In his reporting on the White House's fiscal accountability summit, Ezra Klein focuses on a guy we're going to hear a lot more about -- Peter Orszag, the new director of the Office of Management and Budget. First, Klein notes that fiscal responsibility has long focused on entitlements, but that there's been an important shift in the way liberal elites think about this:
Where a decade ago the looming fiscal threat of entitlement spending led economists and budget wonks to wear out their worry beads, today a more subtle understanding of our fiscal future dominates. In this telling, there's no such program as SocialSecurityandMedicareandMedicaid. There's Social Security, which has modest long-term liabilities and needs little, if any, help. And then there's health-care reform. "That," says Henry Aaron, a senior economist at the Brookings Institution, "is the big kahuna."
Per capita health care costs, it turns out, overwhelm other factors when looking at the projected growth of the budget deficit:
That orange line shooting into orbit? That's our projected deficit. That blue line levitating gently upward? That's our deficit if health costs grew more slowly. And those other lines sinking downward? They're our deficit if we had the per-person health costs of countries like France, Germany, and Canada. In all cases, Social Security spending remains unchanged.
Aaron locates his light-bulb moment in a paper written by Richard Kogan, Matt Fiedler, Aviva Aron-Dine, and Jim Horney for the Center on Budget and Policy Priorities. He remembers sitting around a table with Peter Orszag, now director of Obama's Office of Management and Budget, Bob Reischauer, who runs the Urban Institute, Bob Greenstein, who founded the CBPP, and an array of other economic luminaries while Kogan and Horney presented their findings. "The long-term fiscal outlook is bleak," they wrote, and "rising health care costs are the single largest cause."
Aaron says that the "meeting was sort of a slap-the-forehead moment. I said 'you guys are saying there is no problem other than a health-care financing problem long-term!' Credit goes to them, in my opinion."
What everyone agrees on is that the thinking entered government in the person of Peter Orszag. In 2007, Orszag was named director of the Congressional Budget Office. From that perch, he brought Kogan and Horney's thinking to the halls of Congress. Orszag liked to show a particular slide in his public presentations and speeches that broke down the interplay between the government's various fiscal commitments:
Government spending and Social Security, it says, will hold relatively constant in coming years. It's Medicare and Medicaid that chew up federal spending.
This graph, however, could be used as evidence for a simple focus on Medicare and Medicaid. The programs are unsustainable. They need to be slashed. The next slide in Orszag's presentation is titled "misdiagnosing the problem." The fiscal threat, it argues, is not more beneficiaries or the type of beneficiaries that are the factors internal to Medicare and Medicaid. It's the cost per beneficiary. Orszag has a graph for this, too:
And since Medicaid and Medicare pay for health services on the private market, this can only be fixed through broader health reform.
So, fiscal responsibility is really about entitlements, but when you look at entitlements, the real problem is Medicare/Medicaid, not Social Security. The real problem with Medicare/Medicaid, though, is the rising per capita cost of health care that affects everyone, whether they participate in Medicare/Medicaid or not. To fix Medicare/Medicaid, therefore, we have to reform the entire health care system.
"Many observers have noted that addressing the problems in financial markets and the risks to the economy may displace health care reform on the policy agenda," he wrote on his blog. Orszag went on to argue that rising health costs threaten the nation's very solvency. If they continue to grow, investors will no longer be willing to buy Treasury bonds at low rates. And if that happened, the government would lose its ability to mount the sort of costly rescue operations that have kept this crisis from turning into a calamity. "So if you think the current economic crisis is serious," concluded Orszag, "and it is, imagine what it would be like if we didn't have the ability to undertake aggressive and innovative policy interventions because creditors were effectively unwilling to lend substantial additional sums to the Federal government."
Behind Orszag's economic jargon was a startlingly aggressive message. He was essentially accusing those who would delay health reform of bringing a Zippo and a can of kerosene to the federal budget. "I have not viewed CBO's job as just to passively evaluate what Congress proposes," he tells me shortly before his appointment to the OMB, "but rather to be an analytical resource. And part of that is to highlight things that are true and that people may not want to hear, including that we need to address health-care costs."
Needless to say, this will not be intuitively obvious to ordinary Americans or even informed opinion leaders, let alone recalcitrant Congressional Republicans already gearing up to oppose whatever health care initiatives the Obama administration may introduce. Nevertheless, it is reported to be exactly what Obama intends. That will make the battle over the stimulus bill look like a tempest in a teacup.