Speaking of correcting misperceptions, Bloomberg Business Week?s cover story included this enlightening exchange between Peter Orszag, President Obama?s recently departed Office of Management and Budget director, and Charles Calomiris, Columbia University professor of financial institutions:
Orszag: Over the long term, it is clearly right that entitlements are the key issue, and we should talk about health care because that is the core of the long-term problem. But if you are looking at the next five or 10 years, the nature of our problem is fundamentally different. I don’t think you are going to be able to get the majority of the fiscal adjustment necessary in 2015 or 2016 on the spending side of the budget.
Social Security changes will be gradually phased in and will protect current and near-retirees, which means their impact by 2015 is very modest. Most of the politically feasible Medicare and Medicaid offsets were part of the health-care bill, so the [odds] you are going to get a lot more by 2015 are not overwhelming. If you look at nondefense discretionary spending, even if you cut 5 percent from that, that is 0.2’percent of GDP. So the majority is going to have to come on the revenue side for the medium term.
Calomiris: I disagree with Peter when he says we just can’t get more than a 5 percent cut in nondefense discretionary spending. Nonsense! During the Bush Administration and in the last two years, we have substantially increased government expenditures. Government expenditures as a fraction of GDP are way too high. We need to go back and think about where we were 10 years ago and think about rolling back those programs, because we are broke.
