Alternative Fiscal Fail
Via Facebook, Laurence Kotlikoff was fear-mongering about $200+ trillion in fiscal problems in a late July op-ed last year. I wrote the following in a comment about the op-ed.
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For what it’s worth, that Yahoo op-ed is both out of date and misleading people with insider economics. There are things that should have been explained in that op-ed that weren’t.
The reason the media ignores the Alternative Fiscal Scenario is that it’s based on unfounded political assumptions that tax revenue will decrease and spending will increase over a long period of time. It’s not a projection based on current law (that’s the baseline scenario that the media does report on) or even predicted changes to law, it’s a giant “what if” that lately has represented a worst case scenario.
The 2012 AFS was invalidated in less than eight months because tax revenue increased a lot more this year than was projected last year, due to the improving economy and tax increases by Congress that the CBO didn’t include in the AFS.
We aren’t looking at debt reaching 100% of GDP within a decade anymore. Not even close. We’re looking at a $600 billion deficit this year after $1100 billion last year. The 2012 AFS thought there’d be another trillion dollar deficit and there wasn’t. Few people saw that coming in 2012, especially not the CBO with the AFS, because the CBO was projecting tax decreases, and instead we got tax hikes on the wealthy.
James Kwak wrote about the uselessness of the AFS earlier this year and summed up the AFS like this: “Or, in other words, it assumes that Republicans win every fight over taxes and Democrats win every fight over spending.“
That assumption failed in less than a year when the sequester went into effect, cutting spending by about $50 billion, and Democrats forced a partial expiration of the 2001 and 2003 GOP tax cuts for the wealthy, increasing revenue. In fact I believe the 2012 AFS in that Yahoo! op-ed assumed a full extension of the 2001 and 2003 cuts, and that never happened. We actually had a year where Republicans won a fight over spending and Democrats won a fight over taxes.
We’re looking at the deficit coming down more over the next few years and then rising again in the early 2020s, but that has nothing to do with Congress and everything to do with baby boomers retiring and drawing more heavily on Medicare and Social Security. Social Security is a trivial fix — just raise the payroll tax cap and Social Security should be fine *forever*. Medicare is harder, but the solution to that was proposed way back in 2009 during the health care war. Single-payer would fix health care in this country for a century or more.
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I don’t know very much about Laurence Kotlikoff, but I have found him trying to sell a Paul Ryan (actually much worse) type of plan to end Medicare and Social Security with a replacement of vouchers for private insurance indexed to GDP, with no cost controls for private insurance premiums.
The voucher idea without cost controls (read: regulation) means tens of millions of people won’t be able to afford insurance. Best case scenario means we’d be exactly where we are right now, so it’s not a “fix” to the health care system, it’s a political implementation of a conservative anti-government agenda. That’s not supposed to be an insult, that’s just what it is. In the worst case we’d have even more people unable to afford insurance than we already have.
So right off the bat Laurence has no credibility with me and shouldn’t have any credibility with you. To make things worse, Laurence was undeterred by his flawed op-ed and the invalidated AFS and is still out there basically writing the same story over and over again, trying to scare people with things that don’t really matter right now.
The deficit/debt situation is now under control and will be for most of the next ten years. Nobody is going to find their Social Security checks or Medicare coverage shrink because of fiscal problems in the next decade or perhaps even in the next 20 years. What matters right now is what has mattered all along: high unemployment.
Getting the economy back to full employment will reduce spending on things like unemployment insurance, food stamps, and Medicare/Social Security while increasing tax revenue from more people having jobs and more economic output.
What people need to take away from this is that the enormous budget deficits from the past four years have been a symptom of high unemployment. You treat the cause, not the symptom, because that makes the symptoms go away.