Paul Krugman


It’s Obama’s Economy

I have a new article at National Review Online showing why Paul Krugman is wrong to blame the Republicans for the state of the economy:

No doubt it would be impressive if the president managed to convince the electorate that three years’ worth of anemic job creation is all the GOP’s fault. And certainly one can’t blame Krugman for making the suggestion (desperate political times call for desperate political evasions). But the odds of this working for President Obama are near zero.

For starters, there’s the problem of who has actually been in charge of economic policy since 2009. The president came into office with commanding Democratic majorities in the House and Senate. He could have done anything he wanted during those years, without even consulting with Republicans. And, in fact, he did do pretty much anything he wanted in those years, in spite of GOP objections. Which is why, as Douglas Holtz-Eakin has already noted, we got the $800 billion stimulus spending plan, very substantial spending increases in the 2009 and 2010 appropriations processes, Dodd-Frank, the auto bailout, a state- and local-government bailout bill, Cash for Clunkers, and much else — not to mention the huge tax hikes, including tax hikes on labor, contained in Obamacare. This was the president’s activist economic agenda, and it’s all been implemented or is in the process of being implemented. The fact that it hasn’t worked to spur a robust economic recovery is no one’s fault but the president’s.

You can read the rest of the article here.

posted by James C. Capretta | 6:22 pm
Tags: President Obama, Paul Krugman
File As: Health Care

The “Doc Fix” and Paul Krugman’s “War on Logic”

During the yearlong debate over Obamacare, the law’s apologists returned over and over again to the supposed fiscal benefits flowing from its provisions as a top selling point. Pass Obamacare, they said, and we’ll have health insurance for everyone, painless cost-cutting to slow rising premiums, and deficit reduction to boot. Its win, win, win!

No one believed them, of course. The claim of deficit reduction may have provided a fig leaf to allow some wavering congressional Democrats to vote yes, but it didn’t convince a skeptical electorate. Most Americans have too much common sense to buy the argument that what the nation needs to get its fiscal house in order is a new trillion-dollar-plus entitlement program, piled on top of the unaffordable ones already on the books.

Sure, on paper the Democrats might be able assemble “offsets” to make it look like the program was “paid for.” But even a casual review of the legislation and associated analyses reveals what most people intuitively know to be the case: that Obamacare combines dead-certain entitlement expansion (for at least 30 million people, and probably many millions more) with budgetary sleight of hand and “pay fors” that are either phony or altogether implausible.

Nonetheless, as the House readies a repeal vote for this week, Obamacare enthusiasts are back at it again, claiming once again that Obamacare supporters are practitioners of fiscal discipline, while those who want to undo the largest expansion of government in nearly half a century are the budget busters.

To be sure, it’s a tough sell, but Paul Krugman of the New York Times is eager to give it a try nonetheless. He claimed in his Sunday column that the Republican contention that Obamacare is a budgetary disaster amounts to a “war on logic.”

But Krugman’s attack is itself illogical, and inaccurate too. He focuses most of his attention on the so-called “doc fix,” which is the periodic legislation passed by Congress to prevent deep and unrealistic cuts in what Medicare pays for physician services. Republicans have argued, accurately, that the accounting for Obamacare omits the “doc fix” spending, and that if it were included, the supposed deficit reduction from Obamacare would vanish altogether, even before the other gimmicks and implausible assumptions were exposed and removed.

Krugman contends that this Republican argument is illogical because, in effect, the real “baseline” of federal spending already includes higher physician fees. With or without Obamacare, Congress is going to spend more on physicians, Krugman suggests, therefore Obamacare shouldn’t get charged for it.

But that’s not what’s really going on here. If Krugman’s analysis were accurate, why does Congress go through the annual agony of a “doc fix” at all? Why haven’t they just passed a permanent solution already and gotten it over with?

The answer is that, while Congress doesn’t want to cut physician fees, it hasn’t wanted to pile the costs onto the national debt either. What has held back a permanent solution is the inability to find $200–$300 billion in acceptable “offsets” to make sure a permanent fix doesn’t add to the deficit.

When President Obama assumed office, he wanted his health bill and a permanent “doc fix” too, but he didn’t have enough flimsy offsets to grease the way for them both. So he came up with a new “solution”: use the offsets to pave the way for Obamacare’s spending, and exempt the “doc fix” from the need for offsets at all. This would create the perception of “deficit reduction” from Obamacare even as an unfinanced “doc fix” ran up the deficit by an even larger amount.

At the end of the day, even some Senate Democrats balked at this shameless sleight of hand and blocked the effort to pass an unfinanced and permanent “doc fix.” But the issue remains very much unresolved, and the administration has yet to disavow their push from last year to pay higher physician fees with borrowed money.

Krugman also seems completely unaware that the Medicare cuts that are supposed to pay for Obamacare’s entitlement spending are of the same type as the physician-fee cuts he now wants to assume away. They are arbitrary and unrealistic too, so much so that the chief actuary for Medicare considers them entirely implausible. He projects that if Obamacare’s Medicare cuts were allowed to remain in effect for long, Medicare’s payment rates would fall below those of Medicaid, which are so low that Medicaid patients often have trouble accessing care. And yet Obamacare’s apologists want us to believe we can safely erect a massive new entitlement based on the assumption of future savings from these cuts.

In truth, the Krugman critique doesn’t lay a glove on the Republican argument. He doesn’t even try to defend the CLASS Act, another new entitlement for long-term care. As a start-up program, CLASS collects $70 billion in front-loaded premiums during its first decade. Krugman and others want to count this money toward Obamacare, even though every analysis available shows CLASS will itself need a bailout when its costs balloon beyond ten years. And then there’s the so-called “Cadillac” tax that starts in 2018. The tax is so unpopular with Democratic constituencies that President Obama was never willing to collect it himself (if reelected, he will leave office no later than January 2017). But Obamacare’s defenders argue this tax can be counted on to produce trillions in new revenue beyond 2020.

If liberals and Democrats want to make the fight over Obamacare about taxes, spending, and the budget deficit, Republicans should allow them to do so. The public has already taken sides in this fight. Taxpaying Americans are never going to be convinced that the government has found a way to give away new benefits to millions of people, with no cost to them or anyone else.

[Cross-posted at Critical Condition]

posted by James C. Capretta | 1:56 pm
Tags: Medicare, doc fix, Paul Krugman, CLASS Act
File As: Health Care

Flimflam Indeed

Megan McArdle did everyone a favor this past week by very carefully pointing out that Paul Krugman’s over-the-top attack on Congressman Paul Ryan and his “Roadmap” was based primarily on bad information that could have been easily checked and corrected with some minimal effort.

You’d think Krugman might take a look at her critique; listen to his likeminded friends (see here), who clearly think his piece went over the line; and change the subject. But no, you would be wrong. As McArdle notes, instead of admitting his error and moving on, Krugman plows ahead and concocts, in a follow-on to his original column, a second, alternative theory of supposed tax-estimating deception on the part of Ryan — which McArdle also points out is not true. Strike two. Of course, perhaps anticipating that his latest seat-of-the-pants explanation of why Ryan should be criticized for evading accountability won’t hold up either, Krugman also throws into his broadside that, whatever else might be said, Ryan is a good-for-nothing just for failing to admit that his proposal will “dismantle Medicare as we know it.”

Never mind that Ryan’s Medicare proposal most closely resembles the recommendations of the last Medicare Commission from the late 1990s, chaired by Democratic Senator John Breaux. And never mind that a variant of it was proposed by Henry Aaron and Robert Reischauer in 1995. Neither has ever been accused of conspiring with the right. And they weren’t accused of wanting to “dismantle” Medicare.

Let’s face it. Krugman wrote his original column in a botched attempt to take Ryan down a peg or two. He saw the New York Times and the Washington Post publish relatively balanced pieces on Ryan in recent days, as well as friendly commentary from others on the left, and he felt it was his duty as the conscience of the liberal elite to make it clear that what the moment requires is a concerted Ryan-vilification campaign, not pieces in the mainstream press that, in so many words, say Ryan is good guy with typically awful Republican ideas.

But perhaps some good can come from Krugman’s rant despite the little problem of being inaccurate. Indeed, if a byproduct of the Krugman barrage is a broad public awakening to the very real dangers of unguarded consumption of public policy flimflammery, then it will have served a useful purpose. Because, in truth, allowing large amounts of flimflammery to go unchallenged can cause real damage to informed discussion of the important matters of the day.

Which brings us back to Paul Krugman and his blog. Just before launching into his anti-Ryan tirade, he posted the real deal: flimflam of the highest order.

On the day the Medicare trustees issued their annual report, Krugman rushed out a post highlighting the apparent good news. The new health law had bent the curve after all. Medicare spending in the 2010 report would grow at a much slower pace than was projected a little more than a year ago, thanks to the effective cost-cutting measures in the new law. This, Krugman said, was the finding of the “Medicare actuaries.”

But, as it turns out, the chief actuary for Medicare, in the back of the annual report, advised the public to essentially ignore the findings of the trustees because they were based on utterly unreliable data. He pointed readers instead to an alternative projection that shows Medicare spending rising to 10.7 percent of GDP in 2080, just a hair below the 11.2 percent of GDP projected for 2080 in last year’s report. In other words, no, the curve hasn’t been bent.

Moreover, the supposed savings in Medicare that will never materialize facilitated the creation of another runaway entitlement program. It isn’t counted in the Medicare trust fund projections, but spending from it will be very real indeed, in 2080 and every other year. Altogether, it’s absolutely clear that Obamacare raised federal entitlement spending on health care well above what it would have been under prior law.

Krugman and others argue that Paul Ryan’s Medicare plan is flawed because it is a formulaic cut that would shift costs onto the nation’s seniors. But, as it turns out, that’s exactly what the actuaries say is wrong with the Obama-Krugman plan. The enlightened cost-cutting that Krugman finds so attractive in the new law turns out to be nothing more than simplistic and formulaic across-the-board payment-rate reductions for institutional providers of care. Under the new health law, these payments rates would get cut every year below the rise in the cost of doing business by a formula that the actuaries say is completely disconnected from reality. By the end of this decade, Medicare’s payment rates would fall below those of the Medicaid program, which has rates that are so low today that the network of providers willing to see Medicaid patients is very, very constrained. In time, Medicare payments would cover just one-third of the cost of care that private insurers would be paying.

But let’s give Paul Krugman credit. He was right to suggest that there was flimflam in the air. He just misidentified its source.

posted by James C. Capretta | 5:01 pm
Tags: Paul Ryan, Paul Krugman, Megan McArdle, flimflam, chief actuary, Medicare
File As: Health Care