Former Bush economic adviser Greg Mankiw whips up an analogy to explain why he's leery of even a deficit-neutral health care reform:
Imagine you have a friend who has a budget problem. Every month he spends more than he earns. His credit card bills are piling up. He is clearly on an unsustainable path. Then one day he comes to you with an idea.
Friend: I am going to take off a few days from work and fly down to Bermuda for a quick vacation.
You: But isn't that expensive? Won't that just add to your growing debts?
Friend: Yes, it is expensive. But my plan is deficit-neutral. I have decided to give up that half-caf, extra-shot caramel macchiato I order at Starbucks twice every day. I really don't need that expensive drink. And if I give it up for the next three years, it will pay for my Bermuda trip.
You: Well, then, how are you going to solve the problem of your growing debts?
Friend: I am going to figure that out as soon as I return from Bermuda.
You: But in light of your budget problem, maybe you should give up Starbucks and skip the Bermuda vacation. Giving up Starbucks could be the easiest way to start balancing your budget.
Friend: You really aren't any fun, are you?
This conversation is meant to illustrate why claims of deficit-neutrality in the healthcare reform bill should not give much comfort to those worried about the U.S. fiscal situation. Even if you believe that the spending cuts and tax increases in the bill make it deficit-neutral, the legislation will still make solving the problem of the fiscal imbalance harder, because it will use up some of the easier ways to close the shortfall. The remaining options will be less attractive, making the eventual fiscal adjustment more painful.
I see a couple problems with this analogy. First, Mankiw loads the deck by imagining a plan with all the costs up front and the savings accruing over three years. Health care bills spread both costs and savings over time, and the Senate bill's savings accelerate more quickly over time than the costs.
Second, Mankiw's little model implies that the savings (giving up Starbucks) are fully fungible to deficit reduction. In reality, much of the savings in Obama's health care plan would not be available except as part of a comprehensive health care reform plan. Hundreds of billions of dollars in savings come from reduced payments to hospitals for treating the uninsured, and payment reductions that providers and pharmaceutical companies agreed to accept in return for 30 million new government-subsidized customers. So Mankiw's alternative plan -- save all the Starbucks money -- is not actually possible.
Finally, and most problematically, Mankiw's analogy of the thing to buy, a Bermuda vacation, implies a luxury desire -- one that might have to be not merely postponed but abandoned altogether -- rather than a pressing need. That does represent the right-of-center view of covering the uninsured. It's "candy" or "dessert," something desirable but not essential. It's a view I find hard to justify morally, and I suspect its proponents have trouble making this case explicitly, which is why they seem so drawn to analogies that imply this argument without stating it outright.
A better analogy might be that your child needs a lifesaving operation, and you're uninsured you don't have the cash to pay for it. So you plan to pawn off your new SUV to pay for the operation, but your conservative friend says you can't afford to do it -- you might need to one day sell the SUV to pay for your other debts. Also, you realize that even if you listen to your friend, forego the operation, sell off the SUV and balance your budget, he might at any moment seize control of your family budget and splurge on a lavish party for his mostly-rich friends on the grounds that you can now afford to pay for it.