The best of all possible worlds.

If you believe in windmills, smart cars, elevated trains, election financing reform, cap and trade, balanced budgets, tort reform and Santa Claus, you will love the idea that health care reform will pay for more deficit spending. It is too absurd to waste time stating what should be obvious. It will not happen.

I have come to the conclusion that General Motors is the model for the US government. The government, as is GM, simply cannot reform itself. As GM will need to be dismantled with large parts of it liquidated, the same will be true for the government. It will take longer, be more painful and come with many unexpected consequences. The corrupted system has proven itself incapable of sensible and planned reform. Too many lobbyists. Too many lawyers. Too many alliances. Two many voters that do not pay federal taxes. All in all, too bad.

Obama inherited a $1.2 trillion deficit and pushed it up to $1.8 trillion. The best is yet to come.

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May 15, 2009

Fiscal Suicide Ahead

By DAVID BROOKS NY Times

Barack Obama came to office with a theory. He believed that the country was in desperate need of new investments in education, energy and many other areas. He also saw that the nation faced a long-term fiscal crisis caused by rising health care and entitlement costs. His theory was that he could spend now and save later. He could fund his agenda with debt now and then solve the long-term fiscal crisis by controlling health care and entitlement costs later on.

In essence, health care became the bank out of which he could fund the bulk of his agenda. By squeezing inefficiencies out of the health care system, he could have his New New Deal and also restore the nation to long-term fiscal balance.

This theory justified the tremendous ramp-up of spending we’ve seen over the last several months. Obama inherited a $1.2 trillion deficit and has quickly pushed it up to $1.8 trillion, a whopping 13 percent of G.D.P. The new debt will continue to mount after the economy recovers. The national debt will nearly double over the next decade. Annual deficits will still hover around 5 percent or 6 percent of G.D.P. in 2019. By that year, interest payments alone on the debt are projected to be $806 billion annually, according to the Congressional Budget Office.

Obama believes these deficit levels are tolerable if he can fix the long-term fiscal situation, but he hasn’t been happy about them. He’s been prowling around the White House prodding his staff to find budget cuts. Some of the ideas they have produced have been significant (Medicare reforms), some have been purely political (asking cabinet secretaries to cut $100 million in waste, fraud and abuse), and many have been gutted on Capitol Hill (cap and trade, proposed changes in charitable deductions, proposed changes to the estate tax).

In any case, these stabs at fiscal discipline haven’t come close to keeping up with the explosion in spending. The government now borrows $1 for every $2 it spends. A Treasury bond auction earlier this month went poorly, suggesting the world’s hunger for U.S. debt is not limitless. President Obama has been thrown back on his original theory. If he is going to sustain his agenda, if he is going to prevent national insolvency, he has to control health care costs. Health care costs are now the crucial issue of his whole presidency.

Obama and his aides seem to understand this. They have gone out of their way to emphasize the importance of restraining costs. The president has held headline-grabbing summits with business and union leaders. Unlike just about every other Democrat on the planet, he emphasizes cost control as much as expanding health coverage.

So what exactly is the president proposing to help him realize hundreds of billions of dollars a year in savings?

Obama aides talk about “game-changers.” These include improving health information technology, expanding wellness programs, expanding preventive medicine, changing reimbursement policies so hospitals are penalized for poor outcomes and instituting comparative effectiveness measures.

Nearly everybody believes these are good ideas. The first problem is that most experts, with a notable exception of David Cutler of Harvard, don’t believe they will produce much in the way of cost savings over the next 10 years. They are expensive to set up and even if they work, it would take a long time for cumulative efficiencies to have much effect. That means that from today until the time President Obama is, say, 60, the U.S. will get no fiscal relief.

The second problem is that nobody is sure that they will ever produce significant savings. The Congressional Budget Office can’t really project savings because there’s no hard evidence they will produce any and no way to measure how much. Some experts believe they will work, but John Sheils of the Lewin Group, a health care policy research company, speaks for many others. He likes the ideas but adds, “There’s nothing that does much to control costs.”

If you read the C.B.O. testimony and talk to enough experts, you come away with a stark conclusion: There are deep structural forces, both in Medicare and the private insurance market, that have driven the explosion in health costs. It is nearly impossible to put together a majority coalition for a bill that challenges those essential structures. Therefore, the leading proposals on Capitol Hill do not directly address the structural problems. They are a collection of worthy but speculative ideas designed to possibly mitigate their effects.

The likely outcome of this year’s health care push is that we will get a medium-size bill that expands coverage to some groups but does relatively little to control costs. In normal conditions, that would be a legislative achievement.

But Obama needs those cuts for his whole strategy to work. Right now, his spending plans are concrete and certain. But his health care savings, which make those spending plans affordable, are distant, amorphous and uncertain. Without serious health cost cuts, this burst of activism will hasten fiscal suicide.