The Economics Of Military Action

Here's something you don't see everyday - a member of Congress asking to fiscally quantify endless war:

“There are some fundamental questions that I would ask of those who are suggesting that we follow a long term counterinsurgency strategy:

1. As an Appropriator I must ask, what will that policy cost and how will we pay for it? We are now in the middle of a fundamental debate over reforming our healthcare system. The President has indicated that it must cost less than $900 billion over ten years and be fully paid for. The Congressional Budget Office has had four committees twisting themselves into knots in order to fit healthcare reform into that limit. CBO is earnestly measuring the cost of each competing healthcare plan. Shouldn’t it be asked to do the same thing with respect to Afghanistan? If we add 40,000 troops and recognize the need for a sustained 10 year or longer commitment, as the architects of this plan tell us we do, the military costs alone would be over $800 billion. And unlike the demands that are being made of the healthcare alternatives that they be deficit neutral, we’ve heard no such demand with respect to Afghanistan. I would ask how much will this entire effort cost, when you add in civilian costs and costs in Pakistan? And how would that impact the budget?

Warmongers have had the great luxury in this country of never having to justify their costs. Not just the human costs, but the real financial costs to constant military buildup. The usual retort is that you can't put a price on human lives. If that was the case, there would be no requirement for budget neutrality in health care reform, something that could save as many as 45,000 lives annually - the people who die from a lack of health insurance.

Rep. Obey's full remarks are well worth reading - he makes all the points about the futility of nation-building in a country without a partner in the government, the danger of angering local populations with a heavier occupying footprint, the fantasyland strategy of bringing democracy to Afghanistan, the need for an achievable policy, the potential for the war to crowd out any other Presidential agenda item. But I wanted to highlight this part because it's so alien to the contemporary political debate. It's certainly nothing you'd ever hear coming from the mouths of one of the fiscal scolds. The Pentagon budget, the budget for perpetual war, is inviolable and somehow magic - it doesn't create deficits, it doesn't produce burdens on long-term spending, it is never "at risk of going bankrupt." David Obey at least is trying to change that misimpression.

Some insider leaked the idea that the top-level troop request is actually 60,000, in an effort to make the 40,000 number seem like the middle course. Maybe they can write down on paper how much that would cost. And do it in a ten-year budget window to make sure the costs are inflated as possible.


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President Snowe's Capriciousness

Despite the Obama joint session of Congress speech having moved the needle in the public for health care reform, Republicans still feel cocky that nothing's happening this year. They'll even put out phony whip counts to prove it. But if there's one reason to err on their side, it's because the moderates that have largely co-opted the debate seem destined to destroy it of their own volition.

Another Republican negotiator voiced concerns to Fox. Sen. Olympia Snowe, R-ME, said there is still concern about the size of the package which is carrying a near $900 billion price tag. “Maybe we could shrink that to $800 billion or below,” the moderate senator said, citing a skeptical public with bailout fatigue and concern for rising deficits. Snowe said she is certain there will be amendments offered in committee to scale back the scope of the bill.

As for the much-touted idea of a “trigger,” a set time at which if current plans don’t provide affordable, quality care, a government-run plan kicks in, this appears to be more talk in the media than in the negotiating room. Snowe told Fox that she thinks the White House is talking about it more than senators. She would not even concede that it will be offered as an amendment, and as the Baucus plan currently stands, there is no mention of a “trigger.” Baucus even told reporters that it was not mentioned in compromise talks.

That the trigger is a non-starter in the Senate is certainly interesting. But Snowe is being completely ridiculous here. She's lowering costs just for the sake of lowering costs. This won't help people get affordable health care; quite the opposite. It won't lower the deficit because the President has asserted that the legislation will be deficit neutral or he'll veto it. She just wants to take $100 billion out of the bill for the purposes of giving herself cover for voting for it. This is despite her stated interest in improving the subsidies to those who can't afford insurance, which, um, cost money. This is just not the way to legislate:

Ideally, we'd have policymakers identify the problem, come up with a solution, and then figure out how to pay for it. Instead, we have a few too many policymakers come up with a price tag first, whether it's sufficient in solving the problem or not.... (b)ecause it just sounds better. Less is necessarily superior to more, the argument goes, for vague, personal reasons that have nothing to do with addressing the problem at hand.

I realize we're talking about a lot of money here, but the difference between a $900 billion reform package and an $800 billion package is $10 billion a year. Given the size of the U.S. economy, the federal government's budget, and the willingness of lawmakers to spend freely when it was debt-financed Bush-era initiatives on the line, an additional $10 billion a year to help Americans have quality, affordable health coverage is more than reasonable.

Making health care reform worse, based on nothing but capricious standards on what price tags sound nice is absurd.

More from the usual suspects. The only thing I can think of for this is that she has enough cachet inside the Administration that the Republicans are using her as a vehicle to create a terrible bill that everyone will blame the Democrats for passing.

The Good Trigger?

The worst part about the Obama Administration's back room deals with the health industry wasn't just that they would impose far less cuts on stakeholders than they ought to shoulder, but that there was no mechanism beyond a handshake to ensure that the industry would even bother with those cuts. But in the President's speech the other night, he talked about imposing "automatic cuts" to reimbursement if the industry didn't abide by their commitments. It's basically a trigger - if health care growth fails to slow by the prescribed amount, then a variety of options at government's disposal would kick in. It's the brainchild of a health policy wonk named Judy Feder, and she explains the idea here.

How does a fiscal trigger work?

The idea of a trigger is that one establishes in advance a target for savings in the system, agrees on measures that need to be achieved, track that progress as the program is implemented, and if shortfalls are found, then certain actions are automatically triggered in.

What are those actions? What happens when you pull the trigger?

David Cutler and I put forward a range of options and believe a menu should be specified in the legislation. That menu could include further reductions in Medicare or changes in the tax treatment of employer-based efficiency or a strengthening of a public plan to further competition with insurers.

And why do we need this? I thought the plan already had savings in it.

The reason that David Cutler and I have been so supportive of a trigger is that we are firmly behind the cost-saving measures that are in legislative proposals and on which there is enormous agreement to change the health-care delivery system. Payment reform, a value-based purchasing system, moving away from the overprovision of low-value and high-cost procedures, and rewarding providers for better care and management of chronic illness. There's work and experience showing those measures can achieve huge savings systemwide. David Cutler and Rand's Melinda Buntin estimated (pdf) the savings at $2 trillion over the next decade.

But CBO is very cautious about scoring those measures. So it's our belief that for scoring purposes, we can put underneath them a failsafe that guarantees CBO will score the savings.

The basic idea is to force stakeholders to live up to their commitments, because the outcome would be far worse for them. And it would get us past the often arbitrary, almost always conservative scoring mechanism from the CBO (which is actually the bigger deal here, since the fiscal scolds always rely on those numbers to stop reform, but it would be harder to do so with a favorable score).

This is not a substitute for a public plan. It's a completely different area of the policy. And it can surely be screwed up or watered down in innumerate ways. But a smart legislator could use this tool to basically threaten the health industry with major cuts to their payments or essentially kicking a leg out from the stool that keeps them fat and happy. And they could ratchet up the savings the industry would have to provide year over year to keep them in line. I'm not totally convinced that will be the end result, but if Henry Waxman's in the room, we've got a fighting chance.

The Big Lie On Fiscal Conservatism

Perhaps my favorite moments in the speech were the parts where the President had the temerity to mention that "fiscal conservatives" don't give a damn about being fiscally conservative.

Part of the reason I faced a trillion dollar deficit when I walked in the door of the White House is because too many initiatives over the last decade were not paid for – from the Iraq War to tax breaks for the wealthy. I will not make that same mistake with health care [...]

Add it all up, and the plan I’m proposing will cost around $900 billion over ten years – less than we have spent on the Iraq and Afghanistan wars, and less than the tax cuts for the wealthiest few Americans that Congress passed at the beginning of the previous administration.

Sarah Palin lashed out at this by saying that the President hates 9/11 (no link because I don't want to validate her), which proves they've got absolutely nothing to rebut this. I'm not Andrew Sullivan's biggest fan, but he nailed this a couple days ago.

If you believe in fiscal conservatism, the last place on earth you should look for salvation is the GOP. They have single-handedly destroyed America's finances since the 1980s, with the sole exception of George H W Bush, who was rejected by his own party precisely because of his fiscal sobriety. The current debt is overwhelmingly inherited by Obama, and it would have been nuts to enter office in the downdraft of the sharp recession and set about cutting spending. Bush had eight years to restrain it and he didn't. He let it rip. Think of the GOP's phony concerns about the cost of the current healthcare bill and compare it with the GOP's prescription drug entitlement that Rove rammed through the Congress when the GOP held total power. The costs then were about eight times as great as the proposed costs now. But that was a Republican measure and so it doesn't somehow count as evidence of fiscal irresponsibility. But Nancy Pelosi only has to raise an eye-brow and the alarms go off.

You cannot say this enough. The fiscal scolds who only pop up under Democratic Presidents are out of their minds if they think progressives should let them get away with their selective outrage designed entirely to forestall a progressive agenda. They have no credibility.

...John Dingell on this. In general Democrats have been very feisty today:

Q: Republicans, though, say that the bill explodes the deficit after 10 years because the revenues don't keep pace with spending growth.

A: Well, I'll give you several answers. First, that's fully consonant with Republican practices. They did it all the time, and can speak with authority to the evil of it. But that doesn't mean it's so. I don't honestly believe that's the case [that deficits expand], and the work has not been concluded. But if this is as factual as some of the other things they've said about the bill, I wouldn't pay too much heed.

The "Less Quality Now!" Plan

The real kicker to the Baucus draft plan in today's New York Times is squirreled away near the bottom of the article. The top-line stats include the tax on more expensive health care policies, seen as a way to get at the employer deduction, where a giant pile of money exists in health care. Then there's the mix of expanding Medicaid up to 133% FPL, subsidies inside the insurance exchange for up to 300% FPL, with assurances that people up to 400% FPL would not pay more than 13% of their income in premiums. There is no public insurance option or a trigger for one, and the concept of co-ops is strangely not mentioned at all in the article (UPDATE: Per WSJ, there are co-ops in the plan). There are limits on out of pocket expenses, albeit higher limits than in the other bills ($6000 for individuals, $12000 for families). There's no talk of either an individual mandate or an employer mandate. So there are some holes here, but if it follows the pattern of the other plans, you're ensured coverage if your employer provides it or if you make so little that you qualify for Medicaid. If you're over 65, you're on Medicare. If you fall in between all of that, you go to the exchange, and can qualify for subsidies to afford coverage.

The plan is expected to cost $850-$900 billion over 10 years, but given the coverage subsidies and Medicaid expansion, I can't see that number being so low. Plus the talk in Washington, apparently, is about a $700 billion dollar bill. So how can that all square? By allowing insurers to offer crap coverage.

Coverage under Mr. Baucus’s plan would, by some measures, be less extensive than the least generous of three levels envisioned in a bill approved by three House committees.

To compare health plans, experts often focus on the percentage of medical expenses paid by insurance, on average, for a given population. This figure ranges from 70 percent to 95 percent under the House bill’s options, but it would be less than 70 percent under Mr. Baucus’s proposal.

The only way to keep insurance premiums down for the poor, and therefore keep the subsidies down, is to make the coverage less generous. And the insurers would only pay for covered expenses. Anything not covered by the plan would go directly to the consumer. Someone making $20,000 a year would still be on the hook for up to $6,000 in medical bills under this plan, and that doesn't include their premiums or non-covered expenses. Insurers, then, get off the hook for a huge chunk of medical costs while having to pay a nominal tax, and the goal is actually to have them not pay it at all, but simply to discourage companies from buying good insurance policies for their workers. And you would still see plenty of medical bankruptcies. Virtually everyone's health coverage gets worse under this Baucus scenario. I don't remember "Less Quality Now!" being part of any sloganeering on the reform side.

The real problem is that Washington is choking on the cost of providing health coverage to those who needed it. They don't want to use any external taxes or mechanisms, and they don't want to cut into industry profits to pay for the bill inside the system. So we get an ever-reducing price tag, now around $700 billion over ten years. Ezra Klein notes that these same fiscal conservatives all voted to eliminate the estate tax on ridiculously wealthy Americans, to the tune of $750 billion over ten years. That money would have entirely accrued to the deficit, while Democrats are consumed with being responsible and paying for this health care bill. It's really all a matter of priorities - help millions of uninsured people get the critical care they need, or give Paris Hilton a tax cut. George Bush financed practically every new program he brought into being by borrowing from China and adding to the debt. But the deficit only matters when there's a Democrat in the White House.

The Baucus plan gives new meaning to the term "aiming low." We'll know by Wednesday if the President agrees.

...Josh Marshall hits something I've been saying for a while.

You 'solve' the problem of the uninsured by passing a law forcing them to buy health insurance which, by definition, most a) cannot afford or b) are gambling they won't need because they're young and healthy. Either you end up with low subsidies which still leave it onerous to buy, thus creating a lot of disgruntled people, or you get generous subsidies, which cost a lot of money.

It's sort of like reform with all the cool political downsides but none of the reform.

A bill that criminalizes you for not buying health insurance, and then makes that health insurance demonstrably worse, will be an unmitigated disaster for the Democratic Party.

Bailout Bonanza!

Looks like the United States has actually made money on the bailout thus far. But this reflects a very small sample. As you may know, the Bush Administration forced dozens of banks to take TARP money which may not have needed it, to disguise the true weak sheep in the system. Those banks which where in relatively good health are the ones returning the money to the Treasury. And this doesn't take into account all of the other special lending deals they've received from places like the Federal Reserve, which has enhanced their balance sheets and enabled them to repay the TARP money. Then there's the other two-ton elephant in the room.

The government still faces potentially huge long-term losses from its bailouts of the insurance giant American International Group, the mortgage finance companies Fannie Mae and Freddie Mac, and the automakers General Motors and Chrysler. The Treasury Department could also take a hit from its guarantees on billions of dollars of toxic mortgages.

Some of those measures, like AIG and Fannie and Freddie, had nothing to do with TARP. But the CBO actually made projections on all of this back in April, and they foresaw major losses. The answer lies probably somewhere between small profit and catastrophic loss, so you shouldn't read a whole lot into either.

About That Deficit

Many are speculating that the President re-appointed Ben Bernanke in the middle of his vacation to get the story away from this:

The Obama administration, citing an economic downturn that has been deeper than it had first thought, raised its estimate on Tuesday of the government’s deficit over the next decade to $9 trillion from $7.1 trillion.

Despite the shortfall, White House officials said they saw no reason to back away from President Obama’s ambitious and costly goal of overhauling the health care system. The new amount includes the cost of the health care overhaul as well as about $600 billion in additional revenue that the administration hopes to raise, two initiatives Congress has yet to approve [...]

Analysts at the Congressional Budget Office put their 10-year deficit estimate slightly lower, at $7.14 trillion, though the agency uses a slightly different method to reach its number. The budget office takes into account only policies already in place, while the administration can consider policies and budget decisions that its hopes to install.

White House officials predicted that the budget deficit this year will peak at $1.58 trillion, though they said the 2009 shortfall will be about $261 billion lower than they had predicted in May. The main reason is that officials have decided that they will not need another round of bailout money for the nation’s banks. The Congressional Budget Official also estimated a deficit this year of about $1.6 trillion.

Paul Krugman puts the numbers in perspective, saying that the added debt in the next decade is bad, but would equal 40% of annual GDP, which is comparable to what many other countries have dealt with in the past. What I'm wondering is if the deficit has ever actually been registered that way. I've certainly never seen it reported in the papers in ten-year increments - you usually see what the annual deficit is, and then the total debt. This seems like a new tactic that plays to the fiscal scolds.

Meanwhile, the way to reduce deficits is to increase productivity, output and employment, and that's the real problem with these numbers.

The real story in the new CBO projections should be the more dire economic outlook. CBO now expects the unemployment rate to be near 10 percent through most of 2010. Its new projections will show that the unemployment rate will only return to more normal levels in 2013 or even 2014, more than six years after the collapse of the housing bubble threw the economy into recession.

The implication of the new CBO projections is that millions more people will be needlessly suffering because of the economic mismanagement of the Greenspan-Bernanke-Bush crew. CBO views 4.5 percent unemployment as being the sustainable rate of unemployment. If the unemployment rate is 10 percent, more than 8 million people are needlessly out of work, with another 5 million or so being forced to work part-time because they cannot find full-time employment. These people will be struggling to pay their health care bills, cover their mortgage or rent payments, and meet other necessary expenses for themselves and their families.

The rational response to the news that the economy will be far worse than had previously been projected should be a demand for more stimulus. After all, why should millions of people lose their jobs, their homes, and their health just because the people who managed the country's economic policy over the last decade were incompetent?

But the focus is placed on the deficit, meaning that the ability to spend our way into full employment has become politically impossible. A second stimulus looks unliklely at this point.

...by the way, a good bit of these 10-year projected deficits - probably half of the total - comes from Bush Administration unfunded mandates. Ten years' worth of Bush tax cuts for the wealthiest Americans could have filled the rest.

...And also note that this near-term projection has a deficit that's $260 billion less for FY2009 than expected, because there is no need for another bank bailout. That could be a headline too, if reporters wanted to write it, especially considering that near-term projections are more reliable than ones about what the economy will look like in 2019.

The Trillion Dollar Question

In my (bungled) attempt to look at drug company advertising, I noted that the House Ways and Means Committee looked at, then discarded, the option of cutting out their deduction for advertising as a business expense to help pay for reform. One commenter rightly observed that this is a function of having to scrape for cash anywhere it can be found to pay for a policy that must remain deficit-neutral within a 10-year budget window, despite numerous up-front costs, and a completely artificial ceiling placed on how much can be spent in those ten years.

For a while now, the conversation about health care has been all about costs--in particular, the cost to the federal government. Somewhere along the line, somebody decided that health reform shouldn't involve the government sending out more than $1 trillion over ten years, even if we can provide that much money through some combination of higher taxes and savings in the medical care system.

There is no magic reason why $1 trillion should be the theshold. My colleague Jonathan Chait recently suggested that it's all because of way our bodies look. If we all had twelve fingers and toes rather than ten, he said, the magic number would be $1.2 trillion. I guess that would mean it's god's fault.

My own theory is that conservatives and centrists complaining about the price of reform don't think guaranteeing affordable coverage is really so important. I include among them a certain Democrat from North Dakota who runs the Budget Committee and keeps talking about what we can't afford to do. To be clear, Senator Kent Conrad is not god, although I wonder sometimes if he thinks he should be.

The problem is that capping the cost of the bill at $1 trillion over ten years (and by the way, in that time America will spend something around $24 trillion annually on health care) has led to fiscal scolds cutting the kinds of things out of the plan that would increase access, like lowering the subsidies that would make insurance affordable to everyone, or shrinking the benefits package so individuals would have worse coverage and higher out-of-pocket costs.

"We are very concerned that [lawmakers] have that fixed and arbitrary total dollar amount and this is it," said Stephen Finan, senior director of policy for the American Cancer Society Cancer Action Network. "Either it's not going to be enough to pay for adequate insurance or we just dumb down the level of benefits. We are concerned we could wind up with a package that is neither adequate nor affordable coverage."

Lead fiscal scold Kent Conrad gets quoted in this article too, telling us that we all "have got to be realistic about what is possible" and "We can’t do everything we’d like to do and pay for it and bend the cost curve the right way."

First off, this is actually untrue. A viable public option which didn't firewall out those with employer coverage and has a provider network and rates similar to Medicare could bend that cost curve. As could giving Americans more choices in their coverage by breaking regional monopolies through an insurance exchange. The same with expanding access and eliminating the hidden fee of paying for costly ER visits for the uninsured. And empowering an independent board to make changes to Medicare rates and structures while partially insulated from the political process. And a host of other ideas where more reform, of the kind that people like Kent Conrad don't want, can lower costs.

But this amounts to playing on the other side of the field. Americans trust Democrats on health care issues, for the most part, because they have traditionally emphasized more access to care and treatment. That's not to say that the cost issue is meaningless - it's actually in many cases complementary to the cause of access - but it's a matter of emphasis. And the moral case for health care reform has been almost entirely extinguished.

This year, however, it's not just been the opponents of the policy who have relied on the "mellifluous language of the standard economic theory of markets." It's been the advocates of reform. Ask yourself what the administration's one-line goal is on health-care reform. Is it "equal treatment for everybody?" Is it "if every American is guaranteed a lawyer, why not a doctor?" Is it even "guaranteed health care for everyone?"

No. It's "bend the curve." And the problem with "bending the curve" is that it's a broadly testable proposition. This is, in part, why the Congressional Budget Office's skeptical assessments pose such a threat to health-care reform. If the White House's primary objective was health care for every American, or guaranteed care that you could keep even if you lost your job, or choice of insurance plans for every American, you could spend a bit more on health care and say you were achieving your goal. But if you say that the point of health-care reform is to save money, and then the outfit charged with estimating such things says it won't, that strikes at the heart of the project.

Now, we're getting some better news from the CBO in the last 24 hours, as they have announced that the House bill will increase the number of people receiving employer coverage, and that a public insurance option can exist in tandem with private insurance. But the way the health care fight has played out, it has privileged these messages from the CBO. And to the media, they only matter when they matter anyway.

Somewhere along the line, Democrats in Congress and an Obama Administration obsessed with not following in the footsteps of the Clinton health care failure have forgotten to make the simple case that they support quality, affordable health care for every man, woman and child in the country. They've made a case about costs, but not a case about imperatives. There are plenty of economic arguments to make, but the moral arguments - about insurance companies denying coverage to those with a pre-existing condition, or dropping customers for the flimsiest of reasons when they ask to use their health insurance - but those have been pushed into the background. Health care is one of the more profound moral issues in public policy, and right at the moment that we're nearing a major shift in policies, we're talking cost curves and independent advisory boards. It's all important, of course, but consigning tens of millions of Americans to the horrors of no medical coverage adds a certain oomph.

If this moral case were made, a true argument about the human consequences of delay, maybe that $1 trillion dollar number inches upward. And maybe some deficits are floated within the 10-year budget window. But we turned this debate into one primarily about costs. This played right into the hands of the fiscal scolds.

The Magic Deficit/PAYGO Yo-Yo

We're told that, in public polls, people are truly and significantly worried about the federal budget deficit. We're usually told that by the same people who want to use the deficit to foreclose on options for progressive governance, something they never do when a Republican is at the helm. And in fact, the signal-to-noise ratio, as it were, on the deficit is pretty much in line with who sits in the White House. Check out these charts:

If public worries about the nation’s fiscal health were perfectly related to the nation’s actual fiscal health, these two charts should be nearly mirror images of each other.

That is, when the deficit represents a higher percentage of G.D.P. (i.e., the red bars pointing downward get longer), you should see more people naming the federal budget as the country’s most pressing issue (i.e., the blue bars going upward should also get longer). Though, of course, you can’t have a negative percent of people complaining about the budget when the country is running a surplus.

In any case, the two measures do look somewhat related, but there are clearly other factors at work.

Americans were concerned about the budget deficit during the 1930s. Nobody particularly likes budget deficits. They sound icky. But harping from fiscal scolds on the deficit clearly impacts the debate, as does proper wording of the polling question.

At any rate, whether people really give a crap about the deficit or whether they are just reacting to selective hyping, this expression of "concern" has produced at least one tangible policy on Capital Hill - a push for "PAYGO," mandating that every new spending program have an offsets of spending cuts or tax increases. I'm somewhat ambivalent on PAYGO; it could force new revenue into the system, or it could stop progressive priorities because the same fiscal scolds demanding "discipline" refuse to cut worthless programs like outdated weapons systems that would pay for the new spending. These suspicions aong liberals are bubbling to the surface:

Most critics cite concerns that the budget ax would fall hardest on the programs needed by their most needy and vulnerable constituents, and not their frustration with Blue Dogs.

“I certainly don’t think anyone should vote against it for that reason,” said Rep. Jerrold Nadler (D-N.Y.). “If they want to use it as a bargaining chip, that’s a different story.”

That’s what Rep. Steve Rothman (D-N.J.) did last week. He proposed a deal at the Democratic Caucus meeting: He’d vote for the pay-as-you-go spending bill, he told the Blue Dogs, if “each and every one” of them would support a government-run healthcare plan for the country.

“I was being playful but somewhat serious,” Rothman said.

Some liberal members have reminded Blue Dogs that they didn’t object to going deeper into debt to pay for tax cuts or to fund the Iraq war, hindering efforts to fulfill what many saw as the mandate from the 2006 election — ending the war [...]

Rep. Emanuel Cleaver (D-Mo.) says CBC members are worried about the deficit, too. But they also feel that their districts bear the brunt of budget cuts.

“We get hurt at every turn,” Cleaver said. “We get fewer earmarks because they say we’re in safe districts. With pay-go, the programs that get cut the most are the ones our districts need the most.”

PAYGO worked decently enough during the Clinton Administration, but the Blue Dogs running things today seem to have it out for those programs that benefit the most vulnerable elements of society. In addition, we had a surplus in the 1990s and a robust economy, so hard choices rarely needed to be made.

PAYGO as a rule doesn't bother me and can even be positive. It's how it's used that bugs:

Something that pure budget analysis doesn’t get at on this subject is just the pure politics of it. A lot of people look around and see a world in which we had PAYGO rules in the 1990s and we declining budget deficits and then a small surplus. Then we had a Republican President and suddenly hugely expensive tax cuts—tax cuts that all Republicans and many Democrats voted for—didn’t need to be paid for. We also had a hugely expensive war that all Republicans and many Democrats voted for that didn’t need to be paid for. And PAYGO rules were suspended. Now there are progressive majorities and PAYGO is magically coming back. And aspirations for universal health care are being constrained by the need to pay.

Now, I think it’s a good thing that the administration has committed to pay for its health care proposals. But ultimately it takes two to tango here. And somehow we’ve gotten into a dynamic where not only Republicans, but also a certain number of moderate Democrats, seem to believe that conservative ideas don’t need to be paid for but progressive ideas do. That’s not a sustainable situation.

Exactly. And the same dynamic can be applied to public opinion on the deficit. When a Republican is in power, practically nobody talks about runaway spending and the public concern about it goes down; when a Democrat succeeds, all of a sudden everyone goes wild about the deficit and public concern expands. It's a sham.

New Leader Of The Fiscal Scold Gang

Well, if you hadn't heard, the crisis in the financial markets ended, and everything's fine now. The banks were able to raise more capital than needed to comply with the stress tests, as investors swallowed all their stock offerings. And why not? The federal government put a virtual guarantee that the top banks would not be allowed to fail, and the stocks are already low, low, low, so there's almost no risk to the purchase. CEOs aren't buying the stock, so maybe they know this to be a bear-market rally, but they also know they have what amounts to a federal backstop. Sure, the next wave of foreclosures will degrade the quality of loans and mortgage-backed securities even further, but then the government will just buy the bad ones out. In fact, the banksters don't like the price right now, so they've put a plug in the legacy loan program:

The Federal Deposit Insurance Corporation indefinitely postponed a central element of the Obama administration’s bank rescue plan on Wednesday, acknowledging that it could not persuade enough banks to sell off their bad assets. . . .

Many banks have refused to sell their loans, in part because doing so would force them to mark down the value of those loans and book big losses. Even though the government was prepared to prop up prices by offering cheap financing to investors, the prices that banks were demanding have remained far higher than the prices that investors were willing to pay.

Just last week at least some banks wanted to participate in the program – to buy assets from themselves. Once Sheila Bair rejected that idea, I guess they lost interest. Essentially the stress tests placed a big government stamp of approval on their balance sheets, so their current strategy is to wait out the recession and hope the prices of their legacy loans recover. There’s no downside risk, because if the economy gets worse and they ever need to unload those loans, they can count on the plan being resurrected.

The Federal Reserve asked the banks to raise additional capital to comply with repaying their TARP money, but if they found it this easy to sell stock already, they should have no problem reaching that hurdle. Basically the industry made it through the worst, and now they exist on this fantasy plane where they remain too big to fail, socializing the risk while privatizing the profit.

So it should come as no surprise that, now that the crisis has lifted, I guess, the successor to the Maestro is immediately calling for fiscal discipline.

The Federal Reserve chairman, Ben S. Bernanke, said on Wednesday that the United States needed to develop a plan to restore fiscal balance, even as the government builds huge budget deficits as it tries to spend its way out of the worst economic crisis since the Great Depression.

In remarks to the House Budget Committee, Mr. Bernanke said that the government must address the immediate problems of a crippling recession that has erased trillions of dollars in household wealth, hobbled investment portfolios and raised unemployment to its highest levels in a generation. Still, he said, the government needs to think about putting its fiscal house back in order.

“Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth,” he said [...]

“Even as we take steps to address the recession and threats to financial stability, maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance,” Mr. Bernanke said.

I thought the Fed dealt with monetary policy and the Treasury Department fiscal policy, but what do I know.

Let me pinpoint the years where the words "deficit" or "fiscal sustainability" never crossed the lips of someone of Bernanke's stature: Jan. 1981-Jan. 1993 and Jan. 2001-Jan. 2009. At that time deficits didn't matter. Now all of a sudden, in the midst of cleaning up the wreckage of the Bush regime, no discussion of economic policy can go by without the important mention of getting our fiscal house in order.

I believe deficits do matter, eventually. But it only makes sense to work on "fiscal responsibility" if you believe the crisis is over. And if that's what Bernanke thinks, we have serious problems. Because the housing market remains in free-fall. And unemployment is still going over the edge. What's happening here is that Bernanke is fronting for the fiscal scolds (so is Peterson Institute fellow Simon Johnson, who dresses up this talk in prettier language sometimes) who seek to eliminate the social safety net through "entitlement reform." Going back to the same old arguments as if the Great Recession has transformed into some boom time seems really premature.

Ducking The Debate

I just saw Howard Dean on The Ed Show asked about "taxing health benefits" (which is an oversimplification), and while he corrected Ed Schultz by saying that the reform discussed is capping the employer deduction, he said "I don't want to get into a debate about paying for this." Sigh.

If progressive advocates aren't willing to talk about how the hell we're going to pay in the short term for health reform, it won't happen. Period. The Administration has committed themselves to a fiscally responsible approach that is deficit-neutral in the short term. Peter Orszag talks about "Medicare and Medicaid savings" without explaining that as ending these lunatic Medicare Advantage payments where insurers get to privatize the system. To the average person that rightly sounds like paying for health care by cutting Medicare and Medicaid. That just won't play politically. And nobody agrees on the other revenue raisers. At some point this will all break down.

This belt-and-suspenders approach means we are not just banking on the long-term impact from the game changers to protect the budget. We also are demanding quantifiable cuts, efficiencies, and revenue-raisers so that the budget is not adversely impacted in the medium-term. That is to say, if the long-term savings from the game-changers materialize as expected, we wind up with a more efficient health care system and a better fiscal position. If they don’t, then at worst, we have a deficit-neutral plan that will not worsen our fiscal situation.

Everyone is talking in generalities about those cuts and efficiencies and revenue-raisers, in a way that will surely doom this reform when the specifics arrive. The Council of Economic Advisers report today is great, and it states very clearly the savings to families and the general budget from enacting meaningful health care reform.

We estimate that slowing the annual growth rate of health care costs by 1.5 percentage points would increase real gross domestic product (GDP), relative to the no-reform baseline, by over 2 percent in 2020 and nearly 8 percent in 2030.

For a typical family of four, this implies that income in 2020 would be approximately $2,600 higher than it would have been without reform (in 2009 dollars), and that in 2030 it would be almost $10,000 higher. Under more conservative estimates of the reduction in the growth rate of health care costs, the income gains are smaller, but still substantial.

Slowing the growth rate of health care costs will prevent disastrous increases in the Federal budget deficit.

Slowing cost growth would lower the unemployment rate consistent with steady inflation by approximately one-quarter of a percentage point for a number of years. The beneficial impact on employment in the short and medium run (relative to the no-reform baseline) is estimated to be approximately 500,000 each year that the effect is felt.

Expanding health insurance coverage to the uninsured would increase net economic well-being by roughly $100 billion a year, which is roughly two-thirds of a percent of GDP.

Reform would likely increase labor supply, remove unnecessary barriers to job mobility, and help to “level the playing field” between large and small businesses.

All of this is true, and makes health care pay for itself. One that doesn't appear in the bullet points of the executive summary is that wage growth would likely ensue because your raise is being plowed into paying for unaffordable employer-based health care.

But as long as the commitment to deficit-neutral policies in the short term remains - and there aren't 60 Senate votes for an unfunded mandate, regardless of what the President wants, which is why Orszag is saying this - you're going to have to find the money. And everyone shies from that debate. You see Ed Schultz, who plays a liberal on TV, get all worked up about "taxing health benefits" because the unions, frankly, don't want their hard-bargained health care benefits touched. In truth, capping the tax exclusion makes sense because it's a huge cash windfall ($246 billion in 2007 alone on this subsidy), but it runs into dicey politics. So does capping the charitable deduction. So does a value-added tax. So does any revenue-raiser, and so do cuts to Medicare and Medicaid, especially when they're explained so horribly.

Howard Dean needs to talk about how the hell we're going to pay for this. So do progressives generally. We always shy away from the responsible taxation argument, and it's about to kill health care reform.

Not So Green Shoots

I acknowledge that there are signs that the economy is on an upswing. But the optimistic scenarios don't jibe with all the data. First of all, the deficit keeps rising due to continued unemployment. That's to be expected, but it will still make it harder for any second stimulus to occur, meaning that we're pretty much stuck with the policies currently in place. The lower tax revenues has led to the first April deficit in 26 years, as typically April is a big enough revenue month that money coming in outweighs money going out. And the deficits are affecting the US credit rating, the ability to obtain cheap money.

Now, I don't want to dwell on the budget deficit, especially because in the near term it can't matter as much as getting people back to work. But it constrains the politically possible in Washington, and it will prevent the Administration from delivering additional help to the economy, which clearly it desperately needs:

Foreclosures in April exceeded even March's blistering pace with a record 342,000 homes receiving notices of default, auction notices or undergoing bank repossessions, according to a regular industry report.

One of every 374 U.S. homes received a filing during the month, the highest monthly rate that RealtyTrac, an online marketer of foreclosed properties, has recorded in four-plus years of record keeping.

"April was a shocker," said Rick Sharga, a spokesman for RealtyTrac. "I would have bet on a dip because March foreclosures were so high.

Instead, filings inched up 1% from March and rose 32% compared with April 2008.

Thanks, opponents to cramdown!

Now, interestingly enough some banks have been so chilled by threats of prosecution in the states that they have started to settle out of court in predatory lending cases, with much of that money going toward reducing principal for homeowners. If that practice becomes more widespread, perhaps we can stop this second wave of foreclosures.

One hears a lot about loan modifications these days. So far there are two basic approaches.

I) The borrower is given relief in the form of a lower interest rates and stretched-out maturities. The homeowner stays in the home.

II) The bank will accept a deed in lieu of the mortgage. The homeowner is out of the home.

There have been very few cases where a homeowner is allowed to stay in the home and achieve a principal reduction. The Boston settlement opens the floodgate for principal reduction. It is the essence of the agreement. All 714 borrowers are now eligible for principal reduction and the money is just sitting there waiting to be collected.

One can imagine the conversations between neighbors in Boston:

A: “Good news finally! I just got 35% net off my first and second mortgage.”

B: “Wow! How did you manage that?”

A: “I was lucky enough to get my mortgages through Goldman Sachs. They did a deal with the Mass AG and I win the lotto!

B: “I have my mortgages with Indy Mac Bank can I get reduction too?

A: Sure. Here is the number to call. Now lets party!

I really want the Administration to succeed, but I hope they aren't being swayed by all this happy talk. We're still in a dangerous place.

Arnold's New Budget Deficit - Trust But Verify

I have several questions about this sudden restatement of the budget deficit for the next year. First of all, this is not an independent assessment by the Legislative Analyst, but from the Department of Finance. No report was released accompanying the budget revise, just some raw numbers in a letter to the legislature. Apparently a dual revision, one based on whether the ballot measures pass and one based on whether they fail, will be illegally delivered on Thursday, despite the fact that the February budget deal calls for it to be released on May 28. The Governor is getting around this by calling the release a "summary," allowing them to AGAIN show no numbers, just a "trust me" belief that the deficit is now $15 billion, $21 billion if Props. 1C, 1D, and 1E go down.

More curious is this bit from John Myers:

Taking a closer look at the $15.4 billion deficit projection, aides to Schwarzenegger say that a full $7.4 billion of that is in the fiscal year that ends just 50 days from now; the remaining $8 billion is in the 2009-2010 fiscal year.

That $8 billion in the '09-'10 year matches up with March's projection by Legislative Analyst Mac Taylor. And given that Controller John Chiang announced last Friday a $2.1 billion shortfall in anticipated revenues for the current year... that leaves about $5 billion in what budget watchers might call "new" deficit in this announcement.

That doesn't make a lick of sense. I believe Chiang's numbers that we're $2 billion short in tax collection in the current year through April 30. I do not at all believe a Governor who has lied repeatedly about budget projections throughout his entire career, claiming $5 billion in new deficit in the last 50 days of the budget year. Especially because there are no independent numbers to check.

Like Legislative Analyst Mac Taylor, I would not be SURPRISED that we're not $15 billion out of balance. Some expenditure increases contributed to this deficit, and clearly the worsening economic picture has strained the revenue side. But I'm funny this way - I actually want to see the data. The Governor has spent the entire special election trying to scare people into compliance; would anyone but this Hail Mary pass with one week to go past him?

You Buy It, You Own It

Fox News clearly has latched onto this tea party thing in a way that no responsible news network would do to cover a future event. They used graphics like "FNC Tax Tea Parties," dispatched their top talent to speak at the events, and generally covered it like the Berlin airlift. Media Matters is right, they now own any extremist rhetoric and Birch Society nonsense that will inevitably come out of these things. And this from Neil Cavuto is the biggest FAIL in the history of FAILs.

Anyway, what Cavuto shouldn't be allowed to do is, you know ... make stuff up, and yet there he was, this past Saturday, saying the following:

CAVUTO: Just a reminder, we are going to be right in the middle of these protests because at FOX we do not pick and choose these rallies and protests. We were there for the Million Man March, even though, as I pointed out, it turned out to be well shy of a million men. We were there for the Iraq War protest, and the protest against the Iraq War protest. So see, we really don't decide what populist causes matter. Just that when a whole lot of people gather, in a whole lot of towns and cities across America, it is indeed worth checking out, not just shutting down. Which is why we are in Sacramento on April 15 for the one of the biggest of these, at 4:00 p.m. Eastern time.

Unfortunately for Cavuto, the people at NewsHounds did one of those things where you go and you "look up" the available facts and "verify" them for "accuracy."

Neil Cavuto has been defending FOX News' coverage of the upcoming tax day tea parties by repeatedly suggesting that FOX News gave similar coverage to the Million Man March. But the Million Man March occurred October 16, 1995 whereas FOX News was not operating until October 7, 1996, nearly a year later.

Meanwhile, Blue Texan has finally figured out what the teabaggers' grievance is:

What's the Teabaggers' main gripe? What do they hope to accomplish? Putz's op-ed in today's New York Post finally answers that question.

"In the short run, this is likely to provide at least a bit of resistance to the borrow-and-spend-like-there's-no-tomorrow approach that now governs Washington."

Ah-ha! So it's deficits the Teabaggers object to. Good. Let's take a look at the biggest borrowers-and-spenders over the past 40 years.

I hate to give this tiny fraction of the population the space they don't deserve. And yes, they are astroturf groups pretending to invent a grassroots movement.

Still Haven't Turned The Corner On Liberal Economic Goals

I really don't comment on polling much because I think political types make way too much out of it and how a selected sample of citizens feel about a particular subject has no material effect on anyone's life, and I wish those in American politics kept that in mind. That said, I would like to highlight the tension I see in the latest CBS/NYT poll on President Obama and the nation.

Obama's personal approval ratings are high and there is a general sense that the economy is coming back, and thus the positive descriptions of the poll are accurate. And the 31% approval rating for Republicans is "the lowest in the 25 years the question has been asked in New York Times/CBS News polls."

But dig deeper and you see a real disconnect. While Obama has provided a psychological boost to the nation that I don't want to fully discount, his policies, and the policies of liberal economics generally, are not fully accepted.

Even as Americans strongly support Mr. Obama, they do not necessarily support all of his initiatives. For example, 58 percent disapprove of his proposal to bail out banks. But the percentage of respondents who said they thought it would benefit all Americans, rather than only bankers, jumped from 29 percent in February to 47 percent now, signaling that the White House might be making progress in changing perceptions of the plan.

And as Mr. Obama has proposed a vast expansion in spending and programs, 48 percent of Americans said they preferred a smaller government providing fewer services, while 41 percent preferred a bigger government with more services.

Americans remain concerned about the growing national debt being passed on to future generations, but in the face of the current economic troubles, they are divided over whether it is necessary to increase debt. Forty-six percent said the government should not incur further debt, but 45 percent said the government should spend money to stimulate the economy even though it would increase the budget deficit.

The story skipped over the poll result that 60% of respondents think that trade restrictions are necessary to protect domestic industries. And respondents think the government is treating financial institutions better than the automakers by a score of 34%-6%, with the rest undecided.

Some of these reflect the way Obama and his team are doing business. But others are really core Democratic ideas about the economy, and despite a Democratic trifecta and a completely marginalized and outright hated Republican party, they are not getting traction. The pluralities on smaller government and debt reduction are extremely worrying, because if that drives the policy we will have even more trouble getting out of this economic mess. Not surprisingly, these are the kinds of topics on which the media wastes an endless amount of breath, frequently giving lots of space to the conservative side of the equation.

Progress can be measured with popularity but it SHOULD be measured with tangible policy, and this suggests the movement on that is slow indeed.

Trigger'd

Robert Cruickshank brings the news that Sacramento leaders decided not to pull the trigger that could have been met by federal stimulus funds flowing into the state, which means that really painful cuts to health care and IHSS (in-home state services), as well as certain tax increases, will be retained. Karen Bass doesn't sound happy:

I am disappointed with the narrow reading of the trigger and the decision made today by the Director and the Treasurer. But it was the last minute changes to the budget demanded by Republican Senators that put the trigger level out of reach and all but guaranteed the higher taxes and cuts to critical programs. We agree with the Treasurer that a portion of the cuts should be restored, and we will work through the budget process to find alternative solutions to a portion of these cuts.

It's completely clear to me that, with another looming budget deficit, the Governor wanted no part of leaving any cuts or tax increases on the table, which would potentially make the deficit bigger. So they read the trigger precisely to ensure that it wouldn't be met. Never mind the very real consequences for the sick, the elderly, the blind, the disabled. A link to all the cuts here.

Robert writes:

It didn't have to be this way. Even putting aside the "narrow reading" issue, this is a failure of both the state and the federal government. Democrats agreed to a bad deal, and the Yacht Party did their best to make the Great Recession worse by destroying the very governmental services that we need to stop the downward spiral and start a recovery. And the US Senate has blame to share, for stripping out $40 billion of the state stabilization funds and generally not being aggressive enough in dealing with the crisis facing all levels government.

California keeps cutting spending, and the recession keeps getting worse. We at Calitics understand that's no coincidence. When will Sacramento?

Indeed.

Pete Peterson Rules Their World

I agree with Dean Baker that it's amusing to hear these nervous ninnies going on about the deficit when the economy remains in free fall. And these are the ones who say Obama needs to keep focus:

People are losing their homes through foreclosures at the rate of more than 100,000 a month. The default rates on credit cards, car loans and other debt is at record levels. Most of our major banks are effectively insolvent.

Home and stock prices have plummeted, destroying most of the wealth of the baby boom cohort as they stand on the edge of retirement. The economy is shedding almost 700,000 jobs a month, with the unemployment rate rapidly approaching the highest level since the Great Depression.

In this context we are supposed to be up in arms over the deficit projections for 2013 or 2019? This is a bit like someone complaining about the lawn not being mowed at a time when the house is on fire, it's just not the first priority. And the media all seem to go along with the charade - yes, they are very concerned about the projected deficit for 2013, just as the characters in the movie expressed concern about the health of Bianca the blow-up doll.

It is especially annoying to hear the whining from this group of deficit hawks since their whining in prior years helped to drown out serious discussion of the dangers posed by an $8 trillion housing bubble. While some of us were yelling at the top of our lungs about the imminent disaster that would hit the economy when the housing bubble burst, the media chose to focus on these deficit hawks with their dire warnings about budget deficits 40 or 50 years in the future.

This is especially ignorant because, without fixing the economy, those deficits will skyrocket anyway.

But this fight should have been engaged a long time ago. It may be too late:

Here's Treasury Secretary Timothy Geithner today at the Council on Foreign Relations having a jolly laugh with moderator and investment banker Roger Altman about the process now getting under way—all thanks to propaganda assistance from investment banking billionaire Pete Peterson.

For those without a decoder ring, "everyone" being a fiscal hawk means that due to the current financial disaster, they'll soon be coming after Social Security and Medicare:

GEITHNER: Of course, we are all fiscal hawks now because of Pete Peterson. (Laughter.) There are no doves left on the fiscal side. (Laughter.)

ALTMAN: And he deserves credit for that.

Yes, the coming massacre of American lives will be quite funny indeed. (Laughter.)

Hahahahahaha!!!!

You Feel Lucky?

The CBO re-scoring of the budget is going to severely hurt efforts at progressive reform, and I don't think there's much use in denying that. The current deficit for FY2009 is $600 billion dollars more than first thought, because the recession's depth and severity wasn't expected to this degree. And while the numbers actually argue for a deeper public investment in the economy, as the normal economic tools for growth clearly aren't operative, there are enough fiscal scolds in Washington to make this re-scoring forcethe Administration to scale back their goals.

But I hope that's not the case. And this game of hardball on health care needs to continue to be played.

House Democrats, in consultation with the White House, will give Republican lawmakers until September to reach a compromise on President Obama's signature health-care initiative -- otherwise, they will use a shortcut to move the measure through Congress without Republican votes.

After meeting late Wednesday with senior White House officials, House Democratic leaders decided to include the shortcut in the budget proposal they will unveil next week, congressional sources said.

Known as budget reconciliation, the shortcut would permit lawmakers to roll Obama's health-care proposals into a bill that cannot be filibustered, meaning Democrats could push it through the Senate with 51 votes, instead of the usual 60. Since Democrats control 58 seats in the Senate, they could approve a reconciliation bill without Republican votes or the support of some reluctant conservatives in their own party.

Republicans have blasted the idea of reconciliation, saying it would severely undermine bipartisanship.

There's no bipartisanship to undermine. What it WOULD undermine is obstruction. And our problems are too great for obstructionism to continue.

I'm less confident about cap and trade - Obama is not as good a messenger on that topic, and if something must be given up, I expect it would be that specific policy, while a federal renewable portfolio could be advanced - but weirdly more confident about health care, despite the negative report from the CBO. Now, if the scolds want to pay down the debt some more, we can take a look at the military budget...

...another reason to be optimistic about health care reform is that the various competing chairs in the House are working together. Jurisdictional issues can become large rifts, and so having everyone working together is very important.

1.75 Trillion.

Wow, he really honestly looked at the numbers.

President Barack Obama is sending Congress a "hard choices" budget that would boost taxes on the wealthy and curtail Medicare payments to insurance companies and hospitals to make way for a $634 billion down payment on universal health care.

Obama's first budget, which will top $3 trillion, predicts the deficit for this year will soar to a whopping $1.75 trillion, according to administration officials who spoke on condition of anonymity before the public unveiling of the budget Thursday. The huge deficit reflects the massive spending being undertaken to battle a severe recession and the worst financial crisis in seven decades.

That's what it probably should have been - and actually was - for several years now. Remember that Obama's goal is to cut the deficit in half by the end of his first term. In this document he sets the deficit at that time at $533 billion, but half of the topline number would be more like $900 billion. This gives him some space to work with.

As expected, Republicans are already freaking out about the repeal of the Bush tax cuts:

"Everyone agrees that all Americans deserve access to affordable health care, but is increasing taxes during an economic recession, especially on small businesses, the right way to accomplish that goal?" asked House Minority Leader John Boehner, R-Ohio.

It's good that Republicans have to play on Democratic turf when talking about health care - that's a shift and a sign of the weakness of their position. The "small businesses" canard is based on the false idea that a business making $250,000 in revenue would have to pay taxes in individual tax brackets. That's, um, not how it works, and Republicans know that.

...Obama's remarks on this piece:

In keeping with my commitment to make our government more open and transparent, this budget is an honest accounting of where we are and where we intend to go. For too long, our budget has not told the whole truth about how precious tax dollars are spent. Large sums have been left off the books, including the true cost of fighting in Iraq and Afghanistan. And that kind of dishonest accounting is not how you run your family budgets at home; it's not how your government should run its budgets, either. We need to be honest with ourselves about what costs are being racked up -- because that's how we'll come to grips with the hard choices that lie ahead. And there are some hard choices that lie ahead.

Obama's Budget Hawkery - Ending Corporate Welfare

There are excerpts of the President's address floating around, and most of it is pretty standard stuff: the rah-rah lines about how America "will emerge (from the economic crisis) stronger than before"; campaign talk about how the economic turmoil is a reckoning for the short-sighted and the laissez-faire crowd; the urgency of making investments in the key challenges of the future, in "areas like energy, health care, and education"; how a budget is "a blueprint for our future." But there are a few paragraphs about fiscal responsibility that I would like to highlight.

My budget does not attempt to solve every problem or address every issue. It reflects the stark reality of what we’ve inherited – a trillion dollar deficit, a financial crisis, and a costly recession.

Given these realities, everyone in this chamber – Democrats and Republicans – will have to sacrifice some worthy priorities for which there are no dollars. And that includes me.

But that does not mean we can afford to ignore our long-term challenges. I reject the view that says our problems will simply take care of themselves; that says government has no role in laying the foundation for our common prosperity.

Yesterday, I held a fiscal summit where I pledged to cut the deficit in half by the end of my first term in office. My administration has also begun to go line by line through the federal budget in order to eliminate wasteful and ineffective programs. As you can imagine, this is a process that will take some time. But we’re starting with the biggest lines. We have already identified two trillion dollars in savings over the next decade.

In this budget, we will end education programs that don’t work and end direct payments to large agribusinesses that don’t need them. We’ll eliminate the no-bid contracts that have wasted billions in Iraq, and reform our defense budget so that we’re not paying for Cold War-era weapons systems we don’t use. We will root out the waste, fraud, and abuse in our Medicare program that doesn’t make our seniors any healthier, and we will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas.

I don't know what he means by "education programs that don't work," but I know exactly what he's talking about with the rest, and those are things that should have been cleaned up years ago. I haven't heard the phrase "reform our defense budget" come out of a President's lips in a long time, probably since Eisenhower. Obama is taking on bloated military spending, contractor fraud in Iraq, corporate welfare and Medicare Advantage. That's quite a chunk of change.

And I'm assuming this will segue into how reducing health care spending is the only path to fiscal stability and yes, Liz Sidoti, you magnificent idiot, "the single most pressing fiscal challenge we face by far." (She lied and said Obama was talking about Social Security.) The fiscal scolds may not like it - maybe that's why they got uninvited to the White House - but Obama's team is pressing the case that health care reform is crucial to the long-term budgeting process, and that only through a cost-controlling universal health care plan can we bring the budget in line.

I understand that calling to slice the budget in half during this precarious time may not be very smart in the long-term. And calling for austerity and shared sacrifice just doesn't seem like the right message. However, the spending Obama wants to eliminate really is truly wasteful, and a lot of it just goes into the pockets of corporate executives and heightens inequality. The broad view may not look so good, but based on these specifics I am completely comfortable with it.