Hoisted from the Archives with Additions: The Long-Term Budget Outlook: Obama as Deficit Hawk
When I read things like this from Clive Crook:
FT.com / Comment / Opinion - All in a flap about America’s deficit: Washington is quarrelling its way to a government shutdown, but not to a remedy for its fiscal problems. The reason is simple. Despite the noise and fuss, few politicians in Washington care that much about cutting public borrowing. They care about other things far more, and it might take another financial calamity to change their minds.
Barack Obama has explicitly said that he does not care about long-term public borrowing. Having no proposals to deal with the problem is now official White House policy. There is no other way to interpret the budget the president sent to Congress last week. Under this plan, the full-employment fiscal deficit hovers for a while at about 3 per cent of gross domestic product later this decade, then explodes under pressure of rising spending on Medicare and other entitlements...
I really don't know what to think. The Affordable Care Act of 2010 was the biggest change in course in federal government borrowing ever--if its cap on high-cost health plans remains (which Obama very much wants it to), if its grants of authority to the Payment Authorization Board to reform Medicare stick (which Obama very much wants them to). You can argue that some future congress could overturn them--but by that logic no president and no congress today can ever do anything to reduce federal government borrowing.
Does Clive Crook simply not know what was in the Affordable Care Act? Does he simply not read things like the Congressional Budget Office Long-Term Budget Outlook? Does he simply not care about informing his readers but would rather misinform them?
To write that "Barack Obama has explicitly said that he does not care about long-term public borrowing" is a flat-out lie. And I have a very hard time figuring out why people would say something that is a flat-out lie...
From last July:
Fiscal Policy: The Long-Term Budget Outlook - Grasping Reality with a Sharp Beak: Fiscal Policy: The Long-Term Budget Outlook Let us look at some numbers from the 2009 and 2010 versions of the Congressional Budget Office publication Long-Term Budget Outlook http://tinyurl.com/dl20100711b. The first column shows (i) the date at which the outlook was taken--summer 2009 or summer 2010--and (ii) the period of the forecast--50 years (they also do 25- and 75-year forecasts). The "revenues" column shows what--if the economy performs as forecasted--average federal revenues will be over that period in that scenario. The "expenditures" column shows what average federal expenditures will be. the final column, "fiscal gap" shows the difference: what CBO currently forecasts America's long-term budget problem to be.
The "extended baseline scenario" numbers. These are the numbers if from now forward the U.S. Congress sticks to PAYGO: if everything that increases the deficit, either by boosting spending or cutting taxes, is paid-for by savings elsewhere in the budget. The estimated extended-baseline 50-year fiscal gap last summer was 2.6% of GDP. Today it is 0.8% of GDP. That is a big swing to see in a year. Where does this swing come from? It certainly does not come from any more optimistic long-run economic growth forecast by CBO this year than last year. As best as I can figure out, the big moving parts that have produced this 1.8% of GDP improvement in the long-term 50-year fiscal gap are three:
CBO's belief that the Obama health care reform bill--the PPACA--will produce a health-care system that (a) is probably more efficient and (b) certainly spends less on Medicare than would have been the case otherwise. It's up to us to see whether the slower rate of growth of Medicare and Medicaid spending now written into the law will be the result of a more efficient system that gets us more health care treatment for the same money or of a system that shuts its wallet on the sick more quickly, but we do now have a slower rate of growth of federal Medicare and Medicaid spending written into law.
Offsetting these savings achieved by passing the PPACA, the large pool of subsidy money to make it feasible for America's working poor and lower-middle class to purchase health insurance. These two pretty much offset each other--so expenditures as a share of GDP projected over the next fifty years are much the same now as they were last year.
Last, another piece of the PPACA: the excise tax on high-cost health plans to make it painful and costly for insurance companies not to worry about containing costs. This raises a lot of money by 2050 in CBOs projection.
The net effect of all of these? Two-thirds of the long-term fifty-year deficit and debt problem that the Congressional Budget Office saw a year ago has been eliminated *if the U.S. Congress now sticks to PAYGO--as it did during the Clinton years--and doesn't pass new programs and amendments to old programs that add to the deficit.
You would think that enormous action to bend the curve over the long run in the U.S. government's tax and spending plans--the greatest single act of fiscal conservatism in American history--would have deficit hawks partying in the streets, reeling drunkenly past the Capitol after midnight in conga lines blowing horns, wouldn't you?
