The Congressional Budget Office recently released an update to their 2014-2024 budget projections, sending the Washington Budget wonks into a frenzy. With deficits projected to reach heights not seen since World War Two, the spin doctors have been out in full force trying to turn around recent report. One such man is New York Times columnist Paul Krugman. Armed with a Nobel Prize in New Trade Theory, Mr. Krugman’s opinion column carries extraordinary weight in intellectual circles however his latest on Medicare doesn’t pass the smell test upon closer examination.
Krugman recently wrote of the “Medicare Miracle” about how the growth of Medicare spending had slowed compared to earlier projections. This slowdown he argued shows that entitlement spending and America’s long term fiscal outlook is not as bleak as previously anticipated. The problem with Krugman’s analysis is that it’s incredibly narrow in focus and fails to account for healthcare and mandatory spending as a whole. His rationale took a further hit when CBO announced that tax receipts would be $2 trillion less than expected by 2023 and the Medicare savings he championed just a week ago would be erased five times over.
According to the CBO, spending on major health care programs “will jump by 67 billion (or about 9 percent) in 2014”, this spending is primarily due to costly expansion of Medicaid as well as costly subsidies to for individuals who signed up for Obamacare. Contrary to the opinion of Mr. Krugman, this trend of increased healthcare spending is unlikely to decline anytime in the near future. Overall Health Care Spending is projected to increase from $935 billion in 2014 to $1.7 trillion in 2024. Medicaid spending increased by 15 percent while spending on Obamacare subsidies increased from $1 billion to $17 billion from 2013. While the rate of growth for one program may have slowed, Medicaid and Obamacare spending has certainly picked up the slack at total healthcare spending will increase from 4.9 percent of GDP to 5.9 percent of GDP by 2024. By telling only one third of the overall spending on health care one could be forgiven thinking that Mr. Krugman is simply peddling talking points for ideological reasons.
More worrisome than simply healthcare spending however, is the amount that mandatory spending will eat up in the coming decade. Mandatory spending from the major health care programs and social security and interest paid on Americas debt will consume over 85 percent of the total budget over the next decade. This leaves a paltry 15 percent for all the other essential functions of government that many Americans rely upon. Furthermore this increase in mandatory spending will drive America even further into debt. By the end of the CBO projection window government debt held by the public will eclipse $20 trillion and account for nearly 77 percent of America’s GDP. This is a shocking increase as recently as 2007 debt held by the public was only 35%.
While Mr. Krugman and his fellow tax and spend progressives would have you believe things are looking up for America’s fiscal health, the truth is far less rosy. Instead of laying out the facts of the full report, Krugman instead opted for a convenient op-ed headline to please his devoted readership, no doubt. Perhaps next time Mr. Krugman will read the entire CBO report instead of cherry picking the facts to help his case.