CBO’s New Budget Update: A Fire Hose for Hair-On-Fire Austerions re Near Term Deficits

May 14th, 2013 at 3:14 pm

The good news is that according to CBO’s new budget update, the budget deficit is coming down fast and under their assumptions, will bottom out at 2.1% of GDP in 2015.  The debt/GDP ratio begins falling in 2014, from about 76% to 71% in 2018.  Just relative to their February projection, CBO’s taking down their 10-year deficit projection by over $600 billion.

And yes, that’s also the bad news.  The damn thing is coming down too fast given the still weak economy.  Moreover, both deficits and debt start to grow again later (see figure below).  So the deficit is falling quickly when it shouldn’t be and rising later when it shouldn’t be.

Certainly, if facts drove the day, this update would be a fire hose for the hair-on-fire austerity crowd re the near-term deficit.  The patient is checking out of the hospital while Drs Cantor, Ryan, and McConnell are still preparing for major surgery.

What’s driving these trends?  Near term, it’s revenues up, outlays down…which is what you’d expect as the recession recedes in the rearview mirror (an infusion in payments from Fannie and Freddie also helped).  Also, and this is important: relative to their February projection, the budget office has shaved $85 billion off of Medicare’s expected growth, 2014-23, of which only $10bn is sequester, and $77bn off of Medicaid.  And, of course, there’s been about $2.7 trillion in deficit savings legislated so far, mostly (70%) through spending cuts.

Longer term, even with the recent improvement in the pace of health care costs, we still face pressure from the intersection of our aging demographics and health care spending.  To bend those curves at the end of the figure, we’ll need to keep up the pressure on health costs as well as boost our revenues.  Cuts alone won’t do it.

It would be nice if policy makers looked at the figure below and recognized that we need less austerity now and more health savings/revs later.  But that would mean spraying water on their flaming heads, and that can be kind of uncomfortable.



Source: CBO


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3 comments in reply to "CBO’s New Budget Update: A Fire Hose for Hair-On-Fire Austerions re Near Term Deficits"

  1. tyler healey says:

    Until liberals can explain to people why they should not fear the national debt, Republicans will win every economic debate.

    It really should not even be called “the national debt.” Our government has the infinite ability to pay its debts by simple keystrokes on a computer. Look at it this way: if you always will have the money to pay your debts, would you ever say you were in debt? Of course not, yet the United States says it is 17 trillion dollars in debt (or whatever it is now).

    The Republicans are good. They’ve got people fearing a debt that does not exist. For more on this subject, please go here: http://mythfighter.com/2013/04/16/the-debt-deposit-duality-how-much-is-the-federal-debt-12-trillion-10-trillion-0/

  2. urban legend says:

    There should be major savings for healthcare providers who, for the great majority of patients the moment they walk in the door, will know when and by whom they will be paid. Fewer decisions during treatment of what bucket to put the cost of treating the uninsured patient, fewer deadbeat patients, fewer payment delays, fewer billing statements, lower accumulation of 1.5% monthly interest, fewer accounts going into collection, etc. Insurance companies will have lower costs from less finger-pointing for coordination of benefits and no armies digging for and fighting over pre-existing conditions or exhaustion of annual or lifetime benefit caps.

    It’s not clear to me how much these savings at both provider and insurer levels have been factored into official projections. The savings won’t be automatic, either, because providers and insurers will naturally try to pocket as much of the administrative cost savings as they can get away with. We will have to keep the pressure on for both kinds of institutions to account for and pass on the major share of the savings.

    In this connection, it is a good idea to remember that the 15% or 20% limitation on insurance company margins for administrative cost and profits (the 80/85% rule for claims payouts) is a limitation, not a guarantee to the insurers. If actual costs come in lower, they should be passed on. If co-ops catch on and close watch is put on executive compensation, that should happen in those institutions.

  3. Deficit shrinks faster than expected, undermining ‘the austerity gang’ – MSNBC | Big E News says:

    […] also the bad news. The damn thing is coming down too fast given the still weak economy,” wrote Jared Bernstein, former Chief Economist and Economic Adviser to Vice President Biden. He said […]