Tuesday, January 08, 2013

David Brooks and the Missing Link

A few days ago, I suggested that when David Brooks fails to link to something that he is referencing and is easily available online, he's probably hiding something. Here we go again:
Spending on domestic programs — for education, science, infrastructure and poverty relief — has already faced the squeeze and will take a huge hit in the years ahead. President Obama excoriated Paul Ryan for offering a budget that would cut spending on domestic programs from its historical norm of 3 or 4 percent of G.D.P. all the way back to 1.8 percent. But the Obama budget is the Ryan budget. According to the Office of Management and Budget, Obama will cut domestic discretionary spending back to 1.8 percent of G.D.P. in six years.
No link to that 1.8 percent figure? You'll find it here, on page 30, with the explanation,
Discretionary spending levels other than overseas contingency operations reflect the budget authority caps under the Budget Control Act of 2011. The split of discretionary spending between security and nonsecurity after 2013 is based on increasing budget authority in each category by the growth rate in the aggregate discretionary cap.
Perhaps Brooks somehow missed it, but right now neither party is keen on implementing the automatic tax cuts that are scheduled to occur under the deficit reduction sequestration provisions of that Act.

Brooks also describes CBO projections,
The current budget calls for a steep but possibly appropriate decline in defense spending, from 4.3 percent of G.D.P. to 3 percent, according to the Congressional Budget Office.
The 3% number apparently comes from here, page 74, for the year 2022:
Most discretionary appropriations for 2013 through 2021 are constrained by the caps and automatic enforcement procedures put in place by the Budget Control Act; for 2022, CBO assumed that such appropriations would equal the 2021 amount grown at the rate of inflation. Given those appropriations, discretionary spending would decline from 8.4 percent of GDP in 2012—which is already below the 2011 level of 9.0 percent—to 5.6 percent in 2022 (see Table 5-1).
In reciting the 3% figure as "possibly appropriate", Brooks is expressing some level of indifference to a cut to that level. His professed fear is that "defense planners are notoriously bad at estimating how fast postwar military cuts actually come", whereas his ability to project future Medicare cost increases verges on perfection (never mind that he appears to be unaware that Medicare spending growth has been lower than projected for the past three years) - and thus at some point in the future the military budget might be cut below the 3% (that results from the sequester, and that both parties appear intent on raising) in the CBO projection. Also, there's an inherent tension between arguing that the 3% figure is "possibly appropriate" and Brooks' overall thesis that the President's purpose in appointing Chuck Hagel is to have him "supervise the beginning of America’s military decline".

First it's the OMB, then the CBO, and then over to the GAO. David Brooks writes,
Keep in mind how brutal the budget pressure is going to be. According to the Government Accountability Office, if we act on entitlements today, we will still have to cut federal spending by 32 percent and raise taxes by 46 percent over the next 75 years to meet current obligations. If we postpone action for another decade, then we have to cut all non-interest federal spending by 37 percent and raise all taxes by 54 percent.
The GAO writes,
One measure of the challenge over the long term is the “fiscal gap.” The fiscal gap represents the difference, or gap, between revenue and noninterest spending over a certain period, such as 75 years, that would need to be closed in order to achieve a specified debt level at the end of the period. From the fiscal gap, one can calculate the size of action needed—in terms of tax increases, spending reductions, or, more likely, some combination of the two—to close the gap.

For example, to keep debt held by the public as a share of GDP in 2086 from exceeding its level at the beginning of 2012 (roughly 68 percent of GDP) in our Alternative simulation, the fiscal gap is 8.3 percent of GDP (see table 1). This means that revenue would have to increase by 46 percent or noninterest spending would have to be reduced by about 32 percent (or some combination of the two) on average over the 75-year period. Even more significant changes would be needed to reduce debt to lower levels.
Brooks says "and", the GAO says "or"... which means Brooks is doubling the size of the problem. Were Brooks to resort to the obscure news source known as the "New York Times", he would find an explanation by Bruce Bartlett of the GAO's projection:
As the table shows, spending is not out of control. Entitlement programs like Social Security and Medicare are rising gently as the baby-boom generation retires. All other spending, including that for the military and domestic discretionary programs, falls – with the notable exception of interest on the debt. Interest rises sharply as the deficit rises, principally because the G.A.O. assumes that revenue will not be permitted to rise above its historical average – as Republicans continually insist....

That leaves interest on the debt as the principal driver of long-term spending and deficits. As the G.A.O. projections show, net interest rises from 1.4 percent of gross domestic product this year to 3 percent in 2020, 4.9 percent in 2030 and continues rising astronomically thereafter as interest accrues on the bonds previously sold to pay interest on the debt.

Interest rises from 6.1 percent of the federal budget in 2012 to 12.9 percent in 2020, 21 percent in 2030 and eventually reaches 59 percent if current projections are maintained through 2082, the last year in the G.A.O. analysis. As a share of the deficit, interest would rise from 19.2 percent this year to 62 percent in 2020. In the long run, virtually all of the deficit is accounted for by interest on the debt.
Bartlett asserts that the way to avoid that enormous increase in the cost of interest is for the present generation of Republicans to stop preventing government from paying for itself. Simply put, the GAO report does not support Brooks' "out of control Medicare" position, but is the result of out-of-control borrowing forced by Republican insistence that government not be adequately funded. If you don't want the national debt to grow and you're not willing to make the cuts to government expenditure necessary to avoid growing the debt, you have to increase revenues.

On the positive side, Brooks seems to have given up on his peer group's historic insistence that the problem is a single program called "medicareandsocialsecurity", and is now focused on Medicare. On the negative side, he's not being honest about what his sources actually say, and he's making what is fundamentally an appeal to fear. The OMB and CBO reports are only relevant if the Republicans refuse to work out a different deal, such that the automatic cuts are not changed. The GAO projection, which is half as dire as Brooks purports, indicates that the growth of Medicare costs remains a significant concern but that the larger concern is that continued, long-term deficit spending will cause the amount the U.S. has to pay to service the debt to snowball. This?
Chuck Hagel has been nominated to supervise the beginning of this generation-long process of defense cutbacks. If a Democratic president is going to slash defense, he probably wants a Republican at the Pentagon to give him political cover, and he probably wants a decorated war hero to boot.

All the charges about Hagel’s views on Israel or Iran are secondary. The real question is, how will he begin this long cutting process? How will he balance modernizing the military and paying current personnel? How will he recalibrate American defense strategy with, say, 455,000 fewer service members?
Fear-based nonsense. First (granting that he's younger than he looks), if Brooks recalls his history, back in 2000 candidate Al Gore was proposing greater military spending than candidate George W. Bush, and Donald Rumsfeld was predicted to have been chosen to oversee a reinvention of the military into a smaller, more nimble force. How did that turn out, again? Second, even Brooks knows that Hagel will not be overseeing a reduction in the active duty armed forces from 1.4 million down to @1 million. Brooks doesn't explain his number, but I expect he's extrapolating from the financial figures from the CBO - a reduction "from 4.3 percent of G.D.P. to 3 percent" over eight years, or 30% over eight years, with 30% of 1.4 million being 4.2 million... that's in the same ballpark.

Never mind that Hagel is unlikley to be Defense Secretary in eight years, that the scheduled defense cuts underlying that projection are not going to happen, that a 30% cut does not prevent prioritization (it would not be 30% of each line item, across the board), that Congress controls the purse strings, that neither this Congress or the President can bind the hands of their successors, or that Brooks himself has suggested that the net result (of the cuts that won't actually occur) may be an appropriate level of defense spending. "The sky is falling - we're turning into Europe and it's going to happen this month."

A still theoretical 30% cut in military spending is not going to "turn us into Europe."

What's missing from Brooks' column? A solution. Brooks implicitly rules out means testing when he argues that a tax increase on the wealthy is "barely a wiggle on the revenue line and does nothing to change the overall fiscal picture". Does he endorse the Democratic initiative to attempt to identify the most effective treatments for medical conditions, why trying also to identify and eliminate costly treatments that are either no more effective than less costly counterparts or that don't work at all? If so, he should write a column criticizing his own political party for its demagoguery about "rationing" and "death panels". Does he want to arbitrarily cap Medicare expenditures and replace the program with vouchers? If so, he's afraid to say so. Does he simply want to reduce compensation levels for doctors, hospitals, and medical equipment suppliers? What's left?

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