The end of austerity? It’s pretty to think so
by digby
As we continue to endure the effects of the ill-conceived sequester and stare into the maw of yet another series of budget showdowns and debt-ceiling standoffs over the deficit, I would suggest that everyone send this article by Brian Beutler to their congressmen and Senators. It’s that important. He’s talking about the decline in health care spending, the great deficit boogeyman:
Now, research papers suggests the recent slowdown doesn’t just reflect temporary economic weakness, but also structural shifts in how health care is delivered and financed — possibly attributable to the Affordable Care Act — and thus might be a harbinger of a longer-term trend.
If they’re right, and the trend continues, it means workers can expect higher wages and the country’s projected medium term deficits are significantly overstated, which in turn suggests lawmakers’ continuing obsession with the current budget deficit, and deficits over the coming decade, are misguided.
The study by Harvard researchers, featured in the latest edition of Health Affairs, finds, like all studies of this nature, that the recession and weak economy contributed significantly to the spending growth slowdown. Less generous benefits, resulting in higher out-of-pocket costs, accounted for 20 percent of it. Faced with less generous coverage and less disposable income, people consumed fewer health services.
But the good news is that spending growth also slowed among those whose health benefits haven’t changed, including Medicare patients. And that suggests a more enduring trend.
“Our findings suggest cautious optimism that the slowdown in the growth of health spending may persist — a change that, if borne out, could have a major impact on US health spending projections and fiscal challenges facing the country,” the authors write.
In a related article, health care economist David Cutler attributes the majority of the slowdown to fundamental changes — including perhaps slowing technological and pharmaceutical innovation, and increased efficiency among providers. If current trends continue, he concludes, then over the next 10 years “public-sector health care spending will be as much as $770 billion less than predicted. Such lower levels of spending would have an enormous impact on the US economy and on government and household finances.”
To put it in perspective, that $770 billion is equivalent to about three-quarters of sequestration’s mandatory, indiscriminate spending cuts, which lawmakers have been unable to replace with either more targeted cuts or a mix of cuts and higher taxes. The paper implies that budget deficits will shrink by an amount similar to sequestration even if Congress were to simply rescind it.
Imagine that.
I have been agitated about the Grand Bargain agenda ever since it was announced before the administration’s first inauguration, mostly because it was predicated on the notion that there was some necessity (and possibility) of solving every long term fiscal challenge with Big Deals and Transpartisan Agreement and-then-we-would-all-live-as-one-big-happy-family Setting aside the politics of it, which always seemed to me to be a fantasy, I never understood why they were so convinced that these alleged problems were written in stone in the first place. Having watched politicians demagogue deficits and future budget shortfalls for decades, only to have them rise and fall with economy and defy the predictions time and again, I came to believe that skepticism was required for these crystal ball projections of looming Armageddon.
Still, over the past few years we’ve seen a consensus form even among those who who usually disagree about looming deficits, that there was reason for concern because of ballooning health care costs. This was, in fact, one of the primary arguments in favor of health care reform. And once Obamacare was passed, one might have assumed that we would take a breather and see if, in fact, those costs came down (or even showed signs of it) before rushing to cut vital programs that have no effect on the deficit, like Social Security. After all, it was a huge undertaking designed to completely reform the health care sector of the economy. You would have thought that would be enough for now.
That did not happen. In fact, both parties immediately started running around like a bunch of crazed squirrels furiously trying to one-up each other’s deficit reduction plans, as if Obamacare never happened. No evidence was called for beyond some very tightly defined projections that were always subject to change. So here we are, stuck in a vortex of ever increasing cuts to vital programs despite the overwhelming evidence that austerity has hurt the economy in the short run and that the long term financial consequences of Obamacare are already looking to be positive.
Enough already. The Shock Doctrine has left us all pretty much catatonic and we need a break. Repeal the sequester. Be happy with the enormous, painful spending cuts that have already been enacted and move on to something else for a while.
Since that’s about as likely as peace spontaneously breaking out in the middle east, the best thing that can happen at this point is for gridlock to continue. It’s saved us so far.
Update: And here we are with the King of the VSP’s misrepresenting the position of the man who’s been right all along in his own inimitable split-the-baby fashion:
Former President Bill Clinton began his appearance at Pete Peterson’s annual fiscal summit Tuesday by approvingly invoking the name of the movement’s arch ideological enemy.
Paul Krugman, The New York Times columnist and Nobel Prize-winning economist, has been the leading opponent of deficit hysteria and austerity, while Peterson has spent some $500 million since 2007 encouraging deficit reduction.
Clinton, interviewed on a keynote panel by MSNBC’s Tamron Hall, began by saying he wanted to address “one factual dispute.”
“I think everybody in this debate has an obligation to say what they believe,” said Clinton. “I think Paul Krugman’s right in the short run, and Pete Peterson and Simpson-Bowles and all those guys, everybody’s right in the long run. And the question is timing.”
By raising the specter of Krugman, the bane of the deficit-hawk movement, Clinton is sending another signal that the politics of austerity are waning. “It’s obvious that if you overdo austerity, you get Europe,” he said, noting 12 percent unemployment on the continent.
Clinton’s very appearance at the summit, however, testifies to the movement’s enduring strength. Clinton was sure to speak out Tuesday against the problem of long-term debt. He warned that if interest rates spiked unexpectedly, the resulting increase in debt costs would “make the sequester look like a Sunday afternoon walk in the park.”
The bond vigilantes are big players in Bill “the era of big government is over” Clinton’s imagination, always have been. And no amount of evidence will ever convince him or any of the rest of the Market Dems that they are on the wrong track.
I expect the fight against misplaced austerity to continue basically … forever. These people have a strong philosophical and emotional (not to mention financial) stake in ensuring that it does.
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