Jonathan Chait

The Intellectual Pathologies Of The Deficit Scold


The deficit scold community is plagued by a persistent attachment to bipartisanship. They believe with an unshakeable conviction not only that the deficit is the most urgent crisis in public policy but that any solution to it must be bipartisan. Any solution that is not bipartisan, it follows, cannot be a real solution, regardless of what the numbers say. The Peterson Foundation -- the high temple of the deficit scold community -- has an analysis of the Obama administration's budget, and it perfectly and almost self-parodically displays the mental pathologies of the deficit hawks. The report concludes:

To address our long-term fiscal and economic challenges effectively, we need a bipartisan plan that fully tackles all of the major unsustainable areas of the Federal budget. The only way for us to win the future is with a bipartisan plan for the future: a set of sound and sustainable fiscal policies that solve our long-term structural deficits and can be implemented gradually as our economy recovers. Despite the political challenges of reaching bipartisan solutions, the President’s Fiscal Commission is proof that this can be done.

The "only way" to tackle the deficit is through a bipartisan agreement, says the Peterson Foundation. Is this true? I certainly don't think so. As I've argued, simply letting all the Bush tax cuts expire after 2012 would solve most of the problem by itself. The bipartisan solution requires an active agreement, that would upset all manner of interest groups, between two parties and who are in zero-sum competition in the run-up to an election year. My solution merely requires a stand-off in which Obama refuses to extend tax cuts on income over $250,000 and the GOP (as it did in 2010) refuses to extend tax cuts only on income below that. I believe my path is more plausible. The Peterson Foundation assumes its path is, but doesn't say why. It's an article of faith.

The Affordable Care Act, for instance, is an example of a law that attacks the single largest driver of the long-term deficit on a completely partisan basis. Watch the Peterson report try to grapple with the budgetary impact of the Affordable Care Act:

Compared to the President’s proposed budget for Fiscal Year 2011, the proposed budget for Fiscal Year 2012 shows a surprising improvement in the long-term “fiscal gap”since last year, this gap has gone from 8 percent of GDP to 1.8 percent. (The fiscal gap is the size of changes to revenues or expenditures that would be necessary to stabilize debt as a percentage of GDP over a 75-year period.)  Lawmakers and other experts will likely debate the validity of that improvement given the absence of significant proposals to change existing policies. Moreover, even under these optimistic assumptions, the administration projects that federal debt will rise to 117 percent of GDP in 2040 and to 240 percent in 2085.

This table makes clear that much of the projected improvement over the 75-year period is due to changes in the outlook for federal health spending. ...

Some health policy experts have questioned the sustainability of the spending restrictions in the new law. They note, as CBO does, that the full implementation of the law’s changes to Medicare would limit growth of provider payments, as one example, to a level below that of inflation. Many economists and health policy experts, who may not have directly opposed the law, are similarly uncertain about the government’s ability to follow through on its plans to control the program’s growth. Medicare’s chief actuary offered an unprecedented alternative scenario to a recent report, warning that the long-term savings projections are based on policies that are potentially unrealistic and unsustainable.  And it may turn out that they are right. The projections assume that most of the cost-cutting policies will be implemented as designed, maintained over time, and that the underlying assumptions will remain valid and effectivesomething that might prove difficult under future Congresses with competing priorities.

First Peterson notes that the Affordable Care Act has created a massive, epochal improvement in the long-term fiscal picture. This development is deemed "surprising." Why surprising?

Because, of course, it came about on a partisan basis, rather than through a heartwarming scene of Mitch McConnell and Obama in a tear-stained embrace. The report proceeds to explain why some experts think the cuts are overstated. It does not explain why many other experts disagree. In a nutshell, the law is the first serious and systematic attempt to rejigger the perverse financial incentives of American medical care, putting an extensive series of policies into place that give employers and medical providers an incentive to maximize value rather than cost. Could it fail? Of course -- it's almost totally untried. But the report is unable to consider the possibility that it may succeed, because it doesn't follow the deficit scold model of bipartisan agreement.

By contrast, the report lauds the Bowles-Simpson plan to reduce the deficit -- "Despite the political challenges of reaching bipartisan solutions, the President’s Fiscal Commission is proof that this can be done." Proof? In reality, Bowles-Simpson relies upon gimmicks that, unlike the Affordable Care Act, are almost totally implausible. It assumes a massive reduction in the federal payroll with zero impact on the output of the federal workforce -- an assumption that would get you laughed out of the room in the business world. It relies on blunt caps on health care spending without creating any policy mechanisms that could make those caps feasible. (Ezra Klein has more about the plan's considerable vagueries.)

If you think the Affordable Care Act -- which does create policy mechanisms to hold down costs -- is unlikely to succeed, then you ought to think the Bowles-Simpson plan is far less likely. But of course the Peterson Foundation takes this plan as "proof" of success. Why proof? Well, it's bipartisan. that's all the proof the deficit scold requires.

Let me be clear about what I think. I believe the medium- and long-term deficits are a major public policy problem, though not the largest problem. (The largest problem is climate change, but because climate change is coded as a "partisan" issue, the media can't crusade for its immediate resolution.) The problem I have with the deficit scolds is not their desire to cut the deficit, which I agree with, or even their belief that a bipartisan deal would be desirable, which I also agree with. It's their quasi-religious faith in bipartisanship, which leads them to dismiss any partisan effort to reduce the deficit and to uncritically embrace any bipartisan one.

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