Thursday, April 4, 2013

Biting the Hand that Fed Me: UW Political Scientists on Deficit Reduction


Dear Professors Mark A. Smith and Rebecca Thorpe
I read with interest your brief essay, “Perspectives on National Government Spending,” in the Political Science Department’s Spring 2013 Newsletter.  Your point about the contradictory views of the public regarding “spending in general” vs. “spending on particular programs” is, indeed, helpful in understanding why it’s difficult to make significant cuts in government spending.
But several other claims you advance regarding the prospects for deficit reduction seem misleading if not mistaken. 
1.  To begin with, legislation adopted since the beginning of fiscal year 2011 reduced projected deficits by $2.4 trillion between 2013-2022, with 75% of this reduction attributable to spending reductions and interest savings.  These measures, which don’t include the recent sequester cuts, are forecast to reduce Federal debt as a percentage of GDP in 2022 from 93% to 83%.  In short, significant reductions in projected deficits have already been achieved.
2.  The proposition that long-term deficits “are driven mainly by entitlement spending” is correct, but misleading.  Social Security is not in bad shape; it can pay full benefits until 2033 with no changes to current law.  And Social Security’s long-term “problem” can be solved by modest changes phased in over time.  (See http://www.cbpp.org/cms/?fa=view&id=3261Leaving Social Security aside, then, the remaining large entitlements, Medicare and Medicaid, are really symptoms of problems with the American health system.  Our per capita health care spending is, on average, twice that of other advanced economies, yet our health outcomes are worse on many dimensions.  The challenge is not to “reduce entitlements,” e.g., by increasing the Medicare eligibility age from 65 to 67, but to fix our health care system. 
3.  It’s not true that “both parties have resisted offering any cuts to entitlements.”  President Obama’s ACA reduced Medicare costs by over $700 billion.  And Obama has agreed to adopt the chained CPI for Social Security and to reduce subsidies for high-income Medicare recipients.  In addition, the “Stimulus Package” and the ACA include many investments and cost-effective practices that will reduce health care costs.
4.  Although it may be true that “Republicans seem more committed than Democrats to deficit reduction,” Republicans, in fact, aren’t more committed to deficit reduction (my stress).  Consider the following Republican policy choices: 1) the Bush tax cuts; 2) the unfunded Bush prescription drug benefit; 3) the two wars not paid for; 4) Republican unwillingness to raise taxes even though revenues as a percentage of GDP are very low by historical standards; and 5) the Paul Ryan budgets that include large tax cuts and only achieve balance by assuming implausible supply side elasticities.
5.  Finally, you seem to accept the argument that reductions in government spending will reduce the government’s deficit.  The problem is that cutting spending reduces income while increasing expenditure for unemployment benefits, food stamps, etc.  The disappointing effects of the spending reductions in Europe and the U.K. on public sector deficits raise serious questions about the virtues of austerity.  You might find this post interesting: http://mainlymacro.blogspot.com/2013/03/why-politicians-ignore-economists-on.html
Sorry to drone on.  I do appreciate your willingness to write for a general audience and, as you can tell, I found your piece thought provoking.
Best regards, Greg Hill (Ph.D. in Political Science, UW, 1982 (or 1981, I can’t remember)

No comments:

Post a Comment