Grasping Reality For Real

Ezra Klein makes an important but wonky point today about Paul Ryan's plan to cap Medicare costs: instead of capping growth at GDP + 1%, it caps growth at the rate of inflation:

Here’s the catch: The way GDP gets calculated includes inflation. So think of GDP+1% as the rate of inflation plus the rate of productivity growth plus one percentage point. With me so far?

....So let’s say that in 2024, inflation was 2 percent, productivity growth was 2 percent, and health-care costs grew at 6 percent. Under Ryan-Rivlin, Medicare and Medicaid would grow at 5 percent — a bit less than health-care costs in general, but not that much less. Under Ryan, Medicare and Medicaid would grow at 2 percent — beneficiaries would have to make up the difference.

This can all seem like so much gobbledygook, so here’s the bottom line: it’s totally unrealistic — and I say that as a cost control optimist. Look at the other health-care plans that have been proposed: none of them suggest they can get the growth of Medicare or Medicaid down to inflation*. But that’s where a lot of Ryan’s savings come from. Which is to say, either those savings aren’t real or we’re assuming America is going to abandon seniors and the disabled in a way that has no recent precedent.

This is all in service of Ryan's real goal. His document isn't primarily concerned with the federal deficit or with Medicare reform. The key goal in his budget is to reduce federal spending to 18% of GDP. Everything else is simply shoehorned in to meet that goal.

But it's an absurd goal. Over the past 30 years, federal spending has averaged about 21% of GDP. And since America is aging, even if we control costs carefully we're going to need to spend more money on the elderly. This isn't because we're being wildly generous toward them, it's simply because there are going to be more of them. So any realistic budget needs to assume that spending will slowly increase over time, ending up at maybe 25% of GDP a couple of decades from now. Ryan's 18% goal is just pie in the sky pandering to his tea party base.

Matt Yglesias agrees, "But I think it does set the stage in which the White House or someone in congress ought to produce a pie-in-the-sky counter budget." But why follow Ryan's pie-in-the-sky approach? Call me a crazy idealist, but why not propose something genuinely serious instead? Start with letting the Bush tax cuts expire. Add in Social Security reform that increases payroll tax revenue by about 1% of GDP and trims benefits by about 1% of GDP. Set a goal of cutting defense spending to 3% of GDP. Federalize Medicaid. Build on the reforms of ACA to rein in Medicare growth in a reasonable way starting now, a la Ryan-Rivlin. Raise additional revenue via a carbon tax and revenue positive tax reform. Agree on some genuinely bipartisan program cuts in areas like ethanol subsidies, farm support, and some of the least effective social programs. Keep PAYGO in place to restrain the growth of discretionary spending.

Something along these lines would be a genuine proposal. It takes from both left and right, it's not balanced entirely on the backs of the poor, and it deals realistically with the needs of an aging nation. And there are plenty of blueprints to pick and choose the details from. Politically it might be wiser to either stay quiet or else just throw out a Ryanesque piece of PR bait. But it would be more responsible to actually tackle the problem. If not now, when?

UPDATE: Ryan's plan caps Medicare growth at the rate of inflation, not inflation + 1% as I originally wrote. I've corrected the text.

How to Be Serious (Really!)

Just as a willingness to tackle Medicare (and healthcare costs in general) is the litmus test for being serious about the long-term federal deficit, there's a litmus test for being serious about the medium term deficit too. Here it is: you should be in favor of letting the Bush tax cuts expire in 2012. All of them.

There was a case for keeping them in place last year since the economy was still fragile. By 2013 this won't be true any longer, and letting the cuts expire would wipe out half of the federal deficit at a stroke over the next decade. What's more, since we'd just be reverting to the same tax rates we had in the 90s, when the economy boomed, we know that this would do no harm to economic growth.

This ought to be the first question you ask any deficit hawk. If they're OK with letting the cuts expire, then the conversation can continue. If not, they're just preening.

The Relentlessly Orthodox Mr. Ryan

Rep. Paul Ryan (R-Wisc.).

It's a bit of a fool's errand to think anyone is going to take this seriously, but I'm glad David Leonhardt brought up an obvious point today: if the federal deficit is truly an "existential crisis," and everyone has to sacrifice to get it under control, then there's no reason the elderly shouldn't have to sacrifice too:

There is nearly a bipartisan consensus that any cuts to Medicare and Social Security should spare the baby boomers and the elderly. And, certainly, retirees or people on the verge of retirement shouldn’t have their benefits changed radically. But the consensus, like Mr. Ryan’s plan, goes too far.

The reason is partly political. Older people vote in larger numbers than younger adults. And children, of course, can’t vote at all. But beyond politics, Washington’s age bias depends on a basic misunderstanding of the budget — namely, that older people have already paid for their Medicare benefits.

They haven’t. For most Americans, Medicare resembles a giant welfare program. They receive far more in government benefits than they ever pay in taxes and premiums. The gap for a typical household runs to several hundreds of thousands of dollars.

This is a point that few people ever make explicitly: today's retirees aren't merely getting benefits that they've paid for their entire lives. They're drawing way, way more from Medicare than they ever put into it. To make this concrete, here's an estimate from the Urban Institute of how much a single man who retired last year will get in lifetime Medicare payments. (All of this has been adjusted for inflation.)

This retiree is going to get three times more out of Medicare than he ever paid in. So if it's really true that everyone needs to sacrifice, then why should current retirees, who are getting such a sweet deal from the rest of us, be excluded from the pain?

This is just one of many ways in which Paul Ryan's budget plan is the farthest thing imaginable from courageous, even though that seems to be the most common adjective to describe it. Ryan ignores Social Security because he knows privatization won't fly and he doesn't have the courage to propose a mainstream reform of the system that would be unpopular with conservative mandarins. He exempts seniors and baby boomers from his Medicare plan because he doesn't have the courage to take on a powerful Republican voting bloc. He eschews details, basing the bulk of his plan on little more than theoretical spending caps, because he doesn't have the courage to explain what his spending reductions would actually mean. He focuses most of his cuts on programs for the poor because he doesn't have the courage to tackle weak claims rather than weak claimants. He gives the Pentagon a pass because he doesn't have the courage to stand up to hawks in his own party. And above all else, he refuses to consider tax increases of any kind because he doesn't have the courage to take on Grover Norquist and tell his own caucus what every genuinely serious analyst already knows: the only way to tackle the long-term deficit is with both tax hikes and spending cuts.

So explain to me: what's courageous about a Republican congressman proposing spending cuts for the poor, entitlement cuts only in the far future, tax cuts for the rich today, and hands off the Pentagon forever? Nothing I can think of.

The Future of China

A new paper suggests that countries start to experience growth slowdowns when their per capita incomes reach $17,000, a level that China will reach in about five years. Ryan Avent:

The story this suggests is one that's quite at odds with the prevailing view in much of the world—that China's relentless growth will continue until it dominates the global economy. Another possibility arises. Within a few years, we may be reading "What's the matter with China?" stories. A growth slowdown and demographic difficulties will challenge the policy status quo and could potentially expose serious weaknesses in the growth model (as Warren Buffet says, when the tide goes out, one sees who's been swimming naked). India, on the other hand, will be ascendent. And that could make for a very different set of policy challenges and priorities within the rich world.

I agree, and I'm surprised this isn't a more common narrative. Demographic problems alone put serious limits on China's future growth path, and the slowdown in productivity once they hit the $17,000 income level will make things even worse. China will plainly be a big player on the global stage for the rest of this century, but they're not going to take over the world quite as quickly as folk punditry often has it. This is something to keep in mind the next time some hawkish outfit releases yet another study trying to scare everyone into big Pentagon budget increases in order to stave off the future red menace.

The GOP's Shutdown Frenzy

A government shutdown now looks all but inevitable, and both parties are jockeying to make sure that the other one gets the blame. But I think this paragraph makes it pretty clear which party is really jonesing for a shutdown to happen:

House Republicans huddled late Monday and, according to a GOP aide, gave the speaker an ovation when he informed them that he was advising the House Administration Committee to begin preparing for a possible shutdown. That process includes alerting lawmakers and senior staff about which employees would not report to work if no agreement is reached.

Democrats are willing to endure a shutdown but are pretty obviously willing to compromise to avoid one. Republicans, conversely, really want this to happen. That's been obvious from the start, and we shouldn't allow anyone to let us to lose sight of this.

The Republican Wrong Turn on Medicaid

Although Medicare is getting most of the attention today, Paul Ryan's budget proposal also contains big changes to Medicaid. But Suzy Khimm reports that cuts to Medicaid aren't much more popular than cuts to Medicare:

But new polling from the non-partisan Kaiser Family Foundation also suggests that Medicaid is more popular than Beltway insiders might assume. Though public support for Medicaid lags slightly behind support for Social Security and Medicare, it's still robust: According to the KFF poll, only 13 percent of the public was willing to support major cuts to Medicaid....[Drew] Altman explains that part of the support for Medicaid comes from the services it provides for the elderly and disabled: though the program's usually described as an entitlement for the poor, seniors and the disabled make up two-thirds of Medicaid costs.

For what it's worth, I think Ryan's Medicaid proposal is far worse than his Medicare proposal. Basically, he endorses the Republican party line, which is to turn Medicaid into block grants for states, and then give states the freedom to spend it any way they want. But this is exactly the opposite of what we should be doing.

Here's the problem: states aren't allowed to run budget deficits, so when the economy turns bad they have to cut back on spending. But bad economic times are precisely when more Medicaid spending is needed. So unless Ryan is proposing to automatically increase those block grants whenever individual states or the country as a whole are in a recession — and he's not — this produces the worst possible dynamic you can imagine: a safety net that gets worse at exactly the times when it's needed most.

States have been experimenting with Medicaid for decades, and successes are few and far between. There just aren't any magic bullets here, and giving them more scope for experimentation isn't likely to produce any new miracles. A better bet would be to federalize Medicaid entirely. It's a huge burden to state budgets, and one that's especially burdensome during an economic downturn like the one we're in now. Ryan is right that there's really no good reason for Medicaid funding to be split between states and the federal government, but he's wrong about how to fix that. Medicaid shouldn't be a 100% state program, it should be a 100% federal program, one that's both a true safety net and a useful automatic stabilizer during recessions.

The Future of Healthcare

Since healthcare is the topic du jour, but Paul Ryan's Medicare plan doesn't really include enough detail to allow more than obvious critiques, here's a short post on an entirely different healthcare topic.

Ryan's budget document contains the chart on the right. Scary! It's based on CBO data, and it's a pretty standard fixture in healthcare debates. Basically, it shows Medicare spending rising at 8% a year forever, which means that eventually it overwhelms everything else and the country is broke. But how likely is that?

I don't mean likely in just the Steinian sense that, eventually, costs will be reined in simply because they have to be. I mean that I wonder if we've been brainwashed by the exploding costs of healthcare over the past 40 years into thinking that exploding costs are somehow inevitable in the healthcare field forever. Are they?

I can think of lots of technological revolutions that were pretty costly at first but eventually reached a point where they leveled out and then became cheaper. In fact, pretty much all of them. But perhaps healthcare is different in some ways from previous technological revolutions? For one, it's fairly labor centric and likely to stay that way. For another, costs really have been going up for a long time and there's not much relief in sight. By now, you'd think we'd be nearer the cusp of the curve where costs start going down, but we sure don't seem to be. New pharmaceuticals are as expensive to develop as ever. Cancer treatments keep getting more costly, as the construction of $100 million proton therapy centers demonstrates. And overall per capita healthcare costs just keep climbing inexorably.

Still: do we really think this is going to keep up forever? If it does, it will be pretty much the first time in history. I'm enough of a technological optimist (and a believer in the power of markets) to guess that someday — 10 years? 20? 30? — things like gene therapies, personalized pharmaceuticals, medical AI, and so forth are finally going to revolutionize medicine. And when that happens, costs will plateau at first and then drop. The curve simply won't keep going up forever.

Now, granted, we can't plan on that. There are no guarantees, after all, and maybe medicine will end up being an exception to the usual rule of technological progress. What's more, folks like Paul Ryan could plausibly claim that this makes voucher plans like his more reasonable: if costs don't come down, then we'll have little choice but to cap them bluntly the way his plan does. And if they do come down, then his caps won't have a serious impact.

I don't really have a position here. I'm just musing out loud about the likely future trajectory of healthcare, and whether we're really looking at it through the right lens. Right now we're tacitly assuming that what's happened in the past will inevitable keep happening into the far future. But there's really not much reason to think that's true. Is there?

Obama's Disappearing Act

A friend of mine who's fed up with Obama emailed to respond to my suggestion that Obama's real intentions remain fairly enigmatic:

I agree completely that Obama is enigmatic, but at some point, it doesn't really matter whether he gave away something he really believed in or never believed it in the first place. Does it matter in practical terms whether he's pathetically weak or just a bald-faced liar? After this long, I have a really, really, really hard time believing his heart is in what I'd call the right place on any of this stuff since no matter his brave words when he was angling for the nomination, he's basically given it all away, one thing after another.

This critique of Obama I don't really get. Sure, Obama's not the second coming of FDR (though FDR himself wasn't really the first coming of FDR either), but he got a fair amount done in his first two years, and if the healthcare reform bill was a dog's breakfast of concessions to special interests, well, that's the way Washington works. Obama was never going to change that in the space of 18 months. And I just don't see the case for lying. He's failed to get his way on some things, he's compromised other things away, and yes, he's occasionally just plain done an about face. But if I had to judge, I'd say he's done the latter less than most presidents, not more.

But then there's this critique from Ezra Klein, which strikes me as very much on the mark:

The battle over funding the government for the rest of 2011 has gone on for months, but the most involvement we’ve seen from Obama was a few phone calls placed to negotiators over the weekend....With negotiations breaking down, Obama has invited congressional leaders to the White House to hammer out a deal — but at this point, the question is simply how bad the final agreement will be.

But perhaps more disappointing are the times the president has shown up. Last week, Obama laid out his first major energy plan since the campaign....[It] was a terrible disappointment. Forget the ambitious cap-and-trade proposal that candidate Obama pushed in 2008. President Obama’s energy plan undershot the cap-and-trade plan that John McCain and Sarah Palin pushed in 2008.

And the less said about the State of the Union and the subsequent budget, the better. “Winning the future” has come at the expense of a plan for the present....Something has gone wrong in the Obama administration. And the candidate we need to step forward and point it out isn’t whichever Republican manages to limp shamefacedly out of the primaries after agreeing to call Obama a Kenyan anti-colonialist who kowtows to big business and Karl Marx and believes in both radical Islam and dogmatic atheism. It’s the Barack Obama who ran in 2008. The one who believed in “the fierce urgency of now,” rather than “after the election, we hope.”

Obama has long followed a strategy of letting other people fight pitched battles for a while and then parachuting in toward the end to act as peacemaker. And there's a case to be made for that sometimes. He did it with healthcare because Bill Clinton tried it the other way in 1993 and got his hide nailed to the wall, and in the end Obama's strategy worked. Would a more active intervention have worked better? Maybe, but there was a pretty good case to be made for doing it the way he did.

But over the past year this trait has become almost pathological. Maybe the power of the bully pulpit is overrated, but Obama seems unwilling to even try to move public opinion or take a leadership role in his own caucus. At this point, I really have no idea what he thinks of taxes, the deficit, Medicare cuts, or much of anything else on the domestic agenda. I guess he's figuring that if his political opponents insist on digging themselves into a hole, he might as well stand back and let them. But if he keeps this up much longer, there's going to be nothing left of his presidency except "Well, I guess he's better than the wingnuts from the other party." That may win him reelection, but it won't do much more.

Paul Ryan's Non-Proposal

Just a quick note about Paul Ryan's Medicare plan, since I don't really have enough detail to do the kind of wonky dive that I know everyone is dying for. It's this: Ryan may or may not be the kindest, bravest, warmest, most wonderful congressman on Capitol Hill, but everyone realizes that his Medicare proposal is basically just a PR document, right? It has zero chance of being enacted, and there's pretty much zero chance of anything like it being enacted. It's just a conversation starter, not a serious attempt to produce a workable piece of legislation.

Everyone does understand that, don't they?

So Where's the Medicare Plan?

So I figured I'd wait until today to get the details of Paul Ryan's Medicare plan, but this is pretty much all that his proposal says about it:

Starting in 2022, new Medicare beneficiaries will be enrolled in the same kind of health care program that members of Congress enjoy. Future Medicare recipients will be able to choose from a list of guaranteed coverage options, and they will be given the ability to choose a plan that works best for them....The Medicare premium-support payment would be adjusted so that wealthier beneficiaries would receive a lower subsidy, the sick would receive a higher payment if their conditions worsened, and lower-income seniors would receive additional assistance to cover out-of-pocket costs.

....Health plans that choose to participate in the Medicare exchange must agree to offer insurance to all Medicare beneficiaries, to avoid cherry-picking and ensure that Medicare’s sickest and highest-cost beneficiaries receive coverage....While there would be no disruptions in the current Medicare fee-for-service program for those currently enrolled or becoming eligible in the next ten years, all seniors would have the choice to opt into the new Medicare program once it begins in 2022.

Is that it? Am I missing something? How is anybody supposed to analyze how this would actually work with no more detail than this?

For now, I'm going to assume that I'm missing something. There must be a more detailed document around somewhere that I haven't found yet. There has to be, right?