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Never Anger A Man Named Erskine

Erskine Bowles has harsh words for the left:

Mr. Bowles's tone on the call was grim. "The problem is real," he said. "The solutions are all painful. There is no easy way out." At one point, he said if the country doesn't do anything to tackle the debt, "we're going to have one hell of a crisis."
He has said the debt could trigger an economic crisis if country's that buy U.S. debt either decide to stop or start demanding much higher interest rates.
Mr. Bowles had harsh words for fellow Democrats. He dismissed the idea that raising taxes alone might help erase the deficit, saying "raising taxes doesn't do a dern thing" to address health care costs that are projected to be a big driver of future fiscal problems.

A couple points here. First, I'm incredibly impressed that the reporter, Damian Paletta, transcribed Bowles' use of the word "dern," rather than change it to "darn." But is it really spelled "dern"? I always thought it was "durn." Does the Wall Street Journal style guide have a policy on this or was Paletta winging it?

Second, Bowles is conflating a couple different issues here. There are three basic phases to the fiscal picture. In the short term, we're in a liquidity trap, with high unemployment and rock-bottom interest rates. We need to be running higher, not lower, deficits.

In the medium term, once the economy recovers, we have high structural deficits inherited from the Bush administration, which could indeed spark a sharp, sudden spike in interest rates. That has to come down. But that's also a problem that could be solved through tax hikes. Letting the Bush tax hikes expire, and returning to Clinton-era rates, would pretty much take care of the medium-term issue:

Finally, there's the long-term deficit issue. As you can see, that will begin to soar in a couple decades. Bowles is correct that this largely reflects rising health care costs. But does his plan do much about that? Its main approach is to set a cap on federal health care costs:

The plan’s call to limit the growth of total federal health program expenditures to the growth of GDP plus one percentage point is likely to prove an impossibly stringent standard. Unlike the Medicare spending target in the ACA — which is based on the growth in spending per beneficiary — the health spending target that the co-chairs have proposed makes no allowance for circumstances where the number of beneficiaries grows more rapidly than the overall population. Yet that is precisely what is expected to occur in Medicare and Medicaid, as members of the baby boom generation move into their retirement years.
The proposal also neglects to make any adjustment for changes in the composition of the beneficiary population. Health care costs much more for elderly Medicaid beneficiaries than for child beneficiaries and working-age adults; this is a crucial consideration, because in the years after 2020, the proportion of Medicaid beneficiaries who are elderly will rise while the proportion who are younger will decline, raising overall program costs even if the growth in costs for health services has been successfully contained. Moreover, the co-chairs’ tax reform proposals may themselves push up the cost of the tax credits in the health insurance exchanges; reducing or eliminating the tax preference for employer-sponsored insurance, as the plan proposes, will likely cause fewer employers to offer coverage and more workers therefore to qualify for subsidies in the exchanges.

The Affordable Care Act has a wide-ranging series of reforms to transform the incentive structure of insurers, hospitals and physicians, so as to control the long-term rise in costs. Bowles-Simpson just says, we're only going to pay so much and no more, without doing anything to ensure that the cost of the care actually stays within those bounds.

The problem is, if health care costs continue to skyrocket, we're in trouble no matter what. Simply shifting more of the cost onto people will replace public debt with private debt. Moreover, setting a cap in perpetuity isn't a terribly effective way to bind future policymakers. You can say they can only spend so much, but if the caps are hard to meet, they'll go around them. You need mechanisms to make the caps effective, but Bowles-Simpson has little of that.

The one step that actually would reduce the deficit substantially and in the correct time frame is letting the Bush tax cuts expire. I can't think of a good fiscal rationale for Bowles to dismiss that, though the political logic of doing so is clear enough.