Potomac Fever is the blog of the Hamilton College Semester in Washington Program.
How many of your posts have this title TJE? I think this argument has already been had.
I agree Peter- this debate is getting old. But here we go again:As I’ve already discussed, Obama cannot match his program commitments (current entitlement programs, investments, etc.) with only revenue increases from the top 2% and at the same time control deficits. This is why I have repeatedly argued for more broad-based revenue increases in addition to spending cuts in order to balance the budget and maintain important commitments like Medicare, Medicaid, Social Security, and investments in infrastructure, education, etc. I imagine Peter has similar goals (clean energy investments) in mind when he has supported broad-based revenue increases on this blog. So let’s consider the potential options for deficit-reduction:1) All spending cuts like Paul Ryan proposes, or even nearly all spending cuts. Due to the nature of government spending (i.e. its progressive), this will have a disproportionate income on low-income, moderate income, and real middle-class households (under 100k). His significant changes to the health care entitlement programs would also dramatically shift costs to the elderly and disabled who disproportionately constitute these programs’ costs. Paul Ryan also maintains the Bush tax cuts, and then adds an additional tax cut from lowering the top individual and corporate rates- which he says he’ll pay for by eliminating tax expenditures. The Tax Policy Center has estimated that Paul Ryan’s rate cuts would lose nearly $3 trillion in revenues, which would have to be offset by taking major whacks at multiple tax expenditures. The WSJ rightly points out that “the most expensive tax deductions, in terms of lost tax revenue, go mainly to the middle class.” (The Tax Policy Center and others have amply demonstrated that tax expenditures disproportionately benefit the wealthy, but since there are a limited number of them, once again most of the revenues from eliminating expenditures will come from the middle-class). So Paul Ryan will place the burden of deficit-reduction primarily on the elderly, disabled, and low- and moderate-income households; while placing the burden of tax reform on middle-income households as he shifts taxes from high-income households to the rest of the income distribution. 2) Then there’s deficit reduction through all revenue increases- this would require tax increases on most Americans, though through our progressive system this would have the greatest impact on high-income households. It would also have to significantly impact much of the “middle-class,” but in particular those making over 100k.
3) Obama’s current proposal that achieves less deficit reduction than Paul Ryan, but does so through restoring the Clinton tax brackets for the wealthiest families, eliminating some tax expenditures (in the past he’s pushed for capping how much benefit you can get from tax expenditures, so if he does that would largely hit upper-middle class and high-income households). He also proposes significant cuts in non-security discretionary spending and other mandatory programs, which would likely disproportionately impact low-income households. He also proposes significant cost controls in the main healthcare programs, which would have a disproportionate impact on the main beneficiaries- the elderly and the disabled. Overall, Obama’s proposal gets less deficit reduction (though he gets close) to Ryan’s proposal, and he does so by placing the burden of deficit reduction on nearly everyone. Compared to Ryan’s proposal, he has a lighter burden on low-income, moderate-income, middle-class, elderly, and disabled people by shifting some of the burden to high-income households. 4) A Bowles-Simpson or Rivlin-Domenici-style proposal which gets significant deficit reduction and does so by placing part of the responsibility on everyone. These proposals get more deficit-reduction than the others, but do so in a format or distribution similar to Obama’s. Thus, these proposals- like Obama- place responsibility/burdens for deficit-reduction on nearly all households. However, both reports made it a major principle to have deficit reduction not impact the disadvantaged. This is in-line with historical precedent from the successful deficit-reduction pushes in 1990 and 1993, which reduced the deficit and poverty. One of the major differences between these proposals is: who carries the load of deficit-reduction? In Ryan’s proposal, it’s disproportionately low-income, moderate-income, elderly, and disabled people. In a revenue-only approach, it’s disproportionately upper-middle class (over 100k for instance, that’s a very approximate figure) and high-income households. In an Obama, Bowles-Simpson, or Rivlin-Domenici approach- everyone carries a significant share of the burden of deficit-reduction. Which approach do I prefer? I prefer some sort of balanced approach where everyone contributes (Obama, Rivlin-Domenici, Bowles-Simpson). Obviously others disagree (including 95% of all House Republicans and 100% of all Senate Republicans, judging by their votes for Ryan’s proposal or support for BBA amendments).
Williamson is only able to be correct with his very limited argument when he says that: “Your average poorly informed lefty (but I repeat myself) will reliably tell you that our current fiscal straits are the result of three things: 1. Bush’s wars; 2. Bush’s tax cuts for the rich; 3. Bush’s bank bailouts.”First of all, Williamson buys into the Elites’ argument that the Bush bank bailout actually made us money (I’m not arguing here that it was a bad idea, just pointing out the Bush bank bailout saving the U.S. money is a questionable claim). There is an opportunity cost to money- you invest it in A and get a certain return versus investing it in option B to get a better return. Also, this ignores the fact that private investors like Warren Buffett got a much higher rate of return from their loans to financial companies like Goldman Sachs- which shows that the U.S. subsidized these companies by providing them below-market value loans. So the argument that we were paid back at a profit is a little weak.Second of all, let’s talk about all of the Bush tax cuts. You know- that thing Peter and I actually keep on talking about. The deficits accumulated during the Bush years worsened the nation’s fiscal health then, and continue to do so today as we pay them off with interest. The Bush tax cuts and security spending increases of the Bush Administration explain 80% of the fiscal deterioration of the Bush years from 2001 to 2008 from actual policy decisions (some of the deterioration from projections came from the weak economy for the period). The Bush tax cuts explain over 40% of the current deficit projected for 2021- ending them and restoring revenue levels is essential for restoring fiscal sustainability to our government. Third, I just wanted to make sure that people are aware that Bush contributed significantly to recession-years deficits- i.e. FY 2009. Don’t believe me? Just ask Cato: http://www.cato.org/pub_display.php?pub_id=11094
Also, like many, Williamson willfully misrepresents IPAB. Nearly all medical conditions have multiple treatments and medical responses- IPAB will adjust payments to providers to incentivize hospitals and physicians making better treatment decisions that achieve the same or better results using more cost-effective treatment options. Much of the initial savings will come from giving hospitals the incentives to implement best practices and actually consider the relationship between the costs of different treatment options and outcomes for patients. The Institute of Medicine and other groups have done countless studies evaluating the quality of medicine provided, its evidence basic, and differences between the care provided by different hospitals and physicians. While there is obviously some institutional inertia to sticking with past practices that may or may not work, the current health care system means that providers- like the Duke Medical Center- actually lose money when they improve patient outcomes. IPAB is seeking to tackle that area- making differentiations between different treatment options more cost-sensitive for provider, insurers, and patients. IPAB is not going to run the political risk and ETHICAL violations for the field of medicine by denying the sole treatment for certain conditions. (Note: I’m not speaking necessarily in support of Obama’s proposal for such a dramatic expansion of IPAB- though I’d note there is wide consensus across health economists that it will cut costs. People just can dispute whether it won’t have unintended or undesired consequences, or whether politicians will allow it to go into effect. But very few people question its cost-control ability- a fact which contrasts with any evaluation of Ryan’s approach).
Finally, Williamson makes the only argument conservatives have for relying on Ryan’s “approach” to cost-control (note that the CBO has already pointed out it will double costs for the average Medicare beneficiary because Ryan’s approach will increase total costs for insuring the elderly and will dramatically shift costs to them). Ryan’s approach rests on the argument that we need to make patients more cost sensitive with their medical decisions, which first of all ignores the fact that a significant portion of medical treatment is absolutely necessary-non negotiable (necessary, time-sensitive treatment like a heart attack) and that the current system provides patients with little or no evidence on which to evaluate providers (similar to the quality of goods that consumers keep in mind when considering price). Also, health care costs are incredibly concentrated among a small sub-set of the population who will never be cost-sensitive in their medical decisions because their bills run in the hundreds of thousands of dollars almost instantly- none of that is exposed to cost-sharing because no one would hold anyone but the uninsured (the ranks of which Ryan increases by at least 30 million) to such massive liabilities. (Conservatives are the ones who always pushing for catastrophic health insurance alone- ignoring the fact that much of health care costs would fall under these programs). Also, a large percentage of medical costs go to end-of-life-care or treatment for people (often in Medicaid) with multiple physical and mental impairments- which is why their medical decisions are handled by other people or the medical system-at-large. The system, and family members, is based on humanity’s sense of morality and ethics that you have to help these people- that it’s not right for you to decide to not pay for these people’s treatment because you don’t want to pay the cost. Look at our debates over Terri Schiavo and others- people who actually arguably brain-dead. People had problems with family members trying to end their care, imagine how people would react if people tried to deny people care because they were almost guaranteed to die… in a few weeks, or gave people less care because of their disabilities. That won’t happen, which is why costs for these types of people wouldn’t be significantly impacted by increased cost-sharing that Ryan proposes for them, and if it did have an impact it would be because other people over their cost concerns were limiting patients’ access to care. Is that an outcome Ryan is hoping for? Cost-sensitivity is also flawed because it ignores how humans’ well-established problems with making rational time preferences would make them particularly inadequately able to make the trade-offs between preventative care and more costly long-term treatments, besides the fact that even health experts dispute whether preventative care is cost effective!
So those are just some of the theoretical problems off-the-top of my head with increased cost-sharing in health care. Let’s look at some evidence. The health of individuals with certain chronic illnesses included in the RAND Heath Insurance Experiment was harmed by increased cost sharing. The RAND HIE did not include the elderly, but more recent work here http://papers.ssrn.com/sol3/papers.cfm?abstract_id=971606 has shown that increased cost sharing for Medicare beneficiaries can lead to adverse outcomes and doesn’t necessarily save taxpayers money. Isn’t anyone concerned by the fact that increased cost-sharing has been shown to lead to worse health outcomes, particularly for the most disadvantaged population pools Ryan is trying to expose to health care costs?Also, this argument that we need more cost-sharing ignores the fact that we already have more or similar levels of cost-sharing to other developed nations (see here: http://theincidentaleconomist.com/wordpress/skin-in-the-game/ Btw, Aaron Carroll is a well-established and published health policy expert, not some uninformed blogger posting from his basement). The only country here that stands out as having more cost-sharing is Italy, a country hardly anyone turns to as a model for a health care system (for good reason). Successful, model-countries for health care like Canada, France, Germany, the U.K., and Japan all have similar levels of cost-sharing as the U.S. and they still have significantly lower national health care costs and equivalent outcomes. Clearly they are doing other things besides increased cost-sharing to control health care costs. What are they doing? They have dramatically stronger government interventions in the incredibly problematic health care market, with the least interventionist models still being stricter than the U.S. health care system after PPACA (health care reform). The theoretical arguments against increased cost-sharing, particularly for the exact populations Ryan is attacking- the elderly, disabled, and low-income households, are numerous and extremely strong. The empirical evidence shows that it can have consequences for patient health for these patient pools, and that it actually won’t reduce health care costs substantially. Ryan’s approach however does definitely add to national health care costs by adding additional middlemen to the equation that have significant administrative and operating costs- trying to compete for enrollees, or once Ryan’s approach goes into place- trying to avoid sick, elderly people. Conservative economists like Tyler Cowen from the Mercatus Center have agreed with the CBO on this point, and conservative commentators from the National Review have already panned Ryan’s as politically unfeasible. Ryan does nothing to addressing rising health care costs that are devastating the private and public sector’s finances, worsening our nation’s economic competitiveness, and ruining families due to our incredibly fragmented and trouble system. And at the same time he increases the ranks of the uninsured by over 30 million by eliminating PPACA’s expansionary elements (but shockingly he keeps other parts of PPACA like fees on hospitals because it generates cost-savings he needs. Of course, Ryan once attacked those Medicare “savings” as false and nonexistent due to political reasons. Hypocrite?)
Ryan may know his way around a deficit-financed tax cut, but he clearly doens't know his way around health care.
A non sequitur response which appears to be a knee-jerk response to the simple mentioning of the name Paul Krugman (a response I had anticipated but hoped to head off by imploring people to actually read his arguments in the belief that maybe responses would then be on-point). But I’ll bite on this Heritage letter. First of all, Heritage provides no evidence that the tax cuts generated economic growth. They just point out that tax cuts occurred, and gdp in 2010 (well outside the time most economists think tax cuts would have a significant impact) was higher than THEY projected. Michael Jackson also died in during this time, but I don’t think anyone’s going to accept that the argument that his death increased economic growth above Heritage’s analysis without evidence. Is it too much to ask Heritage to provide evidence, or do we just have to accept their blanket statements?Heritage also reveals a major flaw in their defense- they go into detail about all of the exogenous effects they couldn’t predict in 2001 that they hope people would take as negative impacts to economic growth. They of course ignore any other factors that may have caused economic growth to rise above their projected trend line, and don’t provide any evidence for why the factors they cited would have reduced growth from the trend line. All that Heritage does here is say A (tax cuts) occurred, followed by B (growth above their projected trend line). Of course, A helped to cause B, or at the very least didn’t hurt B. They repeat this line of argument for all of the economic variables they cite. Wow Heritage. That’s really great analysis. I wonder what grade any Hamilton College professor would give to this level of critical thinking and intellectual sophistication.
Beach then rejects the argument that somehow they modeled to achieve certain economic results. They back this up by citing the highly regarded U.S. Macroeconomic Model of IHS Global Insights, Inc. Uhm, Nigel Gault, Global Insight’s chief U.S. economist, said he wasn’t sure what assumptions would get Heritage’s results. Source: http://www.nationaljournal.com/budget/ryan-plan-pushes-optimism-to-the-outer-limits-20110405 Heritage clearly used assumptions that the economic firm which designed this highly regarded model wouldn’t use. If they think the model’s so great, why don’t they like the assumptions the firm would also select?The macroeconomic forecasting firm Macroeconomic Advisers actually tried to evaluate Heritage’s analysis (results here: http://macroadvisers.blogspot.com/2011/04/economic-effects-of-ryan-plan-assuming.html)They conclude: “In our opinion, however, the macroeconomic analysis released in conjunction with the House Budget Resolution is not relevant to the coming discussion. We believe that the main result — that aggressive deficit reduction immediately raises GDP at unchanged interest rates — was generated by manipulating a model that would not otherwise produce this result, and that the basis for this manipulation is not supported either theoretically or empirically. Other features of the results — while perhaps unintended — seem highly problematic to us and seriously undermine the credibility of the overall conclusions.” People might also want to read 1) http://www.econbrowser.com/archives/2011/04/representative_1.html 2) http://www.econbrowser.com/archives/2011/04/implied_supply.html 3) http://www.econbrowser.com/archives/2011/04/like_a_moth_to.html If you actually read these studies, you’ll quickly realize just how ridiculous Heritage’s analysis is. It’s actually quite hilarious, though a little disturbing that anyone wouldn’t reject them instantly because of how many problems and fantastical results they get with their analysis. For goodness sakes, Heritage predicts a housing boom when our country is already over-capacity! Hello- we just went through a housing bubble- and Heritage thinks that as a result of Ryan we would go through a second one and that it’s a good thing Ryan’s budget gets this result (and most of its job creation). What was Beach’s explanation for why he had to change his employment results? (Btw, what is his rationale for how you unemployment estimate could change by multiple percentage points without any impact on other economic factors? That’s a good sign that Heritage’s results are incredibly flawed) He attributed the crazy results of 2.8% unemployment to problems with the CBO- their baseline was too optimistic, and there were no problems with Heritage’s analysis of the Ryan proposal’s impact on the economy. Source: http://www.frumforum.com/ryans-rosy-job-numbers-fact-or-fantasy Heritage is trying to distract from the problems anyone would have with their results by attributing all of their criticisms to Paul Krugman. It shows just how weak their position is that they hope to cloud the debate by making people think Krugman has an ideological vendetta against them. No, the field of economics has a problem with Heritage Foundation’s results. Unsurprisingly, Heritage can’t even put up a serious defense- essentially arguing that A came before B so A must have partly caused B. At the same time, they fail to address the multiple, specific, major red flags multiple economists have thrown up about their ridiculous results. It’s sad that they think they can get away with their incredibly poor performance by contrasting themselves with Paul Krugman and hoping people are foolishly confused into thinking the truth lies somewhere in-between.
a) Paul Krugman earned his Nobel Prize- his contributions to the field of economics are immense. Conservatives just need to get over that.b) Seizure warning!:Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman Krugman. c) I’m still not seeing any substantive response from Heritage or its defenders. Their models produced crazy estimates that aren’t explainable without drastic changes to our current theoretical and empirical understanding of economics. As the Macroeconomic Advisers analysis made clear, if Heritage truly wants to defend its work it should release all of the assumptions and technical specifications they made. For now, all we can tell is that they plugged multiple relationships and assumptions into an econometric model in order to produce results it naturally would never put forth. They have not adequately defended their model and how it would produce nonsensical results (2.8% unemployment), their likely assumption that NAIRU would fall by 2 percentage points practically overnight as a result of Ryan’s plan (how could you get that much of an effect that quickly?), how their updating of their unemployment estimate would have NO effect on ANY other results (employment apparently to Heritage is unrelated to other economic factors?), why they changed the Global Insight model’s short-run fiscal multiplier from positive to negative (they apparently only like parts of the GI model), why they rely on theoretically and empirically unsupported casual pathways, how they produce a housing bubble prediction (Macroeconomic Advisers argues the model would create 4 MILLION unoccupied housing units if you believe Heritage’s results, in addition to the 1 MILLION excess units are country already has), and why Heritage estimates a variety of model outputs that appear to be moving in opposite or nonsynchronized directions of how we know these macroeconomic variables to actually move.
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