The Daily Dish 2.25.13

The Wall Street Journal  reports that "attention is beginning to shift from Friday, when the broad cuts known as sequester kick in, to the next budget deadline: Congress must pass a so-called continuing resolution by the end of March to keep funding government operations." The plan would "extend operating funds at the lower levels set to kick in Friday and to give more flexibility to the Pentagon to manage its cuts." 

But focus at the White House remains entirely on the politics of the sequester. The Washington Post notes "seeking to raise alarm among a public that has not paid much attention to the issue, the White House on Sunday released 51 fact sheets describing what would happen over the next seven months if the cuts go into effect." Meanwhile, the fact is that the sequester is current law. Without an alternative plan to cut an equal level of spending, they will take effect on Friday. 

A dose of good news from Reuters: "U.S. companies' capital spending plans are holding up, and mostly exceeding Wall Street forecasts, in the face of policy concerns created by arguments in Washington over the fiscal cliff, the debt ceiling and now automatic spending cuts. Their willingness to spend on new offices, plants and machinery, as well as a pickup in deal making, shows that they are starting to dig into the massive amounts of cash that has been collecting more dust than interest on their balance sheets." But before we plan the party, remember that "at least some chief executives…blamed uncertainty over U.S. government budget and tax policy for a reluctance to invest and hire." It does not seem like there is any shortage of uncertainty today either. 

Perhaps they have just grown disinterested in Washington's budget battles. Can you blame them? 

Doug's Daily Economic Outlook

Much ado has been made of the recent decline in the rate of growth of health care spending -- you got that right a decline in the rate of growth -- with some tempted to declare victory in the war on excessive health care spending growth.  Not so fast.  The dominant fact is that over the past 4 decades health spending per person (costs) in the U.S. has risen faster than income per person (resources) by 2.0 to 2.5 percentage points every year.  When costs grow faster than resources by that margin for forty years you have a problem -- in the U.S. health care spending rose from 7 to 18 percent of GDP.

So it is good news that spending growth has slowed to only a percentage point faster than income.  Along with this, Medicare spending growth has slowed and the New York Times is reporting that this is taking the wind out of the sails of Medicare reform.  

Not so fast.  Remember two things.  First, this slowing has happened before many times -- most notably in the mid-1990s -- and has always quickly reversed.  And this time, there is a predictable reason for spending to rise again: the new subsidies in the health care reform.  Beginning next year millions more Americans will receive highly subsidized insurance coverage with the result that they will spend more -- about 1/3 more than when uninsured on average.  Costs will again raise, the celebration will end, and the need for Medicare and other entitlement reform will remain unchanged.

What We're Reading

Economic Reports for the Week Ahead -- Data to be released this week includes the Standard & Poor's/Case-Shiller housing price index for December and the fourth quarter, new home sales for January and consumer confidence for January (Tuesday); durable goods for January and pending home sales for January (Wednesday); weekly jobless claims, fourth-quarter G.D.P. (revised) and the Chicago P.M.I. for February (Thursday); and personal income and spending for January, the Thompson Reuters/University of Michigan consumer sentiment index for February, the ISM manufacturing index for February and construction spending for January (Friday). (NY Times) 

The big sequester gamble: How badly will the cuts hurt? -- With the ax set to fall on federal spending in five days, the question in Washington is not whether the sequester will hit, but how much will it hurt. Over the past week, President Obama has pained a picture of impending disaster warning of travel delays, laid-off firefighters and pre-schoolers tossed out of Head Start. Conservatives accuse Obama of exaggerating the impact, and some White House allies worry the slow-moving sequester may fail to live up to the hype. (WaPo) 

Debating Future of Fannie and Freddie -- Four years after Fannie Mae and Freddie Mac were taken over by the Treasury Department, there has been little serious movement to revamp the housing-finance giants and the $10 trillion U.S. mortgage market that they support. But a behind-the-scenes effort to jump-start the debate over Fannie's and Freddie's future is under way, and the broad outlines appear to favor winding down the two companies, expanding the role of the private sector and placing more emphasis on government support for rental housing. (WSJ) 

In Florida, a health-care quandary -- Almost overnight, Florida has gone from being an ardent opponent of the federal healthcare law to a laboratory for an ambitious experiment under it. If state lawmakers back Gov. Rick Scott's plan to expand Medicaid, it will be an experiment with a determinedly free-market twist. Scott's turnabout on Medicaid last Wednesday came a few hours after the federal government tentatively approved his application to fully privatize the federal-state program for the poor. (WaPo) 

A Complex Role for Medicare in the Standoff in Washington -- In some ways, the partisan standoff over looming budget cuts resembles earlier links in the chain of fiscal battles that began two years ago. But the politics of one core dispute between Democrats and Republicans -- what to do about Medicare -- are changing. And some of those changes complicate President Obama's agenda, even as he continues to flex his post election muscle. (NY Times) 

Canadian officials make climate case in DC ahead of Keystone pipeline decision -- Alberta's provincial government is trying to burnish its image on climate change as top Canadian officials make the case for U.S. approval of the Keystone XL oil sands pipeline. (The Hill) 

Also From the Forum

The Week in Regulation -- Regulatory burdens increased modestly this week, with $130 million in costs and more than 308,000 paperwork burden hours. A proposed Affordable Care Act regulation imposing medical loss ration (MLR) requirements for Medicare Advantage plans highlighted this week. (Breakdown here)