The CBO Report Part II: Further Considerations

Here I continue with a discussion of the Congressional Budget Office's report on Rep. Paul Ryan's proposal (Part I is the blog from two days ago).

As I pointed out in Part I, most of the CBO report was concerned with the healthcare issues raised by Ryan's plan. Although the plan is talks about radical cuts government spending, the only details that Ryan supplies are in his privatization scheme for Medicare. Since I have already shown in numerical detail how that would, in effect, help balance the budget on the backs of the retired and elderly, I'd like to take a look at the more general scope of the Republican plan as reported in the CBO document.

First of all, CBO makes the following deficit projections, as percentages of Gross Domestic Product or GDP. ("As is" means under current law; the signs -/+ mean, respectively, deficit and surplus):


Product (GDP):

Year:     2010     2022     2030     2040     2050

As is:     -9%    -2.75%     -4%     -4.5%     -4%

Ryan:      -9%       -2%    -1.75%   +.25%   +4.25%

The report projects that current cumulative debt would reach 90% of GDP under current law by 2050, but only 10% under the Ryan plan. Many economists would describe a public debt of 90% as being "unsustainable."

At this point we must note the following from the CBO report:

1. Although the Ryan plan specifies a sharp reduction in non-health spending "from 12% of GDP in 2010 to 6% in 2022 and 3.5 % by 2050...the proposal does not specify the changes to government programs that might be made in order to produce that path" (my italics).

2. The Ryan plan would reduce non-health and non-Social Security spending "far below historical levels relative to GDP" (p. 4).

3. Even the CBO suggests that "It is unclear whether and how future lawmakers would address the pressures resulting from the long-term scenarios or the proposal analyzed here" (p. 4).

In effect, the CBO is wondering what will happen when either government debt rises to "unsustainable levels" (if it ever does), or what will happen when severe cuts in non-health spending mandated by Ryan's plan compromise government programs designed to insure the quality of our food, water, air and roads, and the enforcement of our laws. We've already seen that the Ryan plan virtually guarantees that all but a tiny wealthy minority of retirees will not be able to afford the $2000 per month per person estimated cost of obtaining "Ryan-care" in ten years (see the CBO figures I report on in Part I).

The philosophy of the Republican plan is well-captured by the following telling quote from the CBO report (p. 14).

"The proposal would change the nature of the entitlement under Medicare and Medicaid. Current law prescribes the health care benefits to which people are entitled, and the federal government pays whatever is needed to honor those entitlements. The proposal [Ryan plan] changes that entitlement to a fixed federal contribution."

Again, on page 17, we read:

"Although the uncertainty in future federal spending on health care would be lessened under the proposal, that uncertainty would be transferred to future beneficiaries. If the volume, complexity, and costs of medical services turned out to be greater than expected, future beneficiaries would pay higher premiums [to their profit-making private insurance company] and cost-sharing (i.e. deductibles, caps and copays] amounts than are currently projected."

Unlike the recent 2010 Health Care Act, which cuts costs of healthcare by having panels of doctors and other experts evaluate the effectiveness of various treatments, the Ryan plan rations healthcare by economic means. A fixed dollar amount, which is not geared to actual increases in healthcare costs but to a slower-rising index (Urban CPI), will almost immediately be inadequate to pay premiums for average senior citizens. While Republicans decry attempts to control costs by rational and democratic means, they are in effect controlling benefits by direct economic rationing.

By extension, the same philosophy underlies the Republicans' approach to government in general. Instead of asking what our citizens need, they specify how much we can spend -- and never how much we can raise collectively -- and then let the chips fall as they may.

The Congressional Budget Office did its job in evaluating the Ryan budget proposal -- at least as far as it could, given the lack of details in the proposal itself. However, it is important to note the limitations of the report.

1. Continuing Medicare as is -- the Extended-baseline-scenario -- or even granting some of the reforms of the Health Care Act of 2010, are not the only alternatives. Greater control of private profits -- say of the Pharmaceutical companies, which charge other countries far less for their medicines -- can save more money; so can a more effective public voice in covered treatments. Preventing doctors from having a financial interest in medical technology -- for example, owning MRI companies (see: GAO report) -- can save a tremendous amount of money in diagnosis and treatment. Instituting a Single-payer or "Public Option" would save the most, since it would eliminate payments to stock and bond holders -- unearned money lost to the healthcare system. Single-payer is a far less radical and more democratic idea than just about anything in the Ryan plan, and would change the whole set of axioms that restrict the CBO analysis; it also has lot of public support.

2. Returning to reality in the form of analyzing the plans in other countries (even, gasp, Europe) would help find out why they can spend less and get better results (better care) than we have been able to obtain.

3. We can save vast amounts of money, and cut our deficits dramatically, by Bringing Home the Troops. We can cut the billions we spend on unnecessary overseas military bases: Japan and Europe certainly come to mind. These savings don't figure as alternatives in the CBO report of course.

4. Cut subsidies to businesses that don't need them: Big Oil and Big Agri certainly come to mind.

5. Institute a sales tax on stock and bond sales and purchases. A small percentage (say 1/4% on both seller and purchaser) would hardly affect serious investors, but would make speculators think twice about the thousands of churning trades per second they make, which extract money from our economy without any productivity.

Finally, as many have pointed out, we need deficit spending now, to help restore our economy and provide jobs and tax revenue to our country. Nobody was worried about what deficits might be in 2050 when we had decent employment and before Wall Street cheated us. There is not a whit of evidence to support the idea that draconian tax cuts will at all restore our economic well-being; in fact, the evidence is just the opposite.

These are all things that the CBO report could not discuss given the narrowness of its appointed task. Instead of bankers, we should read economists such as Paul Krugman and Joseph Stiglitz (both Nobel winners) to find out what we should be doing in the next few years, as well as in the next 20 - 30 years: the two things are not the same.