Home > Deficit, Ezra Klein, healthcare, Medicare, Paul Ryan, Uncategorized, VAT > When Unbearable Debt Meets Unsustainable Political Support

When Unbearable Debt Meets Unsustainable Political Support

Many idealists think we can just inform the public enough to understand the best policies to govern ourselves. Unfortunately tilting at windmills seems more productive. Policies gain and maintain support not by voter knowledge but by voter experience. I don’t care how many TV specials or column inches get devoted to explaining that congestion pricing is better for drivers – it will only reach a critical mass of support when drivers experience the benefits outweighing its costs.

As a pure political argument, do you think hugely slashing defense spending is a winner? Maybe right now. What about the months after 9/11? Voters have no idea what the practical differences are of a few hundred billion more or a few hundred billion less in spending on the military. If the country feels safe they’ll support a low level of defense spending (assuming that the level is compatible with actual and perceived safety). Are high tax rates politically sustainable? If there is strong economic growth, yes. Of course if they’re too high and they weaken growth they’re not sustainable. Bill Clinton easily won reelection and somehow maintained higher tax rates that many currently think would be politically reckless to advocate. Those tax rates even gave us a surplus and would do a lot to balance our budget. What’s the difference? Clinton didn’t explain it better – he presided over a growing economy. Clinton even won large percentages of wealthy voters (not majorities though). Today, growth is anemic.

What does this tell us about any debt reduction plan? Since future congresses will have to keep any policies in place that balance the budget, the policies can’t be incompatible with voters’ improving experiences. Paul Ryan’s medicare “fix” isn’t bad because it is unfair or ideologically conservative – even if you forced everyone to read and love Atlas Shrugged it wouldn’t fix the deficit. When the elderly start getting vouchers that decrease in value (they grow at the rate of inflation but healthcare grows faster) they’ll see their situation as steadily deteriorate and vote to change the policy.  That doesn’t mean that benefits need exponential growth to maintain support, but shifting the cost to consumers also doesn’t work. Public debt means higher taxes and less ability to spend elsewhere while private debt directly consumes personal wealth that reduces demand and economic growth. That’s why costs need to be contained not payments. Ezra points out that smaller versions of Ryan’s plan failed:

Various states have gotten waivers to radically remake their Medicaid program, and the consumer-driven model that Ryan is proposing for Medicare has been attempted in the Federal Employee Health Benefits Program and Medicare Advantage. None of these programs have worked, which is why we’re in our current predicament.

Voters need to feel that their overall well-being is improving which means holding down costs in a way that doesn’t prevent economic growth. A growing economy makes every policy sustainable; the trick is to pick solutions that don’t kill economic growth. Paul Ryan correctly realizes that medicare can’t be an open-ended commitment because doing so would eventually harm the economy. His numbers don’t add up, the distribution is unjust, and its prospects are inconceivable but we can debate the merits of it as policy. He should be commended for offering something tangible even as we reveal its flaws. Are there other solutions?

The Kaiser Family Foundation compares some proposals. Many Democrats think strengthening the Independent Payment Advisory Board holds promise. Introducing a dedicated VAT to government healthcare spending always made sense to me – that way it explicitly ties what we’re willing to spend to what is politically sustainable.

Politicians should remember that the single best thing they could do to reduce the deficit is choose policies that maximize economic growth (even if that means taking advantage of cheap borrowing now). Yet, our debt is so large more must be done. Since the major problem is too many retirees relative to able workers, we could change one policy that no one seems to notice would dramatically help. Increase the number of young workers… otherwise known as immigrants. Obviously immigrants age too so it’s not a magic bullet, but anything that keeps the dependency ratio at a reasonable level would be enormously helpful.

Another aspect of immigration policy that needs consideration (since we can’t feasibly let in enough migrants completely solve everything) are temporary workers. Temporary workers are great because they come at almost no cost to the taxpayer. We don’t have to educate them and we don’t have to pay for their retirement, but they grow the economy and pay taxes. As Matthew McConaughey might observe, high school girls and temporary immigrants have a lot in common: they “stay the same age.”

Much more needs to be done, but anything that passes must maintain support.

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