October 21, 2013

With the shutdown and debt ceiling crisis over and budget negotiations beginning, it’s worth noting that we’re stuck back in the same old rut we’ve been stuck in since Republicans took the House in 2010. Republicans want cuts to social insurance, or say they do, and Democrats want a bit of new tax revenue in return. On a policy level, this is nuts. We’re trading austerity for…more austerity. Democrats and Republicans ought to consider bringing in other ideas. Almost anything else would be better.

Peter Nicholas and Colleen McCain Nelson have a piece in the Wall Street Journal today outlining liberal discomfort with proposed cuts. It describes the current state of negotiations thus:

As part of the agreement that was reached Wednesday, members of the two parties will meet to try to hash out differences between the House and Senate budget plans passed earlier in the year. Leaders of the committee set to meet are Sen. Patty Murray (D., Wash.) and Rep. Paul Ryan (R., Wis.), chairmen of the Senate and House budget committees, respectively…The main differences between the plans are over taxes and spending: The Senate Democratic proposal would raise close to $1 trillion in tax revenue over 10 years, while the GOP plan includes deep spending cuts. But lawmakers taking part in the effort may aim for something more ambitious: a budget accord that would both reshape the tax code and reduce long-term deficits.

Also, Dick Durbin was on Fox News yesterday saying some Social Security cuts might be considered as part of a deal.

First of all, our long-term deficit is 100% the result of projections of skyrocketing health care costs, which is the product of an extraordinarily dysfunctional health care sector, not overly generous social insurance programs. If we could bring our costs down to what even the bigger spenders like Canada shell out for health care, our deficit problem would vanish. Cutting Medicare and Medicaid benefits – the drivers of long-term deficits in these projections–would only push back the date at which those programs eat the entire federal budget. (Extrapolate far enough into the future and a single Advil will cost a quadrillion dollars.) Reforming the health care sector is what will actually make a difference, and Obamacare seems to be having some positive effects so far.

Second, not only is cutting Social Security completely unnecessary – the program is solvent into 2033 at least, after which point it can still pay 75 percent of current benefits, and could be patched up with only a couple minor tweaks — we actually should be increasing benefits, if anything. As Duncan Black never tires of pointing out, the 401(k) program has been an abject failure, and millions of people are about to retire with totally inadequate savings. Boosting Social Security is probably the only workable option to prevent a huge increase in senior poverty.

Third, lets not forget the macroeconomic angle. Democrats seem to have trouble keeping their eye on the ball here, but cuts to social insurance (especially to Social Security) means melon-baller scoops out of aggregate demand, which is already weak. It means fewer jobs and even more prolonged economic weakness going into the 2014 elections. And Dems’ proposed swap, tax increases on the rich, also subtracts from aggregate demand, though not nearly as much. (Tax-side austerity is still austerity.) Again, right now the actual problem with the budget deficit is that it’s coming down too fast.

Finally, remember what happened when Democrats cut social insurance as part of Obamacare? Republicans ran against them for it! These were mostly cuts to providers, not benefits, but it’s a good reminder of just how popular these programs are. If there is a big budget deal with swingeing cuts to social insurance I guarantee you’ll see every House Republican promising to keep granny’s bennies safe from the mean old Democrats.

For far too long now, we have been stuck in the wrong conversation. Every proposed policy under discussion is either pointless or actively harmful.