“Fiscal Policy: Accomplishments, Challenges and Opportunities”

That’s the title of CEA Chair Jason Furman’s presentation at the University of Wisconsin at Madison on Monday. Introduced by UW Chancellor Becky Blank, his discussion covered a wide range of issues. From WisBusiness:

Jason Furman, chairman of Obama’s Council of Economic Advisers, said Congress should invest in infrastructure at today’s low borrowing rates, reform the tax code, approve an immigration reform bill projected to cut the deficit and agree on long-term debt reduction, instead of implementing short-term cuts like sequestration that impede economic growth.

One point highlighted by Dr. Furman was the fact that there has been substantial reduction in the budget deficit, and a remarkably large reduction in the deficit, expressed in percentage points of GDP, in just the last year. I’ve pulled a graph from the CBO to highlight this observation.
cbo_budgetpix_Nov13.png

Figure from CBO, Monthly Budget Review – Summary for FY 2013.

However, the objective, if I paraphrase correctly, is not to cut spending indiscriminately, but in a manner that is both smart and effective. The sequester does not satisfy either of those criteria.

He also stressed the related point, made elsewhere, that the fiscal gap has shrunk considerably. So that I get the convey the point correctly, I’ll quote from the interview:

The second point, which I think is less widely appreciated, is it’s not just that the near term deficits has come down, the long run deficit outlook is also considerably better than it used to be. So you look at the Congressional Budget Office’s 75-year outlook and what most economists would look at for the measure of the deficit – “the fiscal gap” or how much you would need to raise taxes or cut spending today to stabilize the debt over a 75-year window — and their fiscal gap over 75 years is a little bit less than 2 percent of GDP. Now, if you look at the debt 75 years from now it spirals and goes really high but every time you have a small wedge things get very large. In contrast, I used to write things before CBO was doing the estimate with Alan Auerbach and Bill Gale and we generally had numbers that were nearly 10 percent of GDP. So the 75-year outlook is considerably better and that’s because of projections around health and some of the changes we’ve made in terms of revenue and things like the Affordable Care Act that has significant long-run deficit reductions.

Other coverage, here and here.

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18 thoughts on ““Fiscal Policy: Accomplishments, Challenges and Opportunities”

  1. Steven Kopits

    US oil consumption is up 7.4% in the last four weeks compared to a year ago. That’s a whopping big increase, and if we take a constrained oil supply model, it suggests that we should see some big GDP numbers for either Q4 2013 or Q1 2014.

  2. tj

    So the 75-year outlook is considerably better and that’s because of projections around health and some of the changes we’ve made in terms of revenue and things like the Affordable Care Act that has significant long-run deficit reductions.
    The large elephant, among the many elephants in the obamacare room, is the problem of adverse selection. Liberals refused to face reality when they crafted the ACA. It’s obvious that the individuals with the largest incentive to buy an obamacare plan, are those most likely to file a claim.
    To counter the adverse selection problem, liberals agreed to add a fine, the individual and employer mandate, that says if you don’t buy health insurance, you pay a fine. That’s the only way you can incent the young healthy to buy an over-priced obamacare policy.
    The unavoidable problem with the mandates is that the fines are too low to incent the young and healthy to buy an over-priced obamacare policy. Individuals and employers would rather pay the fine, which is several times lower than the cost of buying an over-priced obamacare policy.
    Note that the young and healthy will be paying for pieces of coverage they don’t need. For example, a 27 year old single male must buy coverage for maternity care. That’s what I mean by “over-priced”. Obamacare policies are over-priced for healthy individuals.
    However, without premiums flowing in from the over-priced policies sold to healthy individuals, obamacare will become a high risk pool. The individuals who are least likely to file a claim will simply pay for health care out-of-pocket until a catastrophe strikes and then buy an obamacare policy because insurance companies cannot refuse coverage.
    Given the adverse selection problem that liberals wrote into obamacare, (which Menzie’s undergraduates thoroughly understand, but liberals crafting major social policy do not?), there is no way that obamacare can be budget neutral. It simply is not feasible.

  3. tj is baffling

    tj, you either intentionally write false statements or are too stupid to write on this blog.
    ” Individuals and employers would rather pay the fine, which is several times lower than the cost of buying an over-priced obamacare policy.”
    The fine increases each year, so this will quickly become an invalid point. Also, if they choose the fine, that is the equivalent of a premium for obamacare with zero risk of a needed insurance payout. Not such a smart choice if a person takes this option.
    “For example, a 27 year old single male must buy coverage for maternity care.”
    Risk is spread throughout the population. And unless you were born like Jesus Christ through immaculate conception, your own mother brought you into this ward through the maternity ward. Last i checked, it still takes a male to make a baby. So maternity care is not simply coverage for a woman, it is also for the male’s progeny.
    ” The individuals who are least likely to file a claim will simply pay for health care out-of-pocket until a catastrophe strikes and then buy an obamacare policy because insurance companies cannot refuse coverage.”
    Obamacare works off of an open enrollment period. The same way your employer sponsored insurance operates. Or do you see employees also signing up outside of the open enrollment period? Didn’t think so. The pre-existing condition clause does not mean you can sign up at any time.
    tj, it is quite tiring to constantly correct your false statements used to pursue an ideological agenda. your statement was simply a load of lies to try and reinforce your view of obamacare.

  4. Jeffrey J. Brown

    Steven,
    Interesting decline in US distillate inventories last week. Looks to me that on a Days of Supply basis, US distillate supplies are at the lowest point ever for mid-November (at least in regard to the EIA’s data set for 1991 to 2013):
    http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=W_EPD0_VSD_NUS_DAYS&f=W
    Something I’ve wondered is how much of reported US crude oil inventories consists of condensate.
    In my opinion, it’s very likely that the supply of the global feedstock necessary to produce distillates, i.e., 45 API and lower crude oil, has probably not shown a material increase since 2005.

  5. aaron

    I think the main problem with ACA is that it add another layer of convoluted bureaucracy to an already convoluted system.
    Real healthcare reform will breakup the protectionist, overly complicated systems that have evolved at the state level. It will increase the supply of the most proven treatments and preventative care. It will cover the most basic emergency care (stabilize a patient, prevent infection, cast broken bones, suture wounds…). It will do no more. It will do so at a national level.
    It will cost, that should be made apparent upfront. Transition will be hard. It will reduce costs in the medium and long runs.

  6. aaron

    Oh, it will disconnect employment from healthcare/insurance. No more tax breaks or subsidies. For employers or healthcare expenses.
    (Not directly related, but I think this transition can best be made by reducing corporate/business taxes to make up for the reduced healthcare deduction. I kind of like the idea of eliminating corporate taxes and taxing capital gains like income.)

  7. Ricardo

    I love it! The Republicans are given control of the House by the voters and almost immediately reduce outlays and the Obama administration takes credit for it. Take a look at Menzie’s graph from 2008-2010. It is laughable. It is also instructive that outlays were in steady decline and revenues were in steady increase until Bush took office then the whole thing reversed and then exploded with the Obama administration doubling down on Bush mistakes.

  8. aaron

    Ricardo, I think crediting the GOP with the spending cuts goes a little far.
    This is probably overly optimistic, but I’m not entirely sure that the sequester was mistake by Obama. When we went into war, it made sense, both strategically and as a stimulus. However, it was executed poorly and spending not only was too high, it never really came down (that military spending historically was temporary made it good stimulus, but lately it has become a sacred cow just like other spending). The sequester may have been a brilliant move by Obama to reign in military spending by the only means politically possible.

  9. baffling

    ricardo, i think you don’t understand how to read the chart. first, obama takes office in 2009. and looking at the curves, you get negative slopes for outlays during the 2 democratic presidents-clinton and obama. and you get postitive slopes for revenue during the same 2 presidents. opposite occured during WBush and GWBush years-although their periods look rather tumultuous to say the least. makes you wonder whose policies increase spending and decrease revenue over time?????

  10. tj

    baffling
    The fine increases each year, so this will quickly become an invalid point. Also, if they choose the fine, that is the equivalent of a premium for obamacare with zero risk of a needed insurance payout.
    Wrong! It never comes near the size of the premium.
    it still takes a male to make a baby
    That’s a tired argument. How about the millions of men that have had a vasectomy, or are otherwise sterile? You latch on to these tired arguments to avoid the larger issue – forcing individuals to buy coverage they don’t need after declaring existing policies substandard.
    Obamacare works off of an open enrollment period. Of course it does, and you think that will convince millions of young and healthy individuals to buy an over-priced policy?
    tj, it is quite tiring to constantly correct your false statements used to pursue an ideological agenda. your statement was simply a load of lies to try and reinforce your view of obamacare.
    Wow! You call me a liar without refuting a single point. Well done. Can you cite the long list of false statements that you are “constantly” correcting me on? If you cannot, then you need to reconsider which of us is making false statements.
    My major point is that adverse selection is a huge problem for obamacare, and until it’s solved, obamacare will not be budget neutral. If my claim is false, then why are insurance companies complaining that the first wave of individuals enrolling in obamacare are high risk?

  11. jonathan

    The CBO projections make clear that we could handle our debt problems with minimal revenue increases and material but not outrageous reductions in actual defense spending. I say “actual” because if you go through the list of total spending, each year the amount spent is greater than the “budget”, meaning we spend over $1T. Cut that to $700M and that’s over $300B a year, still more than nearly all the other major countries in the world combined.

  12. Ricardo

    Aaron,
    To understand the cuts the Republican House has made you have to go beyond the Sequester. If you will notice I did not mention the sequester. The sequester actually has not yet been implemented. Dig a little deeper.

  13. Anonymous

    Next week’s address by Furman: “The 1958 Ford Edsel: Accomplishments, Challenges and Opportunities (to Deceive Again)”

  14. benamery21

    jonathan: That’s true, but the wrong message, since it accepts the budget deficit as a current problem. The right message is that we DON’T HAVE a DEFICIT PROBLEM, we need substantial additional non-defense discretionary spending on public goods. Time to “invest in America” again. We have the opportunity to do so with very low interest rates, and we have a multi-trillion dollar deficit in needed investment. We also have a “RICH BASTARDS not paying their fair share problem.” If they weren’t stealing from America we’d have a budget surplus. Mitt Romney’s 401k balance, his offshore accounts, and his tax rate on filed income are all emblematic of this.

  15. tj is baffling

    tj, my statements still stand and your response is a two step.
    fines act as premiums, but without the risk of a payout. they do not need to be as large as a premium for a paying policy. they effectively subsidize everybody else with a policy.
    open enrollment is what keeps people with pre-existing conditions from signing up whenever they get sick. that was the claim you were making-and you it is completely false.
    and once again, unless you believe in immaculate conception it still takes both a man and a woman to create a baby. maternity care benefits the mother, child and father-whose progeny was born. you let your anti-woman perspective blind you to this fact.
    you want an adverse selection so that obamacare fails-I understand this. but plans have been put into place to minimize this selection process-you just dont want to accept this fact.

  16. tj

    baffling
    Where is the list of “constant corrections”?
    Let me correct you instead -
    you want an adverse selection so that obamacare fails
    It doesn’t matter what I want. The fact is that small fines of a few hundred dollars or 2.5% of income are not going to incent people to fork over several thousand dollars for a policy with a deductible that is greater than the fine.
    Regarding open-enrollment: It won’t matter to the young and healthy, because they don’t expect to spend more on health care than high obamacare dedcutibles.
    We will have to agree to disagree on that one, and return to the issue in a year when we have some statistics on the change in the fraction of indviduals without coverage, relative to pre-obamacare.
    Regarding childbirth -
    It’s the woman’s choice. You think women are stupid and do not understand the financial consequences of having a child without a father to help pay the cost of rearing the child?
    Women also need a doctor to have a baby. Should the doctor’s health insurance premiums go up to help pay for childbirth and childcare after the baby is born?
    you let your anti-woman perspective blind you to this fact.
    Typical. What is it with you lib’s? You resort to name-calling whenever someone disagrees with your politics.

  17. baffling

    tj,
    “Regarding open-enrollment: It won’t matter to the young and healthy, because they don’t expect to spend more on health care than high obamacare dedcutibles.”
    but you stated CLEARLY they would simply enroll when they got sick, since they cannot be turned down-hence reinforcing your selective enrollment theory. and that is simply not true. you are two stepping here.
    “It doesn’t matter what I want. The fact is that small fines of a few hundred dollars or 2.5% of income are not going to incent people to fork over several thousand dollars for a policy with a deductible that is greater than the fine.”
    you like many others make the assumption these folks DO NOT WANT health insurance. i will make the claim they DO WANT health insurance. and now they have a non-employer based option to get it, and they will. i know when i was younger, i never thought once about going without insurance-as did most people i know. anybody who does is irresponsible.
    “Regarding childbirth -
    It’s the woman’s choice. You think women are stupid and do not understand the financial consequences of having a child without a father to help pay the cost of rearing the child?”
    then you should have no problem if the woman chooses not to have the child? will that be covered by insurance?
    i am not name calling, i am just calling what i see.

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