On Tuesday, some of Washington’s leading budget experts released a public memo to the President providing advice on what he should do in his upcoming 2010 budget.
The list of signatories is a who’s who of seasoned fiscal policy experts. There are three former directors of the Congressional Budget Office (CBO), a former director of the Office of Management and Budget (OMB), and several others with long experience in senior level positions in the White House and Treasury. In short, these people know what they’re talking about. And this is what they said to President Obama:
Although we are rightly absorbed by our short-term problems, the long-term budget situation ultimately poses graver challenges to the success of your presidency…. Your budget should make it very clear that you take the long-term budget problem seriously. It must quantify the cost of our long-term promises and explicitly state the goal of achieving fiscal sustainability.
That’s right. The country is in the midst of a severe economic contraction and financial crisis, but we are also heading into the years marked by the retirement of the baby boom generation. Very shortly, there will be a tidal wave of new applications for Social Security and Medicare benefits, and spending pressures will grow.
But what should President Obama do about the long-term budget imbalance? Here, the experts have precious little to offer:
First, you should give high priority to putting Social Security on a sound fiscal basis to reduce future deficits and show our creditors that we are taking serious steps to manage our national finances. Second, you should take quick action to reduce the growth of Medicare by shifting to payment systems that reward effective treatments and discourage wasteful spending.
Certainly, with regard to Social Security, there are many different plans available to close the program’s financing gap, so it is perhaps understandable that their advice to Obama was not overly specific.
But Medicare is a different story. Yes, Medicare should revamp its payment systems to reward efficiency. But how, exactly? Congress and HHS have been working on just that for decades, with almost nothing to show for it.
The reality is that Congress and the federal bureaucracy are simply incapable of engineering a more cost-effective system for delivering care to the beneficiaries because political pressures always ensure protection of incumbents.
What’s needed is a structural change in the program so that beneficiaries, not the bureaucracy, control the use of the entitlement. Beneficiaries should be given the freedom—and the responsibility—to select a delivery system for their care, as well as the insurance they would like to finance some of the costs. With cost-conscious consumer choice and appropriate government oversight, competition in the marketplace can bring about the kind of change and productivity improvement that Congress and the bureaucracy have never been able to deliver.