Health-Care Cost Lies Make Us Sing the Blues

March 23 (Bloomberg) — "So lie to me, lie to me, I'd rather have it that way."

Every historic moment has its soundtrack, and passing U.S. health-care legislation is no exception. The song for this bill is "Lie to Me," recorded by blues singer Brook Benton in 1962.

Benton's song is a plea to the woman who cheated on him to lie to him about it and instead say everything's fine. The tune came to mind while watching some voters applaud Democratic leaders as they promise that the new law will reduce budget deficits by $1 trillion.

"Just lie, lie, lie."

Everyone knows the bill will widen deficits over time. Entitlement and mandate expansions always do. And everyone knows that health-care reform isn't about fiscal rectitude. As Peter Orszag, the director of the Office of Management and Budget, wrote last summer, the point of the proposal "was never to generate savings over the next decade." It was to insure the uninsured. There's a kind of masochistic consolation in the very improbability of the Democratic promise of savings.

"Because the truth would only hurt me

And that price is just too big to pay."

The question is how can lawmakers get away with their misrepresentation? One answer lies in the structure of the Congressional Budget Office, the government's official accountant. Its job is to establish an honest price: to tell legislators and voters what a policy will cost in the short, medium and long terms. That CBO work is important because Americans rightly sense that the politicians' math is rigged.

"Nobody told me you were cheating.

Aww, it's just a feeling I had."

Flawed Assumptions

The CBO's rules make it hard for the group to fulfill its own mandate. You'd think, for example, that the CBO would use its own parameters when it crunches numbers. Instead, the CBO must use the same mathematical assumptions supplied by the very lawmakers who wrote the bill the group is evaluating. No matter how improbable those formulas are.

Former CBO director Douglas Holtz-Eakin, writing in the New York Times, described the group's process as "fantasy in, fantasy out."

CBO rules often preclude common sense. Its forecasters can't take into account any other legislation when studying the price tag of a proposed bill. That enabled the forecasters costing out House Speaker Nancy Pelosi's bill to overlook this fact: Medicare spending increases will force tax increases, which in turn will hurt growth.

Political Salesmen

This dynamic is permitted because the answers the CBO supplies make it easier for politicians to sell their bills. They're happy. And so, for the moment, are voters who are painfully aware that the U.S. federal budget can't cover new entitlements, yet accept such legislation as a balm for that pain.

"So if I'm right, you got to lie to me

Then I won't feel so bad."

The CBO's structural failure benefits the Democrats this week. Indeed, Pelosi is teaching Republicans something: the bigger the misrepresentation, the greater the credibility with voters. Croon to them a tune about entitlement, and they forget that you're clearing a path for a tripling of the tax on dividends.

The CBO's rules are bipartisan — they hold for whatever legislation lands in its in box. Congressman Paul Ryan, a Republican from Wisconsin, recently put forward a new blueprint for the federal budget. Ryan's plan is less questionable than Pelosi's because it's relatively honest about costs. Ryan points out that the current unfunded part of the Medicare liability is in the trillions.

No Traction

The tax cuts Ryan proposes allow for more possibility of growth than Pelosi's health-care bill. When CBO studied Ryan's plan using Ryan's assumptions, however, it placed a question mark over the plan that wasn't there before. Everyone knew the numbers came out the way Ryan wanted them to. His proposal, therefore, is having a hard time gaining traction.

How did the CBO get to play this role in the first place? Its start in the early 1970s was hopeful — who can dislike a new bipartisan accountant?

Still, the group's role in the budget process proved problematic early on. Democrats and Republicans spent the 1990s mired in a tedious quarrel about whether the office should use so-called static analysis — the kind that assumes growth stays the same when you lower tax rates — or dynamic analysis, which presumes that rate cuts generate extra growth. Time that could have been spent reforming Social Security or Medicare was instead spent fighting over who got confirmed as CBO director.

Wrong Turns

Every adult concerned about the future has pinpointed that moment in the past, when, he believes, the country took its fatal wrong turn. Some blame the introduction of Windows 95 and the dawn of the Internet age. Others trace it all to the launch of Fox News. Still others pick CBO's creation. That's because the accountants at CBO, unintentionally to be sure, have made obscene budgets look decent by garbing them in the sober costume of fiscal responsibility.

Of course, the CBO laws or rules can be rewritten at any point. But they won't be, even if voters tire of the "Lie to Me" dynamic. That's because lawmakers won't give up the game. They would rather have it that way.

(Amity Shlaes, senior fellow in economic history at the Council on Foreign Relations, is a Bloomberg News columnist. The opinions expressed are her own.)

© Copyright 2010 Bloomberg

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