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  April 22, 2011

GOP Budget Ends Medicare

Dean Baker: Media is failing to report how radical Republican budget is
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Dean Baker is co-director of The Center for Economic and Policy Research (CEPR). He is the author of several books including, The United States Since 1980; Social Security: The Phony Crisis (with Mark Weisbrot); and The Benefits of Full Employment (with Jared Bernstein). He appears frequently on TV and radio programs, including CNN, CBS News, PBS NewsHour, and National Public Radio.


PAUL JAY: Welcome to The Real News Network. I'm Paul Jay in Washington. And in Washington, the World Wrestling Federation of debt debate continues. In this corner, President Obama. In the other corner, Representative Ryan, who presented the Republican budget. And we're told what some people are calling theater is the only debate to be had about the debt crisis. Now joining us to give his take on all of this is Dean Baker. Dean is the codirector of the Center for Economic Policy Research in Washington. Thanks for joining us.

DEAN BAKER: Thanks for having me on.

JAY: So what do you make--. Let's start with the Republican side, because the media's treating this like it's sort of a coherent debate: on one side, here's one set of policies; on the other, here's another set of reasonable policies; and it's just a difference of opinion.

BAKER: Well, it's very hard to see the Ryan plan as a reasonable plan. I mean, there are massive tax cuts in there going primarily to wealthy people, huge cuts in government spending. You have the discretionary--in fact, you have discretionary both defense and non-defense shrinking to 3 percent of GDP by 2050. They're about 8 percent of GDP today. And so it's kind of incredible. But what perhaps is the most striking part of the Ryan plan is that he wants to privatize Medicare--and the Congressional Budget Office did an analysis of this, and there's two issues here. One is the transferring of costs from the government to beneficiaries. But to my mind the more important part of the story is that the private sector is much less efficient in delivering health care than the Medicare program. And this isn't--whether you like the private sector or not, there's a lot of analysis of this.

JAY: Yeah? What's the evidence for that?

BAKER: Well, we've done it. We had the Medicare+Choice plan that was put in place by the Gingrich Congress in 1995, the Medicare Advantage plan, which is a variation on that, put in place by President Bush in 2003, part of his prescription--it was in with the prescription drug plan. And in both cases, it ended up costing more, not less. The private sector's much less efficient in holding down costs than the Medicare program. And the Congressional Budget Office calculated that if everyone were to buy a Medicare-equivalent policy through the private sector, it would add more than $30 trillion--that's with a T--$30 trillion to the cost of Medicare over its 75-year plan period. That's 6 times the projected shortfall in social security. It's real money.

JAY: So this is part of what I'm getting at in terms of the way the media's treating this debate. When you dig into the Ryan plan, it's not only it's radical; it kind of doesn't make any sense, the kind of--the sense of what they're cutting. And it's something that is almost unimaginable if the Republican were actually in power they would even ever do. So what do you talk about how the debate itself is being framed?

BAKER: Well, it is incredible. I mean, they're determined to--you know, I've met Representative Ryan. He's a nice guy, and I'm sure he's a bright guy. You know. But they're determined to treat this as a reasonable proposal, and it clearly isn't. I mean, it's--you know, the idea--the Republicans picked up a lot of seats in the last election, because they said the Democrats want to cut your Medicare. Now, this isn't talking about cutting Medicare; it's eliminating it. So the idea that all these people who just voted for Republicans rather than Democrats because President Obama wants to cut your Medicare, now they're going to go out and support Republicans who want to eliminate your Medicare, it's very, very hard to imagine that. But I think very few people--I'll bet you less than 10 percent of the public understands that the Republicans in Congress--I mean, it's a majority of the House--they just voted for a budget that would eliminate Medicare beginning in 2022. I'll bet you less than 10 percent of the people understand that, because the media doesn't report it.

JAY: Now, to what extent does the framing of the debate, the way the Republicans seem to be opening up space for President Obama to take a position that, if he had ever said any of this when he was campaigning to become the nominee for the Democratic Party, he never would have won the nomination. So they've kind of moved the framing of the debate over here. But doesn't President Obama also participate in it by making debt the issue himself?

BAKER: Oh, he controlled the ball. He's lost control of the ball. But, you know, he's acting--you know, if you talk to his staffers, you know, they act--well--you know, this is what they say to progressives; they go: well, you know, the president can't do everything by himself. That's true, but the idea that the president is the most powerless person in the country doesn't make sense either, and that's more or less what they would have us believe. He put his stimulus on the table back in 2009 when he first came into office. He knew what he got from Congress isn't enough--his own aides were telling him that. He knew that it was way, way too small. It seems to me that the proper way to have dealt with this was, you know, take credit for the victory, 'cause it was good he passed it. It meant a big thing. It--you know, millions of people have jobs because of that who would not have, otherwise. But to say clearly this is not going to be enough. We've got a really deep hole because of the collapse of the housing bubble. And, you know, just to throw some numbers there, the hole, by my calculations: about $1.2 trillion in annual spending. The net stimulus from the public sector, taking what the federal government was putting in, minus what the state and local were putting out, was about $150 billion a year. You can't fill a $1.2 trillion hole with $150 billion. His aides know all this. They have all the same numbers I do. They're not looking at different numbers.

JAY: But not talking about it.

BAKER: No. And instead of doing that, he started talking about the green shoots of recovery and saying, okay, now we're going to get the deficit down. He totally gave up the game. So at that point, you can only lose. The only question is how much do you lose.

JAY: And his debt speech of a week ago or so, I don't think he mentioned the recession, and I'm not sure he mentioned "unemployment".

BAKER: Didn't mention it. Did not mention it.

JAY: It's all about the debt. But the question is: did he lose control of the ball? Or given, you know, the kind of political/economic forces he represents, is this in fact what they want to pass, and the Republicans have created space for him to do it?

BAKER: Well, I don't know exactly what--. You know, obviously they're a diverse group of people that support Obama, but he does have a lot of support from Wall Street. Obviously, those people are entirely happy with this agenda. You know, he appointed--well, not [incompr.] Rahm Emanual, I was going to say, his former chief of staff, also had Wall Street ties that made tens of millions of dollars at a hedge fund, but his new chief, Bill Daley, got $8 million as a going-away present from JPMorgan as he left there. These are people with very close ties to Wall Street. They're perfectly happy seeing cuts to social security, cuts to Medicare. I wouldn't say they're necessarily pushing for it. Maybe they are, but they're certainly not upset if that had happened. On the other hand, they are upset about deficits, debt, and, you know, they're very concerned about the prospect of higher inflation. So for them, whether this is exactly what they want or not I can't say. Clearly they're not too upset by it. I think they would be upset if President Obama were to say, look, we've got to get people back to work; that's priority number one; we'll worry about the debt tomorrow.

JAY: Now, the polling that we've seen this last week, I think there's three different polls now that say over 70 percent of Americans say the way to pay down the debt is to tax the rich. Is that any resonance in the Obama White House? 'Cause he talks about the Bush tax cuts--you know, he's going to draw a line, that he's not going to do it again. But American people seem to be saying more than that.

BAKER: Yeah. I think you could undoubtedly politically get away with much bigger tax increases on the wealthy. But I think their view is I'll do the Bush tax cuts, and maybe a little more here and there. And the little bit more here and there is most likely taking back some of the tax deductions that benefit middle class and wealthy alike. That probably isn't going to matter that much to the wealthy, so he may be able to do that if he can do it for the middle class. In other words, if you were to substantially roll back the mortgage interest deduction, you'd be rolling back for Bill Gates, too. Bill Gates probably doesn't save that much on his mortgage interest deduction, but, you know, he might pay someone higher taxes that way. So what I think they envision is, again, taking back the Bush tax cuts and doing a little bit about some of these exemptions which will affect the wealthy but will also affect the middle class.

JAY: But not really consistent with what Americans seem to be saying. If you're going to take on the scale of the debt, then you need something at that scale when you're talking about taxing the rich.

BAKER: You could tax--you can have much more taxes on wealth. You could have a financial transactions tax, financial speculation tax--clearly not on their agenda. I've talked with his advisors. This is nowhere with them. It's very popular with the public. It's very popular elsewhere in the world. The European Parliament--.

JAY: And I think it was also--we mentioned--we had said in an earlier piece that it wasn't in the Congressional Progressive Caucus budget. But I actually think it in fact is. There is a [crosstalk]

BAKER: It is now, yes, yes. It wasn't at the time. The European Parliament, it's sort of striking they approved it not just by a small margin. They approved a financial speculation tax by a margin of five to one, which is kind of striking.

JAY: So if people watching this say, okay, we're getting all this, what should we do about it, what should they do about it?

BAKER: Well, two things. I mean, obviously, you can't harass your members of Congress, but harass the reporters. I mean, it's incredible. All they talk about, like, all we should be worried about right now is how do you get the debt down. And you'll hear stories that begin, you know, by saying, oh, the battle in Washington over how to get the debt down. Well, why is that the battle? The battle should be: how do you reemploy the 25 million people unemployed, underemployed, or out of the workforce altogether? They've somehow disappeared. It's just kind of incredible. And they attach--the media; this is the media--they attach this urgency to getting the debt down. It's their own invention. Who told them it was urgent? No one--you know, is there something in the world they could point to? It's not the bond markets. Interest rates are near record lows. So they've invented this false sense of urgency. If President Obama doesn't want to do what they want him to do--and the they in that sentence is the media--they'd beat up on him for lack of courage. You know. So he has to beat up on old people, and then he's brave.

JAY: But isn't there an issue for ordinary people of the debt that isn't the same way that's being raised, perhaps, but there's enormous interest that's going to wind up being paid on this debt, and they're going to wind up taking it out of ordinary people's taxes, certainly the way politics are now? I mean, isn't--versus going into more debt, if you want to get people back to work, meaning stimulus, don't you want to pay for that through taxing the rich?

BAKER: No, there's no reason at all to pay for it right now. You know, in terms of taxing the rich, I'd say you do it when you [incompr.] the timing of it. But there's no reason at all to pay for it right now. The point is, right now, to boost the economy, you want to put money out there. So there's no particular reason to be looking to pull money away from the rich now. We also can be paying--something we can do and in fact are doing to some extent (Japan's done it a great deal): simply have the central bank hold the debt, because there's no reason--you don't have to worry about inflation right now, so there's no reason the Fed can't hold a lot of the debt that the Treasury's issuing. And it's saying it is doing that right now. The Fed has somewhere around $2.6 trillion on its balance sheet right now.

JAY: It's just not putting it into the real economy. It's giving it--it's loaning it to banks, the kind of money it's putting out there.

BAKER: Well, the point--no, no. The point is that the Fed is buying up the debt. So what that means is that the Treasury doesn't accrue interest on it. What happens is if the Fed holds the debt, then the Fed is paying--the Treasury is paying--the Treasury's paying interest to the Fed, rather than to, you know, a wealthy person. And then that interest is refunded back to the Treasury at the end of the year. So then we don't have an interest burden. So [crosstalk]

JAY: So you'd like to see more of that.

BAKER: That's right. That's right. We could certainly do more of that. And what's important is that the Fed continue to hold it. Because the projections that show this big interest burden show that the Fed will sell off these bonds. And instead, I'd like to just see them hold them.

JAY: And some people suggest--they use the term Ponzi scheme, that this is--when the Fed--this is a bit of a game, that the Fed moves money from here, from the Treasury, but there's an artificial--it's essentially an artificial creation of money which isn't winding up, in terms of increasing real demand in the economy--like, there's nothing happening on the wage side; there's, in fact, so far, very little happening on the employment side.

BAKER: Well, it's increasing demand more so than if they didn't do it. So if we didn't have--if we didn't run big deficits today, there would be less demand than there is today. It's not enough. We need more. But, you know, it is the right thing to do, and we are getting a boost to the economy, because on the one hand, Treasury is--you know, we're running deficits, and on the other hand, the Fed's buying this debt rather than letting--you know, forcing the private sector to do it, which would lead to some increase in interest rates.

JAY: Thanks for joining us.

BAKER: Thanks for having me on.

JAY: And thank you for joining us on The Real News Network.

End of Transcript

DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.


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