Pearlstein: Budget Scolds

Steven Pearlstein
Washington Post Columnist
Wednesday, May 20, 2009; 11:00 AM

Washington Post business columnist Steven Pearlstein was online Wednesday, May 20 at 11 a.m. ET to discuss his column on "budget scolds," which he defines as analysts, advocates, editorial writers, policy-makers and politicians who possess a fierce determination to bring the federal budget into better balance.

Read today's column: Budget Scolds Shouldn't Drown Out the Chorus Calling for Health Reform.

Pearlstein won a Pulitzer Prize in 2008 and is co-moderater of the On Leadership discussion site.


Reston, Va.: Do increases and decreases in the Federal Budget impact corporate stock valuations?

If so, are the stocks of certain market sectors more sensitive to budget trends than others?

Steven Pearlstein: Would probably be hard to find a connection.


Washington, D.C: For years whenever budget scolds talked about the need for entitlement reform, the automatic response was that the problem isn't entitlements, but health care costs and that the solution is health care reform, not overall entitlement reform. So is it any surprise that now that health reform is on the agenda the budget scolds actually expect health care reform to deliver on that promise and expect it to fit within fiscal constraints? If health care reform hadn't been held out as the silver bullet that made all other entitlement reform or fiscal restraints unnecessary, perhaps budget scolds wouldn't hold it to such a high standard.

Steven Pearlstein: I'm not sure this is your point, but mine would be that budget scolds should welcome an attempt to bring a revolutionary, systemic approach to controlling health care costs, private as well as public, because trying to control the medical side of goverment entitlements without that amounts to reducing benefits or lowering provider payments by fiat, which we know doesn't work for very long. And in doing so, they ought to cut Obama a little slack in terms of the scoring of savings. Maybe it won't work right away, maybe it will need to be tweeked, but let's get the process going with a very critical eye to this question of cost control. Let's be candid about how it is working, how it is not, and adjust quickly to that learning. But let's get going, using logic and judgment rather than waiting for budget analysts to render a definite calculation about the savings, which they very understandably are reluctant to do.


Federal furloughs: Steve,

With the huge deficits, why hasn't any politician tried to pass a furlough on federal employees (non military)? There would have to be huge savings if a 1 to 2 day a month furlough was instituted.

If the rest of the working class is fighting this recession, then our public servants should join in the fight.


Steven Pearlstein: We have lots of federal furloughs. They are called snow days.


Washington, D.C.: I can't tell whether you're actually unhappy that the CBO won't count projected savings in its figures. I think they're smart to play it safe -- if it means Congress is forced to pick up more money from keeping the estate tax (a la Obama's revised budget) or going even further on limiting itemized deductions, so much the better. Heaven help us if the rich only get 25 percent deductions instead of 28 percent(or 39.6 percent)!

And if CBO is eventually proved wrong, we will find ourselves AHEAD of target in the future. Imagine that for a change!

Also, I don't understand the hue and cry from charities about the deduction. I read a calculation (below) that the impact would only reduce charitable giving by 2%, or about $9 billion a year. Shouldn't this be politically easy, since it means hundreds of billions for universal health care? Why are Dems opposed? What am I missing?

Steven Pearlstein: You are right about the charitable deduction cap. Its a good tradeoff. Unfortunately, a lot of charities are in a dire straight right now and this would be hitting them when they are down. Need to phase it in.

As I say, I don't quarrel with the CBO's reluctance to score the savings. That's doing their job. But it is not their job to decide whether to move ahead in spite of not having the budget certification -- that is what elected leaders are supposed to do. And they should, rather than clinging mindlessly to the Blue Dog argument that we can't move ahead with a health reform plan that is not fully paid for under congressional scoring rules. They are tying themselves up in their own underwear -- needlessly, in my opinion.


Falls Church, Va.: So why do we have to balance the budget. The real growth of this country was built on borrowed money, I guess the real question would be how much do we allow the government to be leveraged.

Steven Pearlstein: We don't have to have a balanced budget, but we shouldn't have trillion dollar annual deficits for as far as the eye can see, which is where we are headed. I don't argue with that. What I do say is that once the economy returns tio full-employment, we should be having ANNUAL deficits that are close to zero and should take whatever steps are necessary to get there in the medium and long run. Entitlement reform is a big part of it, so is tax reform, so is civil service reform. But let's not expect a new president to have all that figured out after four months, down to the line by line budget impact in Year 9. The politics demand we do these things one at a time, so you don't piss off everyone at once.


Raleigh, N.C.: I am a "budget scold" partly because I am budget staff at the state level, with a balanced budget requirement. You unfairly characterize those who believe in fiscal responsibility. Show me how the President's proposals are going to save any money over the long term? The CBO couldn't calculate the benefit of Health IT proposals in the Recovery Act, as your paper reported yesterday. Furthermore, they were created by industry lobbyists. Healthcare, as is energy, is a legitimate policy goal. And, perhaps there is something to the statement that our healthcare problems are related to our current financial crisis. But, if everything is connected, nothing is connected. Unfortunately, the President was presented with problems that were not related to his policy goals. The prudent option would have been to focus on the current crisis - financial and military - and then move on to healthcare and energy. By trying to solve every problem at once, we have risked finding solutions to the most pertenient problems (finace and military).

Budgeting is function of economics. We have infinite needs/wants and limited resources. The budget is the reflection of that fact - the application of scarce resources to unlimited problems/issues, given national priorities.

Steven Pearlstein: I don't quarrel with the new for budgeting and responsible budgeting, which I knew would be the rap on my column. But expecting a new president to come up with a plan to balance the federal budget in five years is absurd, given what the guy inherited. He's moving in the right direction with all deliberate speed, tackling the biggest issue first. And ther's every indication he'll move on from there. That's all you can ask. So let's not get wrapped up in santimony over the ten year budget projection, that's all I'm saying. It's really not his "plan" for the next decade. Believe me on that one.

Again, as to the CBO, if they can't or don't want to score something because they simply don't have enough information to make a call, I respect the fact that they say so. But that doesn't mean you shouldn't do health IT and have some faith that it will yield longterm benefits in terms of quality and quanitity. It has, eventually, in every other industry and there is no reason why is won't or can't in healthcare. Sometimes you just have to use logic and good judgment and have faith. And this is one of those times.


Washington, D.C.: Given government's unparalleled track record of promising reforms that invariably end up being more expensive and vastly less effective than promised, why shouldn't budget-conscious folks be concerned about Obama's proposals? I think that rather than glibly asserting that health care reform is essential to reducing future deficit (with no supporting evidence mentioned in your column) the burden is on supporters to explain how a gigantic new government program that will require loads of borrowed money will deliver on its promises.

Steven Pearlstein: There is a mountain of literature to explain why it will reduce cost and improve quality, and the experience of the rest of the world shows clearly that that can be done. It is hardly a glib assertion, and almost all the people who have been working on this issue for the last two decades agree with the basic proposition. Moreover, this is not a gigantic new government program. It is a reform and restruturing of the PRIVATE health insurance market that includes tax subsidies to low income people to allow them to go into this COMPETITIVE PRIVATE MARKET or deal directly with COMPETITIVE PRIVATE health care providers for care. It may add $100 billion to the $2.6 TRILLION we now spend on health care. It is a lot of money, but if we can cut 1 percentage points merely from the growth in spending, that is $260 billion EACH YEAR, COMPOUNDED. So let's not exagerate the decree to which we are added to spending. Government spending is only part of the picture, which is another thing the budget scolds conveniently forget. If you increase government spending but decrease private spending that is almost universal, then maybe it is a good thing, not a bad thing.


Princeton, N.J.: Me again. You should explain to your readers that projections are not predictions. "If each of the Nationals starters win 20 games, they will probably win their divisions," is a projection. It is useless as a prediction.

These economic projections you talk about are all based on unknowable assumptions. These assumptions are unknowable because they depend on events in the future.

The record of economic projections has been dismal. Remember "surpluses as far as the eye can see"? The Social Security projections are not even consistent year to year. We simply do not have the ability to make economic projections. It is an error to rely on them. They are no more accurate than reading the entrails of a goat.

Steven Pearlstein: Good point, Princeton.


Health reform requires leaders with the foresight and confidence to take a leap into the unknown. : This is Lefty from Princeton. I feel I could let you write this comment for me, so I will just say that it is well documented that private insurance waste over $500 Billion each and every year in high overhead (20 percent vs. 2 percent of other countries), in complex bureaucratic requirements for physicians (France has a simple one page for all treatments) and high drug prices to companies that spend 3 times as much (34 percent of their budget) on "marketing" as they do on R & D (11 percent).

While it may be good to "take a leap into the unknown," perhaps we should look before we leap.

Steven Pearlstein: It is a leap most Americans are reluctant to take. So just accept it, and look for a less terrifying leap.


Toronto: Hello - This is what I don't understand: Canada spends 9 percent of GDP on healthcare with everyone covered; the US currently spends 17 percent of GDP with 47 million not covered and probably an equal number under-insured. So why is the single-payer option not being considered when it seems on the face of it to be much more efficient?

Steven Pearlstein: Because Americans simply won't tolerate a government run program with a universal budget, etc. etc. They won't. Sorry. What else can I tell you. Maybe its irrational, but so is spending every Saturday night watching Hockey Night in Canada.


College Park: Steven,

Robert Samuelson, whom I normally like a lot, wrote in his last column that Obama's budget was very irresponsible with arguments along the lines you presented in your article. I think your response is the perfect. Have you discussed this with him and do you know what his counter argument would be?


Steven Pearlstein: No, I haven't consulted with Bob, and he doesn't consult with me. We argue in public -- that's what columnists are supposed to do.


Frederick, Md.: Is there some Freudian explanation for the obseesion that so many Republicans seem to have with a balanced budget? After all Economics 101 told us that there was nothing sacred about it and indeed there are times, such as today, when it would be catastrophic. Surely we are all Keynesians now?

Steven Pearlstein: Republican obsession with balanced budgets is a relatively recent phenomenon -- ever since they no longer have power. When they did, they spent like drunken sailors (actually, that may be a slur on sailors).


Bossier City, La.: With our present debt and promised entitlements (SS, Medicare, retirements, etc.) explain how the budget can be balanced.

Steven Pearlstein: Can't. Got to make small changes in SS and big changes in health care system. If you don't, can't balance no matter what else you do.


Washington, D.C.: "In all of history, no revolution was ever made by budget analysts."

Yeah, but to be fair, a lot of revolutions were started after profligates ignored the budget analysts. It seems to me it's a peculiar sort of American exceptionalism to think that we don't have to worry about a debt/currency crisis.

I'm not talking about the GAAP crazies who say we've got a $56 trillion deficit or whatever.

I'm talking about 3.13% on 10-year Treasuries with $9 trillion left to borrow in years ahead. UK had a bond auction fail in March. Health care reform is important but I feel like you're being really unfair to the "scolds".

Steven Pearlstein: Scolds have their place and their purpose. One of them is to be occasionally scolded for being to narrowly focused.


Alexandria, Va.: The notion that universal health insurance equals cost control is pretty clearly a fallacy, isn't it? Medicare's costs rise just as fast as the rest of the industry.

There may be sound humanitarian reasons to impose

Steven Pearlstein: Nice try. It is true, however, that in a market system, you really can't get to having must-issue health insurance at community rating unless everyone is required to have insurance, which has the added benefit of being good public health policy. And it is through this reformed and restructured market that we are going to get a handle on cost and quality, as have a number of integrated health systems around the country such as kaiser, Geisinger, Mayo, Hitchcock. Your point about Medicare simply reinforced my point that health reform IS entitlement reform.


Chicago, Ill.: I appreciate your writing very much. I work in banking (one of the big banks not having any trouble), and I think you really get it, and can explain it all in layman's terms. Thanks for educating the public. My question . . . Why is Obama so afraid of a gas tax? CAFE standards combined with a tax rebate on hybrid/electric car purchases effectively taxes us just the same as the gas tax, but with a lot more red tape and federal intrusion into car manufacturing policy. What are your thoughts on whether a gas tax (like Europe) would be better than the proposed CAFE standards and presumably the loopholes that will accompany them? Why do Americans fall for this obfuscation?

Steven Pearlstein: It's a mystery to me, too.


Washington, D.C.: I'm a professional "budget scold" who works for one of those organizations that's always telling policymakers that they're spending too much. But I agree with you: While we are facing a long-term budgetary crisis, our immediate need for health reform trumps that, IF there is no way to pass paid-for health reform.

Still, you're too sanguine when you say that "each year -offers] a fresh opportunity to revisit tax and spending decisions." Well, yes, and every day offers a fresh opportunity to eat right and exercise. But if you have a reservation at a steakhouse for Saturday night, the odds aren't good that on Saturday afternoon you'll cancel it and have a salad at home.

As you know, the status quo bias is huge, especially when you need to get 218 plus 60 votes to change anything. As Gene Steuerle (budget scold extraordinaire) argues, as entitlement spending accounts for a growing share of the budget, "annual decisionmaking and regular review have been choked off and future generations saddled with the tab or forced to raise the resources to meet those past promises." (

Steven Pearlstein: No question: entitlement reform is the key. We are now embarked on the most important facet of entitlement reform. So let the budget scolds cheer on the process and do what they can to get health care restructuring going, not stand in the way wagging a finger and saying that you have to raise taxes on everyone and take on the doctors and the hospitals and the insurance companies as a price for beginning it. Because that, in effect, is what the budget scolds are saying.


Annandale, Va.: I swear I'm going to scream next time somebody pushes for universal health insurance. The problem isn't a lack of health insurance rather it's a lack of access to affordable healthcare by far too many Americans. An increasing number of folks with insurance have many barriers to access to the system as insurance companies play their games and out-of-pocket costs skyrocket. A universal health insurance scheme run by the same for-profit players would be more of the same.

The luckie duckies who dominate the conversation inside the Beltway have a blind spot regarding this because they are the minority of folks with those gold plated healtcare plans.

Steven Pearlstein: The two issue are intertwined, as I explained before, not only as a matter of system design, but more importantly as a matter of political reality. You need the dessert to get people to eat the spinach.


Washington, D.C.: Enjoyed your column today, as usual. Regarding CBO being skeptical regargind savings, why doesn't Obama and the Congress enact all of the savings plans that it believes will help health care reform be budget-neutral now, with Medicare and Medicaid? These program cover seniors, people with permnent disabilities and the indigent, three expensive catagories. If Obama could enact all of those savings measures and see a resulting savings from those programs, expanding insurance coverage to the uninsured will be a much less daunting prospect.

And it would help to answer critics that say the savings measures are illusory because they are either politically impractical (i.e. doctors or seniors object), would result in the kind of care that taxpayers won't stomach (rationing of care like in the UK and Canada), or don't actually save any money at all (because all diseases and the latest treatments, no matter how costly, would inevitably be kept in the plan, eliminating savings).

What do you think?

Steven Pearlstein: I think that is how they are going to proceed, actually. Not sure it will be successful.


Washington, D.C.: Health care reform is important; I certainly want to see it happen. But I can only truly embrace a plan that doesn't tie our hands further. Don't you think that with all of the spending on the stimulus, bailout, etc., something (like tax cuts) has got to give?

Steven Pearlstein: Yes, I wish Obama had not given out so many tax cuts. Its not a huge impact on the budget, but I think it was unnecessary. Middle income people value tax cuts but they value a good budget even more.


Jump, Ready, Set: Health IT is actually a perfect illustration of putting ambition before common sense. I work with a number of physician groups who are trying to use the incentive funds before they expire at the end of the year, but the administration hasn't provided guidelines over acceptable use. What are the doctors supposed to do, buy something that may or may not work and hope to collect the support later?

Steven Pearlstein: Sounds like a solvable problem to me. It's only May 20.


LT Solutions: I give Obama a huge amount of credit for trying to tackle the problems that are a bigger threat to our economy than any other, entitlements, especially health care. We have known for decades that the Baby Boom retirement years would test our systems to the limits, but have always failed to do much more than nibble around the edges of reform. Our backs are against the wall and we're concerned that the timing is off. We've run out of time folks, we need to fix social security and medicare NOW.

Steven Pearlstein: Thank you for that. Was getting a bit lonely over here.


Washington, D.C.: Who is scolding whom, here? It seems to me that President Obama's administration is pretty consistent on this issue, and has not asked for "a little slack." Does that make President Obama himself a budget scold? If not, is his OMB Director, himself late of "skeptical" CBO?

"Let's be very clear. We've always said health care reform has to be deficit neutral over a five- or 10-year window and much better than that over the long term," said Orszag, whose knowledge of health policy has strengthened his Cabinet-level position. "So we are committed to making sure health care reform is self-financing and also brings down costs over time, both for families and for the federal government."

Steven Pearlstein: I think this was a mistake on Peter's part, because that is what creates the straight jacket. What will happen is that the budget scolds will now criticize the pay-fors as inadequate or speculative or based on "rosy scenarios," or they will be so politically difficult that it will jeopardize the entire reform effort and have to be dropped. Why limit yourself a head of time like that? It is to quiet the yapping blue dogs of the Democratic party and the yapping hypocrites of the Republican party who are suddenly all concerned about deficit spending after caring nothing about it while they had the reins of power.


Toronto again: I could be wrong since I mostly watch hockey on television but isn't your Medicare program for seniors quite popular?

Steven Pearlstein: Sure it is. And they don't have to pay for it.


Washington, D.C.: Your earlier reply indicated that Medicare can't be reformed without universal reform. Why? If administrative savings are real and not ephemeral, prove it with Medicare. Prove all your savings are real with Medicare, then you shut down your critics. If you can't muster political will to do cost savings in Medicare, you're not going to do it with the whole of the health care system either, and then it's time to look for another solution.

Steven Pearlstein: There is so much room for saving in our system that there is no need to get into approaches that amount to political suicide.


Washington, D.C.: It seems like you and others are upset at Blue Dogs for thinking people who oppose the Cooper-Wolf fiscal commission and rejected the President's suggestion that we look at Social Security by saying that the solution is health care reform were serious. After being told for years that everything else they have advocated to deal with fiscal problems is unnecessary because health care reform is THE solution, it's hard to expect them to support something that will make the deficit worse in the near term with the promise that it might make things better a decade from now. If Congressional Democrats had allowed Obama to go forward with dealing with the smaller but more straightforward issue of Social Security, there wouldn't be as much pressure for health care to show clear benefits to the federal budget. Remember, it was the Obama administration that set down the marker of health care reform being deficit neutral and has sold it as the solution to our fiscal problems. Your complaint is that the Blue Dogs took that seriously.

Steven Pearlstein: I agree that a successful reform of SS could have put more momentum behind health care reform. And putting SS on a secure footing is relatively easy, both as a matter of policy design and even politics, if lead by a liberal Democratic president.


Steven Pearlstein: Got to leave a little early today, folks. "See" you next week.


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