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Home Publications Blogs Beat the Press Where Did the Administration Assume Declining Health Care Spending?

Where Did the Administration Assume Declining Health Care Spending?

Tuesday, 22 June 2010 07:03

That is the question that readers of the WSJ are asking. The Journal told readers that:

"The deficit is lingering at nearly 10% of the gross domestic product. Even under the president's assumptions on declining health-care spending and a freeze on non-security domestic spending, the deficit would not drop to what Mr. Orszag has called sustainable levels over the next decade without a sharper policy response."

Of course the reason that the deficit is lingering at near 10 percent of GDP is that the unemployment rate is lingering at near 10 percent of the labor force. This has depressed tax collections and increased payouts for unemployment insurance and other benefits.

Deficits are projected to rise relative to the size of the economy precisely because the budgets do not assume that health care costs decline. Rather, the projections assume that cost growth will continue to outstrip the growth of the economy. If health care costs were contained then the projected shortfalls would be easily manageable.

Comments (7)Add Comment
offense is defense
written by frankenduf, June 22, 2010 9:05
gotta love the Orwellian "non security domestic spending"- may as well flash a budgetary scoreboard: tanks 1, people 0
written by skeptonomist, June 22, 2010 9:05
The "projections" presumably assume that taxes will not be raised. There is no law of nature or economics which says that this must be so. Empirical/historical evidence is quite clear that higher top rates are not economically harmful. Why do "liberal" economists continually accept the nonsensical premise that taxes can only be reduced?
deficits and jobs
written by David Cay Johnston, June 22, 2010 9:16
"There is no possibility of balancing the budget except by
increasing the national income, which is the same thing as
increasing employment."

—John Maynard Keynes, 1932

Keynes made that observation a time when total American income had fallen by more than half in four years. His point remains true today.

Well paid workers are taxpayers, while the unemployed become taxeaters.
written by izzatzo, June 22, 2010 9:34
How do health care costs increase and decrease at the same time? Read Econ 101. It's all about net benefits. It may appear that health care costs are increasing, but that's because net benefits are ignored and only observable rising costs are counted.

Anyone who understands cost-benefit analysis knows that net benefit means a reduction in gross cost. For example, spending several thousand dollars on medical tests to tell you what you already know may sound like a lot, but it opens the door to justify spending even more on big time catastrophic costs that you don't need either to save your life.

Under reform, unit costs of health care are dropping like a rock while total spending is increasing the budget deficit in the opposite direction over the long term, spreading the benefits over a larger customer base, because of a price elasiticity much higher than one which is common in a deep recession.

The ratio of percentage increase in health care units Q to percentage reduction in unit price P has exploded under health care reform, which also means small increases in price cause large revenue losses in the opposite direction.

This is why Obama is currently giving lectures to private health insurers on price elasticity, warning them that raising unit prices now could actually backfire and result in revenue losses.

Stupid liberals.
written by Lord, June 22, 2010 1:49
It is possible they are referring to Cobra subsidies in the stimulus that will phase out with it although those are comparatively small.
written by Queen of Sheba, June 22, 2010 4:54
How clever of the Bush administration to form a new agency, shove a dozen existing agencies into it, hire thousands of new employees and name the agency "Homeland Security" to insure that its budget is never frozen or cut. The sooner the Obama administration breaks up that bloated behemoth, the better.

Is the Wall Street Journal constitutionally incapable of mentioning even the possibility of tax increases at the same time they seem panicked about the current deficit? With a little luck (and a lot of courage), Congress will allow the Bush tax cuts to expire - with a couple of exceptions that benefit the middle class. Maybe that will open up some thinking at the Journal about other possible ways to reduce the deficit besides slashing federal spending in the midst of a recession. But I'm not holding my breath for either of those events to take place.

Apropos of nothing
written by diesel, June 22, 2010 5:49
If you had any lingering doubts that David Brooks' brain is an unsound, leaky vessel, check out today's offering in the NYTimes, in which he claims that liberals wished for a disastrous oil leak such as is currently killing mass animal life in the gulf. Dean has characterized Brook's economic reasoning as magical thinking so I guess this is Brooks' attempt at turn-about-as-fair play. Pathetic.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.