Too Many Baselines!

December 28th, 2012 at 3:01 pm

Here’s an important piece by Ezra Klein on recent budget debates stressing a couple of points that I hold near and dear.

First, there’s the “compared-to-what,” or budget baseline problem.  Whenever we’re talking about revenue increases or spending cuts, we’re comparing those changes to some line in a budget that represents our existing plans for taxes and spending.  So, if our “baseline” is to spend $1 trillion on Medicare over a bunch of years and we cut that by $200 billion…well, you get it.

But we are currently beset by so many different baselines—different possible spending paths—that it’s almost impossible to make a meaningful comparison.  I was about to say “a comparison that anyone other than a seasoned budget wonk could understand.”  But I’ve been in lots of meetings with seasoned wonks where we ourselves are confused by which baseline someone is using when they’re describing a plan.

Doesn’t CBO—the official score keeper of such matters—help here?  Not as much as you think, because they have to use “current law” as their main point of comparison.  In normal times, that works OK, but for years, they’ve had to assume, despite the fact that no politician supports this outcome, that the Bush tax cuts fully sunset as per the law (basically, they assume we go over a stay over the cliff).  They have an alternative baseline, but that just becomes another in a sea of confusing options.

There’s got to be a better way.  I know a lot of people wouldn’t pay attention to these details no matter what, but a lot more would if the debates were comprehensible.  In that regard, the process is making it impossible for people to be informed consumers of critical information about how their tax dollars are or will be spent.

Ezra’s piece suggests one solution: just judge budget plans by the (seemingly) simple criterion of whether they reduce the debt/GDP ratio.  But the implied simplicity is elusive.  Whether a plan achieves that goal involves the same baseline issues invoked above—they’re just buried in a bunch of accounting that gets you to the final ratio.

I recall, for example, lots of budgets that ignored the AMT patch that everyone knew was coming (i.e., they left the cost of the patch out of the baseline).  The out years in these budgets had much better looking debt/GDP ratios than they deserved, because they failed to reflect the cost of keeping the AMT from biting a lot more people.

Perhaps it would be best if CBO were instructed to come up with a plausible baseline that the analytic community would agree to use, but that’s probably not realistic—absent a law imposing jail time for using a non-sanctioned baseline, I’m sure folks would start slinging alternatives around pretty quickly.

I’m going to ask a bunch of my colleagues what they think is the best solution and I’ll report back to you.  But my sense is we’re stuck with a surfeit of baselines.  As a former bassist, this should please me…but it doesn’t.

The second point in the piece is even more important, as stated by CBPP’s Bob Greenstein:

The ultimate goal is to stabilize debt-to-GDP for the long term… However, I think that is not something we should be trying to do for future decades right now. For those decades, the key is health care, and we neither know what health-care costs will look like then — they’re slowing down now, but we don’t know if that’s permanent or temporary — and we don’t know enough about what changes we need to make to the health-care delivery system to slow costs. So stabilize the debt for the current decade and buy yourself time to figure out health care.

[See Peter Orszag’s graph and commentary here on this point re slower growth of health costs.]

What we need is an alternative baseline—D’oh!!—that shows just how much oxygen gets injected into the budget outlook if the recent slowdown is lasting (I’m working on it).  And if so, the point isn’t just to coast along enjoying the better outlook but to figure out which reforms are generating the efficiencies in health care provision and spread them throughout the system.

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4 comments in reply to "Too Many Baselines!"

  1. foosion says:

    Perhaps we should budget for what makes sense today. Not have we cut this by x% or increased that by y%, but do something that makes sense today.

    We neither know the future nor can bind future players, so excessive planning is not very useful.

    As you say, healthcare is the key. Achieve world standard healthcare (i.e., do what the major countries are doing), and we improve outcomes and slash spending. We’re healthier in body and in economics. Don’t fix healthcare and nothing works.

    • Bill Gatliff says:

      The reason healthcare looks so “expensive” is because we are finally getting visible numbers on what it costs. Before now, the cost was hidden behind employer-provided plans, negotiated rates, uninsured showing up at emergency rooms, overheads, and so forth.

      It is true that the invoice amounts for some procedures and medications are increasing, but experience with Medicare suggests that what a provider would LIKE to get paid vs. what they will accept as payment isn’t at all clear. So how can you say something is “expensive” when you don’t yet even know what it costs?

      It is now more important than ever that we discuss in concrete terms what we want our government to provide, and also how (and how much) to pay for it. All the hand-wringing around baselines, deltas, and so forth is just desperate hand-waving to avoid the truth: we have been demanding certain services for a long time, but refusing to pay for them.

      No politician gets re-elected with that story.

  2. Tom Cantlon says:

    Debt/GDP 69% or 74%? Either I’m to ignorant, or there’s a failure to communicate, or you’ve made a rare mistake. The cuts already made are done. You can count them in the baseline or as part of the new deal but they’re there either way and how can the way they’re counted possibly change the ratio? Maybe this needs some more “splaining”?

    • Jared Bernstein says:

      No–that’s right and my mistake…I didn’t explain it well at all–making my point about how confusing this all is. There are those going around now saying that the enacted cuts shouldn’t be counted and getting a higher debt/GDP ratio. But as you say, and I flubbed, if they’re enacted they have to be reflected in the ratio.

      I’ve been meaning to fix this part. So I just did–I think this makes the point more clearly–and correctly. See what you think.

      But there’s still too many baselines!