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Taking a Break for a Few Days

March 4th, 2010 . by economistmom

I have a lot going on in my real (mom) life over the next few days, so I won’t be posting for awhile. I won’t even be able to moderate comments for at least the next couple days. No family emergency–just busy. (And no, this is not at all related to Charlie Rangel’s leave of absence from his Ways and Means chairmanship…)

Keep up the comments without me. (I know a few of you will.)

Oh — here’s a good post by Bruce Bartlett critiquing the idea a couple of House Republicans have for reining in spending.  That is quite a contrast to Paul Ryan’s approach, which although (I believe) unrealistic, is still brutally honest.  Steny Hoyer gave the proposal and its author some credit the other day when he said:

It’s also clear to me that if the commission takes a one-handed approach, it will fail, both politically and substantively. Congressman Ryan’s thoughtful budget proposal shows what an approach looks like when it relies entirely on cutting spending. He should be commended for putting together a serious and detailed plan to tackle the deficit. It doesn’t raise a single tax. But as a consequence, it significantly changes Medicare.

That strikes me, as I think it would strike most Americans, as very much the wrong solution. But Congressman Ryan deserves respect for his honesty—for being one of the few members of his party, or of either party, to tell the public exactly what he’d cut. That’s far better than pretending that the solution to higher deficits is simply lower taxes and wishful thinking. In fact, as much as his party’s leadership tries to distance itself from his plan, Paul Ryan’s program, or something very much like it, is the logical outcome of the Republican rhetoric of cutting taxes and deficits at the same time.

28 Responses to “Taking a Break for a Few Days”

  1. comment number 1 by: Brooks

    Paul Ryan with Chris Matthews http://www.msnbc.msn.com/id/3036697/#35696188

    If anyone knows of any other members of Congress who have put forth an actual plan that solves the problem — by whatever means — please provide link. As far as I know, Ryan is the only one of either party.

  2. comment number 2 by: SteveinCH

    Actually, let me expand the request beyond members of Congress. It would be nice to see any plan that exists other than the one that Bruce linked to last time I asked as that wasn’t an actual policy plan, just a description of a process that might lead to an answer at some point. Same critique for Petersen-Pew.

  3. comment number 3 by: AMTbuff

    Exactly. Most “plans” are like a weight loss plan that shows a chart of projected progress along with some platitudes about healthy eating. What’s missing from those plans are details and, especially, will power.

    Ryan’s plan isn’t complete either, in that it does not clearly set forth the reduction in the level of services for recipients. However I believe that the upcoming bond market crash and the aftermath of spending cuts will make the Ryan plan appear generous. Therefore it’s good to have such a plan on the shelf, ready for action when political reality changes.

    Steve, can you please post Bruce’s link here?

  4. comment number 4 by: SteveinCH

    Here it is.

    I don’t think you’re going to like this one much better.

    http://www.americanprogress.org/issues/2009/12/path_to_balance.html

  5. comment number 5 by: Brooks

    Ryan’s plan isn’t complete either, in that it does not clearly set forth the reduction in the level of services for recipients.

    Although I’ve just scanned it and read about it, isn’t the largest component the Medicare-related voucher of amounts set per his plan that seniors would use to purchase health insurance? If so, he wouldn’t have to lay out what that coverage include as a means to the end of meeting his spending targets. That said, people would have to have some idea of the implications for coverage to understand what seniors would be foregoing. Is that what you mean?

  6. comment number 6 by: SteveinCH

    To me, the larger issues with Ryan’s blueprint are first that it is entirely silent on the tax side of the ledger. This is a real issue.

    Second, its timeline for attaining balance if too far off. There’s too much chance for politicians of all stripes to mess things up in the interim.

    As I’ve said before and as I’ve posted specific ideas for, we need a 5 to 7 year plan to get to balance, not a 40 year plan.

  7. comment number 7 by: Brooks

    Steve,

    Indeed, his plan is politically unrealistic (in terms of implementation and probably even in terms of adoption) for that reason (it’s all on the spending side, and I assume all or almost all on the non-Defense spending side at that).

    I agree with your second point, too. One of his big talking points for it is that no one even near retirement (55+) will be adversely affected. But that means not only that (per my limited familiarity with the plan, which may be off) big changes in projected deficits won’t happen in the short and medium term (per your point) but also we won’t really know to what extent his reductions in projected spending actually happen for another decade. That said, I do think adoption of his plan and related changes in law would make a greater degree of such reductions more likely than without such changes, since it’s at least directionally politically tougher to cut seniors’ entitlements vs. what the law says than to resist increasing them, although I don’t know how much tougher, and there certainly are cases of “patches” like the AMT patch and other postponements like with the “doc fix”.

    So the main element that he is using to make his plan as politically plausible as possible is also probably its greatest practical weakness.

  8. comment number 8 by: AMTbuff

    people would have to have some idea of the implications for coverage to understand what seniors would be foregoing. Is that what you mean?

    Precisely. The plan gives no estimates of just how skimpy the coverage will be when the subsidy is constrained as specified. OTOH, the constraint might promote creativity in devising new coverage approaches resembling traditional catastrophic coverage of the kind seen in insurance for everything other than medical expenses.

  9. comment number 9 by: AMTbuff

    I don’t think you’re going to like this one much better.

    http://www.americanprogress.org/issues/2009/12/path_to_balance.html

    You’re right. It’s even worse than Ryan’s plan for failing to illustrate just how much pain there will be. That should be coupled with an illustration of what the pain will be when the bond market crashes and the government prints most of its spending.

  10. comment number 10 by: Brooks

    One of the tricky aspects of comparing plans that emerge from advocates of differing ideologies (and thus different preferences re: how to solve the fiscal imbalance problem) is the “magic bullet”, some unrealistic (or at best very questionable) assumption that enables them to “solve” the problem with a plan that indicates less sacrifice than it would actually take.

    By my count (obviously subjectively categorized) the left is leading the right 3 - 2 on these convenient, “magic bullet” assumptions.

    The left’s “magic bullet” assumptions re: trying to solve our long-term fiscal imbalance problem without any reductions in projected non-Defense spending (or even taxing the middle class).

    1. That doing so won’t have adverse effects on the economy.

    2. That doing so won’t have any undesirable effects on the security of the homeland, our allies, others worthy of our support, and our vital economic interests around the world.

    3. [And now the latest delusion to go big time!] That we can solve the fiscal imbalance problem through “reforms” to healthcare and health insurance that won’t adversely affect anyone’s quality of care and health outcomes.

    The right’s “magic bullet” assumptions re: solving the problem entirely on the non-Defense spending side:
    1. That tax cuts increase revenues.
    2. That if we just get taxes low enough we’ll grow our way out of the fiscal imbalance problem.

    I’d welcome additions to the list from you guys.

  11. comment number 11 by: AMTbuff

    R3. That restraining the growth in entitlements will be relatively easy once a cap formula is enacted into law.

  12. comment number 12 by: SteveinCH

    I don’t know that anyone is leading, but if you look at the two parties, their sacred cows collectively eliminate absolutely everything that holds a hope in heck of solving the problem.

    Tax increases on “rich” — Rs

    Tax increases on “middle class” — Rs/Ds

    Entitlement “cuts” — Ds and many Rs

    Defense cuts — Rs and some Ds

    Nondefense cuts — Ds

    So what’s left. Well we’re pretty much down to the very large and compelling waste and fraud bucket or we’re going to just grow our way out of the problem.

    Thus, my belief that a workable solution actually needs to attack all 5 of the areas above so that every ox is gored and noone is spared.

    As soon as one of the big 5 is exempted, the game is up.

  13. comment number 13 by: Brooks

    Steve,

    My list isn’t a list of what each “side” declares off limits. It’s a list of “magic bullet” assumptions that enable each side to present plans that solve the problem (or substantially mitigate it) while understating the degree of sacrifice the plan would actually impose.

  14. comment number 14 by: Brooks

    [adding to my comment above]

    …and/or that exaggerate the degree to which the numbers would be likely to come out per the projections in their plan.

  15. comment number 15 by: Brooks

    More “rock soup” rhetoric from the Obama Administration:

    Some fiscal hawks like us have also contended that we should scrap comprehensive health reform altogether and focus on “cost first” — devoting the savings now used mostly for coverage expansions to deficit reduction instead. Even leaving aside the moral imperative of extending coverage to millions of Americans, it seems implausible that Congress would take the crucial step of creating a dynamic infrastructure for containing costs in legislation dedicated solely to deficit reduction.

    That would mean forgoing reforms that would be building blocks for a feedback loop of reform and improvement in our health-care system. For example, by bundling payments and creating accountable care organizations, as well as by imposing penalties for unnecessary re-admissions and health-facility-acquired infections, physicians and hospitals will be induced to redesign their systems, coordinate care to keep people healthy and avoid unnecessary complications.

    Moreover, since health care is so dynamic, even if we thought we had the answer for containing costs and improving quality today, that would quickly change as health care evolved. With the additions of investments in health information technology, research into what works and what doesn’t, and an Independent Payment Advisory Board of doctors and other medical experts making recommendations to improve the Medicare system, the legislation under consideration would create a virtuous circle in which more information becomes available, different delivery system reforms are tested and successful reforms are scaled up quickly as we learn more. http://www.washingtonpost.com/wp-dyn/content/article/2010/03/04/AR2010030404041_pf.html

    Hey Mr. Orszag, why exactly is it that we can’t have all these cost containment efforts with out creating a hugely expensive new entitlement? Is the argument now that such cost-control initiatives/experiments just wouldn’t happen politically unless they were part of that huge new entitlement? Or is it still the extremely vague argument (using that term very loosely) that we can’t contain costs unless everyone is covered (unless everyone is “in the system”)? Or both? How about an actual explanation of at least one of them, let alone both?

  16. comment number 16 by: AMTbuff

    why exactly is it that we can’t have all these cost containment efforts with out creating a hugely expensive new entitlement?

    Because we can’t tighten the screws until we first have everyone on the single-payer hook. The idea is to drive insurers out of business through price controls and other regulation, forcing creation of a government option and then leaving it as the sole survivor and the only option.

    Once the hook is set, then and only then will the government be able to reel in the costs. It’s a government version of predatory pricing. I’m convinced that this is what the visionaries like Orszag see as the best path to cost control. I prefer the completely different path of minimizing third-party payment for all but the very largest expenses.

  17. comment number 17 by: B Davis

    I very much agree with Bruce’s assertion that the Hensarling and Pence plan is unpassable (point 2), unworkable (points 3-6), easily circumvented (points 7-9), and enforceable (point 10). The first point likewise suggests that it is a bad idea and a bad precedent. Another problem is that it doesn’t seem to include any adjustment for economic downturns. During a recession, the economy shrinks but certain spending (such as unemployment compensation) grows. Of course, a two-thirds vote of Congress could override the 20 percent rule. However, this does not seem like a safe or efficient way to handle the predictable results of a recession. In addition, it provides the Congress with no guidance as to how much the 20 percent rule should be surpassed.

    In fact, I do think that it’s useful to look at spending as a percentage of GDP as a starting point in planning the budget. As can be seen in the first graph at this link, spending has been somewhat stable by this measurement, at least over the very long run. It did reach 23.5% of GDP in 1983 but ended 2008 at 20.7% of GDP, very close to the 20.4% of GDP where it ended 1953. Our initial response should be to resist a change in this relative stability, either through an increase in spending or a decrease in revenue (via a tax cut). Still, with the Boomer retirement about to retire and entitlement costs set to grow as a percentage of GDP under current law, we do need to face the issue of to what degree entitlements will have to be restrained and/or to what degree revenues will have to grow. Proposing a unpassable, unworkable, easily circumvented, and enforceable plan does nothing to address this issue. In fact, until the Hensarling and Pence plan fails or is discarded, it will cause the issue to be ignored.

  18. comment number 18 by: SteveinCH

    B Davis,

    I’ll continue to maintain until there is a reasonable alternative that only a Constitutional provision of some sort will ensure balance in the budget.

    It’s easy to poke at any particular plan as Bruce does but he (and others) offer no sustainable approach to balance so implicitly their answer is leave things the way they are (e.g., rely on Congress to solve the problem with everything the way it is). Absent a crisis that isn’t going to happen.

    So if the choice is a financial crisis or a Constitutional change, which do you favor? If you think there’s another option, what is it?

  19. comment number 19 by: SteveinCH

    Your 1953 (Korean War) to 2008 comparison is a bit forced since even by the graph you use, spending didn’t come anywhere near 20% for the next 10 years after 1953. The trend line on the graph is clearly upward sloping although at a relatively slow rate. The only exception is the 1990s.

    A more relavant set of data to look at is the President’s 2011 budget where spending remains in the 22 to 24% of GDP range throughout the entire period.

  20. comment number 20 by: SteveinCH

    *SIGH*

    http://www.washingtonpost.com/wp-dyn/content/article/2010/03/04/AR2010030404041.html?hpid=opinionsbox1

    So let’s see…The critics say it’s 10 years of offsets and 6 years of benefits but rather than addressing that critique directly Peter and Nancy point to the next decade savings (which, they do not point out, are all dependent on Congress holding the rate of growth of Medicare below the the growth of health spending–good luck with that.

    And the critics say that delaying the Cadillac tax until 2018 (5 years somehow according to Peter and Nancy, that must mean 5 more years than the original delay) doesn’t really matter because the cap on the tax grows less rapidly than HC inflation.

    *SIGH*

  21. comment number 21 by: SteveinCH

    And as it relates to PAYGO

    http://www.realclearpolitics.com/articles/2010/03/05/the_paygo_fraud_104662.html

  22. comment number 22 by: Brooks

    AMT,

    Good point. Indeed, that scenario of predatory pricing of a public option leading to single payer and thus rationing by politicians and government bureaucrats is a legitimate concern that I share, and it is the answer to the rhetorical question that proponents of the public option constantly, snarkily pose: “Well, if the public option would get costs lower and offer better value than private insurers, what could be wrong with that (unless you are some evil person trying to enrich insurance company shareholders and CEOs at the expense of the people)?”

    What’s “wrong with that” is somewhat similar to what’s wrong with any supplier achieving a monopoly, even if it does so by being low-cost producer or via some other means of offering superior value vs. competition (while the latter last). In the case of a private monopoly, consumers can get screwed as the monopoly then prices to provide itself particularly high margins. In the case of a government monopoly, people could get screwed by replacing whatever currently or could exist in terms of market forces (consumers choosing insurers and plans based on the relative value each consumer attaches to them) with government rationing.

  23. comment number 23 by: Brooks

    Boy, the left is having quite a field day with their straw man of “deficit hawks” who they characterize as fighting against deficits amid deep recession rather than the reality that we are concerned about the medium and long term, and that most of us are not opposed to higher deficits amid deep recession. I keep seeing this straw man erected by the left, today’s example being http://www.thenation.com/doc/20100322/galbraith and the other day this http://www.washingtonpost.com/wp-dyn/content/article/2010/03/02/AR2010030201105.html?sub=AR , and [more in next comment; can't include more than two links]…

  24. comment number 24 by: Brooks

    …and of course the hilarious (well, if it weren’t harmful) post a while back by Stan Collender in which he claims that he “breaks with the deficit haws” even though he was only breaking with a figment of his imagination, as CRFB promptly pointed out in an appropriate, if easy, smack-down, and as did Diane on behalf of Concord http://economistmom.com/?s=stan+collender

  25. comment number 25 by: Brooks

    I forgot to include that CRFB link http://crfb.org/blogs/thanks-stan

  26. comment number 26 by: SteveinCH

    And to make your Friday extra special happy.

    http://www.cbo.gov/ftpdocs/112xx/doc11231/03-05-apb.pdf

  27. comment number 27 by: B Davis

    SteveinCH wrote:

    So if the choice is a financial crisis or a Constitutional change, which do you favor? If you think there’s another option, what is it?

    The trouble with a Constitutional change is that it will never happen. If the Democrats can’t even push through Health Care Reform when they’re in the majority, what’s the chance that two-thirds of the House and the Senate will vote for an amendment that limits spending to 20 percent of GDP? However, I will concede that this is a very big problem. Some laws such as PAYGO have provided restraint for a period of time but have often been circumvented. Sometimes it seems that the best we can do is provide accurate data to the electorate and hope that a better informed debate will yield better decisions. Then we will hopefully be better prepared to handle a financial crisis if and when one occurs.

    Your 1953 (Korean War) to 2008 comparison is a bit forced since even by the graph you use, spending didn’t come anywhere near 20% for the next 10 years after 1953. The trend line on the graph is clearly upward sloping although at a relatively slow rate. The only exception is the 1990s.

    It is true that we have had periods of relative stability in spending and revenues but that the trend has been up over the very long term. I don’t have the data handy but I believe that spending was a much smaller percentage of GDP before World War I. If we had implemented a Constitutional amendment then, it likely would have set the ceiling at something like 10 percent!

    A more relavant set of data to look at is the President’s 2011 budget where spending remains in the 22 to 24% of GDP range throughout the entire period.

    I did look at the recent increase in spending at this link. What I found was that the increase through 2015 has been chiefly in two areas. The first area is entitlements, driven chiefly by health care costs but, to a lesser extent, by Social Security. The second area is Net interest. Any attempt to limit spending is going to have to address the increases in entitlements. I’m not aware that the Hensarling and Pence plan addresses this.

    Speaking of entitlements, I do wonder if the slow raising of the age at which one receives full benefits might receive less resistance if the age at which one could receive partial benefits was likewise publicized. Many retirees plan to retire well before full retirement and they have an interest in knowing the details of early retirement.

  28. comment number 28 by: AMTbuff

    Precisely because Constitutional amendments are so difficult to enact, the US Supreme Court has almost from the beginning created expedient amendments, either for the purpose of allowing expansion of the federal role or in the name of fairness. The “living” Constitution is one that is constantly amended by the court rather than by formal amendment. Although this is not the way it was supposed to be done, it’s a process that does a reasonable job of changing our government to fit the times and the preferences of the people.

    Because of this process, formally amending the Constitution to require X cannot guarantee that X will occur. The courts have all the power they need to allow the government to evade any limitation.

    The answer is not new restrictions. The answer is different incentives for the players. Part of this will be the huge change in voter attitudes once the bond market crash exposes the actual bankruptcy of the federal government. Everyone who looks at the numbers can see that liabilities far exceed assets, but voters won’t see this until the crisis forces everyone to pay attention.

    When the voters lose faith in the ability of government to provide a reliable welfare state, they will see middle class benefit programs as unlikely to be there when you need them rather than as a valuable insurance policy. When investments in government programs are seen as similar to investments with Bernie Madoff, that’s when our government will turn toward lower spending. It won’t happen before voter preferences change.

    In California, voters are already experiencing some of this. For decades Californians paid high taxes in exchange for free college tuition for their children. Today’s parents of teens have paid the decades of high taxes, and now they have to pay $10,000 per year tuition. They can’t sue the government for breach of their social contract, but they can vote against any similar plans promising future benefits in exchange for higher taxes now.

    Long-term insurance contracts are risky, especially so when the government is the insurer. Voters are going to see that clearly after the bond market crash, and that’s what will force the big change.