Obama's Speech

Paul Krugman:

The Budget Speech, by Paul Krugman:

Style: I liked the way Obama made a case for government at the beginning. I liked the way he accused Republicans of pessimism, of abandoning a hopeful vision of America. Good that he went after the Ryan plan — and good that he went after the cruelty of that plan. If you ask me, too many percentages. Oh, and whichever speechwriter came up with “win the future” should be sent to count yurts in Outer Mongolia.

Substance: Much better than many of us feared. Hardly any Bowles-Simpson — yay!

The actual plan relies on some discretionary spending cuts, this time including defense — good, although I think too much is being cut from domestic spending. It relies on letting the Bush tax cuts for the rich expire — finally! — plus unspecified reductions in tax expenditures.

The main thing, though, is the strengthened role of and target for the Independent Payment Advisory Board. This can sound like hocus-pocus — but it’s not.

As I understand it, it would force the board to come up with ways to put Medicare on what amounts to a budget — growing no faster than GDP + 0.5 — and would force Congress to specifically overrule those proposed savings. That’s what cost-control looks like! You have people who actually know about health care and health costs setting priorities for spending, within a budget; in effect, you have an institutional setup which forces Medicare to find ways to say no.

And when people start screaming about death panels again, remember: you can always buy whatever health care you want; the question is what taxpayers should pay for. And compare this with a voucher system, in which you have insurance company executives, rather than health-care professionals, deciding which care won’t be paid for.

Overall, way better than the rumors and trial balloons. I can live with this. And whatever the pundits may say, it was much, much more serious than the Ryan “plan”.

Brad DeLong:

Obama's Deficit-Reduction Framework..., by Brad Delong: A process to by the end of June reach a bipartisan deal backed by automatic triggers starting in 2014 to cut spending and raise taxes relative to the current-policy baseline over the next twelve years. The targets are:

• Restore high-bracket tax rates to Clinton-era levels: $1T
• Cut tax-expenditure spending through the tax code: $1T
• Cut health care spending: $0.5T
• Cut other mandatory spending by: $0.4T
• Cut security spending: $0.4T
• Cut non-security discretionary spending: $0.8T
• Those reductions will carry with them a reduction in net interest of: $1.2T

Total twelve-year deficit-reduction target of: $5.3T relative to the current-policy baseline...

This framework already includes major, painful concessions relative to the technocratic ideal. Obama has already made these in order to try to start this framework. They include:

• The United States now really needs the government to be spending an extra $3T on infrastructure over the next 12 years--other Pacific nations are planning to do so. Obama is giving up.
• The United States now really needs--and Ben Bernanke recommends--an additional ARRA-sized fiscal stimulus over the next three years of $1T or so. Obama is giving that up.
• The United States really needs failure to meet budget-balance targets to trigger high-bracket tax increases. Obama is giving that up.
• The United States really needs to deal with the greater fiscal needs of an aging America by either (a) opening the borders, or (b) implementing a VAT. Obama is giving that up.

I say this framework would be OK--not ideal, but OK--as a deal. Giving up infrastructure, giving up another full-employment boost, giving up high-bracket triggers, and giving up fixing the long-ran tax base are al very bad for America. We should not give up anything else in addition in "negotiations" but rather insist on hitting the targets. If Republicans want to participate in the process, they need to start by signing on to these targets.

Most of the points I was going to make have been covered, but let me emphasize the degree to which this proposal turns its back on those who are still unemployed. I understand the politics of proposing "an additional ARRA-sized fiscal stimulus over the next three years of $1T or so" are very unfavorable, but that doesn't mean leaving the unemployed to fend for themselves -- especially within a speech emphasizing the need for a social safey net -- is the right course of action.

We now have three markers, this plan, the Ryan plan, and Bowles Simpson. While far, far from perfect, this plan is clearly the best of the three, but it's only a proposal. I'll withhold judgement until we see how this actually turns out. The greatest speech in the world does no good if, in the end, it is all compromised away in the name of making progress (and winning the election).