Wednesday, November 9, 2011

Magical Thinking

When it comes to deficit reduction and controlling health care spending, liberals and conservatives alike are guilty of magical thinking, holding certain beliefs that are not supported by science or evidence.

Take the issue of deficit reduction. Washington Post columnist Robert Samuelson (who is no fan of the Affordable Care Act, by the way) writes that it is time to “banish the budget fictions of left and right.” First, he takes on conservatives:

“. . . plausible savings don’t match conservative rhetoric. All the suspect 'discretionary' programs come to tens of billions, not hundreds of billions. Culture subsidies total about $1 billion annually; community block grants in 2010 were $4 billion. Meanwhile, total federal spending was $3.5 trillion. Do conservatives really want to eliminate the national parks? The FBI? Highways? Food inspections? Social Security and Medicare savings could be greater. In 2010, these programs cost $1.2 trillion. But there’s a catch. Savings from lower individual benefits will be offset by more beneficiaries: retiring baby boomers. By 2025, Medicare and Social Security enrollment will rise 50 percent from 2010.”

Then he challenges liberals:

“Next, the liberal fiction. Contrary to liberal dogma, the rich already pay plenty of taxes. . . For most millionaires, federal tax rates — the share of income taxed — exceed 30 percent. Some rich have lower rates. Raising these rates is justified but wouldn’t balance the budget. . . As for the Pentagon, the military was cut sharply after the Cold War. Combat forces are half to two-thirds of 1990 levels. Defense spending as a share of national income is headed toward its lowest level since 1940. What liberals don’t say is this: Unless Social Security and Medicare benefits — the bulk of the budget — are reduced, we face three dismal choices. Huge, unsustainable deficits. Massive tax increases on the middle class, as high as 50 percent over 10 to 15 years. Or draconian cuts in the discretionary programs that liberals accuse conservatives of wanting to gut.”

The same kind of magical thinking can be found on cutting health care spending. Writing for the Freakonomics blog, Jeff Mosenkis writes about former White House staffer Dr. Zeke Emanuel’s efforts to debunk liberals’ myth that you can control costs by going after insurance companies and big pharma and conservatives’ myth that tort reform is the solution.

“Turns out that the combined profits of the country’s five largest for-profit health insurance companies — United, WellPoint, Aetna, Humana and Cigna — were $11.7 billion, only 0.5 percent of total health care spending,” Emanuel writes.

How about drug company profits?

“Between 2004 and 2009, generic drug use rose from 57 to nearly 75 percent of all prescriptions. Paradoxically, over those same years, the total amount Americans spent on drugs actually increased by 31 percent — the same rate as overall health care expenditures. Even the best estimates suggest that savings from expanding generics’ use even further are, according to the Department of Health and Human Services, ‘likely to be small relative to total spending on drugs' . . . Pharmaceutical costs account for roughly 10 percent of total health care spending, some $260 billion in 2010. Importing brand name drugs from abroad would cut about 2 percent from that — $5 billion per year.”

What about conservatives’ favorite whipping boy: the trial lawyers?

“Right now, doctors’ costs are driven up by malpractice insurance, and they’re incentivized to practice ‘defensive medicine,’ ordering extra scans and tests. Emanuel cites a CBO report finding that aggressively capping lawsuit non-economic and punitive damages would save a good chunk of money, but not enough on its own. A package that included a $250,000 cap on noneconomic damages, a $500,000 cap on punitive damages and a one-year statute of limitations for claims by adults would save about $11 billion a year — 40 percent from reduced malpractice premiums and the rest in the form of fewer defensive procedures like M.R.I.’s.”

So there you have it: neither the right nor the left is being honest about what is driving the federal budget deficit and health care spending, and the solutions they offer are not up to the challenge. But who can blame them? It is, after all, the American people that punish politicians who tell the truth and reward those who offer painless, magic bullets instead of honest answers.

But the country’s economic health depends on all of us abandoning our magical thinking. As Samuelson concludes, liberals and conservatives “need to come clean with reality. For years, they’ve exuded self-serving platitudes. Conservatives should acknowledge that Big Government is a permanent part of the social fabric and that much of what it does is popular. It needs to be financed. Liberals should concede that Big Government can become so big that its crushing taxes weaken the middle class and economic growth. Government then promotes conflict and degrades social justice.”

Today’s question: What do you think about the “magical thinking” of conservatives and liberals alike on reducing the deficit and controlling health care spending?


Cedric said...

This post is spot on. One of the largest problems with this debate is that liberals and conservatives alike tend to focus on ideological principles as opposed to evidence-based solutions. The potential savings from Social Security and Medicare reform dwarf almost all other areas of the budget and therefore are critical to balancing it. However, both the liberals and the conservatives like to focus on the 1/2 of 1%.

The Conservative 1/2 of 1%:

Even though the potential savings from tort reform are small, the evidence clearly shows that non-economic caps of $500,000 or less help with physician supply and cuts the rise in malpractice premiums.

The Liberal 1/2 of 1%:
If liberals are upset that health insurers make too much profit, instead of taxing health insurers (as the ACA does), require them to become non-profits if they which to participate in the system as if done in Switzerland.

The other 99%:
Most certainly includes duplicative costs due to administrative burdens, inability to access information (repeat tests and scans), and requirements that benefits be all-encompassing instead of minimal and essential.

Steve Lucas said...

Well done. My only hope is that we can now start a real conversation about deficit reduction without some of the myths and emotion.

Steve Lucas

Harrison said...

I think the article is good, but the information isn't really new.
The problem is that honest negotiation is needed.
I still believe that the White House has put politically difficult positions on the table that have been refused because of ideological purity on tax issues.
I think that tax revenues are neither at historical lows nor historical highs.
And what is needed is not rate increases but growth in our economy.
That is where we need a broad base. More jobs means more consumers which helps the economy and creates more jobs and so on and so on.

Political dialogue is not healthy in this country.

I think this blog site is an exception.
I think that most of the posts here are substantive and I learn a lot.
I don't always agree with everyone.
I probably stand out mostly as the one closest to the ACP's positions actually.

But...I agree that we need honest debate and dialogue.

I still want to understand the Republican positions better.

But I don't think it is fair to completely take tax hikes off the table.

I think that the President's Jobs legislation offered reasonable reforms that could have helped the economy.

No it would not have been enough.
But it would have been positive and not negative.

Can't we find just those simple areas of agreement?
Do we have to find a grand scheme that fixes everything?
Because I think we won't.