As is often the case, I am mystified by those who insist deficits per se, as opposed to the consequences of deficits, are the problem. Consider this review by Jacob Hacker and Paul Pierson of Joseph Stiglitz’s and Paul Krugman’s recent books:
America’s long-term debt picture poses serious problems, as both Stiglitz and Krugman recognize—especially in funding health care, for example—but Krugman pointedly reminds us that the economic and social costs of a premature pivot toward deficit reduction are catastrophic. (He quotes Keynes: “The boom, not the slump, is the time for austerity.”)
….Most obviously, since projected long-term deficits are largely driven by rising health costs (which threaten the private sector at least as much as the public), a serious response to long-term deficits would address the factors that make our health care by far the most expensive in the world. We would follow the example of other nations, using the buy- ing power of government to produce real cost containment in the medical industry, rather than following the blueprint outlined in the Ryan Plan, which produces “cost savings” by simply gutting the programs that give tens of millions of Americans access to care.
There are plenty of reasons why we should spend less on healthcare. High public healthcare spending drives up costs for private sector spending (and the private sector can’t sell Treasuries to make up the shortfall). There could be a lot of wasteful, and even harmful spending (i.e., unnecessary tests that lead to unneeded procedures). Some of what is called ‘waste’ is actually political corruption (which then uses those profits to ensure that corruption’s continued survival). We might (or might not) think we pay medical workers too much, or that administration costs are too high (typically not a problem for government-run healthcare though). Healthcare CEOs and shareholders, pharma executives and the like might be getting too much money.
However, we might want to spend more in certain areas, such as infection control. So, overall, we might want to reduce the deficits caused by the healthcare system because that is better policy, both in terms of macroeconomics and health. But I do not get the concern with long-term deficits. Not only is it bad politics (because people have to like this crap–I will end up paying more than my parents into a system that will be worse in that it starts later), but it makes no sense as the federal government can spend the money. It’s a currency issuer, not a currency user (note: to the extent states have to pony up complementing funds, they are screwed by rising healthcare costs, though that could be fixed by making the program entirely federal).
By all means, to the extent that deficits reflect a lousy healthcare system, let’s enact policies that lower costs. But let’s view this as bad policy, not a deficit problem.