It was with genuine trepidation that I took a quick look at the bipartisan report that Erskine Bowles and Alan Simpson prepared for the Obama Deficit Commission. As with all such reports, it is pointless to attack either the bona fides or the expertise of the individuals who labored to produce a final product that they hope will bridge the deep Congressional divide. Theirs is a thankless task. But it may help to write an instant obituary that at least mentions some practical and theoretical reasons why their report is likely to be dead on arrival.
On the practical side, the insoluble problem is slippage over time. The first of the report's recommendations are to go into effect only after we are done with the current malaise by--wishful thinking--2012. Yet two years is an entire political generation. The 20- or 30-year cycle for successful implementation is the political equivalent of the Cenozoic era. We could not bind the future even if we had a unity of vision today.
Which leads to the second point: At the gut level there is no unity of purpose today. The varied receptions to the report show all too well that the same chronic interest group pressures that got the U.S. into its current mess are still alive and well.
Consider, almost at random, the remarks of Sen. Bernie Sanders. For him, it is just a matter of lining up the usual suspects: "two unpaid wars, tax breaks for the wealthy, a Medicare prescription drug bill written by the pharmaceutical industry and the Wall Street bailout."
That serial denunciation requires a volume of learned response. Here is the bare bones version.
Any judgment about the Iraq and Afghanistan wars requires at least some counterfactual estimation as to what would have happened if the U.S. had not intervened. Come to think of it, it also requires a similar evaluation of what would have happened if the U.S. had adopted more sensible policies in Iraq in the summer of 2003, when still basking in the quick military victory.
In matters this complex, it is never wise to dismiss out of hand the possibility that failing to wage war in hostile regions today leads to the need tomorrow to fight a second war against the same or different enemies in territories closer to home.
The budget implications of a military cutback are thus hard to read. Another terrorist attack or international incident can throw them all out of whack. In general, count me as skeptical that we will extricate ourselves from the current deficit by cutting military expenditures, which can only lead to reduced influence on the world stage.
I have no such doubt about denouncing tax breaks for the wealthy. There are two sides to this coin. Wealthy people, however defined, clearly make more money than they ever did before. But by the same token they also contribute far more to the public coffers than they have ever done before. Why any form of progressive taxation is thought to be a tax break for the rich is something of a mystery. In any event it is grotesque to treat our most productive citizens as leeches for contributing far more to society than they take out. You don't make the poor rich by making the rich poor.
To folks like Bernie Sanders, the question of tax incidence seems to boil down to a question of multiplication: assume that incomes will remain constant as the tax rates increase, then just give the government its extra 5% or 10%. Unfortunately, it never works out that way. Every proposal for deficit reduction has to take into account the strategic responses of rich people to tax increases. These changes start with changes in earning patterns--which are always inviting for upper income individuals with multiple sources of income. It also extends to changed responses in investment, consumption, giving and borrowing strategies intended to negate the impact of tax increases.
Thus the final score card could read as follows: higher tax rates, lower upper class income and public revenues that fall short of estimated targets, even if they do not decline in absolute amount. Yet the Bowles/Simpson report spends far more time on warning and exhortation than it does on analysis.
Moving on, what should we think about a prescription drug bill written by the pharmaceutical industry? The question is, always, compared with what? A Sanders-type proposal would have catapulted the U.S. into the position of a single buyer. But what might seem good for prices in the short run need not be so. Holding prices down could place a real crimp on new drug innovation, which, if put into practice, might increase both fitness and longevity.
Pointing fingers at the Wall Street bailout is equally uninformed. It is not that I agree with all those moves. It is simply that too many people have egg on their faces. The exact mix between the cheap money policy of the Fed (which allowed the prices of real estate to be bid up) and the unsound lending and guarantee practices of Fannie Mae and Freddie Mac is surely part of the overall story. Yet it could well be that the passage of the Dodd-Frank bill, which seems so misconceived at so many levels, could have made things in the financial sector far worse than they were before.
I have focused on just one of many one-line assessments of the overall situation. But for all its supposed reach, the Bowles/Simpson report also leaves out large chunks of the overall picture. I have spent most of my life as an academic lawyer analyzing mid-sized systems I think I understand, sort of. It takes little more than a nod to get me started on free trade, land use controls, patent policy, employment discrimination laws, public unions, drug regulation and tort reform.
Each of these areas contains massive policy blunders that have surely contributed some substantial fraction to our dismal bottom line. Yet for folks like Bowles and Simpson, these key issues of regulation, liability and governance don't even make it onto the table as potential pressure points. They are simply overwhelmed by taxation matters and the three grand entitlement programs--Medicare, Medicaid and Social Security.
The only path to intelligent reform is sector by sector. Yet no matter where I look, the forces of regulation and resistance posit a strong government power to cabin in an ever-growing list of market imperfections. Only if--and it is a big if--we can change this fundamental mindset can one see a glimmer of hope on larger questions of reform.
At this point, the only confident prediction is that Bowles/Simpson will be crushed on the political rocks, as it would even if they had presented us with the Sermon on the Mount, which they didn't. So it is back to political business as usual, and the continued downward spiral in which big government, the biggest part of the problem, still masquerades as part of the solution.
