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The spending freeze vs. health-care reform

^TYX- Basic Chart for Treasury Yield 30 Years - Yahoo! Finance_1265121270260.jpeg

In a post at the New York Times, Ross Douthat criticizes me for suggesting that the short-term discretionary freeze is meaningless from the perspective of deficits, while health-care reform is meaningful. Douthat's argument? That the freeze will save up to $250 billion in the next decade, while health-care reform would save $130 billion. The freeze is bigger!

Well, no. Health-care reform, as Ross notes, is projected to save up to $650 billion in the next decade. He says that's under a "rosy" scenario, but that's actually just under the CBO's estimation of the basic elements of the law. Is it rosy to think the law will work as advertised? Maybe, though the predictions could just as easily be underestimating the savings (bundling payments might work really well, for instance, or employers could respond to the excise tax slightly more aggressively than the Joint Committee on Taxation predicts). But in any case, it's no rosier than thinking Congress is going to abide by a spending freeze, which is not the sort of thing they've had much interest sticking to in the past.

Finally, the point here is long-term deficits are a function of health-care spending. The freeze is a shot at short-term deficits, which are not a problem. Don't believe me? Look at the graph of interest rates on Treasury bonds atop this post. If the short-term deficit were a problem, they would be going up. Instead, they remain uncommonly low.

The health-care reform bill is not a sufficient response to the long-term problem. But it's at least aimed at it, and it offers a plausible start on a solution. The spending freeze isn't aimed at the right problem and isn't a plausible beginning to any solution. It's an effort to do something that sounds like deficit reduction because the administration has been unable to persuade Congress to do things that sound less like deficit reduction, but have more potential to reduce the deficit.

It's the difference between someone who wants to lose weight skipping one meal and simply ceasing to keep snack food around the house. Neither, on their own, will be enough to achieve the goal. But one of them is a part of what will achieve the goal, and one of them isn't.

By Ezra Klein  |  February 2, 2010; 9:46 AM ET
Categories:  Budget  
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Comments

Ezra - Haven't you noticed, HC reform is dead?

Posted by: MBP2 | February 2, 2010 10:01 AM | Report abuse

It's important to note that the spending freeze Obama suggests immediately follows a spending binge. It's the equivalent of an obese man pledging not to diet but to, instead, sustain his only recently increased caloric intake within certain food groups while ignoring the rest. And it's the food groups that he's ignoring that are the real source of his problem.

While I realize that it would be counterproductive to slash government expenditure in the midst of a recession, I'm concerned about the massive acceleration in debt spending and that the spending has been wasteful. I could stomache the stimulus if the government were to credbily commit itself to future spending restraint. Unfortunatly I do not trust the government to restrain itself. This lack of trust also underlays my opposition to the Dems' health care reform plans. They are all for spending today and deferring the hard choices until tomorrow. Even when they make painful cuts they usually reverse themselves in short order.

Posted by: tbass1 | February 2, 2010 1:21 PM | Report abuse

Ezra, to be fair, wouldn't you have to compare the HCR savings in the 2nd decade vs. A spending freeze over 20 years or so (rather than 10)?

Posted by: gocowboys | February 2, 2010 5:11 PM | Report abuse

To be fair, the interest rates are low because of a mysterious buyer with a printing press known as QE.

Posted by: staticvars | February 3, 2010 12:29 AM | Report abuse

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