Friday, December 14, 2012

Elites Always Trying to Blame the Poor

The Washington Post published what I think is a rather muddled reading of the responsibility for our budget mess. I'll confess first of all that I'm not sure that non-military spending cuts would be efficient, my reading is increasingly leading me to believe that economic growth is bottom up, the constraining factor on productive investment is the business opportunities created by the disposable income of the citizenry, not the available investment income which tends to show overinvestment in most places in most periods (basically, there always seems to be a floating pool of money that people are trying to put into safe assets, like land or bonds, which there shouldn't be if there were ample opportunities to invest in increased capital investment, it seems that investors find a dearth of good customers able to pay, not a dearth of wealthy people to fund investments, but this is an aside I'll develop more in the future).

But even if you disagree with this, the Post's attempt to pin blame on Democratic resistance to spending cuts seems misplaced.

Nudging the Medicare eligibility age from 65 to 67, which President Obama supported last year? Unconscionable. Changing the way cost-of-living adjustments are calculated, which Mr. Obama also supported? Brutally unfair to veterans and seniors. Reform of Medicaid provider taxes, which liberal Senate Majority Whip Richard J. Durbin (D-Ill.) only days ago described as a “charade” used by states to jack up funding from Washington? Unthinkable, the White House now says:In fact, with the Supreme Court having struck down a facet of Mr. Obama’s Affordable Care Act involving Medicaid, nothing in that program can be touched. And, while they’re at it, put Social Security off the table, too. We’re asked to accept the mythology that, though the pension and disability program is facing ever-widening shortfalls, it isn’t contributing to the overall deficit.

First of all, it's very well established that Medicare is one of the most efficient payer of Medical services in the US, only the VA and Medicaid beat it. It makes no sense whatsoever to shift costs onto seniors to balance the budget. Aaron Carroll has a great post on the Incidental Economist on how raising the Medicare eligibility age will cost America a very significant sum of money. While there is an argument that the ACA is putting us on a long term path towards a managed insurance industry like the Netherlands or Switzerland and that it may be desirable to phase out Medicare in favor of this system, it doesn't make sense to do this as part of the budget negotiations before the ACA is even fully functioning. In 10 years it may be a great idea to look towards shifting towards a premium support system to reform the system as a whole, it is crazy to do so right now.

The other parts of the Post's argument make more sense, but have some issues. COLA changes generally involve poor current data on actual spending habits of the populations involved, this may be a good idea in the long run but do your damn homework first and start funding the bloody research before making blind cuts (a lot of government research got cut in the 90s as a result of Gingrich's priorities, I think this is a non-trivial aspect of why the conversation has devolved so much in Washington).  Medicaid provider taxes sound ok, not going to quibble with that.

But Social Security? Just, why? The projected shortfalls are well outside the 5 year window within which we can make fairly confident projections, and even well outside the 10 year window within which we can make roughly accurate guesses. For problems not hitting until the 2030s it's just daft to do more than very minor trimming today. We just don't have confidence in projections this far out, and we won't know what the priorities of the electorate will be 20 years out, this is a terrible time to make major changes. Given the increasing discrepancy in life expectancy between upper and lower incomes, and the generally less physical jobs at upper incomes, I wouldn't mind seeing some sort of cap on the maximum amount available at various age bands, but beyond minor trimming like this I don't think Social Security changes are justifiable.

What I'm really baffled by is that there is no talk of sensible reforms. Why not reform Medicare Part D? The US is the only major country not authorizing payment negotiations with drug providers, and our prescription drug spending is vastly too high relative to the rest of the world. If our pharmaceutical companies were inventing tons of great new drugs this may be defensible, but this isn't happening. Most improvements we're seeing are new drugs that don't perform significantly better than old ones and most of the research still happens at universities. We may want to reform our clinical trial process to hand the drug companies something when we take their candy away, but this is such an obvious target I can't figure out why it isn't even being mentioned.

Other obvious reforms are available. Institute more Medicare cost controls, it's just daft that we don't require more proof of relative effectiveness before approving treatment options. Of course, really solving our debt problems requires another round of health care reform. This doesn't really make sense until a few years down the line when we have some data on the impact of the ACA. Some needed changes are obvious, physician income growth will have to slow and eventually come into line with the rest of the world. This in turn will require education reform, we can't expect physician income to come down when they have the levels of debt they currently have.

But none of this is going to happen by January. I just don't see any cuts we could make, aside from military cuts, that wouldn't do more harm then good. We cut virtually all the fat from our social spending budget a long time ago, any further cuts would almost definitely harm growth substantially more than the tax raises to fund them would. I realize we're supposed to acknowledge that both sides have a point in these debates, but I tend to believe that most things tend towards the mean and given how far we are from the international mean on social spending I just can't concede the other side has a point. We're an outlier among the developed countries and most of the evidence points to the idea that this is hurting us.

While this disagrees with the conventional wisdom in Washington, there's an old saying aimed at children, if everyone else is jumping off a bridge, would you? Just because the conventional wisdom is that social spending has grown too large in the US, this doesn't mean that we have to believe this to be true when there is no evidence backing it. If we can't do sensible spending reform, like trimming Part D, we're probably better off not cutting at all. Get the needed revenue through taxes, or just run deficits for a bit longer, and make the spending cuts part of actual reform.

1 comment:

  1. It seems likely that we will not get serious about cuts, especially not when working on a short deadline like this. Of the three biggest pieces of the Federal budget (Social Security, Medicare/Medicaid, the military), one party has made two of those off limits, and the other party has made all three off limits. So instead, they pretend that the rest of the budget is big enough, and has enough waste and bad ideas, to make cuts viable.

    About the biggest room for defensible cuts, outside the big three, is in the Agriculture Department's various support programs. But it's hard to see either party admitting that all those "save the family farm" programs are actually "subsidize ultra-large industrial farming companies" programs.