Entitlement “reform,” fiscal discipline and the memory of Moynihan

The good news for the aggrieved Great Lakes states is that our new president is sending some serious federal assistance to help combat the collapse of the George Bush/Bernie Madoff economy.

The late Daniel Patrick Moynihan.

The bad news is that next year, or the year after, some of the folks who are advising the president today may go back to their pre-crisis mantra that entitlement programs, specifically Social Security and Medicare, are the real problems facing our future.

Once we are past today’s crisis, some of the voices around Obama will say that the problem facing us is not Madoff-style scams, or insanely risky derivatives, or the demise of tried-and-true financial regulations like the uptick rule and the “wall” that the New Deal put up between commercial banks and investment banks. Rather, they’ll say, the problem is the New Deal and Great Society social programs.

It’s enough to make one want to buy a pack of Marlboros, grab a bottle of something very old and very strong, and drive to an old farm near the Finger Lakes in order to hold a séance, the better to summon the late Senator Daniel Patrick Moynihan with the treats that helped him think.

Moynihan knew that the entitlement programs were economic bedrock. Moynihan also knew that sometimes the entitlement programs needed more money. Moynihan delighted in writing about what to do almost as much as he delighted in taking action. He did both, and frequently.

But the spirit of Moynihan is not making its presence felt in the halls of Washington. In the heat of today’s crisis, which pushes the talk about “entitlement reform” off center stage, there is not a Moynihan to be found.

Or is there?

Obama and the coming war over entitlements

Today, we’re talking about “stimulus,” and that means cash money. As noted previously here, some of Obama’s American Recovery and Reconstruction Act help is coming in the form of extra dough for fixing sewers, roads, bridges and school buildings. But curiously, some more is coming as extra funds for Medicaid, which is the federal-state-county program that pays for healthcare for poor (and especially poor old) people.

County governments in New York State in particular will benefit because Obama has temporarily fixed an old imbalance that nobody much talks about when they talk about how low the taxes are in the Sun Belt. Senator Moynihan knew the connection.

Here’s how it works. Up here in the North, we send money south. It’s called “fiscal federalism,” and it’s part of the reason why local taxes in the Sunbelt are lower. It has worked that way for a long time, going back beyond the days when Senator Moynihan pointed it out in his annual report called The Federal Fisc: Whereas some Sun Belt states get upwards of 70 percent of their Medicaid bills paid for by Washington, New York State has for a long time received only 50 percent reimbursement. This obscure fact is why your average county property tax bill in the Buffalo area is about $500 a year rather than $250 a year or less. If New York would only get the same percentage of its Medicaid bill paid for as, say, North Carolina gets, then your county and state governments wouldn’t have to spend as much as they do on Medicaid.

Remember, Medicaid is an entitlement. If you meet the criteria for coverage, you’re covered. It’s the law. If you get to age 65, you get Social Security—it’s the law. If you get to age 65 and you want Medicare, you get it. It’s the law. You’re entitled.

But in today’s environment, we’re not talking about entitlements—Medicare, Medicaid, Social Security, or any of those New Deal or Great Society programs about which our late Senator Moynihan wrote and politicked.

Instead, we’re talking about stimulus. Stimulus and economic recovery. Stimulus in terms of the aid to Erie County for Medicaid is a relatively tiny change: $74.2 million in extra Medicaid help over 27 months. If Erie County got all that money in one year, it would be worth about one-third the amount of money the county spends on Medicaid in one year. Refunding $160 of your $500 annual county property tax to you in one year might be stimulus for some folks. But fifty cents a day less in taxes is not going to stimulate you very much. (Fifty cents a day is why some of us point out that the $74.2 million to Erie County should be invested in some job-creating, brand-shaping, community-enhancing investment rather than saved or rebated. Arts? Parks? War of 1812 bicentennial planning? Underground Railroad Heritage Trail? I don’t need a 50-cent tax cut.)

Entitlement reform: where the real money is?

President Obama has, nonetheless, at least addressed the old problem Moynihan pointed out—temporarily. The new help is going to last only until 2011.

Meanwhile, there’s a whole lot of work underway in Washington on the big-ticket items that he campaigned on—specifically, healthcare reform.

Governor David Paterson may have given a prologue to the Obama approach when Paterson offered to help the newly unemployed and under-employed people whose healthcare coverage lapses when their jobs collapse. It wasn’t just politics when Paterson proposed a budget with increases in general welfare aid and Medicaid.

But Obama will be feeling the pressure to reduce, not expand, healthcare spending, even as he tasks his team to figure out how best to cover more Americans.

People like former Treasury Secretary Robert Rubin advise Obama of their view that the long-term costs of Social Security and Medicare are too large to sustain, and that the Medicare trust fund in particular is deeply over-committed and under-funded. Rubin is known as advocate of “fiscal discipline.” As Treasury Secretary in the 1990s, Rubin was the architect of President Bill Clinton’s economic program—including a big tax-rate increase on high-income taxpayers (the cudgel with which Republicans pounded Democrats in 1994), plus NAFTA, plus a rapid growth in what Kevin Phillips has called the “financialization” of the US economy.

Last year, Rubin teamed up with economist Jared Bernstein of the left-leaning Economic Policy Institute to write (before George Bush and Henry Paulson set us on the track of multi-trillion-dollar bank and Wall Street bailouts) that “the single largest factor in our projected fiscal imbalances are the health care entitlements Medicare and Medicaid.”

What Rubin and Bernstein also agreed on was the need to achieve “a health care reform that expands coverage to more Americans yet constrains costs.”

“While plans that would accomplish these goals have some cost, by pooling risk and stressing cost effectiveness, they could more than pay for themselves by reducing the growth trajectory of our health care spending, in both the private and public spheres,” they wrote.

Okay, fine. That’s what most people want—unless by the term “people” one includes lobbyists for medical equipment-makers, for big pharma, for big insurers, and for other powerhouse interests.

Soon, probably by mid-summer, we will read about whether the Obama administration will follow through on the agreement by fiscal disciplinarian Rubin and labor-oriented Bernstein that cost-shaving, broad-based, even universal healthcare coverage is a fiscal and economic necessity.

But remember the lesson of Moynihan, who back in the early 1980s arranged the great big tax increase that was essential for shoring up the Social Security trust fund.

Moynihan got his Social Security fix enacted because everybody was committed to the essence of the program, and because he got a deal to make it safe for a bipartisan majority of Congress to vote for a tax increase.

There’s no bipartisanship likely, or even possible, on anything today. And the Robert Rubin who believes in “fiscal discipline” when the discussion concerns Medicare and Medicaid is the same Robert Rubin who has advised Obama to create a trillion-dollar bailout for financial institutions, following the $700 billion bailout engineered by his former Goldman Sachs cohort Henry Paulson.

If an expensive fix for healthcare is going to get enacted, then the discourse on “fiscal discipline” is going to have to take a Moynihan turn, thus: Robert Rubin and his group of Obama advisors are going to have to embrace a new, post-stimulus, post Wall Street bailout definition of discipline. Our best hope that they do is that the MÍoynihan of today is the guy in the Oval Office.

Bruce Fisher is visiting professor of economics and finance at Buffalo State College, where he directs the Center for Economic and Policy Studies.