The Only Problem

by digby

In the plutocrat campaign to make the deficit the most important issue in the whole wide world, you rarely hear from economists who have a different view. But yesterday, NPR actually featured Dean Baker:

DEBORAH AMOS, host:

As the federal deficit grows, so does the talk about creating a Congressional commission to deal with it. We heard yesterday from Senators Kent Conrad and Judd Gregg, the top Democrat and Republican on the Senate Budget Committee. They’re proposing this commission to make the hard decisions necessary to slash the national debt. But the idea isn’t popular with everyone. Dean Baker is an economist and co-director of the Center for Economic and Policy Research in Washington, D.C., and he joins us in our studios. Good morning.

Mr. DEAN BAKER (Economist; Co-Director, Center for Economic and Policy Research): Thanks for having me on.

AMOS: What are your concerns about the creation of a Congressional commission?

Mr. BAKER: Well, this seems to be an effort to railroad cuts in social security and Medicare, cuts that would – are extremely unpopular, would never be passed by Congress in ordinary circumstances. It creates this unusual procedure without really any precedent when there’s really no call for it.

The fact of the matter is we do have serious budget issues, but they’re not caused by a reckless Congress. What they’re caused by, on the one hand, was a war that, for whatever reason we’ve opted not to pay for – I should say wars – and more importantly, an economic collapse caused by a housing bubble. And it wasn’t reckless spending by Congress.

AMOS: In your opinion, do you think the deficit is bad and must be addressed?

Mr. BAKER: Well, the deficit in 2010 is actually good. We would have higher unemployment rates. So if I could snap my finger and get rid of the deficit tomorrow without raising anyone’s taxes, I wouldn’t do it, ’cause we would have a more serious downturn than we currently have. In fact, I would actually say, at the moment, we would like to see a larger deficit. That would help get the unemployment rate down, and that’s really a scandal, in my view.

Now over the longer term, we absolutely do have a deficit problem, but that comes from exploding health care costs. Our health care system is way more expensive than anyone else’s in the world, and that translates into a deficit problem because we pay for roughly half of our health care through the public sector.

AMOS: We heard from members of the Senate Budget Committee yesterday and the chairman of that committee, Senator Conrad. This is what he had to say about cutting entitlements.

Senator KENT CONRAD (Democrat, North Dakota; Chairman, Senate Budget Committee): Some have been criticizing us, saying, well, we just want to go out and cut Social Security and Medicare. I would say if they’re saying the answer is do nothing, they’re the ones that threaten Social Security and Medicare.

AMOS: And are you suggesting to do nothing or to do some of the trends, but not just as much?

Mr. BAKER: Well, I’d say we have a normal Congressional process, and there’s really no evidence here that it’s failed. We could say that we’ve had failed regulation in allowing the housing bubble to grow and create this collapse, but there really is no evidence that the normal Congressional process has failed.

Now, should we raise more revenue? I’d like to see us raise more revenue. One of the things I’ve done some work on is a financial transactions tax, taxing speculation on Wall Street. I think that would be a really good idea. There are places we can look to cut spending. It’s not urgent. I wouldn’t really recommend it for 2010, 2011 when the economy is very weak, but further out, absolutely.

And again, I would highlight military spending. And then again, over the longer term, as I said, we have to fix health care. Hopefully, President Obama’s plan will be a first step in that direction, but there’s clearly a lot more that we have to do.

Keep in mind that the main reason for the new deficit push is less about the current projections than opportunism. Even Conrad and Gregg understand the deficit is unusually high due to the economic crisis, which necessarily shrinks government revenues at the same time the government must spend to try to stimulate spending and create jobs. But they want to bang the drums about the deficit now to ensure that people continue to believe that government spending is the cause of their problems — and then use the political pressure that builds from that to weaken the (already weak) safety net.

Republicans talk the talk, but know better than to actually do anything. (“Reagan proved deficits don’t matter.”) Democrats, good little soldiers that they are, will take on the burden and the political risk, and then turn around and watch as the conservatives in their midst help Republicans vote tax cuts for millionaires and start wars to build up the debt all over again. The only question is whether they’ll misjudge the dismount and destroy the economy in the process. We just saw it happen and there’s almost zero chance that something like it won’t happen again.

And as far as health care costs are concerned, I’d just remind everyone how David Walker of the Peterson Institute sees it:

News flash. The government has no money. The government is running huge deficits it’s tens of trillions of dollars in the hole in real accounting on an accrual basis and if there’s one thing that can bankrupt America it’s health care, and we’re going to have to make choices and one of the choices we have to make is how do we ration.

We have always rationed — by ability to pay. If that was the solution, we wouldn’t have a fiscal problem.

The irony, of course, is that a properly designed public option was designed as a cost control measure, but that was not acceptable to the business community which is supporting Pete Peterson. (Perhaps that’s not ironic at all …) Walker’s comment was in 2008, before the debate over health care happened — a debate in which the deficit hawks were surprisingly low-key. Indeed, it’s only now that they are really weighing in with a push to put the new health care reforms under the rubric of “entitlements” and subject it to the same cuts the fiscal scolds plan to apply to to social security and medicare.

Here’s an op-ed from David Walker just two days ago:

Rather than just paying for itself, fiscally responsible health care reform should meet a four-pronged test based on realistic assumptions. First, it should pay for itself over 10 years. Second, it should not add to federal deficits beyond 10 years. Third, it should result in a significant reduction in the tens of trillions of dollars in unfunded health care promises the federal government already has. Fourth, it should result in total health care costs as a percentage of the economy lower than what would occur absent reform.

Based on independent analyses performed by various government and private-sector organizations, the current bills pending in the Congress do not meet this four-pronged test. In addition, to the extent they allegedly meet any of the tests, they do so by relying on very optimistic assumptions relating to provider reimbursements and other factors.

In addition to meeting these four tests, any health care reform bill should contain mechanisms to ensure that its projected cost-related outcomes become a reality. Namely, it should have automatic adjustment mechanisms in place if the predetermined cost-related targets are not met. It should also provide for a capable, credible and truly independent group that can help pursue adoption of evidence-based practice and other approaches designed to reduce costs and the rate of increase in such costs.

In addition, we need a bipartisan Fiscal Future Commission to engage the American people and make recommendations on a range of tough health care, tax, Social Security and other choices that Washington has been punting on for far too long.

Health care will never be left alone from the fiscal scolds any more than social security and medicare are. They will be attacking it forever, no matter how ineffectual it is, if only to keep the government from ever trying to improve it for the benefit of the citizens.

And you’ll notice that military spending is nowhere on the list. Obviously,they should have put health care reform under the Pentagon. Then they could ask for an emergency supplemental every year and that would be that.

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