Last month we voiced some skepticism over the idea that higher government spending just shy of a trillion dollars for a redo on healthcare would reduce the budget deficit. A month later, this particular strain of our apprehension remains alive and well.
The devil, of course, is always in the details when it comes to complex pieces of new legislation of a certain magnitude and there’s no reason this evening to think that Mephistopheles has changed his stripes when it comes to the latest round of economic logic in the healthcare debate. In particular, James Pethokoukis at Reuters is reporting that the problem of double counting Medicare tax hikes is painting a misleading picture of how much healthcare “reform” will reduce red ink in Washington. The Congressional Budget Office has been dragged into the argument over who’s spending what and how often. To quote the CBO analysis:
To describe the full amount of [hospital insurance] trust fund savings as both improving the government’s ability to pay future Medicare benefits and financing new spending outside of Medicare would essentially double-count a large share of those savings and thus overstate the improvement in the government’s fiscal position.
Apparently the pols in the capitol are playing fast and loose with the budgetary projections. Shocking, shocking. Yes, Virginia, there may be savings when all the healthcare reform dust clears, but you can continue to count us as skeptical.

Is there no way, said I, of escaping Charybdis, and at the same time keeping Scylla off when she is trying to harm my men?
Homer’s Odyssey
We can argue if today’s encouraging numbers on consumer spending and personal income for November are skewed because it’s the holiday season (a.k.a. an excuse-to-spend season). We can also debate if yesterday’s downward revision in third-quarter GDP implies that the recovery will be unusually sluggish. And we can go back and forth over yesterday’s sharp rise in November sales of existing homes on whether that’s due a first-time buyer’s tax credit that expired last month. Of course, we can also throw around some ideas about how much if any of the government’s stimulus deserves credit for keeping the country out of the black hole of economics. But for now, the recovery trend in post-apocalyptic America is intact.
Deciding if it’ll remain intact is the great unknown. More than likely this will be a debate over the degree of the recovery’s magnitude and duration. Never say never, but short of a new and unexpected negative of some consequence arriving on the economic scene in the weeks and months ahead, the U.S. recovery has legs. Exactly how wobbly those legs prove to be is the question. But if we step back and look at the broader trend in the statistical front line for economic fate—spending and income—there’s no denying the upward bias, as our chart below shows.

There’s still plenty to worry about, but most of the anxiety is related to how the growth in 2010 plays out. Yes, there’s an expansion building, but it’s not yet clear it’ll suffice for the challenge ahead.
“I think we’ll be ‘driving sideways’ in both the California economy and the U.S. economy,” UC Berkeley economist Barry Eichengreen opines today. Meanwhile, Brian Bethune, an economist with IHS Global Insight, predicts the U.S. economy will expand by a modest 2.0% to 2.5% next year. “It’s a half-speed recovery.”

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