A debt disaster behind a comic book budget squabble
By Clive Crook
Published: April 10 2011 21:14
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The world had better start paying attention to the US government’s inability to govern. The prevailing mood over this has been strangely complacent. Six months of the fiscal year gone and only now a ramshackle budget? Government brought to the brink of shutdown over trifling disagreements? Absurd, one thinks, but this is Washington. Do as most Americans do, and regard the pantomime with blithe contempt. In the end, out of sheer exhaustion, the actors do their deals and it is business as usual.
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So it proved with the shutdown farce. Capitol Hill and its followers tracked the quarrel avidly. TV news showed clocks counting down the hours and minutes before “inessential services” would be suspended. Talks between Congress and the White House were covered as though a nuclear strike was imminent. With an hour to go, a deal that no one understood was done. The president stood before the cameras: “Americans of different beliefs came together again,” he said, as if expecting applause. Some laughed; most yawned.
So it proved with the shutdown farce. Capitol Hill and its followers tracked the quarrel avidly. TV news showed clocks counting down the hours and minutes before “inessential services” would be suspended. Talks between Congress and the White House were covered as though a nuclear strike was imminent. With an hour to go, a deal that no one understood was done. The president stood before the cameras: “Americans of different beliefs came together again,” he said, as if expecting applause. Some laughed; most yawned.
The shutdown punch-up was a nuisance and proof of Washington’s recklessness, but little apart from political advantage was at stake. Mostly, it was theatre. But a real fiscal crisis is coming. The debt-ceiling fight, next on the playbill, raises the theoretical possibility of a government default. Beyond that, public debt keeps rising. The current dysfunction shows how hard it will be to stop.
Recall that Barack Obama’s budget in February failed to address this. The president calls for large deficits long after the economy has returned to full employment, and an indefinitely rising ratio of public debt to gross domestic product. It has come to something when the White House makes eventual fiscal collapse official policy. That is novel even in Washington.
Last week the new Republican leadership in the House of Representatives unveiled its own proposal for fiscal 2012 and beyond. Crafted by Paul Ryan, chairman of the House Budget Committee, and a rising star of the party, it does at least aim to bring deficits and debt down. Moreover, the plan dares to confront entitlement spending. It proposes fundamental reforms both of Medicare, which provides health insurance for the elderly, and Medicaid, which does the same for the poor. The president avoided the subject. Mr Ryan faces it squarely.
Unfortunately, the Republicans’ plan is no good. In the first place, it offers no basis for compromise with Democrats. The paradox of US politics is that the system, with all its checks and balances, insists on compromise, whereas its practitioners – now more than ever – see compromise as defeat.
Every American reveres the constitution; every politician and political activist recoils at the outcome it was designed to provide. A Republican-controlled House of Representatives can do nothing if Democrats control the Senate and the White House. You would not guess this from Mr Ryan’s blueprint, which could only be passed – and then with difficulty – if Republicans controlled every branch. The plan dismantles Medicare, a jewel in the crown (forgive the expression) of the US welfare state, and uses the proceeds to cut taxes. It would be difficult to think of a proposal that would dismay Democrats more.
But this is just an opening bid, you might say. No. The plan signals no readiness to deal. Many Republicans think Mr Ryan’s plan is timid, that far bigger cuts in spending are needed. The plan has been pitched as a first and final offer – take it while you can – as though the GOP is in sole charge.
The party, still high on Tea Party fervour, seems to mean it. This is a formula for continued paralysis, while the fiscal problem worsens.
Aside from failing, as a matter of practical politics, to move the US closer to a fiscal resolution, the plan is weak on its own terms. Suppose that the Republicans could enact it. Suppose keeping revenues low makes sense. Suppose curbing Medicare and Medicaid outlays as Mr Ryan suggests would be desirable in principle. Even then, the plan is fatally flawed. It restrains public debt by simply assuming away the long-term trend of health costs. Achieving long-term fiscal balance in the US requires this trend to be dealt with, not ignored.
Soaring Medicare costs are the crucial component in long-term public spending. Mr Ryan is right about that. He aims to curb their rise by giving Medicare beneficiaries a health-insurance voucher, whose value would be indexed to inflation. Over time, this saves trillions in public spending because health care costs have been rising for decades much faster than inflation. But capping the voucher does not bend the curve of health care costs. Nor does anything else in the Ryan plan. As the vouchers’ value in health-care dollars declined, the pressure to increase it would be irresistible. As soon as the policy began to bite, it would be thrown out.
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Mr Obama’s health care reform has been rightly criticised for paying too little attention to controlling costs. Mr Ryan’s plan, which repeals the health reform act by denying it funding, is even worse. Rather than tackling the rise in Medicare costs, he shifts it from the public sector to retirees and calls that a solution.
Even if his budget was adopted, which it will not be, it would fail.
Forget the comic squabble over fiscal 2011. What counts is the long-term fiscal outlook. It is not funny, and the solution to the problem is nowhere in sight.
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Copyright The Financial Times Limited 2011.
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