The Washington Post’s tries again to create a moral panic sufficient to push the Grand Betrayal

By William K. Black

The Washington Post’s mission has been to create a “moral panic” sufficient to cause the Obama administration to overcome the objections of Senate Democrats and adopt the “Grand Bargain” (sic).  The deal would actually constitute the Grand Betrayal.  The betrayal of Democratic Party principles and promises would inflict a recession through massive austerity via large cuts to the safety net and social programs and modest/moderate increases in revenues.

Throughout December, the Post flogged the “fiscal cliff” as its panique du mois.  Using the “fiscal cliff” to panic Obama into the Grand Betrayal required the Post’s writers to panic us through two simultaneous, contradictory moral rants (1) it was essential to prevent the fiscal cliff by agreeing to the “Grand Bargain” (sic, Grand Betrayal) immediately because austerity would doom us to falling back into recession absent a deal and (2) it was essential that the “Grand Bargain” (sic) impose even more severe austerity than the “cliff” – for a full decade – because only austerity could save us.

The fact that the Post’s deficit hawks felt that their best way to panic Obama into agreeing to austerity was to scream that the “fiscal cliff’s” austerity would cause a disaster and must be avoided by adopting the Grand Betrayal’s even greater austerity reveals that they knew they had no coherent argument in favor austerity as a response to the Great Recession.  They would not have picked an internally contradictory argument if they had a logical alternative.

The Post’s reporters and columnists have drunk Pete Peterson’s punch.  Peterson is the Republican Wall Street billionaire who is devoting the remainder of his life and $1 billion to pushing his assault on the safety net and spending on social programs.  Peterson’s ultimate goal is to privatize Social Security so that Wall Street can obtain hundreds of billions of dollars in fees off managing our retirement savings.  The Post’s hawks have seen austerity throw the Eurozone back into a gratuitous recession, but remain eager to inflict austerity on us even though they predict it will cause a recession.

The questions I had about the Post’s coverage once the “fiscal cliff” deal was struck were how long would it take them to try to generate a new moral panic demanding prompt passage of the Grand Betrayal how would they deal with their contradictory messages that austerity was the problem and the solution?  The combination of sharp cuts to spending and moderate/modest increases in taxes constitutes severe austerity for an economy that is still performing far below capacity and suffers severe unemployment and underemployment.  The Grand Betrayal’s austerity is likely to throw us back into recession.  Because the austerity will last for a decade it could inflict multiple recessions us and make those recessions more severe.  How would they try to make more frequent and severe recessions attractive to the public?

The answer to the first question of how long it would take the hawks to renew their efforts to induce a new moral panic about deficits was less than 24 hours.  The answer to the second question varied by the deficit hawk writer.  I wrote a column about Robert Samuelson’s relentless efforts to panic the public in October 2012 entitled:  “Robert J. Samuelson tries to create a moral panic about deficits.”  I exposed in that column, and a follow-up column, his mendacious description of another Pete Peterson outfit (“Third Way”) as a “liberal” group that supported his position.  It’s actually Wall Street on the Potomac.

The aspect I liked best about Samuelson’s column was that he was demanding that the millions of additional workers lose their jobs through a gratuitous recession he admitted that inflicting austerity would cause accept their fate without protest.  It’s unpleasant for us when you, or your hungry kid; whines all night after we cut your SNAP (food stamps).  It is impossible to compete with unintentional self-parody.

Well, Samuelson is back, and pissed as hell at Obama for not getting the Grand Betrayal past Senate Majority Leader Harry Reid – who literally threw Obama’s suggest instrument of surrender into his burning fireplace.  As soon as the “fiscal cliff” deal reached Samuelson thundered that it represented at a “failure of presidential leadership” because Obama did not agree to Republican demands for austerity as a response to the Great Recession.

Samuelson laments first that the “fiscal cliff” deal slightly increases the marginal income tax rate for the richest two percent of us.  Their highest marginal rate will remain dramatically lower than in any modern war.   Seriously, that’s Samuelson’s top concern?  Samuelson claims:

“The obsession with rates is bad policy (higher rates may threaten risk-taking, work effort and hiring) but qualifies as good politics: It signals Obama is macho; he’s tough on the rich, who are implicitly blamed for the nation’s budget and economic woes.”

So many untruths in two sentences: one, it’s not an obsession, it’s a deal on taxes and marginal rates are what have been lowered repeatedly for the wealthiest Americans.  If Samuelson were serious about a “deficit crisis” he would be pushing over the longer term for much higher taxes on the wealthy.  Samuelson, however, is a Peterson stooge and shares Wall Street’s continuing demands for ever lower income taxes on the wealthiest one-to-two percent.

Two, there is no credible evidence that a minor, partial return, still well below modern historical norms, in the highest marginal rate will have any negative effects on “risk-taking, work effort, and hiring.”  We have experienced our worst, negative growth, under our lowest marginal tax rates for the extremely wealthy.

Inequality has surged and yes, the top people in finance, who represent a disproportionate share of the wealthiest Americans are by far the most culpable people for the Great Recession.  It was their frauds that made far too many of them wealthy and caused the greatest loss of middle class wealth in at least 75 years.  So, on any grounds of fairness the wealthiest Americans should have never have gotten these tax cuts and the maze of tax advantages they abuse to pay marginal tax rates that are often lower than their employees.

Being responsive to unfairness produced by power and the abuse of power is a good thing in a democracy.  What Samuelson is describing is good democracy, not simply politics.

No one thinks Obama is macho.  The media accounts from 2011 and the current deal are consistent in describing him as a weak negotiator saved from disaster by Senate liberals and Tea Party Republicans in the House.

But Samuelson soon gets to the Peterson agenda – Social Security is first on his list for betrayal.

“The larger cause is that Obama refuses to concede that Social Security, Medicare and Medicaid are driving future spending and deficits. So when Republicans make concessions on taxes (as they have), they get little in return. Naturally, this poisons the negotiating climate.”

How did Social Security make it to first on his list?  It is producing surpluses, not deficits.  Samuelson loathes the AARP and literally blames older Americans for “ruin[ing] America.”  He thinks grandpa is a fifth columnist leech.  He pines for the day in when the Paul Ryans of the world will have the “courage” to throw grandpa under the bus.  Here’s the title and the link to his article denouncing “the elderly.”

Why are we in this debt fix? It’s the elderly, stupid.

Medicaid also does not belong on the list.  We can substantially reduce Medicaid expenditures by reducing unemployment and poverty.  Unemployment and poverty cause enormous economic waste.  We can virtually eliminate long-term unemployment at any time we wish by creating a federal jobs guarantee program that would also significantly increase growth.  If we reduce unemployment dramatically we will also reduce poverty substantially.  Medicaid is a program for those at or near poverty.

That leaves Medicare, which does in fact, overwhelmingly, drive the long-term CBO projections that Samuelson often cites.  I will return to Samuelson’s arguments about long-term budget issues, but there is a more immediate point that must be emphasized here – nothing he argues (even if it were true) would justify austerity now.  Imposing austerity now would make all of the difficulties he cites far greater

There is no economic rationale for inflicting austerity on an economy in our circumstances.  We are suffering from a jobs crisis, not a debt crisis.  Samuelson concedes that:  “A weak economy creates few new jobs, and the lack of jobs is the nation’s No. 1 social problem.”  When there is a recession unemployment grows substantially, causing the national government’s revenues to fall sharply and increasing its expenditures, e.g., for unemployment compensation.  (The opposite effect occurs during rapid growth if inflation begins to develop.)  This process is part of the automatic fiscal stabilizers we and other prudent nations have built into our economies.  The result is an automatic (no delays to pass new legislation) counter-cyclical fiscal policy that reduces the severity of economic crises.  Recessions are now, on average, far less severe and long-lived than before automatic stabilizers.

We are not suffering, however, from an average recession.  It is called the Great Recession because it is much more severe than a typical recession.  As Samuelson concedes, in the recovery from a Great Recession demand will be severely inadequate and far too employers will hire, making jobs the number one problem.  To increase jobs and recover more quickly from a Great Recession it is essential that the federal government step forward to replace the lost demand.   The last thing one wants is for the federal government to inflict austerity through (net) tax increases and (net) spending reductions.  Obama’s failure of leadership was not getting the payroll tax reduced.  He should not have made expenditure cuts “in return” to the Republicans for tax increases to the wealthiest because that would have harmed the recovery, as Samuelson has conceded.  Obama should have lowered the payroll tax and rates for the working and middle class to ensure there was no net increase in taxes.  Reducing those taxes would have greatly added to private sector demand, which would speed the recovery.

Austerity is a pro-cyclical policy – it makes the recession more severe.  It is as economically illiterate as bleeding a patient is medically illiterate.  In a moment of clarity (soon obscured by analytical incoherence), a Post reporter, Zachary Goldfarb, concedes this point in the first clauses of his first sentence.

“The deal to which the House gave final approval late Tuesday will head off the most severe effects of the “fiscal cliff” by averting a dangerous dose of austerity….”

Very good:  “austerity” is “dangerous” and will have “severe effects” on our economy.  It needed to be “head[ed] off.”

Goldfarb notes that the agreement fails to “defuse” the Republican Party’s threat to use the debt ceiling to extort President Obama by threatening to cause a default unless he agrees to inflict austerity on the Nation.  That’s a fair and important criticism that Samuelson ignores because it would refute his claim of Republican virtue spurned by Obama.  It is logically consistent with Goldfarb’s prior argument – austerity would be disaster.

Goldfarb’s next major point is also logically coherent.

“Nor does the package do anything to address stubbornly high levels of unemployment, with 12 million Americans out of work. Instead, the deal could aggravate the problem. By allowing the payroll tax cut to expire, the deal takes money out of the hands of many Americans, sucking it out of the economy and slowing economic activity.”

Again, the consistent point being made is that austerity would be self-destructive.  Then things come unhinged.

“And, finally, the deal is too modest to fundamentally tame the government’s soaring debt. The nation’s long-term finances remain in peril, with federal spending projected to rise dramatically as a wave of retiring baby boomers turns to the government for help in paying for ever-more-costly health care.”

Suddenly, the problem is that the deal inflicts too little austerity.  Immediately after explaining that austerity would “slow economic activity” the writer claims, that the deal imposes too little austerity.  He makes the claim not as a matter of opinion, but of fact.  He makes his assertion with no apparent understanding of his internal inconsistency.  Note that he does, implicitly, concede that the key issues are health care costs and Medicare rather than Social Security or Medicaid.

The article then appears to recover, only to plunge into total incoherence.

Some benefits

“Despite the drawbacks, the bipartisan deal may well have been the heaviest lift a deeply divided Congress could have accomplished. And the package, no doubt, has its benefits.

It is likely to prevent the nation from dipping back into recession. It cancels massive tax increases facing middle-class and poor Americans. And it delays deep and blunt government spending cuts for two months.

And while the agreement does nothing to reduce joblessness, it renews unemployment benefits that would have otherwise expired, offering vital help to the jobless and averting another blow to economic activity.

And finally, by raising a little more than $600 billion in fresh tax revenue from the wealthy, the deal takes a step toward bringing spending and taxes into line for the next few years — though economists say much more needs to be done over the long run.

President Obama had sought a larger agreement that would raise taxes by more than double what he got in the deal. He also wanted to take the debt ceiling off the table and offset deep spending cuts with more taxes and more targeted savings in entitlements — including Medicare and Social Security. He also asked for new economic stimulus measures to help bring down unemployment, including an extension of the payroll tax holiday.

Republicans had also wanted a deal that would cut the deficit more, though their prescription was different from Obama’s. Instead of taxes, they preferred deeper cuts to domestic spending and changes to entitlements.”

The first two sentences remain coherent – by avoiding austerity the deal prevents us from being thrown into recession.  That is an incredibly important thing.

The third sentence slides into an internal contradiction.

“And while the agreement does nothing to reduce joblessness, it renews unemployment benefits that would have otherwise expired, offering vital help to the jobless and averting another blow to economic activity.”

Goldfarb has just explained that the deal is likely to prevent a recession by blocking the “fiscal cliff’s” austerity (tax increases and spending cuts), so it does an enormous amount to “reduce joblessness” by blocking austerity.  But Goldfarb misses an even more direct self-contradiction.  Extended unemployment benefits were lapsing, so extending the benefits to roughly two million recipients will provide increased demand that will “reduce joblessness.”

It gets worse.  Goldfarb’s next sentence begins an ode to austerity.

“And finally, by raising a little more than $600 billion in fresh tax revenue from the wealthy, the deal takes a step toward bringing spending and taxes into line for the next few years — though economists say much more needs to be done over the long run.”

No, the (net) tax increase is an austerity provision.  Austerity does not necessarily “bring spending and taxes into line for the next few years.”  It is far more likely to do what Goldfarb wrote earlier – cause a gratuitous recession in which case it will certainly increase unemployment and likely increase the deficit.

Goldfarb’s fifth sentence takes him further off course (but shows that Samuelson got his criticism of Obama completely wrong).

“President Obama had sought a larger agreement that would raise taxes by more than double what he got in the deal. He also wanted to take the debt ceiling off the table and offset deep spending cuts with more taxes and more targeted savings in entitlements — including Medicare and Social Security. He also asked for new economic stimulus measures to help bring down unemployment, including an extension of the payroll tax holiday.”

Goldfarb showed what many of us began warning about before the 2012 election.  Obama wanted to enter into the Great Betrayal in 2011, 2012, and the start of 2013.  He wanted to inflict “deep spending cuts with more taxes and more targeted savings in … Medicare and Social Security….”  Note that Goldfarb is describing Obama’s incoherence on austerity.  Remember, had Obama succeeded in July or November 2011 in achieving his goal – the Great Betrayal – he would have inflicted a program of austerity that would have forced the U.S. back into recession, caused a severe increase in unemployment, destroyed his reelection chances, and cost Democrats the Senate.  Obama’s key advisors in fall 2011 – Treasury Secretary Geithner, Chief of Staff William Daley, and OMB head Jacob Lew – are all representatives of the Wall Street wing of the Democratic Party who generally oppose stimulus and support austerity.  Lew is considered the leading candidate to replace Geithner as Treasury Secretary.

“[Obama] wanted to take the debt ceiling off the table and offset deep spending cuts with more taxes and more targeted savings in entitlements — including Medicare and Social Security.”

I understand that Goldfarb is setting out Obama’s goal here, but the failure to understand economics is so fundamental and vital to the story that if Goldfarb had spotted Obama’s error he would have pointed it out in the article.  Obama thought that “deep spending cuts … and more targeted savings in … Medicare and Social Security” would “offset” “more taxes.”  When the topic is austerity, “spending cuts” do not “offset” “more taxes” – they compound austerity.  Obama wanted a double-barreled blast of austerity (spending cuts plus tax increases) aimed at our economy.  Had he succeeded, he would have blasted us into a recession.  Goldfarb and Obama appear to believe, however, that tax increases and spending cuts “offset” each other when it comes to austerity, as the next sentence of the article confirms.  “[Obama] also asked for new economic stimulus measures to help bring down unemployment, including an extension of the payroll tax holiday.”  Yes, that request was for stimulus, but neither Obama nor Goldfarb appear to understand that the net effects of tax changes and spending changes are the key to determining whether the overall budget inflicts austerity or provides stimulus.  In both spending and taxes the net effect of the budgetary changes that Obama sought through the deal was the infliction of severe austerity on the Nation that would have forced us into recession.

Similarly, Goldfarb’s description of the even more self-destructive austerity program that the Republicans sought to inflict on the Nation demonstrates that neither he nor the Republicans understand economics.

“Republicans had also wanted a deal that would cut the deficit more, though their prescription was different from Obama’s. Instead of taxes, they preferred deeper cuts to domestic spending and changes to entitlements.”

The key error here is subtle but critical – the assumption that even “deeper cuts to domestic spending and [the safety net]” would “cut the deficit more” than Obama’s proposal.  Obama and the Republicans were both trying to inflict austerity on the Nation, at a time when we were still years from full recovery from the Great Recession.  As Goldfarb explained at the start of his article, such austerity was likely to force the U.S. into recession (as it did the Eurozone).  A new recession would increase unemployment, dramatically reduce tax revenues, and increase expenditures.  The most likely result is that the deficit would increase under both the Republican and Obama plans.  The recession, unemployment, and the deficit would have been worse under the Republican plan than the Obama plan because their plan sought to inflict the greatest self-destructive austerity.

A recession occurs when demand is so inadequate that economic growth becomes negative, which is what drives large increases in unemployment and underemployment.  The assumption of proponents of austerity is that if there is a $1 trillion federal budget deficit and we raise taxes by $500 billion and cut spending by $500 billion the budget will be balanced.  This assumes that the federal budget has no effect on the economy.  No one thinks that assumption is true.  Everyone now agrees that inflicting austerity on the Nation would be stupid and likely to force us back into recession.  That is why they now agree that the fiscal cliff had to be avoided – it was a program of austerity.  (Governor Dean is the exception that proves the rule.  He wanted us to deliberately go off the “fiscal cliff” in order to inflict severe austerity on the Nation.  He predicted that it would only cause a six-month recession and then enthused about how the sacrifices made (by others, the unemployed, not him) would make America a much better place.  He sounded like your Grandmother touting the benefits of her enema.)  In any event, even a physician like Dean now admits that inflicting austerity would force us back into a recession.  This is what has austerity did to the Eurozone (except that Spain, Greece, and Italy have Great Depression-levels of unemployment).

The news accounts about fiscal cliff, however, rarely explain why inflicting its austerity would cause a recession and make the deficit larger rather than balancing our budget.  Here’s the shorter version:  raising taxes in response to the Great Recession reduces private sector demand – in an economy that already has massively inadequate demand.  Cutting federal spending obviously reduces public sector demand, but it indirectly reduces private sector demand.  The vast bulk of federal expenditures do not go to pay federal workers’ pay, but to purchase goods and services from the private sector.  (Federal workers’ spending also goes overwhelmingly to the private sector.)  By further reducing demand, austerity makes the recession worse or forces the Nation back into recession or even depression, which causes unemployment and underemployment to rise.  The fall in employment reduces federal revenues and increases federal expenses.  The net result, therefore, of austerity in response to the Great Recession is to make the federal budget deficit, the recession, human misery (as a result of the cuts to spending), and unemployment larger.  Austerity is often a lose-lose-lose-lose strategy.  Stimulus in response to a Great Recession is likely to have the opposite effect because it increases growth, employment, and federal revenues while decreasing misery and federal financial assistance.  By increasing revenues and decreasing expenditures for those who would have been unemployed a stimulus program can reduce the budget deficit.  Stimulus can be a win-win-win-win strategy.

To be more precise, what matters is the net change.  It is fine to kill stupid governmental programs and add funding to superior programs.  The mix matters on both the spending and tax side, but a $50 billion job training program is not magic, it will not cause a surge in employment unless we restore adequate demand to support sharp rises in employment.  One of President Obama’s best ideas was a large revenue sharing program (a Republican innovation) because he knew that the Great Recession would cause budgetary crises in many states and localities.  States and localities do not have sovereign currencies and they cannot run deficits the way a nation with a sovereign currency should as part a counter-cyclical policy.  Left to their own devices, states and localities respond to a Great Recession in a pro-cyclical fashion – they fire workers and cut spending when our recovery would be much faster if they were hiring.  (The labor statistics have been showing this perverse pro-cyclical impact for over a year.)  What we really need is a jobs guarantee program that would provide a job to everyone willing and able to work.  Neither Party, however, supports such a program.

Reducing taxes for the wealthy is a bad way to respond to a recession because it does not increase their consumption as much as would tax cuts to less wealthy workers.  The single best tax reduction is to stop collecting the payroll tax.  It provides immediate stimulus at no material administrative expense.  The payroll tax is our most regressive tax, so cutting it creates the greatest percentage boost to demand.  It helps those who need the relief.  The single worst decision involving the “fiscal cliff” was the refusal to extend the partial moratorium on collecting the payroll tax.

As with spending, the net change in taxes is what matters.  We could increase the marginal tax rate for the wealthy and make greater cuts in taxes for those who were not wealthy, particularly by a moratorium on collecting the payroll tax. The net effect would be stimulus in response to the Great Recession and for the reasons I explained the payroll tax moratorium has a far greater stimulus effect than would a comparable tax reduction for the wealthiest Americans.

With that macro-economic review in mind we can cut through most of the nonsense chatter that discussions of the fiscal cliff generated.  We do not want to make a “down payment” on deficit reduction at this time.  That phrase is code for inflicting lose-lose-lose-lose austerity.  It would make on a down payment on inflicting a gratuitous recession.

The time to consider raising (net) taxes and/or cutting (net) spending is when we are about to reach full employment and inflation is becoming a serious concern.  Both of those factors need to be present.  If we have full employment without serious inflation we will have very strength growth and the federal deficit will be coming down.  You may have read from Peterson’s acolytes that we have a long-term “structural” budgetary “crisis” that must be addressed now by austerity.  Our review has shown why that is false.  It is the Great Recession that caused the large increase in deficits.  That is what recessions do.  That is why it is so insanely self-destructive to inflict a gratuitous recession via austerity on the purported grounds of the need to cut the deficit.

It is economic growth and recovery that causes deficits to fall sharply.  Because the U.S. has had the sense not to inflict austerity (the eurozone’s disastrous policy) we have not been forced into a recession.  The stimulus was far smaller than it should have been, but it has been sufficient to produce economic growth and the federal deficit has fallen at record rates over the last years.  There is no deficit or debt crisis – as the long-term U.S. bond rate demonstrates every day.

There is one clear structural issue for our economy – the fact that health care costs have been rising much faster than the economy grows.  Social Security poses no such issue.  Health care costs matter because they use real resources, and real resources, unlike “money,” are scarce even for a nation like the U.S. that has the sense to maintain a sovereign currency.  (Nations that adopted the euro had to abandon their sovereign currencies.)  I have explained these points in some detail previously so I will only hit the most essential points here.

Here are the three things you need to understand to cut through the hysteria about health care costs, which debt hawks portray as a “structural” “crisis” for Medicare and Medicaid.  First, if they are right that health care costs are going to continue to increase far more rapidly than the economy grows for the next 70 years, then Medicare and Medicaid are the least of our problems.  We are unique among nations with a developed economy (but underdeveloped understanding of economics).  We pay for health care costs primarily through private insurance and we have no effective cost-containment system.  That combination is an idiotic recipe and if we assume that we will never learn from our experience, or the experience of our peer nations, then health care costs will continue to grow far faster than our GDP.   Medicare and Medicaid are not the key generators of these increases in medical costs.  Indeed, they are islands of modest constraint.  Republican mandates have barred Medicare and Medicaid from imposing far more effective cost constraints.  Debt hawks assume we will never learn from that mistake and will continue it for 70 years, at which point Medicare and Medicaid would represent roughly 100% of the federal budget.

Projecting that U.S. health care costs will continue to increase at roughly twice the average growth rate of GDP guarantees that federal budget expenditures will be driven by health care costs.  Under the long-term scenarios that Samuelson relies on, Medicare would rise to approximately 10.5% of GDP by 2080.  By 2080, this implies that combined federal Medicare and Medicaid expenditures would exceed 20% of GDP – roughly 100% of the federal budget.  That is absurd, a point made forcefully by Federal Reserve economists in an article entitled:  AN EXAMINATION OF HEALTH-SPENDING GROWTH IN THE UNITED STATES:

PAST TRENDS AND FUTURE PROSPECTS (by Glenn Follette and Louise Sheiner).

“All other” health care expenses would, under similar approaches to projections, rise to over 40% of GDP by 2080.  The overwhelming bulk of these expenses would be private health insurance and state contributions to Medicaid.  The first question that should arise, therefore, is which constraint would actually bite first and doom the projections.  The imminent constraint is not the federal budget.  The U.S. is neither a household nor a business firm.   We have a sovereign currency that we allow to freely float and we borrow in our own currency.  The U.S. federal government, therefore, is nothing like a nation that has joined the euro and given up its sovereign currency.  Like Japan, the U.S. can create money, or if it chooses to issue debt it can do so at minimal interest rates even with a debt to GDP ratio over twice as large as the current U.S. ratio.

Businesses have to compete.  Many must already compete globally and the future will increase the number of firms that must maintain global competitiveness.  Foreign firms often provide no health care benefits to their workers.  U.S. businesses also have to compete against small U.S. businesses that are not subject to the employer mandate of Obamacare.  Decades before the U.S. federal government experiences ran into any real budgetary “crisis” the increase in health care costs that the CBO is projecting would bankrupt businesses that offered health insurance.  If health care costs increase indefinitely at twice the growth of GDP no business can long survive paying such costs.  The only question is how soon they will become uncompetitive and fail – and the business critics of Obamacare are claiming that we have already rendered them uncompetitive by requiring them to provide health insurance to a pool of very young workers in good health (i.e., a far cheaper pool to insure than would be the case for most professions and industries).

The first point is that Samuelson has missed the real crisis and where it would cause the collapse of America decades before the federal government budget would be the relevant constraint.  The second point is that Samuelson fails to understand that if we cut the safety net we do not save anything – we simply transfer costs to less wealthy, sicker Americans and hospitals and their shareholders.  Medicare and Medicaid are not the major drivers of the large increase in health care costs relative to GDP growth.  They tend to constrain health care costs and, freed of Republican constraints on their rational operation, they would be far more effective in constraining health care cost increases.  Yes, as our population ages we will have greater demands for health care, but that is because our population ages – not because of Medicare.

Our delivery system for health care, which relies primarily on private insurance, creates the perverse incentives that primarily explain the rapid increase in health care costs and why we spend roughly twice as much as a percentage of GDP for health care as our developed nations but report comparable or even inferior health outcomes.  If we do not contain the increase in health care costs and we cut the health care safety net we will not save money as a society, we will simply transfer (as did Paul Ryan’s health care voucher proposal) huge expenses to the those who get sick.  Many of them will be unable to pay, so if the government safety net is reduced the rapidly increasing expenses will either fall on hospitals and their shareholders in the form of unreimbursed expenses or people will die, suffer, and have their last years crippled.  Actually, both things will happen as hospitals seek to minimize a dramatic increase in unreimbursed care obligations.

We could reduce our budgetary expenditures greatly in our wars if we used the draft and did not provide Veterans’ Administration, Medicare, or Medicaid health care for our returned troops.  That action would certainly be cruel and unjust, but it would also fail to save costs.  It would simply transfer the costs to our injured veterans.

The third point is that we will change our practices and contain the cost escalation in health care.  We will do so because we have to and because it is smart to do so.  We know we will be able to change and dramatically reduce the escalation in costs because dozens of other nations have been able to do so through several different approaches and we can follow proven successes.  We have failed to do so at this juncture because of ideology, arrogance (if it’s not invented here it must not be useful), and because we are such a wealthy nation that we can survive our dogmatic failures for years.  In the end, however, we are pragmatists with a long record of choosing paths that work.  The problem in health care cost increases isn’t the safety net; it is ideologues like Samuelson who oppose measures to contain the increasing costs of health care.