Fiscal Madhouse 2

My friend and fond interlocutor, A.I. has this to say about my previous Fiscal Madhouse post:

If being conservative has some connection with being Republican and managing debt is supposed to be the forte of both, history doesn't bear that out. Here are the stats on public debt under Republican and Democratic administrations: http://en.wikipedia.org/wiki/National_debt_by_U.S._presidential_terms. They may just indicate Republicans have borrowed attempting to buy prosperity while Democrats have borrowed to build self-sustaining economies. I'm not sure if that is a thought or liberal regurgitation, but it will have to do for now.

I think that rather proves my point. The nation is driving toward a fiscal precipice, Thelma and Louise style, and A.I. want to argue about whose fault it is. Maybe we should figure out where the breaks are first?

Not to doubt Wikipedia, I went to the CBO. Here is an interesting chart..

This presents Federal Debt as a percentage of GDP. Now look at the two dotted lines on the right of the chart. Those are two projections of the debt into the future. Both see the public debt climbing with time. That means that no one in Congress or the White House has any plans for reducing the public debt or halting its growth up to at least 2035.

But also notice that one line is a lot more alarming than the other. If it is what happens, then public debt will approach 200% of the GDP in about 30 years.  Two hundred percent.

Now: what's the difference between the two. The lower line represents what happens if Congress keeps all the promises it is making or has made in the past to cut spending in the future. The latter shows what happens if Congress instead behaves like it has always behaved.

For example, suppose Medicare reimbursements to physicians are cut as current law requires? That, among other provisions in current law, gives you the lower line. But suppose Congress continues to wave the cuts, as it has always done in the past? That gives you the upper line.

Well, what did the Senate just do? While the Baucus plan projects the cuts that have never happened yet in order to appear fiscally sound, Senator Debbie Stabenow was busy restoring the money in a separate bill.

So you tell me which line is the realistic one. This is five kinds of crackers.  Is there any realistic way of paying this down without a major blow to American prosperity?  I doubt it.  But right now neither the Congress nor the White House are paying the slightest attention.  

Comments

[A.I.]

You may read my comment as placing blame KB, but the intent was more to dispel myths. Conservatives/Republican rhetoric touts fiscal responsibility, but results don't live up to the hype if controlling/reducing debt is defined as being fiscally responsible. The charts and graphs linked to in my earlier post (which no longer works) showed debt as a percentage of GDP rising under Reagan/Bush and Bush II and falling under all Democratic Administrations. Similar data can be found here: http://www.dkosopedia.com/wiki/Data_on_National_Debt_by_President.

Bush II cut taxes, started two wars and added a hefty entitlement program in the form of Medicare Part D which contributed greatly to his nearly doubling the national debt. You would have us believe the trajectory of rapidly expanding debt set by his administration would best be addressed by simply cutting spending (Blankley's proposal from your original post). I'll put my money on a more nuanced approach of borrowing to build for the future and trying to untangle our health care mess--the kinds of things Democrats have done in the past which eventually resulted in reduced debt, at least as a percentage of GDP.

[George Mason]

A.I. old friend you have hit on the single largest cause of the increase in deficits and debt. That is entitlements programs. As a wise man once said "our
republic will survive until the people learn they can vote themselves the
treasury." I am not sure the people have ever voted to grab the treasury but
our elected representatives have certainly used the treasury to buy votes.
What we have witnessed over the years, especially in the last 9 months, speaks
eloquently for term limits. Our founding fathers warned of a professional
political class and we continue vote that in. We are now seeing the most
aggressive attempt at government expansion in 75 years. More government power means less individual freedom. "He who would trade some of his freedom for a little security will soon have neither."

[KB]

A.I.: Your argument contradicts itself. If Democratic Presidents were "building for the future," the results would show up in the Administration's of other Presidents. In fact, the only really effective means of reducing public debt is for the economy to grow faster than spending. That is the big downward slope after WWII, and the balanced budget of Bill Clinton. I note that the latter was the work of a Democratic President and a Republican Congress.

But look again at that upward slope of debt in the illustration above. Do you really think this President and this Congress are "building for the future" with that? Aren't they just ignoring it? Aren't you advocating that we ignore it, in favor of "untangling" the healthcare problem?

[A.I.]

I'm saying, KB, that Obama inherited a budget trajectory that will not be reversed overnight. Even if the economy had not crashed, deficits were set to rise. With the crash, Obama faced the double whammy of reduced revenue coupled with demands for bailouts and stimulus spending. You may disagree with the desirability of those efforts, but to have real credibility concerning deficits, you should also have been complaining about borrowing to pay for war and tax cuts.

Health care reform, done correctly, could reduce Medicare and Medicaid spending thus reducing deficits. It could also reduce costs to business leaving more profits that would enhance tax revenue. When we are spending at least 5 to 6% more of our GDP on health care than the next highest developed nation, it would seem fertile ground for finding efficiencies that would improve our economy and the federal budget.

You're right though, a growing economy also is important. So is taxing at optimal rates which arguably was done during the Clinton years and was abandoned for no demonstrable advantage by Bush the "W".

[Warren Berry]

We have a Congress who has never limited themselves when it comes to spending since the Great Depression on either side of the political spectrum, a President who has solid majority in Congress to push a spend and borrow agenda, decades of bad decisions, and entitlements that are on auto-pilot that will bankrupt the country and the lack of political will to reform them.

Solution:
(1) Spending Freeze
(2) Get rid of baseline budgeting
(3) Reform health care without putting the Federal government in charge
(4) Don't cripple the economy with Cap and Trade
(5) Reform the entitlements
(5) Split government - Republican run Congress, President run the White House (think Bill Clinton the last six years of his Presidency)

Will any of these solution work? Maybe, but we will never know.

[Macgregor]

The President is doing the best he can with the mess that was left to him. He is cutting executive pay as it should have been last year when we gave them their bailout money. They must follow the same rules other welfare beneficiaries follow since this is massive corporate welfare. Our Commander-in-Chief is doing a good job in Afghanistan. God Bless him and our troops over there!

[Macgregor]

More and more people support the Public Option, because it is the only serious attempt at reforming our eroding medical system with unreliable insurance. The polls show the overwhelming majority want the Public Option and it appears the House is going to fight hard to pass it as they should and force the Senate's hand to go along. It is the best plan to for keeping down costs and controlling deficit. I just knew they would fight hard in the House for the Public Option. Good for them and us!

[KB]

A.I.: Look at the two projected curves again. Both foresee rising public debt indefinitely, but one of them is a lot more alarming than the other. Which one is more realistic? The CBO, upon which everyone is relying these days, scores the recent plans (including, now, the public option) as revenue neutral. But the CBO reports always include cautionary language indicating that the plans will only be revenue neutral if Congress does what it has never done before and keep its promises to be fiscally responsible in the future. I offer strong evidence from the proceedings right now that that is not to be expected. I think it is clear that these schemes rely on shell games to look revenue neutral.

But even if healthcare reform turns out not to increase the deficit, "revenue neutrality" won't help with the deficit. So I think the future we are building for looks like a disaster.

Warren: thanks for the comment. I agree, of course.

Mac: polls do show public support for a public option to compete with private insurance. People like the idea of competition. But polls also show a half or more than half of the people are opposed to the current healthcare reform plans. More importantly, they show a steady and precipitous decline in support for the President. More than twice as many people strongly oppose the President's reform agenda as strongly support it. Worse than that, Gallop recorded the largest one quarter drop in a President's approval since 1953! So I don't think the polls are of much comfort to the White House.

You say the President is doing the best he can with what he was given. Fair enough, though I don't think that constantly blaming Bush one it is Obama who is now President is doing the President much good anymore. But to be sure the budget problem has been coming for a half a century. Maybe it is time to consult the first rule of holes: when you are in one, stop digging. The President wants to start a whole new downward shaft!

[Macgregor]

This President has had to deal with issues (not even a year in) that the past Administration did adequately deal with and yes, KB, the majority (over 65%)support the Public Option.

[Macgregor]

As for the "downward shaft" you claim the President wants....well, you have no proof of that because you do not actually know what is going on inside his head. You are no mind reader...sure things are going down the tubes in certain areas...but let's take a look back to what he inherited, shall we?

[Macgregor]

In the previous post I meant to say that the past Administration did *not* adequately deal with these issues we face today. See, this is something the Americans voters still remember and have not forgetten.

[Macgregor]

The Public Option is going to survive a fight in the House of Representatives. The Speaker of the House has been quite adament about it being in comprehensive healthcare reform bill. The majority of Americans see the Public Option as the best approach to protecting their access to affordable healthcare. Currently, many private insurance companies are offering unreliable care or they are rationing care to those "who qualify" for their insurance. The House version of the bill with a robust Public Option would actally save the U.S. Treasury billions more dollars than the Baucus Bill in the Senate (a mandated handout to the private insurance oligarchy). A Public Option = more affordable healthcare for all, less money for the greedy and incompetent insurance oligarchy, and less debt. A true fiscal conservative would support the House Bill and not a greedy handout to a failed system of private insurance monopolies.

[A.I.]

One reason the Bush economic legacy comes up so often in discussions such as this is that conservatives want the past to be prologue. For example KB, they/you absolutely want a hands-off approach to health care to continue despite the fact that insurance premiums more than doubled in the past ten years and that health care accounts for about 17% of our GDP, or at least 5% more than the next highest nation. Our annual GDP is somewhere around $14 trillion. If my math is correct, 5% of GDP is $700 billion in arguably wasted spending.

Projections are that insurance premiums will continue to rise at greater rate than inflation. Health care costs will continue to rise accounting for more and more of our GDP. That is a hole digging itself and metaphorically speaking, Obama and the Democrats in congress are trying to put the shovel back in the shed.

Republicans claim to have their own method of stowing the shovel. As I've noted before though, if their concern is so genuine and their plan so good, it's odd they did nothing during the six out of the last ten years when they controlled both the congress and the presidency. Maybe they were concerned about callouses.

Of course, Health care is but one aspect of economic policy. Revenue (mostly taxes) vs. spending is a greater aspect. Some people are suddenly very concerned about deficits. They wish to bury the past (there's that damn shovel again) and say Obama is creating a situation where the worst-case trajectory on the graph you offer KB will become reality.

In this instance, conservatives don't want the past to be prologue nor does Obama or do Democrats. But again I ask, if the concern about deficits is so great now, where was the hue and cry from conservatives/Republicans over the past eight years? Borrowing for war, borrowing to give tax cuts--mostly to the wealthy--went unchallenged. But borrowing to help rebuild an afflicted economy--or at least tide it over--are deemed socialistic and fiscally unsound.

The point being, those wishing to portray references to the Bush years as an "excuse" for "failings" of the Obama Administration are more than a little off base. In fact, those defending current policy are saying failure of past policy is the "reason" changes are being made and it's way to early to say new policies are failing. They are right of course, but I suppose it is only natural for the opposition for trying to gain political advantage where ever they can--or is it?

[KB]

A.I.: one of the reasons that Republicans did badly in the last two elections was that the spendthrift ways of a Republican administration and Congress took the wind out of the sails of a lot of the core support. So yes, mea culpa, I, who voted for Bush and other Republicans are guilty as sin for the situation we are in now. But maybe the question is how to get out of it?

Contrary to what you say, I am not in favor of a "hands-off" approach to health care. I just don't think that heath care reform is the most pressing issue. I am also sure that the reforms working their way through Congress will, if they are ever enacted, add enormously to the budget problems. I believe this for the same reason that I believe the sun will rise tomorrow: because that is what always happens.