Is the Senate bill fiscally responsible?

Matt Yglesias writes:

The bill contains provisions that have front-loaded positive impacts on the deficit and also have provisions that have back-loaded positive impacts on the deficit. The bill, rather intelligently, seems to balance this out well leading to net deficit reductions in the short-, medium-, and long-terms. The bill by no means solves the considerable long-term fiscal challenges to the United States, but it does improve the situation. If people want to say that on balance they think the bill is a bad idea, that’s fine, but to do so is to oppose what’s far-and-away the most politically realistic way to enact non-trivial long- and medium-term deficit reduction in the 111th Congress.

I should coin a new MR term: the retreat into the relative.  As I understand it, the apparently fiscally responsible portions of the bill come from a) eventual cuts in Medicare spending, and b) rising taxes on some health insurance plans and they come later of course.  Few Congressional representatives are willing to do these things today, so should we predict they will be done in the future?  (The same problem plagues Waxman-Markey, by the way, so these back and forth rhetorical debates are becoming quite common.)  In my view, policies structured in this manner are simply another way of doing deficit spending.

To quote Matt, he writes of: "the most politically realistic way…to enact…deficit reduction."  That sounds powerful.  and in fact I agree with his claim as it is worded.  But if all the politically realistic options make our fiscal position worse rather than better (Congress likes to spend money more than it likes to inflict pain on voters)…well, this bill still makes the deficit problem worse.  Even it is the best of the realistic worsening options.  We should be wary of the retreat into the relative because all the options may be bad.  Nor should the phrase "building a framework" be translated into anything but "we are unwilling to do this now or anytime soon and thus we are engaging in more de facto deficit spending."

The fact that Republicans can (correctly) be blamed for making the bill worse does not constitute an argument that the current bill will make things, in fiscal terms, better. 

Citing inconsistencies of bill opponents ("but he didn't scream loud enough about [fill in the blank] way back when") does not help on this score either.

Another argument I have seen in MR comments is: if we can't solve this health care costs problem it won't matter, therefore we can spend more without making the problem in net terms worse.  That's a fallacy and you would never apply such reasoning while driving over the speed limit ("I'll accelerate right now, after all at some point I've got to slow down anyway.")  Think of it as a kind of Zen-like, reverse Sorites ploy: "It is adding stones which takes a pile away."  Or "Let us add stones.  The pile must disappear in any case."

Here is a numerical style guide (SG) for identifying future arguments in these veins, because they will recur when you have an activist government which wants to be very popular, combined with an under-educated, short-term oriented citizenry:

SG1. The retreat into the relative: "All the other options are even worse."

SG2. Blame the Republicans: "They made the bill bad, not us."

SG3. The critic is evil or inconsistent: "Your views are inconsistent, or you are morally questionable, so I can dismiss your worries."

From now on in the MR comments section you can just cite the appropriate number and spare yourself carpal tunnel syndrome. 

Addendum: Megan McArdle adds relevant comments and also here.


I am confused by this post. This bill reduces the deficit in the short term, in part by delaying benefits while instituting some of the taxes earlier. Isn't that exactly the opposite of your complaint, that it gives away goodies today but promises future pain?

The CBO puts it this way: it "generate[s] net receipts for the government in the initial years when total premiums would exceed total benefit payments."

This post seems like sour grapes (SG for a different variety). Both House and Senate bills are scored by the CBO as reducing the deficit in the first 10 years, and then again by more in the following years. The Obama administration keeps talking about laying a "new foundation" - well expanded coverage with built-in cost controls as part of a grand bargain lays a good foundation for future incremental fixes.

Should we have gone down a VAT sponsored voucher a la Ezekiel Emmanuel that blows up Medicare and Medicaid? Probably. But there are benefits to both citizens, businesses, and the deficit in either version of HCR bill currently up.

So here is the addition:
SG4. The critic is upset about expanding health care coverage and will suffer from "sour grape syndrome" (SGS) and attack even when the bills offer something of value; albeit in a slower and methodical manner than a revolution in health care could bring.

''So here is the addition:
SG4. The critic is upset about expanding health care coverage and will suffer from "sour grape syndrome"''

What is it that you believe makes the critic "upset about expanding health care coverage" in the first place?

So all this time we've been working on the symptom and not the cause? This would seem to be what we really need to fix, "an activist government which wants to be very popular, combined with an under-educated, short-term oriented citizenry."

But how?

In defense of SG1: when arguing for a pragmatic solution, noting that X is the best of all realistic options* IS a valid argument. One can consistently concede that X is on net a bad option and still argue that we should adopt X because all options are on net bad and X is the least bad. (As they say in the service, "You must always choose the lesser of two weevils!")

* i.e., possible options given a particular political economy

No, what they should have done is cut taxes by 10%, enact the cut for ten years so that CBO doesn't score it because in the 11th year taxes increase, run a deficit for ten years, and shove it into the next generation.

Oh, we did that already.


I put a political science based defense of the fiscal responsibility of the Senate Bill up on my blog, it doesn't use the arguments raised above, so I can summarize it here.

1) In terms of vote counts, it is much easier to hold the line on automatic cost savings than to pass new bills that implement cost savings.
2) Expensive health plans do not have a naturally well organized constituency to defend them, this is not true of the lobby preventing Medicare automatic cuts.
3) Democrats, admittedly in combination with good economic times, have balanced the budget before. Universal coverage is a middle class issue, but many of the other cost drivers have more impact on the poor. Once universality is implemented, the impulse to raise the bronze plan is unlikely to outweigh the impulse to be depicted in the media as fiscally responsible. I'd prefer a Congress that gave additional subsidies and restored the estate tax, but we can't always get what we want.
4) With universal health care, raising the eligibility age, with a grandfather clause, of Medicare will likely be achievable.
5) Conceded that the mammogram fight looks bad for us, but Yglesias and Klein are both willing to stand up for comparative effectiveness reviews. Also, breast cancer research advocates are probably the best organized lobby out there, the uproar isn't the typical case.

The bill is a sham. They know the numbers are unrealistic, the assumptions unworkable. The just want to create the structure convinced that once in place, like most government programs, it will be impossible to undue.

Promise them anything, get it passed, take credit, let others make the tough budget choices.

Read Dr Flier with thanks to the Mankiw blog that had the link

This is a really great post, Tyler.

Given that TC agrees that this option is better than any other option that could be passed, and that it will still result in increase the deficit in the long term, should we conclude that it is impossible for the government to reign in deficit spending on health care?

If you believe (like I do) that health care spending costs will eventually come to dominate consumer spending unless a major overhaul of the delivery and payment systems is done, does this mean our government is doomed to fiscal insolvency in the long run?

I've got to say, this is about the most pessimistic post I've ever read on this site.

RE: BKarn & SG4 - I wish I knew - I certainly don't see why some people are ideologically opposed to expanding coverage.

But as anonymous posted at 11:40, this blog is definitely in the sour grapes realm of HCR. I appreciated an earlier post with actual solutions to some of the policy problems; but denigrating the current bills as they 1) do account for how they are paid for (unlike Medicare Part D), 2) reduce the deficit per CBO, and 3) are within the realm of the possible for reform I fail to see the need for such negativity.

This reform will incrementally do quite a bit of good by expanding coverage, enacting consumer protections, and working on the framework/infrastructure/foundation/pick your metaphor that might really bend the cost curve.

That chestnut that has been going around this year really is true: don't let the perfect be the enemy of the good.

It doesn't seem like anything will please Tyler. If no tax increase is credible, then there can be no new spending. It's way beyond PAYGO, it's just anti-spending.

I'll join with the consensus that this is a poor argument. As Greg Sanders notes:

"In terms of vote counts, it is much easier to hold the line on automatic cost savings than to pass new bills that implement cost savings."


"Democrats, admittedly in combination with good economic times, have balanced the budget before."

Tyler Cowen's argument seems to be:

This bill will improve matters, but the nature of the changes gives future Congresses a strong incentive to make the problem worse either by lowering taxes or increasing spending. Without these changes, future Congresses would have less of an incentive to make the problem worse. Therefore, we shouldn't make things better now.

While technically not illogical, this seems like a big stretch.

Also, it is a change from previous posts ( where Tyler Cowen argued:

This bill will make things worse.

This seems to me to significantly lower Tyler Cowen's credibility as an open-minded thinker on health care reform. Why is it so hard for libertarians to admit that Democratic leaders are fiscally responsible?

SG1 and SG2. Thanks Tyler for saving me keystrokes!

SG5. We are doomed.


I am not a liberal.

The reason we are here is because the last President created these deficit problems, not because of the sitting President.

The last Democratic President solved the deficit problems created by his Republican predecessors.

Does this bill do enough? No.

Does it reduce the deficit? Yes.

The above two answers are based on the highest quality and most independent analysis of the bill out there, the CBO's.

Does it shift medical costs to the poor? That's a dubious assertion for which you provide no evidence to back up.

Is it likely it will improve in the committee to reconcile differences between legislatures? Very, considering that it is then and only then that the President and his team of economists will really make their presence known. I have more faith in the President than Congress. I think Tyler Cowen does too:

Also, what has Stargate have to do with anything?

All of you anonymouses who are threatening to stop reading the healthcare section of MR: Why should we think your stated threat is credible?

And, if it's credible, why do you think this "I'm going to hold my breath until I turn blue" threat will persuade anyone (especially Tyler) to change his/her position?

And, if it's credible AND you believe it will influence the strategy, how do you believe that strategy change can possibly benefit you?

Quoth Napoleon, "Never interrupt your enemy when he is making a mistake."

Dear anon:

"Liberty" is not defined by how little the government interferes in your life, "liberty" is defined by the size of your budget constraints. When you transfer money from a rich person to a poor person, you are transferring options and hence liberty.

Just sayin.


Neal, your state coercion will not work. Do you believe this is merely about wealth transfer, merely about your state violence?

How do you force people to work? How will you mandate creativity and innovation? How do you push on a string?

See, e.g., this from the McArdle piece:

What passes for delivery reform consists mostly of slashing reimbursement rates to providers, and then putting Medicare Advantage on the same plan. There are two problems with this. The first is that there's no reason to believe that providers will find ways to efficiently provide care at the new, lower rates, rather than just stop serving Medicare patients. That was the core point of the recent report from the Centers for Medicare and Medicaid Services--and though a lot of bloggers developed sudden suspicions about the integrity of government reports, in fact, this pretty much jibes with the warnings that Doug Elmendorf has been issuing, and also, reality. There are already shortages of geriatricians which can be substantially attributed to the fact that Medicare has ensured it is one of the lowest-paid specialties. When the guy who oversees your provider payments says that your new payment scheme is probably going to lead to providers dropping out of your program, you need to take that seriously.

You see Neal, your edifice is already crumbling. Unless you are thinking of importing all the free health care workers from Cuba.

Or unless there are millions like you Neal, all strong, all smart and hardworking, all for the good of your state and your "fairness".

Because those of us who want LIBERTY will not be working with or for you. Neal, you and your ilk are the ultimate "bad boss".

We might be in your jails, we might be working far less, who knows, we may even oppose you by subtly undermining your edifice, making sure the water washes away the sand. All without using any of your state violence and coercion.

And you will not necessarily know which people who value LIBERTY are. They may work quietly. Or they may be loud.

But there are more of us who value LIBERTY than you think. And we are not all attending tea parties. We are not all listening to talk radio. We do not all belong to a political party.

We may be your neighbor. We may be your friend.

Those of us who value LIBERTY are not all loud, we are not necessarily talking about it. You may know me and not even know it.

Those of use who love LIBERTY are all over this country. Lovers of LIBERTY have been in America for a long time, and lovers of LIBERTY will be in America for a long time.

Alan Greenspan, the libertarian whipping post, is credited (at least partially, and specifically in Bob Woodward's book "The Maestro") with helping convince Clinton to work to balance the budget. Most of the credit of course goes to the luck of having record tax receipts from a bubble economy that the gov't got used to. So, they just didn't increase spending as fast as the money rolled in, which led to the deficits when the money stopped rolling in.

What I said was it shifts medical services from the high earners (nominal) to the poor by taxing the high premium ("Cadillac" of all monikers) insurance plans. I think Tyler's point is similar to mine, if you reduce the deficit in a way that really probably doesn't just to institute another boon to the general fund in the short-term, then that is not fiscal responsibility. It is the opposite.

Another thought, this bill must really not be that great if they are selling it as a deficit reduction plan.

The shifting rationale really is reminiscent of the justifications for the Iraq war. I was thinking this before McArdle alluded to it.

Maybe they are really sophisticated dealing with 'political realities' or maybe they are just lame opportunists. You know what my money is on.

Do we have to do this again?

1. The president does not control the budget. Congress and long-settled policy questions do. At best, the president can blow it and ask for more or attempt to spend below the authorization (which will be characterized by plaintiffs as "the mandate" in the ensuing suit) but these are minor tweaks.
2. Clinton talked budget balance but never seriously intended it. He characterized Gingrich's 7 year plan as "irresponsible", favoring a 10 year plan that would left his successor with the hard choices. They both got lucky and saw the budget (or at least the part that they agree to count) get balanced as the result of factors beyond their control.

Neither party has a credible claim to fiscal responsibility, and a claim to be less irresponsible (SG1) is not the same. If we're going to have national/social healthcare, let's not use bulshytt to justify it or describe its effects.

Pretty much what Eric said. Being less fiscally irresponsible shouldn't be lauded as some virtuous characteristic. Anyway, I still haven't seen an answer as to why people think budgets are really that big of a deal. Is there some fear of hyper-inflation, money debasement, some unbearable Ricardian equivalent, crowding out effects, regulatory capture? What is it about fiscal policy that has everyone worried?

How health care reform could fall apart

I simply mis-typed the first time. I'm sure you can find it in your heart to forgive me.

And I don't buy the argument that they are leading the people kicking and screaming into a deficit reduction package. That is laughable.

The "retreat into the relative" is a valid point. There are limitations of course, but a lot of arguments unrealistically constrain the number of options in order make an offering look more attractive.

Surprisingly weak arguments this go-around from the commenters. :( Usually both the pro's and the con's are much stronger. Perhaps the most serious commentators are sick of this topic?

Also, this is the first time I've seen someone claim that communism enhances liberty. If it weren't so sad, I would have laughed even longer.

Tyler said "Few Congressional representatives are willing to do these things today, so should we predict they will be done in the future?"

But the bill reduces the deficit in the short term, the medium term, and the long-term.

Then Tyler wrote: "well, this bill still makes the deficit problem worse."

But the bill reduces the deficit in the short term, the medium term, and the long-term.

What, is today "opposite day" at Marginal Revolution? How's come you cannot grasp this basic point?

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