlook anytime soon (emphasis added):

Because entitlement changes have to be phased in slowly, they offer only limited savings in the short term. Other programmes such as highway funding and farm assistance could be trimmed, and perhaps handed over to the states. Defence and discretionary items represent just a third of spending, and Mr Obama has already planned to shrink both in nominal dollars by 2014, as the wars in Iraq and Afghanistan (with luck) wind down and the stimulus expires. Thereafter, they would grow only slightly faster than inflation. Freezing both at 2014 levels would shrink them in real terms. Still, it would save only $160 billion a year by 2019. Even elimination of the notorious “earmarks”, favoured projects slid into the federal budget by individual congressmen, would save little; they add up to less than $20 billion a year, and in any case they only rearrange, rather than expand, the budget.

Even with the best-case scenarios for trimming the spending side of the budget, both mandatory and discretionary parts, as much as is both possible and wise, the Economist concludes (emphasis added):

The [spending-side] measures outlined above could generate perhaps half the savings needed to get the deficit down to 3% of GDP (see table). Without more drastic cuts, achieving the other half requires higher tax revenue. George Bush’s tax cuts expire at the end of next year. This could provide a catalyst for more fundamental tax reform…

And that table referenced?  It looks at options for reducing the deficit in terms of their 2013-14 impact and is copied below:

economist-deficit-reduction-options-112109

Note that it shows spending options totaling $101 billion, but tax expenditure reductions (usually considered “tax-side” options) totaling $552 billion.  It also shows “other tax options” including a 5 percent VAT worth $324 billion and an increase in the gasoline tax of 50 cents/gallon worth $62 billion.  The point is that the Economist magazine’s tax-side options far outweigh the spending-side options by a 9-to-1 ratio, which is not-so-coincidentally very close to the dominance of tax-side options to spending-side options in the Concord Coalition’s Federal Budget Challenge (which covers the full ten-year budget window and not just the four-to-five-year-out point).

The point is that we have to be biased toward tax increases over spending cuts if we really want to at least “stop digging” right away.  It doesn’t matter if the profligate spending of the past is more to blame than the unaffordable tax cuts of the past for the mess we’re in today.  What matters is the best, most sensible way forward to get out of the fiscal hole both immediately (mostly tax increases) and sustainably over the longer term (mostly entitlement reform).

My big worry is that the more folks argue that the main problem is out-of-control entitlement spending and so “let’s just worry about those programs later” (once we figure out how to do it!) rather than trying to raise taxes right away, the more likely we’ll keep putting it off and putting it off and claiming we’ll behave better in the future, and the more likely we’ll never dig our way out–or stop digging our way down.

At Least 100 Reasons to Worry That Congress Won’t Follow Through on the Hard Choices in Health Care Reform

November 21st, 2009 . by economistmom

senate_floor

Hooray! Tonight we’re one step closer to getting a deficit-neutral health care reform bill that has at least some hope of “bending the health cost curve” in the future.

Oh wait, maybe not…

As David Broder worries about in his Sunday column in the Washington Post (emphasis added):

I have been writing for months that the acid test for this effort lies less in the publicized fight over the public option or the issue of abortion coverage than in the plausibility of its claim to be fiscally responsible.

This is obviously turning out to be the case. While the CBO said that both the House-passed bill and the one Reid has drafted meet Obama’s test by being budget-neutral, every expert I have talked to says that the public has it right. These bills, as they stand, are budget-busters.

Here, for example, is what Robert Bixby, the executive director of the Concord Coalition, a bipartisan group of budget watchdogs, told me: “The Senate bill is better than the House version, but there’s not much reform in this bill. As of now, it’s basically a big entitlement expansion, plus tax increases.”

Here’s another expert, Maya MacGuineas, the president of the bipartisan Committee for a Responsible Federal Budget: “While this bill does a better job than the House version at reducing the deficit and controlling costs, it still doesn’t do enough. Given the political system’s aversion to tax increases and spending cuts, I worry about what the final bill will look like.

Yes, the big (perhaps trillion-dollar) question is whether Congress will have the political will to keep these bills as CBO has scored them (here’s the (revised) House score and the Senate score)–as (at least ten-year) deficit-neutral, paid-for bills, where the costs of the expansion of public health insurance are offset by a combination of cuts in health spending, increases in health-spending-related revenues, and other tax increases.  As Broder continues (emphasis added):

[T]here is plenty in the CBO report to suggest that the promised budget savings may not materialize. If you read deep enough, you will find that under the Senate bill, “federal outlays for health care would increase during the 2010-2019 period” — not decline. The gross increase would be almost $1 trillion — $848 billion, to be exact, mainly to subsidize the uninsured. The net increase would be $160 billion.

But this depends on two big gambles. Will future Congresses actually impose the assumed $420 billion in cuts to Medicare, Medicaid and other federal health programs? They never have.

And will this Congress enact the excise tax on high-premium insurance policies (the so-called Cadillac plans) in Reid’s bill? Obama has never endorsed them, and House Democrats — reacting to union pressure — turned them down in favor of a surtax on millionaires’ income.

The challenge to Congress — and to Obama — remains the same: Make the promised savings real, and don’t pass along unfunded programs to our children and grandchildren.

Why am I worried that the at-least-deficit-neutral-and-hopefully-deficit-reducing quality of the health reform bills won’t persist?  In large part because what happened today in the Senate has me worried that we won’t even get started on the right path, with Senate Republicans suggesting that every single fiscally-responsible part of the bill should be opposed:

Republicans portrayed the action Saturday night as tantamount to an endorsement of the underlying bill, or “a vote for higher premiums, cuts to Medicare, and more taxes,” as Sen. Lamar Alexander (Tenn.) declared.

…and with Senate Democrats doing their best to eat away at the deficit-reducing elements of the bill with the “concessions” that are being made to win their votes.  Dana Milbank’s report this evening is really troubling:

Staffers on Capitol Hill were calling it the Louisiana Purchase.

On the eve of Saturday’s showdown in the Senate over health-care reform, Democratic leaders still hadn’t secured the support of Sen. Mary Landrieu (D-La.), one of the 60 votes needed to keep the legislation alive. The wavering lawmaker was offered a sweetener: at least $100 million in extra federal money for her home state.

And so it came to pass that Landrieu walked onto the Senate floor midafternoon Saturday to announce her aye vote — and to trumpet the financial “fix” she had arranged for Louisiana. “I am not going to be defensive,” she declared. “And it’s not a $100 million fix. It’s a $300 million fix.”

It was an awkward moment (not least because her figure is 20 times the original Louisiana Purchase price). But it was fairly representative of a Senate debate that seems to be scripted in the Southern Gothic style. The plot was gripping — the bill survived Saturday’s procedural test without a single vote to spare — and it brought out the rank partisanship, the self-absorption and all the other pathologies of modern politics. If that wasn’t enough of a Tennessee Williams story line, the debate even had, playing the lead role, a Southerner named Blanche with a flair for the dramatic.

After Landrieu threw in her support (she asserted that the extra Medicaid funds were “not the reason” for her vote), the lone holdout in the 60-member Democratic caucus was Sen. Blanche Lincoln of Arkansas. Like other Democratic moderates who knew a single vote could kill the bill, she took a streetcar named Opportunism, transferred to one called Wavering and made off with concessions of her own. Indeed, the all-Saturday debate, which ended with an 8 p.m. vote, occurred only because Democratic leaders had yielded to her request for more time.

Even when she finally announced her support, at 2:30 in the afternoon, Lincoln made clear that she still planned to hold out for many more concessions in the debate that will consume the next month. “My decision to vote on the motion to proceed is not my last, nor only, chance to have an impact on health-care reform,” she announced.

Landrieu and Lincoln got the attention because they were the last to decide, but the Senate really has 100 Blanche DuBoises, a full house of characters inclined toward the narcissistic. The health-care debate was worse than most. With all 40 Republicans in lockstep opposition, all 60 members of the Democratic caucus had to vote yes — and that gave each one an opportunity to extract concessions from Senate Majority Leader Harry M. Reid.

Sen. Ron Wyden (D-Ore.) won a promise from Reid to support his plan to expand eligibility for health insurance. Sen. Ben Nelson (D-Neb.) got Reid to jettison a provision stripping health insurers of their antitrust exemption. Landrieu got the concessions for her money. And Lincoln won an extended, 72-hour period to study legislation.

And the big shakedown is yet to occur: That will happen when Reid comes back to his caucus in a few weeks to round up 60 votes for the final passage of the health bill…

I’ve said before that that’s the trouble with how political “compromises” get worked out in Congress these days.  Instead of “I’ll give up this, if you give up that” it’s “if you’re going to get that, then I’m going to get this.”

I’m worried that all the Senators want for Christmas is for the curve-bending health reform to not bend the curve so much, and for the deficit-neutral budget constraint to not really be a binding one.  And that’s even before they have to negotiate with the House.  It could be a very long and winding and expensive path that this health reform bill takes before it lands on the President’s desk.

So there are “at least 100 reasons” to worry about Congress’ ability to “follow through” on the tough choices required to make health care reform a fiscally responsible proposition… and maybe even at least 535.  We’ll have to keep cheering on the courageous.

You Think America’s Fiscal Gap Is Bad?

November 19th, 2009 . by economistmom

On e21, Donald Marron writes about a recent IMF analysis that compares the budget deficits of 22 advanced countries.  Donald explains how the U.S.’s budget outlook might look quite grim, but we’re still not as badly off as Japan, the U.K., Ireland, and Spain.  In order to get the debt to a more sustainable level, the IMF says the U.S. government deficit would have to be reduced by 8.8 percent of GDP over the next ten years, or about 0.9 percentage points per year.  That’s not nearly as bad as Japan’s required 13.4 percent of GDP closing of the gap, but Donald thinks it’s still really bad (emphasis added):

To put that adjustment in context, note that the U.S. economy currently totals a bit more than $14 trillion. To reduce borrowing by 0.9% of GDP, one-year’s target in the IMF scenario, the government would thus have to cut spending or increase taxes by about $120 billion per year on a permanent basis. That’s equivalent to half of federal spending on Medicaid in 2009. And then the government would have to enact similar, permanent spending cuts and tax increases in each of the nine following years.

But the IMF calculates that required fiscal-gap reduction based on the launching off point of 2009-10 fiscal policy.  For the U.S., that counts the very costly and deficit-financed Bush (2001 and 2003) tax cuts.  But those tax policies expire at the end of 2010, and as the CBO budget outlook shows (in Table 1-7), the cost of extending the Bush tax cuts alone (not even counting the cost of extended alternative minimum tax relief) is more than double that $120 billion per year requirement.  And that fact alone held up against Donald’s example of that $120 billion per year being half of Medicaid spending says a lot (to me) about why making major progress on reducing the fiscal gap in the next decade will undoubtedly require not just at least some tax increases, but mostly tax increases, if we’re going to narrow the gap in an economically wise, maximize-net-benefits kind of way.  I mean, can you imagine ever concluding that cutting Medicaid in half would be easier or better than letting less than half of the Bush tax cuts expire?

Lucking into Consumer Surplus in NYC Today

November 18th, 2009 . by economistmom

xmas-tree-rockefeller-center-swarovski-star-111809

I’m in New York City today for the Concord Coalition’s annual fundraising dinner that’s tonight.  When I come to NYC I come fully prepared to face higher prices than I normally have to pay back in the DC area.  But I’m “lucking” into collecting a lot of “consumer surplus” today (the excess of what I’m willing to pay over what I actually paid).  First, I was the last of the Concord employees in line to get our rooms at 3 pm, and they ran out of regular rooms and so just gave me this extra-big suite.  Second, I went shopping before checking into the hotel (perhaps the factor that caused me to be last in line) and decided to buy a sweater from a chain store that I realized I could pay less for back in northern Virginia, given that VA is a low-tax state relative to NY.  But instead, I go to the checkout counter to discover that there’s NO sales tax on apparel less than $110 in NYC–and that’s not just this week, but all the time here.  So I got a suite for a regular room rate, and an NYC-purchased sweater for (only) the price on the tag.  I figured out that’s worth about $90 of extra consumer surplus beyond the baseline consumer surplus I would have enjoyed anyway, right there!

Oh, by the way, the photo is taken from my blackberry camera of the Christmas tree at Rockefeller Center, which was being decorated today (see how it’s done, with all that scaffolding?!)… and that’s a huge Swarovski crystal star being hoisted to the top.  Talk about a symbol of surprisingly high consumer surplus!

What Happened to the Fiscal Courage of 1993?

November 17th, 2009 . by economistmom

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CQ’s Richard Rubin writes in this week’s CQ magazine (as part of the cover story on “Health Care’s Taxing Questions”–here’s link to a LexisNexis reprint) that the current Congress has little experience surviving voting for tax increases, because so few of them were even around to vote for them the last time around, back in 1993.  Richard argues that even among the Democrats, the lack of numbers in members who have experienced the fiscal responsibility of the Clinton era will hurt the likelihood that fiscal courage will prevail today:

Of the 218 House members who voted for Clinton’s deficit-reduction package of 1993, only one-third of them, 73 Democrats, remain in the House. That measure included a $250 billion, five-year tax increase that remains the most recent substantive increase in income or payroll taxes. What that first statistic means is that, of the 258 Democrats now serving in the House, 185 of them (or 72 percent) have never cast a vote for a significant net tax increase that became law.

A somewhat larger percentage of sitting Democratic senators have voted for a tax increase, but that number is still only a bit more than half. Of the 50 Senate Democrats who voted for the 1993 measure, only 21 remain. In addition, 11 current senators voted for the legislation as members of the House.

But I don’t think it’s the lack of numbers that hurts us; one third or one half is not at all too small to matter.  After all, the “squeaky wheel” gets the grease, even if it’s only one wheel out of four –and in the 1992 presidential election it only took one “squeaky” candidate named Ross Perot to get incoming President Clinton to make reducing the deficit an even bigger priority than keeping his campaign promises for middle-class tax cuts.

But you need that “squeaky wheel” (at least a few politicians willing to “squeak” about fiscal responsibility) and you need the President to take a strong lead–to forcefully say “we’ve got to take care of it” (to oil that squeaky wheel).

The lack of fiscal courage in today’s Congress is a problem of quality, not quantity.

Today’s politicians who understand what was accomplished during the Clinton Administration aren’t too few; they’re just too cynical–not idealistic enough on policy, or maybe just too politically pragmatic.  Richard goes onto explain (and quotes me) in the CQ story:

Tax increases aren’t a part of the congressional repertoire for the most part because they are anathema to voters. Bush is widely believed to have lost his bid for a second term because of the 1990 measure, which violated his famously explicit “Read my lips: No new taxes” campaign promise. And the 1993 deficit-reduction law led, in part, to the Republican takeover of Congress the following year. It didn’t matter that Clinton attributed some of the country’s 1990s prosperity to the legislation; the electoral lesson was clear.

“We’re dealing with a generation of politicians who have been conditioned into thinking that the way to keep their jobs is to keep proposing deficit-financed tax cuts,” said Diane Lim Rogers, a former House Democratic aide who’s now the chief economist at the deficit-opposing Concord Coalition.

And Richard writes of my biggest gripe–that despite a new Democratic president who was elected as the candidate of “change” and whose top economic advisors were always extremely critical of the Bush tax cuts, the President is not taking the lead in insisting that the (few) squeaky wheels in Congress–those with the courage to say we cannot afford to extend tax cuts to all households with incomes under $250,000 (or to keep “fixing” physician payments)–are heard, listened to, and given the (presidential) grease:

Rogers laments how, in response to Republican criticism, Democrats have shifted their positions on the tax cuts pushed into law by President George W. Bush in 2001 and 2003. The party’s widespread sentiment of outrage at the time those laws were being debated has evolved — after a period in which ending the cuts was successfully labeled by the GOP as a big tax increase — into an acceptance that most of the Bush tax cuts are likely to remain on the books indefinitely. “It really bothered the Democrats,” she said. “It really shook them in a way that I think they lost confidence in their abilities to sort of take the high ground on fiscal responsibility in regard to the Bush tax cuts.”

Today’s Congress seems to fall far short of the fiscal courage of 1993–not just on tax increases but on federal tax and spending policy more generally–because this time congressional Democrats simply aren’t getting enough leadership from their President or encouragement from their people (their voters).  Thank goodness (for my job security) that the mission of the Concord Coalition is guaranteed to remain alive and well (i.e., unfulfilled) for awhile.  And it’s good that Concord’s online “Principles and Priorities” exercise, aka the “Federal Budget Challenge,” well illustrates that it’s not easy getting to a “better place” (a more sustainable budget outlook) without making some really “tough choices”–the biggest one of most immediate impact being letting most or all of the Bush tax cuts expire.  (And yes, more on that soon.)

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