Debt Wrong

Obama bets that the government can save itself.


"From our first days as a nation, we have put our faith in free markets and free enterprise as the engine of America's wealth and prosperity," President Barack Obama declared in a speech at George Washington University yesterday. "More than citizens of any other country, we are rugged individualists, a self-reliant people with a healthy skepticism of too much government." Judging by yesterday's speech, that's a skepticism Obama doesn't share. The president's solution to the growing cost of government turns out to be more government.

The speech was the president's most comprehensive look at the country's mounting fiscal troubles, and it painted a stark picture of the nation's unsustainable fiscal trajectory. America's "rising debt will cost us jobs and damage our economy," the president said. And that necessitates action: "Doing nothing on the deficit is just not an option. Our debt has grown so large that we could do real damage to the economy if we don't begin a process now to get our fiscal house in order."

Obama even paid lip service to an idea first voiced by Admiral Mike Mullen, the chairman of the Joint Chiefs of Staff: "the greatest long-term threat to America's national security is America's debt."

Too bad lip service is all we got. Obama managed a neat trick. He portrayed the nation's mounting debt as an existential threat that somehow didn't require any hard choices. "We don't have to choose between a future of spiraling debt and one where we forfeit investments in our people and our country," he said. The speech's nods toward fiscal realism, it turns out, were just a new cover for yet another empty promise that Americans can have it all.

Earlier this year, the president declared that "we have to cut whatever spending we can do without." It's never been clear what that really meant. After yesterday's address, it still isn't. His speech wasn't about what we can do without, but what we have to have.

If Obama's speech is any indication, what he thinks we have to have is everything'"or at least all the most expensive parts of government. Obama has recognized in the past that Medicare and Medicaid are by far the biggest drivers of the long-term federal debt. But in his speech, he singled them out for protection: "I will preserve these health care programs as a promise we make to each other in this society," he said. "I will not allow Medicare to become a voucher program that leaves seniors at the mercy of the insurance industry."

Instead, he'll leave them at the mercy of unelected, unaccountable Washington bureaucrats. Rather than cap spending on Medicare through a premium support system, as Rep. Paul Ryan (R-Wis.) proposed in last week's Republican budget proposal, Obama proposed to reduce projected Medicare costs by roughly $500 billion by expanding the power of bureaucratic central planners. 

That means he's doubling down on one of the most politically controversial parts of the already unpopular ObamaCare. Last year's health care overhaul called for the creation of an Independent Payment Advisory Board (IPAB) for Medicare. IPAB is a 15-member panel of health care experts appointed by the president. Starting in 2014, it is tasked with recommending Medicare spending reductions each year that the program does not meet predetermined spending targets; Congress can only override its proposals with a three-fifths vote in the Senate or a package of equally large cuts. Obama's big proposal to squeeze savings out of Medicare is to give IPAB more power and tougher targets.

But IPAB already faces two major hurdles. The first is that it's politically unstable. The health care industry wants to see IPAB blocked. United industry opposition is a powerful political force, and the administration knows it. That's why the White House cut deals with every major health care player before passing ObamaCare in the first place.

The industry will have an easy time selling its message to Congress. One of the major reasons IPAB was created was that lawmakers have traditionally been loath to cut Medicare. But legislators on both sides of the aisle are deeply wary of attempts to wrest power from their hands, and bills to gut the board are already in the works

The other worry is that it just might not work. IPAB's backers hope it will wring efficiencies out of medical providers, encouraging them to find ways to do more with less. But according to both the Congressional Budget Office (CBO) and Medicare's own chief actuary, Richard Foster, those efficiencies may not exist. In 2009, CBO director Douglas Elmendorf told Congress that "in CBO's judgment, the probability is high that no savings would be realized…but there is also a chance that substantial savings might be realized." At best, then, it's a risky bet on reductions that may not be possible.

It's also a bet that better, smarter bureaucrats can help rescue the country and its most expensive programs from fiscal disaster. Obama is right to recognize the problem posed by mounting federal debt. But too many of his proposed reforms rely on faith in government to fix its own problems. If fiscal self-rehabilitation were that easy, we wouldn't be facing a crisis. Government got us into this mess. It's not going to get us out. 

Peter Suderman is an associate editor at Reason magazine.