the national interest

Democratic Deficit Scolds Get Desperate and Weird

Third Way illustrates its argument with balloons. Photo: Third Way

Third Way is the think tank — or, at least, what passes for a think tank by contemporary Washington standards — associated with moderate Democrats in the Senate. Of course, there’s a place in Washington for a message shop calling itself a think tank that gives moderate Democrats good strategic advice.

The trouble is that Third Way gives moderate Democrats terrible strategic advice. Rather than finding a policy synthesis that helps moderate Democrats court red-state voters, its policy synthesis is designed to help them court upscale coastal donors. Hence, Third Way urges Democrats to expend their political capital on gun control, which is disproportionately unpopular in red state America, while simultaneously urging them to go to the mat for cutting retirement programs, which are wildly popular everywhere except among the rich. (A helpful explanatory fact: Third Way’s co-directors, Jon Cowan and Jim Kessler, are both former gun-control activists, and Cowan is a former professional deficit scold.)

Cowan and Kessler’s new Third Way memo urging Democrats to cut retirement programs is a fascinating and horrifying encapsulation of current elite sentiment.

Unlike a lot of liberals, I think a deal that cut retirement programs could be okay in return for meaningful concessions, like higher taxes. Since it’s not going to happen, though, Democrats ought to forget about it for the time being. Cowan and Kessler allow that “the grand bargain is over,” but then, bizarrely, proceed to argue that Democrats should do it anyway.

The most important premise of their argument is that the Obama administration has spent too much money. Liberals may complain about austerity, but, they argue, “we haven’t had an austerity budget.” Cowan and Kessler’s evidence for this — that the federal government spent more, on average, during Obama’s first term than during George W. Bush’s second — demonstrates that they do not grasp what “austerity” means. Austerity means the government reduces its deficit through a combination of spending cuts or tax hikes. Has the government done this? Well, yes, it has. The federal government, after initially implementing a stimulus, has wound down its stimulus, and has since implemented sequestration cuts and tax increases. Deficits are falling very rapidly, and for several years in a row, government cuts have created a net fiscal drag — or, as an economist would call it, “austerity.”

Likewise, Obamacare appears in their piece only as a laudable but costly “new health care entitlement” that “increase[d] spending … beyond the breaking point.” One correction they propose to this spending binge is to transform the wasteful health-care sector, which pays for “quantity of services offered, not the quality.” But of course, Obama did pass a whole bunch of reforms designed to make health care pay for quality rather than quantity. It’s called the Affordable Care Act. And while we won’t have any certainty of its effects for many years, the early evidence that the health-care-cost curve is bending downward is extremely positive. Reading Third Way’s memo, you would conclude that Obamacare did nothing about medical inflation. “Why shouldn’t we aggressively solve these problems?” it asks.

The memo does mention the recent slowdown in health-care inflation, without mentioning the connection to Obamacare, and then insisting there’s “no consensus whatsoever” that the slowdown will last. Well, no. There’s no consensus. Many health economists think the slowdown will last, but some don’t, and nobody is certain, because always in motion is the future.

Still, we could wait a few years and see how this gigantic experiment in bending the cost curve goes, can’t we?

No!, insist Cowan and Kessler. Now is the time to act. Why now? Because the politics are perfect:

the only way entitlements ever get fixed is through divided government. Solutions inevitably include some measure of tax increases and benefit cuts, and no party wants to do that alone.

Let’s face facts. The political roster we have now is as good as it will ever be. We have a Democratic president committed to the safety net, a solid Democratic majority in the Senate with a leader committed to the safety net, and a strong minority leader in the House also committed to the safety net…

What? Have these men not been following the news? There’s a Republican-controlled House that does not want to raise taxes. At all. Not even a tiny bit. They don’t want to compromise on anything, not even on things, like raising the debt ceiling, that they agree need to happen, let alone on things they don’t want to happen. And the current immigration-reform negotiations show just how impossible any deal with the House GOP is. You have the entire Republican donor base, backed by a persuasive case for long-term partisan self-interest, and numerous arch-conservative Republicans, like Marco Rubio and Paul Ryan, vocally urging their party to make a deal. I thought an immigration deal would get done, but House Republicans appear to be even more obstinate than I thought, and I already thought they were borderline insane. You’re seeing how hard it is to pass immigration reform through the House. A deal with tax increases would be vastly harder.

So given that the deficit is falling really fast, bringing long-term spending and revenue more closely into line might make sense if Democrats could strike a reasonably fair deal, but obviously they can’t. The good news is that, the closer Medicare and Social Security get to exhausting their trust funds, the easier it will be to implement tax increases. Americans may not like taxes, but they hate cuts to retirement programs more than anything. So the longer we wait, the easier it gets to secure higher taxes as part of the solution.

Now, here is possibly the weirdest part of their argument, weirder even than their we-don’t-follow-the-news argument for getting Republicans to compromise on the budget. They cite this factor as a reason not to wait to make a deal:

Among some elderly advocates, the strategy is to delay entitlement fixes for as long as possible, because the view is that the closer we get to insolvency, the more likely a solution will tilt more toward tax increases rather than benefit cuts. With the elderly and near elderly voting populations representing two of five voters in just over a decade, they are probably right. So, as we are in a pitched international battle for economic livelihood, we can count on future withering tax increases on the middle class to fix these programs.

Withering tax increases”? Withering? Look, the United States is a very low tax country, and if we eventually resolve the long-term deficit entirely through taxes, we’ll remain a low-tax country. But, even assuming an all-tax-hike solution would be bad because Scandanavia is a socialist hellhole or something, why are we suddenly going to go from a world where Republicans refuse to raise a penny in higher revenue to a world in which tax increases are the entire possible solution? Why not wait until tax hikes are imminent and then strike this balanced deal that replaces some of them with benefit cuts?

If Third Way thinks the problem is simply that the federal government spends too much on retirement programs, and they want Democrats to cut them without insisting on anything in return, then they should say so. That would seem like the only way to make sense of their disparate claims. Otherwise, their argument is pure gibberish.

Update: Third Way responds. I see little substantive engagement with or recognition of any of the errors I identify.

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Democratic Deficit Scolds Get Desperate, Weird