Social Secuirty and Medicare -- The Sky is Still Falling

Frank Bruni has penned an entirely banal editorial, echoing those of years and decades past, about how unfair it is that Americans are "saddling" the next generation with the cost of Social Security and Medicare. Bruni pitches people over the age of forty against the "Millennials", but it seems like only yesterday that poor Gen. X was going to be forced to support the Baby Boomers.

For Bruni, Bob Kerrey proves to be a veritable fount of platitudes,

This subject haunts him more and more. “If we’re trying to figure out how to advance the next generation’s future, we need to be spending more on the next generation, and we’re spending it on yesterday’s generation,” said Kerrey, 70. “I am not the future. My 12-year-old son is. But if you look at the spending, you’d think I’m the future.”

So the argument is that we need to spend more supporting children? No, of course not.

Kerrey is referring mostly to Social Security and Medicare, which, along with Medicaid, are the so-called entitlements that claim a larger and larger share of the federal budget.

He’s fixated on those sorts of numbers: According to the Congressional Budget Office, Social Security, Medicare and Medicaid totaled 6.7 percent of the country’s gross domestic product in 1990. By 2010, they were 10 percent. And by 2038, such spending may represent 14.3 percent. It’s hard to see how that leaves much money for discretionary spending on infrastructure, on education, on research, on a range of investments that safeguard or improve the America that today’s young people will inherit.

Of course, by 2020 such spending may not represent 14.3 percent, but that's always beside the point in this type of editorial

If the problem is that we need to shift those numbers, let's consider what has happened when the President has proposed Reagan-style adjustments to FICA taxes and benefits. The Republicans have obstructed those efforts, and have even demagogued against the President as trying to cut Medicare benefits for seniors. The politics seem to be irrelevant for Bruni, but it's reasonable to infer both that one of the two political parties has no interest in reforms that will help to preserve Social Security and Medicare over the long-term, and that very same party is too craven to be honest with its supporters about its goals. And that's why haven't we moved forward on the obvious solution, which Obama has at times attempted to pursue despite strong opposition to benefits reductions from within his party. How does Bruni see it?

That unwillingness [to look at budgetary math] includes the predictable pushback from many members of Congress, from voters and from various advocacy groups when proposals are made to limit the growth of Social Security by, say, fiddling with cost-of-living adjustments.

Well, yeah, but it does bear mentioning that when one party was ready to forge ahead with reforms, the other party refused to cooperate.

Bruni continues with a complaint that we're already making cuts,

Talk to physicians and other scientists who have long depended on research grants from the National Institutes of Health to keep the United States at the forefront of invention and innovation and they’ll tell you how thoroughly that spigot has closed over the last 10 years. They’re defeated, despondent.

Would Bruni have us believe that those doctors were focusing their full effort on childhood illnesses? Of course not. But if not, how does he reconcile his complaints about spending cuts with his complaint that we're spending too much money on the medical needs of older Americans?

Bruni offers another tired complaint,

The Urban Institute released a report in 2012 that looked at figures from 2008 for the combined local, state and federal spending that directly benefited Americans 65 and older versus spending that went to Americans under 19; the per capita discrepancy was $26,355 versus $11,822. Julia Isaacs, a senior fellow at the institute, told me that while data for subsequent years hadn’t been analyzed yet, it wouldn’t show a significant change in that gap.

Sure, if you include Social Security and Medicare, we spend a lot more money on older Americans than we do on kids. But Social Security is a program that you pay for over your working years, and for the average participant the return on the investment is not particularly impressive. Similarly, Medicare is supported by people over their working lives and it's reasonable for people who have spent their lifetimes paying into the system to receive its benefits when they retire.

Would Bruni complain that the money in his 401K plan is not clawed back for the benefit of younger workers? That the long-term care insurance he paid for ends up paying for his long-term care? One would expect not. While an argument can be made about whether workers should pay more or whether the payout is too high (or too low), there's no equivalence between Medicare and Social Security payments, which workers have paid for, and government funding for kids.

As for Bruni's general complaints about how his peers talk about millennials,

Sure, some people make a habit of complaining about "kids these days", but such has it always been. Bye Bye Birdie came to stage in 1960. here's a memory from 1967:

Facts Make the Tea Party Veer to the Political Left on Spending?

This isn't new, but I just came across it.

In fact, a sophisticated poll covering 31 budget items as well as revenue sources conducted around the 2010 elections found that, even then, Republican, Democratic and independent voters all agreed on much higher taxes and much deeper defense cuts as the most striking elements of how the budget should be crafted....

...[S]upport for government spending has varied somewhat cyclically since the[ 1964 election], but only within a relatively narrow range, as recorded by the gold standard of public opinion research, the General Social Survey [data archives here].

The GSS asks about more than two dozen specific problems or program areas, asking if the amount we’re spending is “too little,” “too much” or “about right.” Not only do most Americans think we’re spending too little in almost every area — most conservatives also think the same. Indeed — hold onto your hats — even most conservative Republicans feel that way as well....

The researchers also found broad agreement across party lines. Their first report noted, “Among a total of 31 areas, on average Republicans, Democrats and independents agreed on 22 areas — that is, all three groups agreed on whether to cut, increase or maintain funding. In 9 other areas there was dissensus.” That’s not to say there weren’t differences. Republicans cut much less from defense — $55.6 billion for core defense (versus $109.4 billion) — and much less overall — $100.7 billion (versus $146 billion) — than Americans as a whole. But even so, the position of Republican respondents overall was still dramatically to the left of the political conservation in Washington....

[Tea Party members were] more conservative than Republicans overall, but they still come across as wild-eyed socialists compared to their D.C. representatives:

Those who described themselves as “very sympathetic” to the Tea Party (14% of the full sample), as would be expected, raised taxes and revenues less than Republicans in general, and less than Democrats and independents. Even so, on average, Tea Party sympathizers found a quite substantial $188.2 billion in additional revenues to reduce the deficit ($105.2 billion in individual income taxes).

This sort of information makes it more understandable why the Republicans have proved to be such poor fiscal stewards when they hold power. They demagogue about taxation and spending, but prioritize budget increases in areas such as military spending and revenue reduction via tax policy that favors the wealthy and corporations. When it comes to actual budget cuts, they can read the polls as well as anybody else. In specific regard to Medicare and Social Security,

Combining GSS data from 2000 to 2012, and asking about Social Security and spending on “improving and protecting the nation’s health” (GSS’s closest match with Medicare), liberal Democrats thought we were spending “too little” rather than “too much” on one or both by a margin of 87.1 percent to 2.4 percent — a ratio of over 36-to-1. But all other groups of Americans held the same view, even conservative Republicans — just not by the same overwhelming amount. They “only” thought we were spending “too little” rather than “too much” by a margin of 59.2 percent to 13.1 percent — a ratio of 4.5-to-1. With figures like that — all well to the left of Democrats in D.C. — it’s no wonder that conservatives in Congress always talk about “saving” Social Security and Medicare, and forever try to get Democrats to take the lead in proposing actual cuts.

The Republicans are not willing to lose the next election by savaging domestic spending in a manner necessary to even make up for their spending increases and tax cuts, let alone make cuts dramatic enough to put the budget into balance or to create a surplus and spend down the debt. Instead, when they take power, we get Dick Cheney-type comments that "deficits don't matter". Instead, if you want a balanced budget, they offer the worst of both worlds -- tax policies that reduce revenue and spending policies that increase the overall budget, resulting in a significant increase in the nation's debt.

Paul Ryan's Buget Appeal to the April Fools

I see Paul Ryan picked an approropriate day to release his (and by "his" I mean something created by others then handed to him as the pitchman) plan to balance the budget in ten years.

Ryan's budget, called the "Path to Prosperity," has almost no chance of passing the Democratic-controlled Senate but is expected to serve as a campaign manifesto for Republicans in November's congressional elections.

It's a predictably Republican plan. The rich get their path to greater riches, and guess who picks up the tab? April fools!

It proposes to kill President Barack Obama's 2010 healthcare reforms and revives cuts in social programs such as the popular Medicare entitlement for the elderly that Ryan, who chairs the House Budget Committee, has proposed in other recent budgets.

Let me think for a moment... didn't we have a Republican claim that he was going to balance the budget in ten years, roughly fourteen or so years ago? How did that work out for us, again?

Let me remind you why ten year plans to balance the budgets are the refuge of liars and cowards:

1. Congress cannot bind future sessions of Congress. The only budget that matters is the one they pass this year.
   
   If you believe that the Republicans, given the opportunity, won't embrace deficit spending like kids in a candy store, you've missed the entire modern history of the party.

2. Unexpected events happen.
   
   If you have been asleep for the past decade or two, you may have missed a couple of wars, a global economic meltdown, and the like, but believe it or not they affect the budget.

3. Budget projections rely upon assumptions that may be reasonable in the short-term, but are unreliable in the longer term.
   
   A few years ago, for example, healthcare inflation was assumed to remain out-of-control for decades to come, yet suddenly it appears to be in check. (Ryan's response, of course, is to propose eliminating the Obama-era legislation that has played a role in that change).

4. Budget deficits aren't the real issue. The issue is whether government spending is responsible, not whether the budget is balanced every year.
   
   When the economy is in a downward spiral, it makes sense to try to stimulate growth. When the economy is booming, it makes sense not just to balance the budget but to pay down the national debt. The Republican Party takes the opposite approach, with irresponsible tax cuts and over-the-top spending during boom times, then embracing austerity during recessionary periods... if a Democrat is in the White House. The responsible approach is to keep the growth of the nation's debt under control over the long-term while maintaining flexibility for times of recession and crisis.

5. "Ten years" means no one has to be responsible.
   
   This is a typical coward's refuge. Promise to deliver something over such a long time frame that nobody has to take responsibility. If a "ten year plan" were to pass for the coming fiscal year, not only will President Obama be out of office when it comes time to deliver, but his successor will be out of office (or at the very tail end of his term). And I guarantee that his successor would have many excuses for why the plan failed, and how it's somebody else's fault, assuming anybody even remembers it.

And all of that assumes that the budget is put together with honest numbers. When dishonest politicians use distorted figures, the projection is worthless from day one.

If this weren't another childish stunt for the April fools, Ryan would offer a meaningful budget for the coming fiscal year, no hocus pocus, wishful thinking, or outright mendacity about "ten years from now". And he would be honest, "I want to cut social benefits for ordinary, working people right now, so that I can afford to continue the tax levels and spending programs that best serve the special interests that favor my political party. If my budget plan fails, the result will be that ordinary people pay a significant price, but those special interests remain on the Path to Prosperity. I will never vote to restore a penny of social spending cut in the name of this program, even if not one of the projections I'm making prove true, because the entire point of this exercise is to cut those programs."

Robert Samuelson Fudges More Numbers

Robert Samuelson is expressing skepticism about the success of the stimulus:

There’s the puzzle: monster stimulus, midget recovery.

How to explain the contrasting stories?

If Samuelson, an economics commentator, actually followed his subject, he would be aware that the stimulus was not so big in relation to the gap it needed to cover. Dean Baker has been addressing this issue for years.

The arithmetic on this is straightforward. With the collapse of the bubble, we suddenly had a huge glut of unsold homes. As a result, housing construction plunged from record highs to 50-year lows. The loss in annual construction demand was more than $600 billion. Similarly, the loss of $8 trillion in housing equity sent consumption plunging. People no longer had equity in their homes against which to borrow, and even the people who did would face considerably tougher lending conditions. The drop in annual consumption was on the order of $500 billion.

The collapse of the bubble in nonresidential real estate cost the economy another $150 billion in annual demand, as did the cutbacks in state and local government spending as a result of lost tax revenue. This brings the loss in annual demand as a result of the collapse of the bubble to $1.4 trillion.

Compared with this loss of private sector demand, the stimulus was about $700 billion, excluding some technical tax fixes that are done every year and have nothing to do with stimulus. Roughly $300 billion of this was for 2009 and another $300 billion for 2010, with the rest of the spending spread over later years.

In other words, we were trying offset a loss of $1.4 trillion in annual demand with a stimulus package of $300 billion a year. Surprise! This was not enough.

It's not as if Dean Baker is alone in his opinion. Paul Krugman seems prescient in describing Samuelson's form of analysis:

So why does everyone — or, to be more accurate, everyone except those who have seriously studied the issue — believe that the stimulus was a failure? Because the U.S. economy continued to perform poorly — not disastrously, but poorly — after the stimulus went into effect.

There’s no mystery about why: America was coping with the legacy of a giant housing bubble. Even now, housing has only partly recovered, while consumers are still held back by the huge debts they ran up during the bubble years. And the stimulus was both too small and too short-lived to overcome that dire legacy.

This is not, by the way, a case of making excuses after the fact. Regular readers know that I was more or less tearing my hair out in early 2009, warning that the Recovery Act was inadequate — and that by falling short, the act would end up discrediting the very idea of stimulus. And so it proved.

But, you know, Samuelson found an economist you've probably never heard of before, and the guy has a position at a brand name university and a blog, so why research any more deeply into the subject? Samuelson's primary argument is that we should live in fear of dire consequences that never materialized, and thus that the government should do nothing more to stimulate the economy. Fortunately for him, the Republican Party is on his side so we're apt to see the painfully slow recovery continue to inch along. If another recession hits soon, Samuelson may discover out that the phrase, "an economy in eclipse," has more significance than as a parting shot taken at those who actually understand the subject.

Robert Samuelson's Fudgy Numbers

You can count on two things from Robert Samuelson: Arguments that any amount of social spending is too much, and arguments that any amount of military spending is too low. I say that while accepting that there may be some social spending programs that Samuelson would maintain at present levels, or perhaps even expand, and some military programs that he might cut, but he's not interested in writing about those issues. In a big picture sense, he dislikes social spending, while depicting military and war spending as easily afforded pocket change.

It thus comes as no surprise that Samuelson is adamantly opposed to the proposed cuts to the Pentagon budget and the size and scope of the U.S. military. Predictably, his outrage is expressed largely in the abstract, and he chooses to completely ignore the issues of waste or of out-dated or redundant weapons programs. Instead he presents dubious arguments and fudges the numbers. It's difficult to believe that he could hold a straight face while writing his opening paragraph:

The crisis in Ukraine reminds us that the future is unpredictable, that wars routinely involve miscalculation and that brute force — boots on the ground, bombs in the air — counts. None of these obvious lessons seems to have made much impression in Washington, where the Obama administration and Congress continue their policy of defunding defense and reducing the United States’ military power.

I would love for Samuelson to explain to his readers how much additional U.S. military spending it would take to deter Russia from acting in what it perceives to be its best interest, and exactly how that spending would have an impact on Putin's decision-making. The issue is not that we can't counter Russia in a conventional war. The issue is that Russia is a nuclear power, and even if a war to liberate Crimea were somehow (magically) contained to that region and did not involve nuclear weapons, the human cost of such a war would be massive. Samuelson is more than smart enough to know that a $400 trillion U.S. military budget would not have deterred Russia. What does it tell us that his opening position suggests otherwise?

Next up, Samuelson whines that as military spending drops, Social Security spending increases. First, as should be obvious to anybody who claims to be a writer on economic issues, the two are not related. It is possible to have both high Social Security spending and high military spending. Second, the funding mechanisms are different. Social Security is designed to be self-funding. But for Republican obstructionism, as cheered on by the "Burn it down" position taken by Beltway pundits such as Samuelson, we would almost certainly have seen a reform bill pass early in Obama's tenure that would have reduced the measure of inflation for future Social Security benefits and balanced the books into the very distant future. Third, if Samuelson can do math, he knows that Social Security and Medicare spending are closely tied to the number of elderly people in our society, and he should have no trouble figuring out that the problem is not so much that the spending is "out of control" as it is that Baby Boomers are reaching retirement age. Fourth, the reasons to maintain Social Security and Medicare have absolutely nothing to do with the reasons our nation might have to modify its defense budget.

Samuelson next claims that there are two reasons why the U.S. has a military: to deter conflicts and to defend national interests. On the issue of deterrence, Samuelson argues that any large military budget cuts "symbolically undermines deterrence." What a wonderfully convenient argument for him: We can never make more than token cuts to the military, as to do so would send the message to the world that they can engage in military conflicts. Perhaps Samuelson is still clinging to the false hope that the end of the Cold War somehow meant an end to war, as it's difficult to find a region in the world where nations seem particularly disinclined to engage in warfare when they believe it's in their best interest. One wonders, what military conflict does Samuelson believe the U.S. is presently deterring (perhaps a Chinese invasion of Taiwan, or a North Korean invasion of South Korea?) and why does he imagine that the military cuts will even slightly affect deterrence.

The best examples Samuelson can muster are of China and Iran:

The United States’ military retrenchment won’t make China’s leaders less ambitious globally. (China plans a 12 percent increase in military spending for 2014; at that pace, spending would double in six years.) Nor will it dampen Iran’s aggressiveness and promote a negotiated settlement over its nuclear program. Probably the reverse. Diplomacy often fails unless backed by a credible threat of force.

If the best examples Samuelson can muster are that, if military spending is cut, China may go on an invasion spree and Iran will... do whatever it is that Samuelson imagines that they would do differently... you can see the weakness of his position. When you describe the current military actions taken by China, how can you suggest that those actions would be deterred if only we didn't reduce military spending from current levels? As for the notion that the U.S. would lack credibility to pose a military threat to Iran, post-cuts, that's absurd on its face. It's another assertion that Samuelson can't possibly believe.

Samuelson mentions that China is increasing its military spending by 12%, to support a ridiculous projection that at that rate they could double military spending in six years. His source tells us what such a theoretical doubling would mean:

Although the rise in the defense budget in the past three years has surpassed GDP growth, the share of military spending in China's GDP stood at less than 1.5 percent last year, well below the world average of 3 percent, Yin said, citing statistics.

A report released by London's International Institute for Strategic Studies showed the United States remained the world's biggest defense spender in 2013, with a budget of 600.4 billion U.S. dollars.

Robert Samuelson has been beating the military spending drum for a very long time. Back in 1997, he was complaining that 1996 military spending was a mere 3.6% of GDP. In 2012, by the CIA's measure, military spending was at 4.35% of GDP. While that number may decrease to 2.7% by 2017, a target that was included in the 2013 bipartisan budget deal, U.S. military spending would continue to massively exceed China's expenditure.

Samuelson's drum beating about China also belies his suggestion that military strength is inexorably tied to the percentage of GDP a nation devotes to military spending. He's depicting a nation that spends a mere 1.5% of its GDP on its military as the leading threat to the world military dominance of the United States. That should suggest a few things to Samuelson, including the possibility that the fact that the size of a nation's economy factors complicates the question of how military spending should be measured and that, even in relation to his beloved military spending, the law of diminishing returns comes into play.

Samuelson also glosses over the fact that nations enjoy a carry-over from past military spending. It's not the present level of investment that frees Russia to support Syria, or act military in nations like Georgia, Czechoslovakia and Chechnya. It's the legacy of its superpower status and its nuclear arsenal. Russia may not have the power it once held to project its might into the far reaches of the globe, but it has made clear that it can and will act to defend its perceived interests no matter what the rest of the world may believe. In other words, despite Samuelson's ominous warnings, there's no reason to believe that the proposed budget cuts would devastate the status of the U.S. military as the world's leading military power, or the status of the U.S. as the world's only remaining superpower.

Russia’s aggression in Ukraine raises the prospect that a sizable number of U.S. troops might be stationed in the Baltic nations or Poland. All belong to NATO; all must now feel more threatened by Russia.

While noting that this is fear-mongering of the worst kind, and that Russia understands the difference between acting against a NATO member state and a non-aligned state, once again if that threat is being felt the feeling is occurring at the end of a long run-up in military spending. If current spending levels aren't sufficient to keep nations from being afraid of Russia, then there's really nothing that we can do to make that fear go away.

A question Samuelson doesn't ask, let alone address, is whether it's even our nation's proper role to try to ensure that nations that are not our treaty partners are not in fear of military action by a neighboring nation. Samuelson seems to love the idea of the U.S. as a global policeman, no matter what the price, but I see little sign on whether he's reflected on whether that's an appropriate role for the U.S., or whether other nations should take a greater role in paying for and providing their own regional security. If it's crucial to Europe that the Baltic States never fear Russia, no matter how remote the possibility of actual military action, why should it be the U.S. that foots most or all of the bill for chasing away the bogeyman? And if Samuelson believes the statement he endorses at the end of his column, "the world has gotten no less dangerous, turbulent or in need of American leadership. There is no obvious peace dividend as was the case at the end of the Cold War", why does he imagine that the bogeyman will vanish even if we continue to spend at today's inflated levels?

It should also be noted that Samuelson plays the game that any cuts in military spending must be permanent. He disregards the fact that every time this nation has felt a need to increase military spending, those increases have occurred. The only budget or spending bill that really matters is the one passed by the current Congress, as the next Congress will remain free to institute its own spending priorities. Samuelson, I suspect, is aware of that fact, but he chooses not to acknowledge it because, as with his other omissions, he understands that once people realize that his rending of clothes over future military spending is a performance, and that if the circumstances require Congress will do what it has always done to maintain the military strength of the United States -- increase military spending.

Sorry, No, Pseudo-Conscription is Still a Bad Idea

Dana Milbank has jumped onto the bandwagon of those who think that the cure for "kids these days" is some form of conscription.

As I make my rounds each day in the capital, chronicling our leaders’ plentiful foibles, failings, screw-ups, inanities, outrages and overall dysfunction, I’m often asked if there’s anything that could clean up the mess....

But one change, over time, could reverse the problems that have built up over the past few decades: We should mandate military service for all Americans, men and women alike, when they turn 18. The idea is radical, unlikely and impractical — but it just might work.

But, even if we incorrectly assumed that the military wanted universal conscription, it's not even slightly realistic to have every 18-year-old serve in the military. While Milbank refers to Switzerland, in which "sons of bankers and farmers alike do basic training for several months and then are recalled to service for brief periods", none of the proponents of conscription are suggesting a similar approach. They instead prefer a period of a year or several years in which the young person is forced to participate in some sort of nebulous national work program that may (but probably won't) involve military service.

What we would end up with, at best, is what Milbank describes later in his editorial, based on his notion that "the structure is less important than the service itself",

My former colleague Tom Ricks proposes bringing back the draft in the United States but allowing for a civilian national service option — teaching, providing day care and the like — for those who don’t want to join the military.

Ricks' proposal was bad, as well, but at least he attempted to explain how it might function. The notion is that we are going to fix the nation's problems my making people take people away from their academic studies or jobs for a year or two, and compelling them to work in daycare centers or equivalent vocations? Seriously? And note the disdain for teaching as a profession - it's presented as something a random high school graduate can do, and roughly equivalent to working in a daycare center.

Milbank agrees with my past assessment that the cost of such a program would be huge. "Staggering" might be a better word. But he insists,

But so would the benefits: overcoming growing social inequality without redistributing wealth; making future leaders, unlike today’s “chicken hawks,” disinclined to send troops into combat without good reason; putting young Americans to work and giving them job and technology skills; and, above all, giving these young Americans a shared sense of patriotism and service to the country.

There is little reason to believe that Milbank's draft would overcome growing income inequality. The type of job skills that marginal high school graduates (or drop-outs) could develop through such a program would likely leave them qualified for low-paying jobs. Even for those who serve in the military, if you consider the difficulty that many veterans presently have finding employment, why does Milbank believe that those who are conscripted and serve for less time will fare better?

Without redistributing wealth? Sorry, but a program that takes a "huge" amount of government revenue and applies it to a year or two of national service would certainly be "redistributing wealth". There's also more than money at stake. For 18-year-olds who plan to attend college, you're delaying their entry into the workforce by at least a year (assuming the program is only a year long). For 18-year-olds who are employed, you're costing them their jobs. For 17-year-olds who would otherwise have job prospects, you're ensuring that employers won't consider them for anything more than temporary positions. That is, there's a tremendous opportunity cost imposed on the young people who are conscripted into the program - perhaps not wealth redistribution in the classic sense, but nonetheless imposing a genuine financial harm on those drafted into the program.

I'm not clear on why Milbank believes that this service, even if we pretend it could all be military service, will result in fewer military mobilizations. Milbank references "chicken hawks", the term applied to people like Dick Cheney who fastidiously avoided service during their youth but had no compunction about entangling the U.S. in wars. But where's the evidence that veterans, once in office, are any less hawkish than non-veterans? Veterans got us into the Korean War and Vietnam War, the first Iraq War, and any number of lesser conflicts. John McCain is a veteran, yet he's one of the most hawkish members of the Senate.

As for "putting young Americans to work and giving them job and technology skills", how would that work? Yes, the military involves a lot of job and technology skills, but often not the sort of skills that fit well with the modern civilian workplace. It's not clear how many of Milbank's conscripts would achieve similar skill sets, as their terms of service would be shorter. Beyond that, Milbank mentions... teaching and daycare. A young adult can already work in a daycare center straight out of high school, and in some cases before they even graduate. While it might be possible to create a small, focused program that allowed high school graduates to develop cutting edge skills, the sort of blunderbuss approach Milbank favors all-but-ensures that most participants will gain very few skills that would benefit them in a subsequent job, save perhaps at the bottom end of the job market.

Oh yes, and "above all", giving "young Americans a shared sense of patriotism and service to the country". I can't help but think of my uncle who, unlike many of the chicken hawks to whom Milbank alludes, insisted upon joining the military and upon combat duty despite a physical condition that would have allowed him to either avoid service or bide his time behind a desk. If anything, his patriotism was bated by his experiences, and the schisms within his unit made it anything but the sort of happy melting pot that Milbank seems to envision. Milbank's vision seems oddly in line with what you see in Vietnam, where conscripts may find themselves in a civilian uniform, working behind the front desk of an army-owned hotel... or cleaning the rooms. But there's little reason to believe that conscripts assigned to random, menial employment would feel much of a connection with those outside of the daycare center where they work, or that those who obtained more prestigious assignments or ranks would view them as equal. And last I checked, Vietnam's government was not one I envied.

Milbank later adds, "Gun-rights groups would cheer an armed citizenry", but where does that even come from? Milbank cannot seem to maintain a consistent thesis as to whether the conscripts would be performing military service, or whether they would be working in daycare centers. Perhaps he imagines that all conscripts will go through military basic training before being shipped off to work in daycare centers? It's hard to tell what he has in mind.

Milbank notes, "an article published by the libertarian Cato Institute argued that compulsory service 'can be a pillar of freedom,'" but fails to note the inherent tension between "libertarianism" and conscription, or for that matter between freedom and conscription. A libertarian might endorse bringing real meaning to the "unorganized militia", with the government providing broad opportunity for citizens to avail themselves of military training within that context, but let's not pretend that conscription is a libertarian ideal or that a libertarian with his head screwed on correctly would confuse it with "freedom".

I'm not particularly concerned that yet another pundit has endorsed a type of service he personally eschewed as a cure for the nation's ills, although I remain amused by arguments that boil down to, "The best way for young people to develop a set of values similar to my own is by being conscripted into a type of program that I, personally, avoided." There's no chance that universal conscription will become law. However, I do think that much of the hand-wringing about kids these days, and about how to provide better opportunities for young people who have more than their fair share of obstacles to overcome, could be channeled into a voluntary service program, a "bridge year" or two in which participants could be matched with suitable peer groups, and dispatched to communities where they could perform productive work and develop genuine job and leadership skills. But I guess that sort of idea isn't as fun to kick around. Besides, while conscription is something the government would have to impose, for somebody who is positioned to actually generate the necessary money and attention, proposing a "bridge year" program might invite the response, "Great idea, what are you doing to bring it to life?"

Ed Rogers Is Terrified That Obamacare will Succeed

Ed Rogers, one of the Washington Post's political demagogues blogging in the PostPartisan (get it?) section of their website, blathers about Obamacare:

Since I’m always admonishing others to admit the obvious, I will now make an admission of my own: I’m rooting for Obamacare to fail. And I encourage others to do the same.

If you're familiar with Rogers or his history, that's really all that he needed to say. It would stand as a naked admission of his political bias, and his preference to cause harm to the millions of people who will benefit - and are already benefiting- from the PPACA if it gives advantage to the Republican Party. And if he left it at that, it would be fair to point out that people of Rogers' ilk used to go ballistic over criticism of George W. Bush, pretending that any criticism constituted a near-treasonous (or... should I say treasonish) wish for the nation to fail. But... he can't stop there.

I do not hope the uninsured stay uninsured, but Obamacare is not the solution.

You know what would have been a good follow-up to that claim? A proposed solution. Do you think we got one? Get real. The reason Rogers and his ilk are jumping on the "Glitchgate" bandwagon is because they don't have any ideas.

Obamacare is a harmful policy that will be bad for the country if it is forced upon Americans and the American economy.

You know what would have been a good follow-up to that hyperbolic claim? Any evidence that it is connected to reality. Do you think we got one? Yeah, same answer.

Why would anyone hope it limps into existence and settles like a cancer on the U.S. health-care system?

Wow... people having health insurance is like cancer. Who would have thunk.

The president asked his critics to stop rooting for its failure, but I, for one, refuse to do so.

And there he circles back to my first point, but again he finds himself unable to stop.

Also, the failure of Obamacare would do a lot to expose the false promises of big government programs.

Let's see... the three biggest ticket items are Medicare, a highly popular and effective health insurance program, Social Security, a highly popular and effective program to provide retirement benefits and disability insurance, and the military. Which of these does Rogers believe will be proved to be a "false promise" by a government program that, rather than following the successful lead of Medicare, compels people to buy insurance from private companies?

President Obama has been and always will be an unapologetic promoter of classic liberal activism.

Do you have the first clue what "classic liberal activism" means? If it were a little less polite, it might be a meaningless phrase Rogers picked up from Rush Limbaugh.... Does Hannity use that phrase? Seriously - when I search for the phrase "classic liberal activism" in quotes, Google returns a whopping six results, three of which are the same screed from WorldNetDaily, Joseph Farah's gift to reactionary trolls who want to play journalist. Perhaps that's Rogers' source?

Liberals think that Washington knows best and that increasing citizens’ dependency on government is a goal in and of itself.

When the facts fail you, there's nothing like a hollow man argument to save the day. Which liberals hold that belief, Ed? Can you name even one? Didn't think so.

Like all Republicans, I believe we need smaller government.

Straight from the hollow man to the false generalization. History tells us that Republican Presidents like to talk about smaller government, while nonetheless significantly expanding the size, reach and cost of government. Going back to 1982, which presidents have presided over the slowest growth in annualized federal spending? Clinton and Obama, by significant measure. If Republicans believe in smaller government, why do they have such a difficult time voting for politicians who reduce the size of government, implementing policies to reduce the size of government, or applauding the presidents who actually walk that walk? (Which again takes us back to my first point).

Obamacare is the opposite of a smaller, less obtrusive government.

No, as Rogers would figure out if he were to actually think about the issues, it is not. Millions of people are trying to sign up for health insurance through the exchanges because they want insurance. Millions of people went to the exchange site the day it opened for that very reason. Rogers may sit around with his wealthy Republican peers, sniveling about how ordinary people don't really want health insurance, but the fact is that millions of people like the provisions of the PPACA that are already in effect (such as allowing kids to stay on their parents's health insurance until the age of 24) and are eager to finally get health insurance that they can afford or that will cover their pre-existing conditions. In terms of being "smaller", quite obviously the program is designed to minimize the public role. The opposite of that would be single payer.

The failure of Obamacare would discourage and hopefully deter those who think a bigger, more domineering U.S. government is the answer to our problems.

Actually, the lesson would be that we should do the sensible thing, and follow the lead of pretty much any other western democracy - all of which have national health insurance programs of one sort or another that are both popular and largely successful. It is the adherence to "free market" principles that keeps this nation's health insurance costs so high, while providing the average American with less care than they would be able to obtain under a less costly "socialized" model.

And most important, the horrors of this debacle and the collapse of Obamacare would have a chilling effect on politicians who want to promote big government solutions.

And there you get to the real problem - Rogers is cheering for Obamacare to fail because his bladder trembles at the thought that it might succeed. And then governments might do crazy things, like adequately funding public education and fixing roads and bridges.

Blowing the Budget on Subsidies

The Red Wings want a new stadium and, despite Detroit's bankruptcy, the governor is in favor of a taxpayer subsidy for the $650 million project,

“This is a catalyst project,” Governor Rick Snyder said, according to Crain’s Detroit Business. “This is going to be where the Red Wings are. Who doesn't get fired up in Detroit about the Red Wings? Come on now, the people that are criticizing are people from outside of Michigan. This is something that is important to all of us.”

There are plenty of reasons to criticize massive government subsidies of sporting arenas, including the fact that sports owners tend to be extraordinarily rich people who can afford their own arenas - and if they're not, there's probably a richer person who will be happy to acquire the team. The subsidies have created an unhealthy market in which a team's value can be increased by tens or hundreds of millions of dollars to the owner based upon the taxpayer subsidy for a stadium. From Crain's,

Detroit's Downtown Development Authority intends to use $284.5 million in property taxes captured within its 615-acre downtown district to pay off the bonds issued by the state to build the 18,000-seat arena west of Woodward Avenue and I-75.

The remainder of the district costs, or $365.5 million, will be picked up by Olympia Development of Michigan, the property development arm of Mike and Marian Ilitch's $2 billion Detroit business empire that includes the Red Wings, Detroit Tigers and Little Caesars pizza chain.

Snynder also defends the project on the basis that it will "create 2,900 direct construction jobs" and "another 1,480 [ancillayr] construction jobs." The subsidy works out to $65,000 per job - and recall, we're talking about temporary jobs. Really, you can't justify this probject on "job creation". The American Prospect notes that some shady land deals have already been detected, with people on the inside maneuvering to profiteer.

An obscure new owner took over three low-income apartment buildings in the area targeted for development this spring. This mysterious landlord gave residents 30 days to leave. A Detroit News expose led to an extended eviction deadline, and then no eviction at all—but not until after many residents had already left. Following the press conference on the arena, the newspaper wrote that, “Since 2012, The Detroit News has reported on a series of mysterious land deals in the Cass Corridor—mainly involving blighted properties. Although it was widely speculated that the property was being amassed for an arena project, the deals have been cloaked in secrecy, with sellers signing confidentiality agreements and buyers not revealing themselves through public documents. The buyers in the land deals, (it was) revealed Wednesday, have been ‘a mix’ of city and Ilitch Holdings.” (Illitch Holdings is affiliated with Olympia Development).

Obviously, work needs to be done to keep that sort of thing to a minimum. It's painful to see Ilitch's fingerprints on that deal, through his companies, given that he's already the primary beneficiary of this subsidy of the new sports arena.

This isn't the worst example of government subsidy that I've seen. Detroit needs something to help drive investment and to bring more people to the city. But for the state as a whole, and Detroit's not the only troubled area, the governor's arguments also applies to subsidies to the film industry. The movie subsidies that were initiated toward the end of the Granholm Adminisration brought a lot of money, energy and excitement to local communties, created a number of temporary jobs, had the prospect of creating some permanent jobs, and seemed to be doing at least as good of a job of promoting Michigan's attractions than the much ballyhooed "Pure Michigan" ad campaign. The Governor's cuts of subsidies to the film industry, and subsequent equivocating over how much to extend, have dramatically reduced the interest of the film industry in Michigan while creating a climate of uncertainty that is likely to cause the industry to choose other states with more consistent, reliable approaches to the industry. The larger subsidies of the Granholm era seemed poised to help establish permanent movie facilities and jobs in the state, while Snyder's approach undermined local ventures and thus has resulted in at best temporary jobs with the remaining subsidies largely flowing out of the state. It may have been possible to reduce the Granholm-era subsidies while retaining the local benefit, but that opportunity seems to have passed.

As with sports teams, whether we like it or not, significant subsidies are part of how the movie game is played. I don't mind people taking the philosophical stance that you shouldn't subsidize the entertainment industry - and even less the profitable entertainment ventures that could and would continue to operate without subsidies - or, for that matter, profitable companies that want huge tax breaks and subsidies to open a new factory, server farm, headquarters, or other facility in your state. But once you decide you're going to offer subsidies, it makes sense to try to apply a consistent, predictable approach to those subsidies - both in terms of who will qualify and how much you will budget for subsidies in any given year.

Fools, Frauds and the Budget Deficit

It's probably not worth paying attention to Robert Samuelson on the budget deficit as he has little to no regard for consistency between his columns, and either has little to no interest in how government spending works or has little to know interest in presenting an honest argument. Nonetheless....

Samuelson is in a tizzy because the 2013 budget deficit is projected to be $642 billion, down from an earlier projection of $845 billion and well below "2012’s deficit of $1.1 trillion". Samuelson imagines that the government has now been overtaken by Dick "deficits don't matter" Cheney-types, and that the government is going to now stop focusing on deficit reduction and budgeting. Samuelson, it would seem, isn't spending much time following events in Washington. He's also continuing his mantra of, "We need to cut 'entitlement spending' so we can afford unlimited war spending", but has little to no regard for whether today's budget policies depress the economy and thus slow economic growth for years and decades to come.

You would think that Samuelson would look at the numbers and think, "We didn't anticipate a 24% drop in the deficit until almost half-way through the year, we're really bad at these projections." Even if you assume he hasn't looked at how projections of healthcare inflation have been incorrect. Or has forgotten his history, such as Alan "the genius" Greenspan fretting that if we didn't cut taxes for the rich, we would pay down the national debt too quickly. Funny, I don't recall the Robert Samuelson of that era criticizing Greenspan, "We can't pay down the nation's debt quickly enough." Did I miss something?) Samuelson then carries on for a while about stimulus spending, conflating any deficit spending with stimulus spending. Seriously?

The funny thing is, I'm prepared to agree with Samuelson. Our nation should have a responsible discussion of deficits and debt, albeit preferably with a significantly stronger factual context than one finds in a typical Samuelson column. We should be discussing priorities and, rather than engaging in demagoguery or attempting to gut Medicare without telling the public what we're doing, attempt to set actual priorities.

It seems to me that people like Samuelson don't like that idea, though, because the nation's priorities may turn out to be different from their own. Let's recall Samuelson's own words when his own priorities for government spending might end up on the chopping block:

But I am certain -- now as then -- that budget consequences should occupy a minor spot in our debates. It's not that the costs are unimportant; it's simply that they're overshadowed by other considerations that are so much more important. We can pay for whatever's necessary.

If a $2 trillion war of choice isn't even worthy of discussion, then the size of any particular budget deficit is even less worthy of discussion. What should matter are future costs and revenues, and the accuracy of our projections. By the same token that Samuelson can shrug,

Nothing of consequence has changed. A few numbers have shifted slightly. That’s all. They moved in a favorable direction. Next time, they might go the other way.

he should be prepared to concede that his emphasis of "We need to cut Social Security and Medicare this second or we'll face catastrophe in a quarter century" is misguided. After all, if being off by roughly 25% within a single year represents an inconsequential shift in the numbers that should be shrugged off, how can you justify setting policy based upon one or two percentage points of projected over twenty-five, fifty, or one hundred years?

Given the reality that our projections tend to be flawed - the future is full of surprises - and the present Congress cannot dictate spending priorities for future sessions of Congress, the proper focus for any given session of Congress is their actual, current, spending. By that measure, the present projections are good news, and the focus needs to be less on "what might happen twenty years from now" and more, "That's a good start, now let's talk about next year". In terms of long-term spending and spending priorities, we should be having the discussion that Samuelson seems intent on avoiding - if we can't afford everything, what do we cut first?

Paul Ryan's Playing Dumb Again

One hardly knows what to say.

"The question is, is [President Obama] going to go out on the campaign trail and start campaigning against us again like he has been since the election?" [Paul] Ryan said on MSNBC's "Morning Joe."...

"Look, I ran against him, so we have different views. But at least we started talking. This is the first time I ever had a conversation like that with him. So I think that's a good, constructive start. The question is, is there follow through? The question is, does the campaign start back up or does the engagement continue in a real, constructive and promising way? I don't know the answer to that question. Time will tell."

Ryan seems to remember that he is a politician, and seems to recall having run against the President in a recent election. I assume he also recalls losing that election. But is he simply pretending to be stupid or does he sincerely not understand that he and the President are in different political parties, and that he is presently campaigning against the President's agenda?

Saving Money by Ending Medigap Coverage?

Among the various proposals offered by Ruth Marcus, ostensibly to help balance the budget, is this:

Another idea, from MIT’s Jonathan Gruber, would attack Medicare costs from the consumer side. It would deal with the current risk of catastrophic costs by adding an out-of-pocket maximum tied to beneficiaries’ incomes so that poorer seniors would face less risk.

But it would also heavily tax seniors’ supplemental insurance plans that fail to impose adequate cost-sharing on beneficiaries. Again, this proposal could appeal to both sides: The Obama administration has suggested limiting Medigap policies, and the Ryan approach is all about giving consumers incentive to control costs. Estimated savings: $125 billion over 10 years.

But wait - I thought the magic of markets and private insurance would "fix everything", so how is it that the healthcare market will become more rational and efficient if we all-but-eliminate Medigap coverage? Well, Ruth Marcus isn't a "free markets" fundamentalist, so I can't hang that one on her, but the underlying concept seems questionable. If Marcus is speaking of savings to Medicare, then she presupposes that without Medigap coverage a huge number of seniors will seek less care. The nominal assumption is that if you shift more cost to the patient, the patient will be more reflective about seeking care, and will be less likely to see a doctor unless it's absolutely necessary. The reality is that this type of cost-shift has a very poor record of reducing the cost of care to the consumer. The nature of Medicare makes it less likely that the consumer is going to be convinced to choose costly options, when an insurance company might require significantly less costly options to be tried first, so real savings could only be achieved if the patient foregoes medical care. From what I've seen in the private health insurance market, that's not likely to happen unless copayments become uncomfortable to afford - in which case you're going to end up denying necessary care.

And yes, according to the Medicare Payment Advisory Commission (MedPAC), if implemenented this proposal would result in seniors going more heavily out of pocket:

Congress should add a new charge for Medicare beneficiaries who buy supplemental insurance, according to a recommendation from its advisory panel.

The size of the fee for Medigap plans was not specified but left up to the secretary of HHS, according to a unanimous recommendation by the panel (PDF). Medicare Payment Advisory Commission members and other health policy experts have frequently criticized such plans as cost drivers for Medicare because they often cover all out-of-pocket costs for beneficiaries, which critics contend leads to overutilization of healthcare services.... Marcus also suggests eliminating fee-for-service and instead "giving Medicare providers a set amount to cover beneficiaries" - an idea that is difficult to reconcile with her Medigap proposal, which appears to be predicated upon the continuation of fee-for-service with copayments for those individual services.

“This whole effort is not motivated by a desire to achieve savings, but it's really motivated by a desire to have a benefit package that works for beneficiaries,” Michael Chernew, a panel member and professor in the Department of Health Care Policy at Harvard Medical School, said before the vote.

The person Marcus references, Jonathan Gruber, appears to believe that the impact of this change can be mitigated for less affluent seniors by offering them a greater subsidy in lieu of Medigap - that is to say, they would get what amounts to Medigap as part of their basic Medicare benefit. If the goal is to prevent "overutilization of healthcare services", does that make sense? Are we to believe that only more affluent seniors overutilize medical services, and they'll suddenly stop if they don't have Medigap coverage? For that matter, what evidence is there other than assumption that this overutilization exists, or that it can be affected by imposing a massive tax on Medigap policies?

So seriously, rather than pulling numbers out of... who even knows where, let's have an explanation of why we should believe that this proposal is sound public policy, why should believe it will result in cost savings to Medicare and the degree to which it will increase cost to seniors. Let's compare healthcare utilization rates of seniors to other nations, to see if in fact the level of care our nation's seniors receive is unusually high or is pretty typical. Let's perform a sufficient analysis that we can be reasonably sure we're not going to increase costs, by having a senior neglect a medical condition such as a diabetic abscess, odd symptoms that turn out to be a first heart attack or the onset of kidney failure, or a TIA, until they have a much more costly medical crisis.

Too much to ask? It's easier to simply roll out a massive reinvention of Medicare as a giant, nationwide experiment, but I believe it's appropriate to do some bona fide analysis and testing before engaging in a large-scale experiment that will materially affect the lives of real people, based upon little more than untested theory and assumption.

Achieving Medicare Savings for Durable Medical Equipment

Charles Lane has discovered the problem that Medicare often pays an inflated price for durable medical equipment, prosthetics, orthotics and supplies (DMEPOS). My reaction is two-fold: First, although Lane has identified an area of Medicare spending in which savings could be obtained, he's focusing on a tree. Second, Lane only hints at the resistance that is likely to be encountered should Medicare attempt to minimize DMEPOS expenditures.

Lane tells us that "between 2000 and 2010, Medicare spent $69.4 billion on DMEPOS, almost all of it based on the old, inflated reimbursement rates." So, roughly $7 billion per year. In 2010, the Medicare budget was $560 billion. Even if we assume that there was significant growth in the cost of DMEPOS over that decade, such that by 2010 we were spending $12 billion per year, we would still be talking about just over 2% of spending. If we assume reforms not yet implemented could save 1/3 of that amount, we would be looking at saving $4 billion per year. That type of reform is significant - but only makes a material difference to the cost of Medicare in the aggregate.

One of the arguments often made in response to President Obama's proposed tax increases is that they're too small to make a difference.

The proposed tax increase would fail to address the deficit seriously. According to the Joint Committee on Taxation, the proposed tax increase would raise only $68 billion by shifting the top tax bracket from the Bush era rate of 35 percent up to 39.6 percent (plus a few from the health care law). The government expects to spend $9.9 billion per day, or a projected $3.627 trillion for this year. Based on these numbers, the addition $68 billion from a tax increase would pay for 6.8 days of government operation.

It's a fundamentally dishonest argument, and it's absurd to pretend that we could identify a single tax increase that could bring the budget into balance - at least without tanking the economy. The modest savings that can be achieved by cutting waste in DMEPOS spending should not be overlooked, as small steps are worth taking, but Lane seems to overstate the importance of that one aspect of Medicare spending to its overall budget picture, using ten year figures to exponentially increase the size of an average year's expenditure, and omitting any mention of the size of the Medicare budget.

Lane argues that the "obvious solution" is "competitive bidding". Certainly, one way to avoid excessive cost would be to allow Medicaid to use its market power to negotiate with manufacturers, perhaps leaving Medicare recipients free to choose other equipment but making them responsible for any cost in excess of the negotiated price for equipment on its approved list. Distributors could be paid a percentage of the approved cost as their fee for handling the equipment and training recipients in its use. Manufacturers and distributors, I expect, would go ballistic, and would attempt to scare Medicare recipients by talking about "government bureaucrats deciding what equipment you get", and the like. It would be interesting to see Lane flesh out his "obvious" solution in a future column - and if he has the space, he can also address how we can convince the Republicans in Congress that Medicare should be allowed to use its market muscle to achieve savings not just here, but also (and more importantly) for pharmaceuticals.

It's worth noting that a great deal of DMEPOS, despite its substantial cost, is effectively abandoned when the patient no longer needs the equipment. It would be nice if it were possible to recover, refurbish and reuse some of that equipment. Unfortunately, even before considering patient resistance to being given refurbished, older equipment, the cost of recovering, refurbishing and redistributing medical equipment would likely exceed the potential savings.

The Federal Government is Not a Business

Matt Miller writes,

It’s hard to know which is stupider: the coming sequester cuts or the arguments being made to avoid them.

He later proposes,

Luckily, even though it looks like Democrats and Republicans have tied themselves into a political knot on the sequester, there’s still a way out. They can simultaneously re-enact a payroll tax cut equal to or greater than the sequester and call it a day.

Which makes it difficult to argue with his initial argument. No, in fairness Miller is engaging in a bit of hyperbole, proposing a "solution" that "would be so perfectly cockeyed, herky-jerky and devoid of anything resembling an economic 'strategy' that it would be a perfect fit for this moment." But given that he started out by treating political hyperbole as if it represented serious policy positions, a bit of turnaround seems fair.

Miller makes a significant mistake, though, when he confuses budget cutting in private industry with budget cutting in government. Sure, there's a simplistic "In a large organization, if you have full discretion to identify and eliminate waste, and to identify and fire the least productive workers, you can maintain or even improve efficiency while cutting expenditures." But that's usually not what happens in private industry, even though private industry is normally far less constrained than government when it comes to making cuts and firing workers.

When I worked as a management consultant as a younger man I was involved in a few cost-cutting efforts at large, admired companies. I knew of many more from colleagues. These were never happy exercises. Some people lost their jobs. But it was a truism that even well-run firms could cut 10 percent (and often far more) of their expenses with scant impact on the quality of their products or services, or on their “seed corn” for the future.

That’s just the way large organizations are. Over time, various accretions of people and activity take place during periods of growth. And that’s in the private sector, where competition and the profit motive act as continuous prods to efficiency (just think of how many firms went through much larger cuts during the Great Recession only to come back stronger). In government, the organizational tendency toward endless expansion is much greater.

Let's note first of all that a lot of the "management consulting" Miller describes is not acutally about identifying inefficiency, reporting it to the company that hired you as a consultant, and letting them act on your report. A substantial amount of that work involves being retained to provide cover for management decisions that have already been made. "Here's what we are going to do. Now go out, analyze our business, and 'objectively' report back to us that we need to make those changes." It's not unlike the rating agencies who rate garbage bonds as AAA because they don't want to lose the work - you do what you're paid to do.

But let's assume that Miller's employer was different from the norm, and all of its clients retained it to provide arm's length reports. "We don't care what you find - just find our inefficiencies and report back to us so that we can make our company more efficient." In such a scenario, Miller's team would spend a great many hours, billing substantial fees, to perform their investigation and analysis, and would provide detailed reports to support their recommendations to management. Does Miller believe that such an effort is being made in every single government agency that is going to be hit by the sequester? Agencies will have, for the most part, made an effort to prepare for the sequester, but under the circumstances we can expect that their preparations are going to be ad hoc, and colored by the hope that the sequester is avoided.

Note also that Miller speaks of "well-run firms" - as if that's the typical client of a management consulting firm brought in to legitimize budget cuts. Let's think for a moment about how various "well-run firms" have managed to save that 10% over the past few decades. Hewlett Packard cut its R&D budget and went from being a well-run firm that led in product design and quality to... pretty average for the industry. Seriously, though, a well-run company might identify factories that could be closed or consolidated, jobs that could be outsourced, product lines that could be eliminated - or marketed more effectively. How much of that does Miller believes applies to the federal government?

If you read on, the answer appears to be "All that, and more!" Yes, let's think about those firms that were "strengthened" by the Great Recession - like G.M. and Chrysler. Heck, AIG isn't doing too badly these days, either. So maybe the solution is a government bailout of the government? Or a managed bankruptcy that allows the government to shut down the least productive states, just as G.M. shed product lines and dealerships. "Sorry, New Mexico, West Virginia, Mississippi, Alabama - we've been subsidizing you too long. And Hawaii, Alabama, Alaska, Montana, South Carolina and Maine - you had better shape up fast!" Maybe we could deport the least productive 10% of the population? We'll be smaller, but stronger, right?

It's important to recall, also, that the sequester is all about numbers, not about efficiencies, and does nothing to create efficiencies between agencies or to overcome politics. A management consultant might say to the government, "You know, you could create a lot of efficiency, reduce staff and cost, and ease the regulatory burden for business if you merged the SEC and the CFTC." I would respond, "I can't disagree, but that is not likely to happen before they start having snowball fights in Hades." The sequester is apt to put pressure on a lot of the wrong places. Miller complains that the government will somehow find a way to maintain all vital functions, such that it's wrong for the President to suggest that any vital functions are threatened, but that's an article of faith. Miller is looking at the government in toto, but not every government agency is presently well-staffed or well-funded relative to its mission.

Miller complains "When independent or Democratic business people in high-tax states such as New York or California hear the president say the feds can’t possibly endure a 5 percent cut but instead need to hike effective top marginal tax rates beyond the mid-50s level to which Washington’s last fiscal deal just raised them, it turns what should be a winning economic showdown for the president into one that leaves influential constituencies wondering if Obama 'gets it.'" Surely Miller does not believe that Obama's tax reforms raised Mitt Romney's effective tax rate to @55%. Or that of California billionaire Warren Buffett. Or that of New York billionaire Michael Bloomberg. I suspect that if you were to show Miller's example to one of those "independent or Democratic business people" they would "get it" - they would tell you that Miller is looking for the most exceptional cases, pointing to them due to their high state and local taxes, to try to confuse his readers about the magnitude of the federal tax increases and into believing that their situation is representative of the nation as a whole. (Assuming they don't chuckle and explain that their "tax guy" is better than Miller thinks.)

If Miller believes that we can easily and harmlessly cut 5% of government spending, without affecting the core missions of the federal government, I think a much better article would be one in which he outlines those achievable budget cuts. Put that "management consulting" experience to good use....

"How Are You Going to Pay for This?"

Once the current "debt ceiling" pseudo-crisis has passed, assuming he is not able to achieve a resolution that takes the debt ceiling out of the picture indefinitely, why wouldn't the President be able to ask, in response to any new spending or budget, "How are you going to pay for this?" If the answer is "spending cuts", the President can ask that they be included in the bill. If there is no answer, the President can reply, "Then as part of this bill you need to either find a way to pay for your spending, or you need to increase the debt ceiling to cover the debt that the nation will incur as a result of this spending."

The Republicans could attempt some blackmail or brinksmanship, "We absolutely refuse to fund this bill, that is essential to our national defense", but I'm not seeing how they would be helped by taking such a position. If the President agrees that the matter is so essential that the spending must be approved despite its creating a debt ceiling issue, the President can make a clear statement about what's happening (call it "public shaming") and the Republicans will should pretty foolish if they later refuse to increase the debt ceiling to pay for the spending they deemed essential.

George "Grandpa Simpson" Will Wants a Balanced Budget Amendment

Mind you, he doesn't actually try to make a case for a balanced budget amendment, but he does display a fascinating disconnect between his political views and the facts. First up, an angry rant about how the Democrats did not raise taxes enough:

Liberals could have had a revenue increase of $3.7 trillion over 10 years. Instead, they surrendered nearly $3.1 trillion of that. They cannot have repeated bites at this apple.... And because tax reform is dead for the foreseeable future, so are hopes for a revenue surge produced by vigorous economic growth....

By rescuing almost everyone from the restoration of Clinton-era rates, liberals abandoned any pretense of paying for their program of ever- expanding entitlements. Instead, they made trillion-dollar deficits their program.

Were Will interested in facts, he might note that the Republican Party opposed the tax increases that the Democrats proposed, which is to say that if Will is going to complain that Congress hasn't raised enough taxes on enough people he's directing his temper tantrum at the wrong party. As for the conceit that we might have had some sort of larger discussion of "tax reform" but now we can't, due to a modest tax increase on the wealthy, perhaps he can direct us to where that negotiation was occurring - or where we can find anything approximating a serious Republican "tax reform" proposal - and explain why the odds of progress on these confabulated tax reform negotiations and proposals are less likely to bear fruit today than they were two weeks ago.

Because 82 percent of American earners pay more in payroll taxes than income taxes, no politically conceivable or economically feasible middle-class tax rate can fund the entitlement state.

So... because we fund Social Security retirement, SSDI and Medicare through FICA, the fact that pretty much every working person pays FICA taxes.... Um, non sequitur, much? When programs are funded through dedicated taxes, one might think that the proper approach to addressing funding issues would be to examine the dedicated taxes, not go off on a rant about how other taxes should be higher.

People who choose to live in places vulnerable to flooding believe it would be unfair that the cost of their property insurance fully reflect this risk. So government subsidizes their insurance, and hence their decision to live where there is increased risk of property damage that, when it happens, the government helps pay to rebuild.

Stop me if you've heard this one before: What do you call a wealthy person who carries government subsidized flood insurance on his waterfront mansion, one of several homes he owns, and then after a hurricane sues his insurance company because despite the subsidy he chose not to carry adequate subsidized flood insurance to replace his home and contends that the damage was caused by the wind? No peeking.

Will also carries on about one of his pet fixations, Amtrak, complaining that it loses money on food service. Alrighty....

Absent from Will's rant is any argument that a balanced budget amendment would be good policy for the nation, how it might be structured, or even whether his party would support it. If Will had a bit more perspective, he should realize that his own rant effectively answered that question - When they are in control, Republicans are the party of "Deficits don't matter". They're the party that implemented the temporary tax cuts that Will apparently wishes would have expired in toto, and they are the party that prevented the expiration from reaching a slightly larger number of taxpayers.

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?

A Better Approach to Balancing the Budget

The biggest problem we face in trying to balance the budget is that neither political party actually puts a high value on balancing the budget. The Republicans like to talk about deficits until they are in power, at which point the Dick Cheney "deficits don't matter" philosophy takes hold and deficits explode. The Democrats want to preserve "social safety net" programs to a much greater degree than the Republicans, but left to their own devices the Republicans are more apt to expand those programs than to shrink them. When it comes to the major expenditures of the government, neither party is willing to propose cuts that have any chance of balancing the budget.

Our nation's deficits are primarily driven by health care costs. Once the recovery is complete, tax revenues will rise to historic levels and much of the annual deficit will go away "all by itself". If we could reduce our nation's healthcare expenditures to those typical of other nations, the deficit issue would largely vanish. But a Congress that chooses to tie Medicare's hands in negotiating bulk discounts in order to keep drug costs (and profits) high is not likely to address health costs in a meaningful way.

Let's approach the deficit from a different angle. Rather than talking about hypothetical (and sometimes imaginary) spending cuts or loophole closures, lets look solely at revenues. That is, let's have a discussion about what taxes we might create and raise in order to balance the budget with the least possible disruption to the economy. Such tax increases can be postponed until the economy is in a normal state - and perhaps avoided at that time - but if the spending cuts and tax loophole closures aren't there or if Congress isn't willing to implement them, the solution must come from new revenue.

Once the sources of additional revenue have been identified we can have the discussion: Do we in fact want the budget to be in perfect balance and, if not, how much new debt can we reasonably accrue and sustain? Are the new taxes and tax increases the best, most cost-effective, least painful and most efficient means of balancing the budget? If not, what spending cuts or loophole closures might be substituted?

If John Boehner believes a word of his statement,

The American Dream is in peril so long as its namesake is weighed down by this anchor of debt. Break its hold, and we begin to set our economy free. Jobs will come home. Confidence will come back.

We do this not just to boost GDP or reduce unemployment, but to secure for our children a future of freedom and opportunity. Nothing is more important.

He will be willing to live up to those words by putting aside his lesser concerns - including his party's pledges to special interest groups, his enforcement of the Hastert Rule and contempt for passing budget legislation on a bipartisan basis, his lust for special interest money, and the like, and get the job done by any means necessary. Personally, I don't think he believes a word of it, but I would love for him to prove me wrong.

Nothing should make the budget picture more clear to the average American than, "This is what your taxes will look like if we maintain current expenditures while balancing the budget." If the public says, "Then that's what we'll have to live with," then that's the answer. If the public says, "We prefer the cuts you propose as an alternative," then that's the answer. If the public says, "We prefer to run massive deficits," then its up to Congress to determine the extent to which they're willing to balance the budget despite those popular sentiments, and to take responsibility for the decisions it makes.

Should Social Security Retirement Be Subsidized?

One of the central features of Social Security, and one that has helped insulate it from decades of effort to scale it back, is that it is designed to be self-funding, and to pay out an amount that is roughly consistent with what a retired worker paid into the program. The history of Social Security stands as a strong argument against turning it into a means-tested program, requiring higher-earning workers to contribute an even greater share of the cost of the program, or making benefits more contingent upon a retiree's assets and other sources of income than on his past contributions.

A few days ago, David Brooks argued that Medicare is too good of a deal for retirees - that, according to the Urban Institute, a couple of average income receive far more in Medicare benefits than they paid for over the course of their careers. Brooks did not offer a link to the Urban Institute's data and, in this era, the absence of a link makes me suspicious... so I searched until I found the source. Sure enough, the authors found that for a married couple earning an average wage and retiring in 2011 at age 65, under the author's formula the cost of Medicare to the couple was $119,000 and the benefit was $357,000.

Why wouldn't Brooks have linked to that? Because the figure for Social Security was contributions of $598,000, benefits of only $556,000. That is, if Brooks wants to argue that the couple is getting a great deal on Medicare, he has to admit that under the exact same analysis they're getting a raw deal on Social Security, and he apparently decided that rather than trying to reconcile his argument with the facts it would be better to play "hide the ball" with the numbers.

As it turns out, Social Security isn't a good deal for a single person earning an average wage - $299,000 in, and $290,000 out for a female recipient vs. $266,000 for a male. At average wage (or higher) the couple that sees a tremendous return on their investment is the one-earner couple, paying in the same $299,000 but receiving $448,000 in benefits. Looking at other data from the same authors, the subsidy to a couple with one low-earning partner and one partner with average earnings is modest, and everybody else earning an average or higher wage is providing a modest subsidy to other recipients.

There are plenty of reasons why we, as a society, would want to ensure that stay-at-home spouses will not be impoverished in their retirement in the event of divorce or the death of the spouse who was employed outside of the home.¹ The very fact that the phrase, "worked outside of the home" is preferred by many over "had a job" reflects a cultural value. If in fact we, as a society, choose to value and privilege the role of homemaker, that's fine - but taking that position raises the reasonable argument that it should be society, not other working adults, who subsidize that cultural value. We fund SSI benefits out of the general fund due to the disconnect between those benefits and an employment history; why not do the same for retirement benefits extended to people who lack a sufficient work history of their own to otherwise qualify?

To look at it another way, if a Member of Congress were to propose eliminating or substantially reducing the subsidy to retirees in households in which only one spouse worked outside the home, what sort of firestorm would be unleashed? If our societal feelings are so strong that we can't even discuss the economic side of the picture, then we should be willing to address the cultural issue and the benefit we receive as a society by providing a very large subsidy to those households in retirement.

If the program is largely in balance other than for our determination as a society that stay-at-home partners of wage earners should receive most of the benefits that they would obtain had they also been employed outside of the home, it's reasonable to argue that the subsidy should come from the general fund and not by increasing the Social Security taxes upon or decreasing the retirement benefits that would otherwise flow to other retirees.