America’s three problems — and their solutions

By Ezra Klein

 

(Congressional Budget Office)

There are certain moments in life when it’s good to take a step back and look at your problems — and their potential solutions — with a bit more perspective. A near-death experience, for instance. A divorce. A spiritual awakening. Or, if you’re a wonk, the release of the Congressional Budget Office’s long-term budget outlook (pdf).

The number-crunchers make clear that the United States is facing three separate problems in the coming years: a short-term demand problem driven by household debt and anemic growth, a medium-term deficits problem driven by tax cuts and spending increases, and a long-term deficit problem driven by health-care cost inflation.

The best way to deal with the short-term demand problem is a mixture of jobs programs, tax cuts, and moderate inflation. The inflation bit is up to the Fed, and there’s legitimate disagreement as to whether it could pull it off without more demand in the economy. The jobs programs and tax cuts are up to Congress, however, and there’s no similar conceptual question as to whether we have the ability to write legislation including such items. We could even write it such that it also addressed some of our long-term needs, like repairing our infrastructure. A pretty standard calculation puts the necessary spending/tax cuts in the range of $400 billion a year for the next two years at least. So let’s do that. As an added bonus, if Congress boosted demand, it would be easier for the Fed to create some inflation.

At the same time, we should be reducing deficits by $4 trillion or more between 2014 and 2023. I say “or more” because I think it’s likely that optimistic growth assumptions are covering the size of medium-term deficits. So let’s say we need $5 trillion in deficit reduction. And just as we would be wise to look for stimulus programs that take care of long-term needs, we would also be wise to reduce the deficit in ways that make overdue reforms. Tax reform, for instance. At this point, I think a pretty good solution would be to flesh out and pass some version of the proposals released by Alan Simpson and Erskine Bowles and the Gang of Six. That means about $3 trillion in spending cuts and, if you count it properly, tax reform that raises about $2 trillion.

That leaves us with health-care reform. The only ways to sharply cut spending in the short-term would be to greatly reduce payments to providers, as could happen under single payer, or to greatly cut benefits, as could happen under an accelerated version of Paul Ryan’s plan (remember his major Medicare reforms don’t begin for a decade). I don’t consider either to be likely paths forward for the health-care system. So I basically agree with the Center on Budget and Policy Priorities, which says, “major savings are not likely to be achievable here in the next five or ten years.”

The smarter way to spend the next decade would be aggressively implementing the Affordable Care Act and trying to hasten the transition it envisions toward a value-based, IT-enhanced, outcome-oriented, exchange-based universal health-care system. As Peter Orszag wrote in Bloomberg View, there’s some evidence that hospitals are already moving in the right direction on this stuff. If Congress is attentive to pruning the law’s failures and expanding its successes — attentive, in other words, to letting the law fail well — there’s some possibility that we can solve our long-term health-care cost problem by making our health-care system better. If that fails, or if it doesn’t go quite far enough, we can reevaluate whether we want to move toward cutting more deeply into provider payments or into benefits. But it would be a shame to have to make those cuts because we wasted the next few years squabbling over the health-care law rather than using it as a framework for cost containment.