I’m feel­ing an increas­ing frus­tra­tion with the inabil­ity of pol­i­cy­mak­ers — and the vot­ers who act as their enablers — to put for­ward a rea­son­able and fis­cally respon­si­ble plan for dig­ging this coun­try out of the ditch we’re in.

The prob­lem is pretty easy to grasp, even if the solu­tions escape us. As we’ve dis­cussed else­where, the data are clear and unequiv­o­cal. The world econ­omy is headed for the crapper.

There’s some good news to be had. It’s not too late for this nation to reverse its fis­cal course and set the Ship of State on the right eco­nomic course. In my opin­ion — an opin­ion our read­ers are wel­come to chal­lenge in the com­ments sec­tion below — there will likely be a flight of cap­i­tal from Europe to the United States as the Euro Zone slides deeper into the Slough of Despond. That poten­tial for invest­ment in our econ­omy only exists if we seize the moment and develop the polit­i­cal will to act. So far in the cur­rent finan­cial cri­sis, investors have indi­cated that they have more faith in the United States than in any other coun­try to do the right thing. As a patriot, so do I.

Fis­cal reform could be a major fac­tor in fill­ing the hole we’ve dug. We. Both polit­i­cal par­ties. Me and you. All Amer­i­cans.

The prob­lem is eas­ily per­ceived in the graph below.

Source: 2011 Finan­cial Report of the United States Gov­ern­ment (www​.gao​.gov/​f​i​n​a​n​c​i​a​l​/​f​y​2​0​1​1​/​1​1​f​r​u​s​g​.​pdf)

This graph (from the government’s annual Gen­eral Account­ing Office report, the Finan­cial Report of the United States Gov­ern­ment) begins in Fis­cal Year 1980 (FY1980) and ends a cen­tury later. We are about a third of the way along the graph from left to right, with the black line show­ing gov­ern­ment rev­enues at a his­tor­i­cal min­i­mum, about 15 per­cent of GDP. Spend­ing (espe­cially the TARP bailout and ARRA stim­u­lus) is at a peak; this is the huge spike in the brick-​​red por­tion of the graph.

The pro­jec­tions in the graph rep­re­sent a sim­ple con­tin­u­a­tion of present-​​day poli­cies into the future. Under present-​​day poli­cies, gov­ern­ment rev­enues will grad­u­ally recover, and even show a slight sur­plus toward the end of the decade. Then things get worse. Dri­ven by increases in health care spend­ing and Social Secu­rity out­lays, the ris­ing tide of red ink over­whelms the black line and the coun­try faces a sig­nif­i­cant, per­sis­tent deficit.

Here’s a related graph, taken from the 2007 report.

This graph, it should be noted, was devel­oped before the cur­rent world finan­cial cri­sis. Even if the United States, Europe, and China (which is now strug­gling) all return to a healthy econ­omy, the bor­rowed money begins to engulf the Fed­eral bud­get. As spend­ing on Medicare and Med­ic­aid increase, and the United States is forced to bor­row more money to keep rev­enues from tax­a­tion at a his­tor­i­cal 20 per­cent of GDP level (shown by the dot­ted line), it doesn’t mat­ter what we spend on defense and dis­cre­tionary pro­grams. We go broke.

It was there­fore clear before the last Pres­i­den­tial elec­tion in 2008 what needed to be done.

  1. The tax code needs to be reformed so that the U.S. Gov­ern­ment has a sta­ble source of fund­ing that max­i­mizes eco­nomic out­put by min­i­miz­ing need­less reg­u­la­tion and paperwork.
  2. Health care spend­ing, now at an esti­mated 18 per­cent of GDP, needs to be curbed. In par­tic­u­lar, Fed­eral health care spend­ing must be reduced. 

    Since the late 2007 finan­cial cri­sis, another imper­a­tive has arisen.

  3. The Fed­eral Gov­ern­ment needs to apply the cor­rect sort of eco­nomic stim­u­lus and a mix­ture of rev­enue enhance­ment and spend­ing cuts to help stave off the cri­sis pre­dicted by the above graphs. Most econ­o­mists would rec­om­mend a mix­ture rang­ing from one part tax increases to seven parts spend­ing cuts, to one part tax increases to three parts spend­ing cuts. For exam­ple, for­mer Clin­ton domes­tic pol­icy advi­sor William Gal­ston, quoted at tea​party​.org, says,

There’s no alter­na­tive, and I don’t know of any­body who has seri­ously looked at this prob­lem who thinks there is. You’re going to need to put together tough pack­ages of pro­gram­matic cuts and rev­enue increases.

A major­ity of Amer­i­cans agree. Fifty-​​six per­cent of Amer­i­cans agree a mix­ture of tax increases and spend­ing cuts is needed, while 37 per­cent sup­port spend­ing cuts alone.

What has each of the polit­i­cal par­ties done about it? Responded with a stream of demagoguery.

Let’s take them one at a time. Pres­i­dent Obama, as leader of the Blue Team, had a promis­ing start. He decided to work on reform­ing health care costs, as promised in the party plat­form. The fastest way to get a han­dle on health care spend­ing would be to jump to a sin­gle payer sys­tem, which would allow the gov­ern­ment to directly con­trol health care spend­ing costs by imple­ment­ing some sort of rationing based on need rather than abil­ity to pay. That didn’t fly, to say the least. The ugly sausage that emerged from Con­gress in early 2010 was the Patient Pro­tec­tion and Afford­able Care Act, or “Oba­macare”. It attempts to con­trol health care spend­ing by pro­mot­ing healthy behav­iors, stream­lin­ing med­ical record-​​keeping, and other wonk­ish pro­vi­sions that will likely bend the cost curve but were not that eas­ily explained to Amer­i­cans. The most con­tro­ver­sial part was the “indi­vid­ual man­date” (actu­ally a non-​​binding tax penalty on those who can afford health insur­ance but choose not to carry it). This was needed to ensure increased cov­er­age (reduc­ing the esti­mated 50 mil­lion unin­sured Amer­i­cans) and, more cyn­i­cally, to get buy-​​in from health insur­ance com­pa­nies and Big Pharma, who agreed to hold Obama blame­less and not run “Harry and Louise”-type ads.

The cur­rent Medicare sys­tem is in dis­ar­ray. It depends on the annual rit­ual known as the “doc fix”, where Con­gress votes for an increase in Medicare reim­burse­ment sched­ules. How­ever, the “doc fix” applies equally to all types of med­i­cine, from the most effi­cient to the least effi­cient, as seen in the graph at right, from a Jan­u­ary 2012 arti­cle in the New Eng­land Jour­nal of Med­i­cine (NEJM). The authors of the NEJM report sug­gest that maybe Con­gress should be apply­ing Medicare reim­burse­ments in a more ratio­nal way, per­haps divid­ing reim­burse­ments by spe­cialty, to reduce costs.

Per­haps this fairly com­pli­cated scat­ter­plot needs some expla­na­tion. This shows the excess expen­di­tures by med­ical spe­cialty for Medicare. Spe­cial­ties plot­ted at the left (such as tho­racic [chest] surgery, gen­eral surgery, psy­chi­a­try, and anes­the­si­ol­ogy) actu­ally cost less than Medicare pro­jected. In an ideal world, we’d reward these spe­cial­ties. Spe­cial­ties plot­ted at the right (such as geri­atric med­i­cine, emer­gency med­i­cine, and radi­a­tion oncol­ogy [using radioac­tiv­ity to fight can­cer]) spent more than three times the pro­jec­tion. In an ideal world, we’d take a seri­ous look at the cost-​​benefit ratio in these specialties.

The closer a spe­cialty is to the bot­tom, the less total money is spent there. The closer it is to the top of the graph, the more money is spent. Inter­nal med­i­cine, for exam­ple, is far and away the biggest spender but is also close to the pro­jected spend­ing increase. The great­est “bang for our buck” would be to look at spe­cial­ties in the upper right por­tion of the graph.

For exam­ple, by expand­ing med­ical care to (almost) all Amer­i­cans, we will greatly reduce emer­gency room vis­its. It is well-​​known that the poor and unin­sured use the emer­gency room as their walk-​​in clinic and treat­ment for chronic con­di­tions such as alco­hol abuse and men­tal ill­ness. If we can get these peo­ple into treat­ment pro­grams, and empha­size pre­ven­tion for all Amer­i­cans, we can reduce emer­gency room vis­its. Even if we achieved 100 per­cent cost con­trol, how­ever, the total pos­si­ble up-​​side ben­e­fit is 2 per­cent, because that’s how much of the Medicare bud­get we spend on emer­gency medicine.

Such is the promise of Obamacare.

How­ever, the Pres­i­dent badly flubbed Mis­sions 1 (tax reform) and 3 (fis­cal stim­u­lus). Whether he had help from Con­gress or not is imma­te­r­ial; it needed to get done, and it didn’t. His worst mis­take, in my opin­ion, was step­ping away from the rec­om­men­da­tions of the “Simpson-​​Bowles Com­mis­sion” (for­mally, the National Com­mis­sion on Fis­cal Respon­si­bil­ity and Reform). I’m not privy to his inter­nal thoughts. Maybe he didn’t like what they pro­posed, or maybe he saw push­ing the commission’s reforms as a polit­i­cal loser. He had just taken a drub­bing in the 2010 midterms and he was focused on the bud­get bat­tles with Con­gress. What­ever the rea­son, the emi­nently rea­son­able rec­om­men­da­tions were left to starve in their cradle.

That left the field open for the Red Team to sub­mit the Ryan Bud­get, two annual rec­om­men­da­tions (for FY2012 and FY2013) for­mally called “The Path to Pros­per­ity”, pro­mul­gated by Rep­re­sen­ta­tive Paul Ryan (R-​​Janesville, WI) as chair of the House Bud­get Com­mit­tee, passed by the Republican-​​controlled House, and rejected by the Democrat-​​controlled Sen­ate. Ezra Klein of the Wash­ing­ton Post has an excel­lent analy­sis of what the Ryan Bud­get plans to cut: rel­a­tive to the President’s bud­get, the Ryan Bud­get projects a $2.2 tril­lion decrease in taxes (over ten years) off­set by $3.1 tril­lion less in health care spend­ing and $2.2 tril­lion less in dis­cre­tionary spend­ing than the President’s bud­get. The cur­rent Medicare sys­tem is to stop tak­ing new enrollees in 2022, when it will be replaced by a voucher sys­tem indexed to gen­eral infla­tion (not to med­ical infla­tion, which is much, much larger). Thus Amer­i­cans over 55 will still get the same Medicare ben­e­fits as cur­rently, while those under 55 will see rad­i­cal changes in Medicare.

The National Review’s Yuval Levin pre-​​emptively accuses “the Left” of dis­tort­ing the ben­e­fits of the Ryan plan for Medicare fund­ing reform, which is strate­gi­cally renamed “Wyden-​​Ryan” (includ­ing Sen. Ron Wyden, Demo­c­rat of Ore­gon) and is renamed from a “voucher” plan to a “pre­mium sup­port” plan. He touts the expected 9 per­cent decrease in costs expected in an analy­sis by Song, Cut­ler and Chernew pub­lished in the August 1, 2012 Jour­nal of the Amer­i­can Med­ical Asso­ci­a­tion (JAMA). Levin con­ve­niently over­looks this clos­ing para­graph from the JAMA article:

Pre­mium sup­port, based on com­pet­i­tive bidding,may offer a fis­cal solu­tion if ACA reforms fail, but at the cost of mak­ing Medicare ben­e­fi­cia­ries respon­si­ble for solv­ing Medicare’s fis­cal cri­sis. Suc­cess of the ACA can make pre­mium sup­port less risky by low­er­ing tra­di­tional Medicare costs and help­ing to mon­i­tor and improve qual­ity in pri­vate plans. With­out ACA improve­ments, ben­e­fi­cia­ries must pay more for tra­di­tional Medicare or join a pri­vate plan. Given the cur­rent fis­cal pres­sures, this may be accept­able, but it is a major shift from tra­di­tional Medicare that may have dele­te­ri­ous con­se­quences.

[Emphases mine.]

Pre­sump­tive Repub­li­can nom­i­nee Mitt Rom­ney is appar­ently dis­tanc­ing him­self from the Ryan Budget.

I have my bud­get plan. And that’s the bud­get plan we’re going to run on.

Unfor­tu­nately, the Murdoch-​​controlled Wall Street Jour­nal says in a recent Op-​​Ed by Rex Nut­ting that the Rom­ney plan “doesn’t add up”.

Don’t ask the CBO or the Joint Tax Com­mit­tee to eval­u­ate Romney’s plan, because they refused to even try. It’s too fuzzy. But the Tax Pol­icy Cen­ter, a respected non-​​partisan think tank, has scored Romney’s tax plan, at least the parts that weren’t com­pletely opaque.

The Tax Pol­icy Cen­ter found that Romney’s across-​​the-​​board 20% reduc­tion in tax rates (plus other changes) would give the rich­est one-​​thousandth of us a tax cut of $725,000 every year while ask­ing fam­i­lies earn­ing under $30,000 to pay a lit­tle more. Folks in the mid­dle would get $810 a year. And that’s assum­ing we all get to keep the ben­e­fits of the Bush tax cuts.

Log­a­rchism is ready to dis­cuss fis­cal and eco­nomic pol­icy. But the politi­cians have to give us some­thing to work with.

My per­sonal rec­om­men­da­tion is this: Pres­i­dent Obama, stand foursquare behind the Simpson-​​Bowles plan and demand that Con­gress tackle tax reform early in the 113th session.

Mean­while, let’s com­pare and con­trast the Ryan and Obama visions for the fis­cal future. What do you think?

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