Remember, in the short and medium run, most economists say that current budget deficits, especially after all the deficit-cutting over the last two years, are not a problem. It’s true that there are deficits, but they’re falling from recession-induced highs, and at any rate interest rates are low so the effects of deficits are minimal. The real problems come later, and are almost completely caused by expected exploding health care costs.
But what if health care costs are no longer rising faster than GDP? In fact, if health care costs follow what’s been happening over the last several years, there will be no explosion at all — and that would mean budget savings of about 2 percent of GDP a year in about twenty years. That’s enough to entirely wipe out the real threat of budget problems. Of course, we don’t know whether this moderation will continue, but it very well might.
What this really means is that we need an immediate moratorium on “grand bargain” talk. We need a halt to any major reforms undertaken purely for budgetary reasons — either the major cuts that Republicans have pushed for or the search for a deficit reduction deal exchanging spending cuts for new revenues that Barack Obama wants. It means the best replacement for sequestration is probably nothing, at least for now. And, most of all, it means continuing to implement the Affordable Care Act, especially those provisions that are intended to reduce costs.
Is it possible to move everyone off of their focus on budget deficits? Probably not. But surely, if the actual facts of the fiscal situation were what drives the conversation, that would be where everyone was headed.