As zero hour nears in our latest manufactured budget crisis, let’s ponder this question: What would policymakers be doing if the country were well and intelligently governed?
I know, I know, that seems like an irrelevant hypothetical. But since pundits and pollsters aplenty stand ready to assess the fallout from the sequester, let’s take the less-traveled policy path.
Comments
"And who knows, if the partisan fever ever breaks in Washington, it just might be in this one, too. "
Not in our lifetimes, unfortunately. And until we get term limits and get the carreerists out of the Congress, it will never, ever happen. They care more about their jobs than they do about the country so leadership, doing the right thing and damn the consequences, takes a back seat to political survival. No where does this fact rear its ugly head more vociferously than when Boehner pulled back on the pre-election deal with Obama because Cantor scared the hell out of Mr. Speaker and his Speakership. Boehner buckled, the Republicans got hammered and then they doubled down on their failure of ideas.
Anyone remember Mrs. Clinton's efforts to nationalize health-care back in the early 90s? Well in 2016 we're going to have the chance to elect her and move towards single-payer health care. That's the other solution to this problem. What's being offered here by Scot this morning is a loser for most Americans. If the country doesn't move to handle our healthcare problems we continue to stand by and watch the largest transfer of wealth from the poor and middle class to the rich in the history of nations continue unabated.
" the largest transfer of wealth from the poor and middle class to the rich"
Nonsense. It will be the affluent who will have to pony up to pay for the health and long term care needs of the aging baby boomers.
This comment has been removed.
Scot's reasoned analysis is welcome here, and Aland Blinder is no raving partisan, ala Paul Krugman. But the proposed remedy carries some substantial risks. While it is easy for one to suggest that raising tax rates is a magical elixir for increased tax revenue, just look at what the fear of rising rates has done to the economy over the last 4 years. It has made our recovery the weakest since WWII; and a flatlining economy has COST us tax revenue that that a growing economy would have provided.
The issue of dealing with rising health care costs is even more challenging (I laughed when Scot suggested that they haven't risen lately-suggesting that Obamacare has done some good!!) Obamacare will elevate costs and squeeze supply-that has already begun to happen. But as for the baby boomers, there is only one way to head off the coming crisis: means testing. Millions of seniors and soon to be seniors are not in need og government subsized care. I know that they paid into it for years, so it is not the most fair solution. But what else can we do?
Many people will apply for Medicare once they turn 65; and many further utilize Medicaid to cover the cost of Long Term Care. This will be where added revenue must come from. Unless a senior is destitute, we will need for added premiums, copays and support from the millions whose net worth is over a certain level. Like they have done recently with Medicaid, there must be vigilant enforcement of efforts to conceal wealth.
This could help create a market for added choices for seniors, as these dollars could also be used for private health insurance. But either through Medicare or some private carrier, seniors will have to pay more for coverage.
"Richmond" One of the better comments I've seen you post. You do have a non-partisan hat. Tax revenues as a portion of GDP need to come close to matching expenditure ratios. I do agree regarding "means testing" I have always thought it was the way to go. I know a lot of people don't like changing SS to that type of program, but I could live without my SS. I'm not going to give it back, but it generally simply goes to savings rather than being added to the economy.
Oh oh, Matt, it always makes me nervous when we're on the same side. Surely you can't be for adding 2.5-3 percent of GDP in taxes to finance Medicare/Medicaid long term ...
That's ridiculous. Open up Medicare as a public option and things will be fine, especially if Medicare's cost-saving measures are put in place across the board. People under 65 are overcharged for tests and for prescription drugs. Rein in the rapacious pharmaceutical companies, allow patents to expire and most of all, fund real science. Set up prizes for new breakthroughs in medical science, and make the results available to all without patent. Spend the money on true research into health, not sickness, so our seniors know how to live healthy long lives and put less of a burden on the system. Regulate unnecessary medical testing and beef up hospice care so those who choose hospice rather than extending their lives for two more expensive and traumatically painful months have options. Research antineoplastins and iodine for cancer, fish oil and Vitamin D for heart disease. And change our agricultural entitlements to reward those who grown organic produce rather than soybeans and corn destined for cattle and junk food. Fund public transportation in cities to encourage more people to walk during the day rather than driving everywhere.
The problem is far deeper than some kind of fever in DC. If anyone has been reading economic papers over the past couple of years what Scott has pointed out here everyone knows. The problem is no pols ever tell the public the truth. In failing to do so the public ends up enthralled with silly slogans and ever sillier budgetary solutions. We have a number of members in Congress who whether they come out and say it or not are simply "libertarians" or were getting their education during the love affair with the Austrian School of economics.
Consider the fact that the states that voted for Obama pay the most in fed taxes and get back the least and the opposite is true of the states that voted for Romney. Yet if you asked these supposed "red" state folks, they'd deny it. So how do you even discuss "tax rates" or "spending rates" with a public totally unaware of the facts. We watched as the economy contract with a reduction in govt. spending. But do you see any acknowledgement to the fact that govt. does create jobs and reduce funding costs jobs. Instead you get cute slogans, "govt. doesn't create jobs", it's stupid but it sells.
So it is more than partisan fever it is really a lack of non-partisan economic information. And the only solution to that is a wide spread public information campaign by all branches of the media and a bi-partisan group of elder retired Dems. and Republicans. One that is more visible than Rudman or Simpson-Bowles.
What have YOU been watching? Our deficit is in the stratosphere from ever-higher spending, while our economy has CONTRACTED !
To paraphrase Jack Nicholson in "A Few Good Men" You want the truth ? You can't handle the truth" That's the problem leaders in both parties have run into for several decades now. The public wants low taxes but it also wants public spending. There's a disconnect between these things that leads to things like the Fiscal Clff and the Sequester. The politicians are reading the publc mood accurately. It's why Barack Obama hasn't advocated a general tax increase even though it would fund his desired spending or why the Republicans have never really advocated for the across the board spending cuts to all programs including entitlements that would solve our fiscal problems The public won't stand for either thing.
The cost overuns have to do with soaring costs of Health Care due to overcharging and Fraud.We are the only developed country in the world that treats its citizens as impediments to the economy,especially elderly and children but now even young adult college grads who want good jobs.Actually,this applies to the entire work force since so many are underpaid and have no health insurance--even as we give away trillions to the rich.
Actually,Greece and Spain have jumped on the Austerity bandwagon.Brittain is in danger of dismantling their National Health System.
Baby boomers are our new elderly population,people who want to age with dignity and respect.That includes keeping what meager Social Security benefits have been promised and Medicaire-not vouchers but coverage.
I agree with Attaturk on the level-headedness of Richmond's response although I disagree with Richmond on some basics. I don't think fear of tax increases over the last four years explains the slowness of the recovery. I think there was and is a sense that gridlock itself causes fear and uncertainty, whether over healthcare, taxes, or honoring the Westfield High School Band for their successes. There’s lots of cash sitting on the sidelines waiting for a clearer investment path in general to emerge.
On health care Giermond is more to the point. A gradually implemented single-payer system would have been and still might be the eventual answer. No one thinks that Obamacare is the flawless or final in its answers, but it was the best we could get at the time. I’m on Medicare now. For more than half my life I had hit or miss heath care, nothing systematic. For the last thirty years I’ve had either Harvard Health or Lahey. Systematic care has been a wonderful revelation to me. The ideas of Dr. Antul Gawande and Governor John Kitzhaber (also a doctor) on how to increase efficiency and lower costs within Obamacare make me more optimistic that Richmond is. Means testing could be made part of the an overall plan, as long as it was fair.
Rational discussion, finding common ground, escaping from the myths we may have internalized, all will lead us forward. Ideological posturing leads to more of the same. BOTH sides have to take down the barricades.
This comment has been removed.
He contradicts himself by saying lower Govt spending caused the slowdown yet says we should reduce the deficit, ie, reduce spending.
I suggest this view: http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf
Seven Deadly Innocent Frauds of Economic Policy
1. The government must raise funds through taxation or
borrowing in order to spend. In other words, government
spending is limited by its ability to tax or borrow.
2. With government deficits, we are leaving our debt burden
to our children.
3. Government budget deficits take away savings.
4. Social Security is broken.
5. The trade deficit is an unsustainable imbalance that takes
away jobs and output.
6. We need savings to provide the funds for investment.
7. It’s a bad thing that higher deficits today mean higher
taxes tomorrow.
keep disliking. head in the sand - typical.
begolf:
Are you under the impression that there's a scarcity of investment capital abroad in the land? And if so, where did you get that notion? If that were the case, wouldn't interest rate be high rather than low? And why would companies be sitting on some much cash?
An interview with Warren on Bernanke and current environemnt:
http://audio.wrko.com/a/71554641/warren-mosler-on-ben-bernanke-s-comments-from-yesterday.htm
Since the Baby Boomers are an anomalously large demographic group, doesn't it stand to reason that they are also currently contributing an unusually large amount in current taxes? Most of them are in their prime earning years; and the combination of large numbers plus high incomes means that they're the ones paying the most in current taxes and keeping the economy from getting even worse than it already is? Why should they have to continue to bear that burden even after they're retired?
Well, we aren't, in general, paying our way right now and haven't been since 2002 or so. Instead we are borrowing to fund current operations of goverment. Nor does the average Medicare recipient pay as much into the system as he or she takes out. That's the basic math of it.
Re. medical cost, ABC news recently had a series on how to save money. One episode dealt with a family in danger of foreclosure, whose medical insurance refused to pay for certain expensive treatments and medicines. They owed over $17000,00 The ABC expert went over their bills and found discrepencies, overcharges and code mistakes. The result? They actually owed $411.00! This is a big part of where your money is going.
Pulling this up from the weeds. Scot to me:
Are you under the impression that there's a scarcity of investment capital abroad in the land? And if so, where did you get that notion? If that were the case, wouldn't interest rate be high rather than low? And why would companies be sitting on some much cash?
Me: Interest rates are being artiuficially manipulated, thats why they are at this le vel.
why are companies "hoarding" cash? Where is the demand? Where is unemployment/hiring? Also, banks ARE NOT lending like they use to so companies need to behave differently when they had easier access to lending. From a treasury perspective- should companies buy bonds? No return. ZIRP has artificially lowered rates, killed seniors and created a market bubble.
Did you see today's income numbers? And firms should ramp production? Seen oil prices?
read the document.
Well, you hit on the correct question in asking: Where is the demand?
Now, last quarter, a sharp reduction in government spending obviously undercut that demands. That's the key reason we saw the economy slow down. It's not that there's a capital crunch.
thats why deficits do not matter. In this environment, the government needs to spend MORE to make up for the consumer spending less. Increase Aggregate Demand.
Modern Monetary Theory, an unconventional take on economic strategyhttp://articles.washingtonpost.com/2012-02-18/business/35442562_1_john-kenneth-galbraith-budget-surplus-economists
Where is the demand? Maybe it's gotten kicked in the wallet with the payroll tax hike; the impending effects of higher taxes on dividends, interest, and capital gains, plus the soon-to-be realized lower quality-higher cost healthcare.
As to "more of the same" deficit building, where does THAT money come from? China, et al, are shedding our currency as fast as they can in recognition of its debasement. Our answer: more of the same, redefinition of "rich" to feed our irresponsibility, etc. ANYTHING to avoid the realities brought on by our own actions.
gas too
There is most certainly an abundance of capital; as the printing presses at the Federal Reserve have been working overtime. The Fed is holding Trillions of the paper it writes; and rates are artificially low as a result. The question is this: At some point the economy will heat up, and the abundance of capital will chase goods, services and commodities, and prices and interest rates will rise. No one can know when this will happen, but when it does, the debt service cost to our government will soar, and our budget deifict will become over bearing. That is the biggest risk of the approach that sees little harm in trillion dollar deficits. The truth is, they have put pressure on our economy now-another reason for the slow growth, but just wait. The future is very bleak if the President gets his way.
capital, stuff to invest and lend, is different than what the Fed is doing. The assett bubble they have created in the market is HUGE and SCARY
Economists disagree on many subjects, but there is agreement on some: 1. The main concern about a government deficit is that the government borrowing might force interest rates so high that companies are not able to borrow money to use for various investments. This is called "crowding out of investmetns". I don't see any evidence that interest rates are crowding out investments at this time. 2. There is a concern that the currency would be devalued. This would make it more difficult for Americans to buy foreign goods, and it would make it easier for others to buy American goods. This would cause American industry to grow at the expense of foreign industry. The currency is also more likely to be devalued if we have a foreign trade deficit because devaluation would help to bring the trade deficit into equilibrium. Devaluation of the currency would hurt those with high savings who do not expect a high amount of future earnings. Conversely, it would help those with low savings who expect a higher amount of future earnings. It would help American industry, but it would hurt companies, such as Wal Mart, who make most of their money from importing and selling foreign goods. 3. Deficits also increase aggregate demand if the money is used to put money into the hands of people who will spend it.
Scot, You are mistaken! Obama and the democrats and liberal writers at the Globe have been saying that Obamacare is going to lower the cost of healthcare, it was going to be lower by $2,500 a family!! The effects of Obamacare is going to add between 2.5-3.5% alone next year, starting in 2014, not including medical inflation or adjustments to age, etc. The old comic strip Pogo, said it best. We have met the enemy, they is us!! 1/5 of the people in MAssachsuetts are on Medicaid, 1 in 5!!!! So let's jack up the costs for working people to pay for illegals and welfare recipients and sex change operations for prisoners!!! Why not have those people go to a single payor plan, and not waste money! the studies are that 60% of a person's health care costs are spent the last two weeks someone is alive. We need to have that conversation!!!
Forget about the deficit, please. Jobs, jobs, jobs in the short term. Control health care costs in the long term. Problem solved.
"arpeture" Just got back and noticed your post. You are a great example of the problem. The yearly deficits of the federal budget have gone down in each of the past four years. That is not a reduction in the "long term" debt as the yearly adds to the long term, yet you think I'm whistling past the graveyard when I say it has gone down yearly. It has. In order to reduce the overall deficit you have to have surpluses on a yearly, but we are not seeking that. We are seeking a declining long term debt that evenutally reaches a specific level of GDP. Get it.
I could live with means testing Social Security and Medicare, just give me back what I paid in, plus interest. Fair? You sold it to us as an insurance program but now it's a a welfare program? Fine. Give me back what I paid, plus interest, and we're square.
I have always thought means testing should be implemented with SS and Medicare. I agree with Harry...don't like SS? Think its sucking the life out the economy? Medicare too? Give me back all the money I've been putting in since I was thirteen years old along with interest and I will be fine too. I do feel "entitled" to what I have been putting in all these years as I am now in my 60's. The fact is we are all going to have to pay more in taxes to get the economy truly rolling again. Corporations are sitting on capital. Because they are afraid of the European economy as well as our own. We live a global economy now. Lets not forget our huge trade deficit with China. There are many reasons the economy is stuck where it is. Blaming each others idealogy is not going to do much to change it.