Doctor Doom, Nourielle Roubini, an economist and professor at NYU, always manages to turn an interesting phrase when making his trademark pessimistic forecasts. He’s really done it this week in Forbes.
I wrote about the Federal deficit last week and covered the major points of why we are on an unsustainable path for our taxes and spending and when that could be a problem. The Obama administration continues to revise its spending and deficit estimates upward as an act of surprise over how deep the recession has been. I’ve raised a Spock-like eyebrow over that and have been lighting candles on my alter to the wisdom beings that, hopefully, the White House will get more real. Well, nothing makes things more real than a splash of freezing water in the face while sipping the first cup of the day’s coffee. Roubini is his fully alarmed self. He basically accuses our political class of running one big Ponzi Scheme and we are the suckers.
The fiscal implications of the current policy package are particularly serious. For the time being, fiscal policy has been put at the service of survival, but the current price of survival is that net public debt is going to double as a share of GDP between 2008 and 2014. Even using the very optimistic forecasts of the Congressional Budget Office, which anticipate growth of around 4% over the next few years, the net debt burden will rise from 40% of GDP to 80%–that’s an increase in the debt stock of about $9 trillion. The interest charge alone on that increased debt will be in the region of $300 billion to $400 billion a year, which in turn may mean more borrowing to pay the interest if primary deficits are not reduced. When governments reach the point where they are borrowing to pay the interest on their borrowing they are coming dangerously close to running a sovereign Ponzi scheme.
Ponzi schemes have a way of ending unhappily. To get out of the Ponzi trap, governments will have to raise taxes, or cut spending, or monetize the debt–or most likely do some combination of all three.
Wow! If those estimates are right, just about every one with hands on the budget from the last 4 congresses to the last two Presidents should be in the jail cell next to Bernie Madoff. The information coming from the CBO is really what started ringing the death knell for health reform last spring. It should be completely obvious to any one that has followed the last stimulus package, what currently passes for ‘health care reform’, the escalation of ongoing wars, the Bush medicare pharmaceutical giveaway, bail-out bonanzas, and all those Bush tax cuts from the beginning of his term, that our fiscal policy actions need to be renamed nails in our collective coffin. We simply have to re-arrange our priorities or we will be assigned to the rubbish heap of failed empires. I can’t even image the People’s Republic (our banker) even relishes that outcome. I really, at this point, am incapable of optimism that any of this will be turned around in time. We continue to elect leaders that are either completely out of touch with reality or don’t care about it. We have VooDoo Government.
If Dick Cheney’s evil plan was to bankrupt the Federal Government, it’s working.
Finally, if we are to win the battle that is now going on around the world between freedom and tyranny, the dramatic achievements in space which occurred in recent weeks should have made clear to us all, as did the Sputnik in 1957, the impact of this adventure on the minds of men everywhere, who are attempting to make a determination of which road they should take. Since early in my term,our efforts in space have been under review. With the advice of the Vice President, who is Chairman of the National Space Council, we have examined where we are strong and where we are not, where we may succeed and where we may not. Now it is time to take longer strides-time for a great new American enterprise-time for this nation to take a clearly leading role in space achievement, which in many ways may hold the key to our future on earth.
President John F. Kennedy, May 25, 1961
Why can’t we put the same determination that put a man on the moon into finding a solution for affordable health care for all? What are the sticking points?
Some of the first efforts toward that goal were put into play yesterday. We had the usual Presidential teleprompter read before the American Medical Association yesterday. It was characterized this way by Sam Stein.
“The public option is not your enemy, it is your friend,” Obama declared at one point.
His prepared remarks were a bit more detailed:
If you don’t like your health coverage or don’t have any insurance, you will have a chance to take part in what we’re calling a Health Insurance Exchange…. You will have your choice of a number of plans that offer a few different packages, but every plan would offer an affordable, basic package. And one of these options needs to be a public option that will give people a broader range of choices and inject competition into the health care market so that force waste out of the system and keep the insurance companies honest.
Back in the world of where the rubber hits the road, the Congressional Budget Office (CBO) returned an estimate of the Affordable Health Choices Act that was proposed by Dodd and Kennedy. Ezra Klein of WaPo used the adjective “devastating”.
According to the agency, the bill would cost a hefty trillion dollars over 10 years and extend insurance to a mere 16 million people. That’s a lot of money to spend if you’re only going to achieve a third of your goal. Frankly, I was pretty surprised by the results.
And so, it turns out, were the people writing the bill.
A couple of months ago, the Health, Education, Labor, and Pensions Committee sent the CBO a sketch of a draft of its legislation. And the CBO sent the members back a stab at an outline of an estimate. It was all very early, and very rough. But CBO’s response was encouraging. The total cost was a bit higher, but the number covered was much higher. More like what you’d expect. More like what health reform is trying to achieve.
The draft the CBO examined last week, however, was in certain respects even less complete than the outline they were given months ago. In an effort to buy some extra time to negotiate with Republicans on the committee, the Democrats on HELP left out some of the more controversial policies in the hopes of reaching a bipartisan agreement sometime this week. The public plan, the employer mandate and the individual mandate were all absent from the proposal the CBO examined. The employer and individual mandates — the first of which pushes employers to offer coverage and the second of which force individuals to purchase coverage — are particularly key to increasing the number of Americans with health insurance.
You might ask what the HELP Committee was thinking, sending Swiss cheese legislation to CBO. Well, the HELP Committee’s expectation was that the CBO, in crafting its preliminary score, would assume something similar to the outline it had seen months before. The CBO didn’t. In fact, it did the opposite. CBO ran its estimates with no employer mandate and an individual mandate with a laughably small penalty.
“Swiss cheese legislation”, is this what the American people deserve?