Four years ago, I put together some New Year’s Day Resolutions for the GOP.
Three years ago, I made some policy predictions for the new year.
But since I obviously don’t control Republicans and since I freely admit that economists are lousy forecasters, let’s do something more practical to start 2015.
Let’s simply look at three very important things that may happen this year and what they might mean.
1. Will the Republican Senate support genuine entitlement reform?
One of the best things to happen in recent years is that House Republicans embraced genuine entitlement reform. For the past four years, they have approved budget resolutions that assumed well-designed structural changes to both Medicare and Medicaid.
There were no real changes in policy, of course, because the Senate was controlled by Harry Reid. And I’m not expecting any meaningful reforms in 2015 or 2016 because Obama has a veto pen.
But if the Republican-controlled Senate later this year approves a budget resolution with the right kind of Medicare and Medicaid reform, that would send a very positive signal.
It would mean that they are willing to explicitly embrace the types of policies that are desperately needed to avert long-run fiscal crisis in America.
I don’t even care if the House and Senate have a conference committee and proceed with actual legislation. As I noted above, Obama would use his veto pen to block anything good from becoming law anyhow.
My bottom line is simple. If GOPers in both the House and Senate officially embrace the right kind of entitlement reform, then all that’s needed is a decent President after the 2016 elections (which, of course, presents an entirely different challenge).
2. Will there be another fiscal crisis in Greece (and perhaps elsewhere in Europe)?
The European fiscal crisis has not gone away. Yes, a few governments have actually been forced to cut spending, but they’ve also raised taxes and hindered the ability of the private sector to generate economic recovery.
And the spending cuts in most cases haven’t been sufficient to balance budgets, so debt continues to grow (in some cases, there have been dramatic increases in general government net liabilities).
Sounds like a recipe for further crisis, right? Yes and no.
Yes, there should be more crisis because debt levels today are higher than they were five years ago. But no, there hasn’t been more crisis because direct bailouts (by the IMF) and indirect bailouts (by the ECB) have propped up the fiscal regimes of various European nations.
At some point, though, won’t this house of cards collapse? Perhaps triggered by election victories for anti-establishment parties (such as Syriza in Greece or Podemos in Spain)?
While I’m leery of making predictions, at some point I assume there will be an implosion.
What happens after that will be very interesting. Will it trigger bad policies, such as centralized, European-wide fiscal decision-making? Or departures from the euro, which would enable nations to replace misguided debt-financed government spending with misguided monetary policy-financed government spending?
Or might turmoil lead to good policy, which both politicians and voters sobering up and realizing that there must be limits on the overall burden of government spending?
3. If the Supreme Court rules correctly in King v. Burwell, will federal and state lawmakers react correctly?
The Supreme Court has agreed to decide a very important case about whether Obamacare subsidies are available to people who get policies from a federal exchange.
Since the law explicitly states that subsidies are only available through state exchanges (as one of the law’s designers openly admitted), it seems like this should be a slam-dunk decision.
But given what happened back in 2012, when Chief Justice Roberts put politics above the Constitution, it’s anybody’s guess what will happen with King v Burwell.
Just for the sake of argument, however, let’s assume the Supreme Court decides the case correctly. That would mean a quick end to Obamacare subsidies in the dozens of states that refused to set up exchanges.
Sounds like a victory, right?
I surely hope so, but I’m worried that politicians in Washington might then decide to amend the law to officially extend subsidies to policies purchased through a federal exchange. Or politicians in state capitals may decide to set up exchanges so that their citizens can stay attached to the public teat.
In other words, a proper decision by the Supreme Court would only be a good outcome if national and state lawmakers used it as a springboard to push for repeal of the remaining parts of Obamacare.
If, on the other hand, a good decision leads to bad changes, then there will be zero progress. Indeed, it would be a big psychological defeat since it would represent a triumph of handouts over reform.
I guess I’m vaguely optimistic that good things will happen simply because we’ve already seen lots of states turn down “free” federal money to expand Medicaid.
P.S. Let’s close with some unexpected praise for Thomas Piketty. I’m generally not a fan of Monsieur Piketty since his policies would cripple growth (hurting poor people, along with everyone else).
But let’s now look at what France 24 is reporting.
France’s influential economist Thomas Piketty, author of “Capital in the 21st Century”, on Thursday refused to accept the country’s highest award, the Legion d’honneur… “I refuse this nomination because I do not think it is the government’s role to decide who is honourable,” Piketty told AFP.
It’s quite possible, perhaps even likely, that Piketty is merely posturing. But I heartily applaud his statement about the role of government.
Just as I applauded President Hollande when he did something right, even if it was only for political reasons.
But let’s not lose sight of the fact that Piketty is still a crank. His supposedly path-breaking research is based on a theory that is so nonsensical that it has the support of only about 3 percent of economists.
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