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Go Home This Is What Fiscal Responsibility Looks Like

THE TREATMENT MARCH 18, 2010

This Is What Fiscal Responsibility Looks Like

BY JONATHAN COHN

Just now at the White House press briefing, a reporter (I couldn't tell who) pressed spokesman Robert Gibbs about how the administration could be confident of cost savings, given that the Congressional Budget Office itself admits projections deep into the future contain enormous uncertainty. I'm sure reform critics will be making the same argument in the next few days, and that it will reinforce doubts many Americans already harbor.

So let's be clear about why this is wrong.

No, these projections are not a precise science. Yes, the CBO itself notes that projections for the second decade of implementation--that is, 2020 through 2029--have an unusually high margin of error. But the CBO's final judgment takes that uncertainty into account.

Remember, when the CBO makes a projection for how much a program will cost over time, it isn't just spitting out a single number. It's giving a range of numbers. It's typically the midpoint that you hear about, but there's always a chance that the number will be higher or lower, by a certain interval. And, in order to play it safe, CBO decided it would judge health care reform based on the worst possible estimate within that interval.

So suppose, just to use some hypothetical numbers, the CBO ran the numbers and determined that the Democrats' bill would probably save $1 trillion over ten years, but that the range of possible estimates was between saving $2.25 trillion and losing $250 billion. I'd say that's pretty good odds: It's far more likely you'll save money and the possible savings are far bigger than the possible increase in the deficit. 

CBO would have disagreed. If there's a statistically significant chance that the bill would cost $250 billion, they would have said they can't declare that the bill won't inflate the deficit. The only way to get CBO approval would have been to modify the bill, so that the CBO determined it was likely to save $1.25 trillion but determined even the worst-case, most pessimistic scenario wouldn't drive up the deficit.

I know quite a few economists who think that standard was simply too tough. The Democrats could have argued they didn't need to meet that requirement and they would have had a pretty legitimate case. It would created room to provide more generous subsidies or more financial assistance for people buying insurance--which I, for one, would have appreciated. Or it would have allowed Democrats to ease up on the benefits tax that is generally unpopular, particularly with unions.

But the Democrats didn't do that. Instead, they constructed a bill that, even in the worst-case scenario, CBO thinks would not raise the defict. It's not an ironclad guarantee, but it's as close as you can come.

And if that's not fiscal responsibility, I don't know what is.

Update: I read over the first draft of this posting, decided I had written something utterly incomprehensible, and revised it. Hopefully it's more clear now.

 

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11 comments

And they won't get rewarded for it in the elections this fall. The GOP and the MSM will see to that. They're still doing the right thing. It just galls me that they won't get credit for it, just like in the 90s. I'm waiting for the GOP to come in and ruin it all, just like they have each time.

- tnmats

March 18, 2010 at 1:53pm

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And of course if the most pessimistic projection had been a penny over the target, Republicans would have treated it as absolute Gospel.

- blackton

March 18, 2010 at 2:01pm

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Thus, over the next few days we should hear the GOP hammering on the most substantive line of argument remaining to them: "Poopy, poopy, poopy! I hate you and your stupid bill!"

- Fishpeddler

March 18, 2010 at 2:01pm

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Fiscal responsibility is cutting revenue and increasing spending, thereby growing the deficit and adding to the national debt, in hopes that some magical event will cause the laws of arithmetic no longer to apply, or that some future president and Congress will increase revenue or cut spending to pay for the debts you incur in the meantime. Just ask any Republican.

- rhubarbs

March 18, 2010 at 2:04pm

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rhubarbs: I'd go further and say that hope of increased revenue in the mythical future isn't remotely in question; "fiscal responsibility" for Republicans nowadays simply means running up debts while you're in charge specifically so that you can complain about debt whenever the other team wants to fund something. This is the well-known "starve the beast" philosophy and is consistent with, e.g., appointing federal program directors hostile to the mission of their own programs.

- frippo

March 18, 2010 at 2:43pm

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Problem Frippo is they don't starve the beast. They only feed it but with debt. Or start wars with no strategy.

- tnmats

March 18, 2010 at 3:23pm

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No one gets rewarded in the next election for expanding health care -- just ask the Democrats who were turned out of office in 1966 after they enacted Medicare and Medicaid, or all those ex-Republicans whose votes for Plan D assured them of voters' affections in 2006. But they get rewarded in future elections when voters who appreciate their guaranteed health care benefits vote against politicians who threaten to take those benefits away -- just ask Bob Dole in 1996, Newt Gingrich in 1996-98 and John McCain in 2008, for starters. And, if the GOP persists in the fantasy that it can run on a platform to repeal UHC in 2012, you can ask the Romney/Ryan ticket how it will feel to lose 40 states.

- wildboy

March 18, 2010 at 4:36pm

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Any projection beyond 10 years (actually that's optimistic) on ANYTHING in the economy had better have large error bars, or it's utterly dishonest. In $1Trillion health care economy (to use a round number, not a real one), the difference in costs between a 3% rate of increase in expenses each year, and a 4% difference is $120B in outlays in the tenth year alone, and $540B over the ten year period. Change the delta to 3% vs 6%, and it's 1.2Trillion over ten years. You can do similar differentials for rates of population increase, rates of GDP growth. All these things then interact in complex ways. In the end, you make projections to compare one approach to another, given similar assumptions, not because they tell you a true cost/benefit. Then, once you choose you policy, you adjust as you go, to accomodate the real parameters of the economy. If governments didn't do that, they'd spend themselves into the ground in a single generation. Which, of course, is a perfectly plausible outcome in this crazy country.

- IowaBeauty

March 18, 2010 at 6:14pm

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How much of the savings is the result of shifting costs to the states? Since nearly every state is running deficits and states can't go bankrupt, that strikes me as important. (I"m all for passing the bill but I'd prefer it to be honestly funded. I'm ok with shaky projections in the future because if wrong Congress can correct those later, but not unfunded mandates on the states to make the costs look better).

- Lymon1

March 18, 2010 at 7:00pm

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* CBO states the first decade of delivered health care (2014 to 2024) will cost $2T, likely approaching $3T in full-scoring * That bill is paid for by "taking" $1.1T from Medicare, savings of $400B, the rest comes from new taxes. The savings of $400B includes the doc fix that has actually been voted down each year. So, they are REQUIRED to accept the doc fix to stay on budget. * The CBO said premiums will increase 10-13%. The CBO said the % of GDP we spend on health care will grow from 17% today to 21% in 2019. * The CBO says in 2019 we'll have 23M people without health care. * Caterpillar announced today that this will cost them $100M in the first year alone. They have 40K employees in the US, so that's about $2500/employee. The promise of health care reform was to bend the cost curve. There is no bending here. It's just a big fat entitlement that the middle class will pay for whether they want it or not. That's not a bad thing and many might want that. But let's not pretend that a grand vision has been delivered. It has not. Sarah Palin could have engineered this. It's very run of the mill and uninspiring. http://www.chicagobreakingbusiness.com/2010/03/caterpillar-health-care-bill-would-cost-it-100m.html http://weeklystandard.com/blogs/cbo-obamacare-would-cost-over-2-trillion

- seattleeng

March 19, 2010 at 12:55pm

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And now the CBO is saying that if the "doc fix" is considered, then this is a $60B deficit adder over 10 years. http://finance.yahoo.com/news/Medicare-fix-would-push-apf-2700343586.html?x=0&.v=2

- seattleeng

March 19, 2010 at 8:46pm

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