Monday, March 21, 2011

On Budget Issues, Thomas Friedman Misses the Mark

Thomas Friedman laments that as the world suffers at the whim of "the two most merciless forces on earth: the market and Mother Nature", we're not doing enough to balance the budget. His initial point is correct, although obvious: the two political parties prefer to play politics while putting off the hard work involved with fixing, or at least trying to fix, some of our nation's more pressing problems. But let's be honest for a moment: one of the reasons the budget deficit is so large is because of "the market" - thanks to a severe, protracted recession and painfully slow recovery, tax revenues are significantly reduced. I'm not sure if Friedman truly means to make the case that we need to cut the budget to the core to avoid significant deficits, even if that means prolonging, worsening, or triggering a second dip in the recession and jobless recovery, but that appears to be the theory he's pushing.

Friedman also appears to be arguing that, with enough planning, we can anticipate any unexpected development and avoid its least pleasant consequences. So if we create an alternative energy policy and "Saudi Arabia is destabilized", we'll barely feel the impact of $200/bbl oil. Or if Congress passes climate change legislation we'll somehow be able to avoid having "Mother Nature hit[] some internal climate tipping point" that could shake the world's economy (and maybe prevent hurricanes and earthquakes). Real life is, of course, much more complicated.

Friedman believes that the President could do more to define an agenda for the future, push specific proposals and educate the public. And he's correct. Would that cause any legislation to be passed on any of the issues Friedman declares to be urgent? Nope. And while the President's policies and approach to the issues often (and unsurprisingly) do appear to be shaped by opinion polls, it's disingenuous to argue that people "voted for Obama to change the polls not read the polls". First, the polls reflect what people want. Second, when powerful interests align themselves against what the people want (e.g., a public option) people like, dare I say Thomas Friedman, seem more inclined to align themselves with the powerful interests than with the will of the people.

Let's be specific for a moment. Thomas Friedman wants a new energy policy. That policy has been defined in his columns as a gas tax of between 50 cents and $1 per gallon. That appears to be the beginning and end of his conception of policy reform. It won't affect him, because he can easily afford to fill the tank of his Lexus SUV (while patting himself on the back for owning a hybrid, and ignoring the fact that his household energy consumption probably matches that of a number of small towns, even given due consideration to his use of solar panels and geothermal heating in his gargantuan mansion). But it's not his personal consumption that actually bothers me, or even the concept of a higher gas tax. (We should have implemented a higher gas tax decades ago, when the rest of the world was doing so, resulting in adaptation over time rather than a shock to the system.) It's the fact that his proposed cure is a regressive tax, one that would have no meaningful impact on himself or his lavish lifestyle but would create significant hardship for most Americans.

So what does Thomas Friedman want our nation to do? He identifies "things we need to invest more in — like education and infrastructure" and "things we need to reduce, like entitlements and defense spending." How does Friedman propose fixing things? With "serious, sensible, Simpson-Bowles-like budget cuts and tax increases". Um... except the Simpson-Bowles proposal was neither serious nor sensible. It was focused on ideological fixes - like capping revenues - accompanied by the notion that you could cap spending on certain programs and avoid exceeding those caps by means left undefined.

Let's be honest for a moment here. Social Security is not in crisis. It's the target of an ideological war. The long-term budget picture for Social Security can be fixed for additional decades with some relatively modest adjustments to the tax rate, retirement age, and benefits levels. Although it's fun to pretend otherwise, we have to keep in mind that as we push the retirement age up we're likely to push a growing population of older workers into the Social Security disability system years before they qualify for retirement benefits - we need to be careful not to find ourselves rearranging the deck chairs and potentially increasing costs to the taxpayer. But the big hurdle is that it's now a favorite right-wing talking point that the Social Security trust fund "doesn't exist", to put it mildly, making it awkward for the Republicans to sign on to a simple adjustment. Similarly, even if we pretend that Richard "Suck on This" Friedman is interested in meaningful cuts,1 military budget cuts aren't going to balance the budget.

The other two entitlement programs are, of course, Medicare and Medicaid. The issue with them is much less "can we afford the status quo" and much more, "if health care inflation continues at present levels, these programs will quickly become unaffordable." The measures that we could take to lower present spending, which is absurdly high when you compare both spending and results to other developed nations, could extend the viability of Medicare and Medicaid for a number of years, but inflation will still catch up with us. So how do you tackle inflation?

The Simpson-Bowles approach, again, is to say "We're going to cap spending" and "We're going to impose consequences if the cap is exceeded." That's not "serious" - it's meaningless twaddle. We're not going to wish our way out of inflation, nor are the nation's senior citizens and their families going to sit quietly when the "spending cap" is reached and benefits are cut.

Medical inflation is a difficult issue. It's not going to go away with Simpson-Bowles-style evasions and gimmickry. Nor was Simpson-Bowles particularly concerned with rebuilding the nation's infrastructure2 or spending more on education.3 Other than perhaps it's regressive nature, what does Friedman actually like about the Simpson-Bowles approach?
1. Within the same column, in the context of climate change, political instability and high food and fuel prices, "the world needs a strong America more than ever" - would Friedman have us believe that he's speaking only of economic strength?

2. When asked about their lack of proposed infrastructure investment, Simpson and Bowles explained "infrastructure was indeed a problem in need of upgrade, and... the solution is to reduce the deficit in order to free up the necessary funds to tackle the problem, rather than adding it to existing spending".

3. Simpson and Bowles proposed cutting federal spending on education.

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