Response to Jonathan Chait’s critique of the “Four Fiscal Fantasies”

July 3rd, 2013

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In response to Jonathan Chait’s critique of our memo on the Four Fiscal Fantasies, let’s begin with two articles from this week. The first, in The Washington Post, shows that America today is spending less to stop the spread of AIDS in Africa than we did under President Bush. The second is a piece from Elizabeth Rosenthal of The New York Times showing the outrageous prices U.S. hospitals charge to deliver babies—charges far out of line with any other country and symbolic of the epidemic of high costs throughout our health care system.

The main point in our memo is that these problems are related.

  1. We have an entitlement system that provides critical economic security and stability to Americans, but it is rife with bloated health care costs that are slowly devouring everything else that government does.
  2. The main entitlement programs for the elderly—Social Security and Medicare—are on a path to insolvency.
  3. Raising new taxes on the wealthy—though necessary—won’t solve our problems.
  4. Acting now to fix entitlements is better and easier than waiting.

Our memo lays out these cases pretty explicitly, so let’s touch on just a few things.

The reason we don’t spend much money to prevent AIDS in Africa anymore—or build more roads or expand broadband infrastructure or train more scientists or bolster other key items in the non-defense discretionary budget—is that voters believe we are spending too much on too many things already. And while congressional Republicans (and particularly the Tea Party) deserve a heaping dose of the blame, their outrageous behavior isn’t the only reason that Democrats are having a tough time getting things done.

The truth is that after a bank bailout, an auto rescue, a stimulus package, and a large entitlement expansion through the Affordable Care Act (which we vigorously endorsed), voters slammed the brakes on spending. They tossed Democrats out of the House, they overturned governorships and state houses across the country, and the Tea Party planted its flag.

Democrats rightfully defend our two children—a robust safety net and public investments—but we cannot ignore the fact that while one grows uncontrollably, the other is getting starved. As a result, the days of unrestrained deficit spending are over, and it’s now a zero-sum game replete with trade-offs: when we want to spend more to stimulate the economy, protect the climate, explore the heavens, improve schools, promote the arts, cure a disease, or open new federal parkland, we have to recognize that this kind of spending, however valuable, has been stunted by what we must pay for entitlements.

Here’s one example: President Obama has a great idea to provide universal pre-k to children. We should do it—it is a moral imperative that we make sure all kids are ready to learn, and it is a major contributor to the engine of economic growth. But it is stalled because we just don’t have the actual or political capital in the bank to get it done. A big part of the reason that we are fiscally stretched and politically broke is entitlement spending.

Yes, some things are happening to alleviate the pressure. As Chait correctly notes, the Affordable Care Act will help bring down some health care costs, and the recovery and sequestration have meant that short-term deficits are a bit lower than projected. But there is so much more to do, and the real driver for change will be Medicare. As the Rosenthal piece shows, moving far more aggressively to a pay-for-performance model that bundles payments for common medical procedures (like maternity care or a hip replacement) is one step that could cut billions of dollars from our a la carte medical system. This would reduce Medicare and Medicaid spending, employer health care costs (that could instead go to wages), and out-of-pocket health care costs for consumers. Democrats should be rushing to fix Medicare, not waiting for it to collapse, as Chait seems to suggest.

Chait’s main critique of our memo is that he views any future deal as unrealistic in the face of Republican intransigence. And indeed, the Grand Bargain is over (as we clearly noted). But the December deal that Boehner cut with Obama shows that Republican tough talk sometimes gives way to reality, and there are a series of fiscal deadlines coming up that provide opportunities for similar bargaining. Republicans surely seem dead-set against raising taxes, but if you listen carefully, you’ll hear some saying they’d be open to new Social Security taxes as part of a solvency plan. So there may be more opportunity for deal-making than immediately meets the eye. Besides, Democrats do not—and should not—stop talking about climate change legislation and immigration reform because John Boehner appears to be standing in the way.

While it’s fine for commentators like Chait to suggest that we simply give up on Congress, the reality for congressional Democrats is that they are going to have some decisions to make on spending—we hope they choose wisely.