Budget Wars Roundup

Michael Stephens | February 19, 2013

A couple of links worth sharing on the politics and policy of the budget debate.

First, the Wall Street Journal reports that Alan Simpson and Erskine Bowles are coming out with a new deficit reduction plan, worth $2.4 trillion.  If it’s anything like the last plan, every lawmaker will claim to love it, journalists will assume its goodness as a fact more established than the shape of the earth, no one will have a clue what’s in it, and it will go nowhere.

The details have not yet been released, but one initial question you might have is this:  where does that $2.4 trillion number come from?  Have they taken their original deficit reduction target from 2010 ($4 trillion) and subtracted the amount of budget savings already achieved ($2.5 trillion)?  Apparently not.  Has the deficit picture worsened since 2010?  Quite the contrary.  If you look at healthcare alone, the government is now set to spend almost $1 trillion less over the next decade than what was expected when Simpson and Bowles were coming up with their plan.  If their new plan takes these recent developments into account, it’s not clear how.  The question remains:  why this number?

We’ll  have to wait to hear what the justification is (if there is any).  Perhaps this is an issue of different budget windows, but it’s also possible we’re looking at another example of the asymmetry between deficit hawks and deficit doves (or owls) when it comes to budget targets.  For the dovish, the budget math is reasonably simple:  the right level for the deficit is whichever one will bring us back to full employment (likely a higher deficit than we have now).  For the hawks, it’s not quite as clear.  Stabilizing the public debt as a percentage of GDP (at 73 percent), the administration’s target, is apparently not sufficient.  If someone is consistently specific about means (in this case, cut spending on programs that benefit the elderly in such a way that benefits are reduced; shrinking healthcare providers’ profit margins doesn’t count) but a little vague about the ends, you should start to consider the possibility that their means really are their ends, and vice versa.

Second, Dan Kervick at New Economic Perspectives argues that the debate over healthcare costs is very poorly framed as an issue of budget deficits:

it’s just totally dishonest to say about any problem, “We have to reduce the public commitment, because the government will never be able to afford this”, while saying with the same breath that the whole society will be able to afford it.   If the society can afford it, then obviously the government can afford it since the government is just an agent of the society.   The separate debate about public provision vs. private provision is a debate about delivery mechanisms, not about budgets and affordability.

If there is indeed a long run health care spending crisis for our society, there are only two ways of addressing the crisis, and they both require policies that address our society’s total health care expenditures, public and private combined:

a. Reduce the cost of health care delivery over time via efficiencies and productivity increases, so we get the same health care bang for the same amount of real expenditure.

b.  Reduce the overall amount of health care that is delivered over time per capita, so that the amount actually delivered in 2025 is less than what is currently projected.

Of course, we will probably employ a combination of both strategies.  But whatever we do, we can see that the name of the game is to address the total social cost of health care.   The question of what roles should be played by the public sector and private sector respectively, and what happens to public and private health care budgets as a result, is a separate further question.

If the private sector can cough up some quantity $X in additional spending to pick up the health care spending slack caused by reduced government commitment to health care, then it can surely come up with $X in additional tax payments to fund an the same amount of spending through the public treasury.   Cutting the federal health care budget is not the same things as cutting the amount our society spends on health care.

Read the whole thing here.

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