Pretending we're not broke

It's not working anymore. [Link]

No one takes the 2010 Medicare trustee report’s long-run projections seriously, least of all Richard Foster, Medicare’s chief actuary. Foster added this statement to the end of the report: “The financial projections shown in this report for Medicare do not represent a reasonable expectation…in either the short range…or the long range.”

This isn’t the first administration to conceal our long- term fiscal problem. Back in 1993, Alice Rivlin, then deputy director of the Office of Management and Budget, asked me and economists Alan Auerbach and Jagadeesh Gokhale to prepare a long-term fiscal gap/generational accounting for inclusion in President Bill Clinton’s 1994 budget.

Politics Triumphs

We worked for months on the analysis, but two days before the budget’s release, the study was excised from the budget. We were shocked, but, in retrospect, the politics are clear. The Clinton administration wanted to claim it was fiscally prudent and the study, which showed unofficial debt growing at enormous rates, showed the opposite.

The fiscal gap’s next near appearance in a president’s budget was in 2003. Treasury Secretary Paul O’Neill commissioned Gokhale and Kent Smetters to do the study. It showed a massive $45 trillion fiscal gap -- not a great basis for pushing tax cuts or introducing the prescription-drug benefit for seniors, known as Medicare Part D. O’Neill was ousted on Dec. 6, 2002, and a couple of days later the fiscal-gap study was discarded.

I’m not sure whether censoring the fiscal gap is more dishonorable than fudging it. What I do know is that we can’t assume our problems away and that I expected far better of this president when I voted for him.