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After Budget Deal, Time to Move Forward

Monday, 21 October 2013 10:12 By Dean Baker, Truthout | News Analysis

President Barack Obama leaves after a news conference in the State Dining Room of the White House in Washington, Oct. 17, 2013. (Photo: Stephen Crowley / The New York Times)President Barack Obama leaves after a news conference in the State Dining Room of the White House in Washington, Oct. 17, 2013. (Photo: Stephen Crowley / The New York Times)

President Obama and the Democratic leadership in Congress deserve credit for successfully fending off Republican efforts to first torpedo the Affordable Care Act and then to attack Social Security and Medicare. Unfortunately, it does not appear that they are prepared to seize on the momentum and try to repair some of the damage that is being done by the prolonged downturn.

The problem is that the Democrats still seem to accept the Republicans’ parameters for the budget debate. The implication is that current deficits are a serious problem. This means that any area where there is an increase in spending must be offset by cuts elsewhere or tax increases. Since the Republicans remain adamantly opposed to any tax increases, reshuffling spending is the only option open to the Democrats.  

While there are always ways that the mix of spending could be improved, there is little reason to think that this Congress will come to agreement on one. Certainly a mix of spending that was more tilted to the military would not fit the bill. And the prospect of permanent cuts to Social Security and Medicare, in exchange for what could be very temporary increases in various areas of domestic discretionary spending cannot be viewed as a smart tradeoff.

Furthermore, budget neutral changes in spending will do almost nothing to boost the economy. According to the Congressional Budget Office the economy continues to operate at a level of output that is more than $1 trillion below its potential. This means that we could give every household roughly $8,000 to spend over the next year and we would still just be reaching our potential level of output.

The reality is that the economy needs more spending and there is no plausible story where the additional spending is going to come from the private sector in the immediate future. If the government is not prepared to boost spending then we will continue to see an economy that is down close to 9 million jobs from its trend level.

For the next round of negotiations progressives should come up with the wish list of problems that badly need to be fixed in the years ahead. Universal pre-school, as suggested by President Obama is a good one. We can also include a wide variety of infrastructure needs. We can also look to increased support for energy conservation measures. Another injection of subsidies to support retrofitting homes, businesses, and government buildings could go far towards reducing our energy use. And we could help many of the state and local governments that are still struggling and laying off workers.

Of course the Republicans will scream bloody murder if President Obama and the Democrats put such items on the table. But the country has been used to seeing them scream bloody murder over Obamacare for the last three and a half years. They will soon get the opportunity to realize that the Republicans horror stories were just that: stories.

Obamacare is about giving people insurance. It is not about death panels or putting a government bureaucrat in their doctor’s office. When people, including conservative Republicans and Tea Party supporters, begin signing up for Obamacare or seeing their family members and friends sign up, they will realize the Republicans in Congress had been peddling nonsense all this time. Instead of hating Obamacare as a threat to democracy and basic American values, these people will come to like Obamacare in the same way that they like Medicare and Social Security.

This will provide Democrats with an opportunity to push ahead with a program that is designed to meet the backlog of unmet needs and to provide a real boost to the economy. That agenda will also mean treating the current deficit obsession as the nonsense it is. In the current economy, lower deficits mean slower growth and fewer jobs. We will have to create a political environment in which politicians are not scared to say this simple truth.

It is possible to point to projections of scary deficits far out in the future, but these are all driven by our broken health care system. The way to ensure we don’t see these large deficits is to get our health care costs in line with the rest of the world. The potential savings in this sector are enormous. For example, if we got the pay of our doctors in line with pay in other wealthy countries, it would save us close to $1 trillion over the next decade.

Progressives should never be shy about discussions aimed at reducing the excessive payments to doctors, insurers, drug companies and others in the health care industry. But that is a long-term problem that has nothing to do with the need to get the economy back on track now. The immediate issue is spending to meet pressing needs and to boost the economy. Let the Republicans wrestle with that agenda over the next three months.

 
This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Dean Baker

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. He is a regular Truthout columnist and a member of Truthout's Board of Advisers.


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After Budget Deal, Time to Move Forward

Monday, 21 October 2013 10:12 By Dean Baker, Truthout | News Analysis

President Barack Obama leaves after a news conference in the State Dining Room of the White House in Washington, Oct. 17, 2013. (Photo: Stephen Crowley / The New York Times)President Barack Obama leaves after a news conference in the State Dining Room of the White House in Washington, Oct. 17, 2013. (Photo: Stephen Crowley / The New York Times)

President Obama and the Democratic leadership in Congress deserve credit for successfully fending off Republican efforts to first torpedo the Affordable Care Act and then to attack Social Security and Medicare. Unfortunately, it does not appear that they are prepared to seize on the momentum and try to repair some of the damage that is being done by the prolonged downturn.

The problem is that the Democrats still seem to accept the Republicans’ parameters for the budget debate. The implication is that current deficits are a serious problem. This means that any area where there is an increase in spending must be offset by cuts elsewhere or tax increases. Since the Republicans remain adamantly opposed to any tax increases, reshuffling spending is the only option open to the Democrats.  

While there are always ways that the mix of spending could be improved, there is little reason to think that this Congress will come to agreement on one. Certainly a mix of spending that was more tilted to the military would not fit the bill. And the prospect of permanent cuts to Social Security and Medicare, in exchange for what could be very temporary increases in various areas of domestic discretionary spending cannot be viewed as a smart tradeoff.

Furthermore, budget neutral changes in spending will do almost nothing to boost the economy. According to the Congressional Budget Office the economy continues to operate at a level of output that is more than $1 trillion below its potential. This means that we could give every household roughly $8,000 to spend over the next year and we would still just be reaching our potential level of output.

The reality is that the economy needs more spending and there is no plausible story where the additional spending is going to come from the private sector in the immediate future. If the government is not prepared to boost spending then we will continue to see an economy that is down close to 9 million jobs from its trend level.

For the next round of negotiations progressives should come up with the wish list of problems that badly need to be fixed in the years ahead. Universal pre-school, as suggested by President Obama is a good one. We can also include a wide variety of infrastructure needs. We can also look to increased support for energy conservation measures. Another injection of subsidies to support retrofitting homes, businesses, and government buildings could go far towards reducing our energy use. And we could help many of the state and local governments that are still struggling and laying off workers.

Of course the Republicans will scream bloody murder if President Obama and the Democrats put such items on the table. But the country has been used to seeing them scream bloody murder over Obamacare for the last three and a half years. They will soon get the opportunity to realize that the Republicans horror stories were just that: stories.

Obamacare is about giving people insurance. It is not about death panels or putting a government bureaucrat in their doctor’s office. When people, including conservative Republicans and Tea Party supporters, begin signing up for Obamacare or seeing their family members and friends sign up, they will realize the Republicans in Congress had been peddling nonsense all this time. Instead of hating Obamacare as a threat to democracy and basic American values, these people will come to like Obamacare in the same way that they like Medicare and Social Security.

This will provide Democrats with an opportunity to push ahead with a program that is designed to meet the backlog of unmet needs and to provide a real boost to the economy. That agenda will also mean treating the current deficit obsession as the nonsense it is. In the current economy, lower deficits mean slower growth and fewer jobs. We will have to create a political environment in which politicians are not scared to say this simple truth.

It is possible to point to projections of scary deficits far out in the future, but these are all driven by our broken health care system. The way to ensure we don’t see these large deficits is to get our health care costs in line with the rest of the world. The potential savings in this sector are enormous. For example, if we got the pay of our doctors in line with pay in other wealthy countries, it would save us close to $1 trillion over the next decade.

Progressives should never be shy about discussions aimed at reducing the excessive payments to doctors, insurers, drug companies and others in the health care industry. But that is a long-term problem that has nothing to do with the need to get the economy back on track now. The immediate issue is spending to meet pressing needs and to boost the economy. Let the Republicans wrestle with that agenda over the next three months.

 
This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Dean Baker

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. He is a regular Truthout columnist and a member of Truthout's Board of Advisers.


Hide Comments

blog comments powered by Disqus