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The Citigroup Cincinnatus

by Patrick Brennan
On the career and ideology of Peter Orszag

Four years ago, President Obama swept into office on many lofty promises; one of them was a supposed allegiance to pragmatism, to “what works,” to high wonkery. David Brooks swooned about an administration whose members “typically served in the Clinton administration and then, like Cincinnatus, retreated to the comforts of private life — that is, if Cincinnatus had worked at Goldman Sachs, Williams & Connolly or the Brookings Institution.” Perhaps no one epitomized the archetypal heroic nerd better than Peter Orszag, President Obama’s first head of the Office of Management and Budget — and no one has so perfectly evinced the Obama administration’s deceptive rhetoric and disappointing results as Orszag himself.

A summa cum laude graduate of Princeton, Orszag holds a Ph.D. from the London School of Economics and spent time in the Clinton administration and at the Brookings Institution. He is undeniably a highly talented economist, analyst, and debater, but even in his most wonkish work, he spends at least as much time leading his audience astray as he does proposing viable policy ideas.

Consider Orszag’s area of academic experience, Social Security. He co-authored a 2004 book entitled “Saving Social Security: A Balanced Approach,” in which he and Peter Diamond, whom Obama unsuccessfully nominated to the Federal Reserve board, laid out a vision to reform the program. He cited that vision in a March 2012 column for Bloomberg View, contrasting his plan with Mitt Romney’s (he actually takes the details from a House GOP proposal that is similar to Romney’s). One problem is immediately clear: Orszag trumpets his proposed benefits and revenue calculations as superior to Romney’s, even though Romney’s plan takes up the green eyeshades’ burden of being based on current numbers. Social Security’s fiscal situation, of course, has seriously worsened since Orszag published his book in 2004; the program went into the red on a cash-accounting basis in 2010, something Orszag originally expected to happen in 2018.

Further, even though Orszag acknowledges that Social Security expenditures have jumped from 4 percent of GDP in 2004 to about 5 percent now, he claims that this isn’t of substantial concern, and “isn’t the core of our long-term fiscal problem.” Why? He explains that by 2050 all federal health-care expenditures (not just those of Medicare) will rise to 12 percent of GDP, double the cost of Social Security in that year. This of course does not make Social Security’s expected shortfall trivial, and Orszag does not mention that Social Security expenditures will reach 6 percent of GDP 15 years earlier, in 2035, presenting a grave fiscal problem in their own right.

Worse, Orszag’s entire case in favor of his plan and against Romney’s rests on the contention that Romney would dramatically cut benefits, but he describes these cuts misleadingly. He asserts that, under the GOP plan, “a medium earner (someone bringing in about $45,000 a year today) retiring in 2050 at age 65 would receive 32 percent less in annual benefits than under the current formula.” Readers might easily take the reference to cuts from the “current formula” to mean that Romney’s plan will provide future retirees 32 percent less in benefits than they would receive under today’s program. In fact, the current formula is a rate at which Social Security benefits will grow faster than the cost of living. The GOP plan would, like Orszag and Diamond’s, cut that rate but still provide substantial constant-dollar benefit increases to future retirees. Unlike the $716 billion cut that Orszag’s former boss has made to Medicare’s growth over the next ten years, placing it well beneath expected health-care-cost increases, Romney’s reduced benefit-growth rate for Social Security would keep the program’s payouts rising faster than the cost of living.

In another obfuscating comparison, Orszag’s op-ed explains that, by the current formula, in 2050 a “medium earner” will be entitled to $25,000 a year in Social Security benefits (in 2011 dollars), and asserts that this number is $7,500 higher than what Romney’s plan would offer, but just $2,500 higher than his own proposal. But he assumes the earner will stop working at age 65, which in 2050 will no longer be the retirement age under any plan. In fact, he attributes some of Romney’s putative benefit cuts to the fact that the Republican plan will raise the retirement age to 70, whereas the current formula and the Orszag-Diamond plan increase it to 67. The gap between the GOP plan and Orszag’s is not nearly as great at the points when they actually retire under the respective plans.

Orszag and Diamond’s book similarly claims to cut much less in benefits than other plans by counting retirement-age increases greater than those planned under the current formula as benefit cuts. A greater increase in the retirement age than Orszag and the current formula would enact is one way to preserve generous benefit levels without Orszag’s proposed onerous tax increases, which the CBO found would slow economic growth and reduce national saving. Of course, a higher retirement age does reduce the amount of money that an individual retiree will extract from the program, which is why Orszag presents it as a matter of honest accounting to treat it as a benefit cut. But since Romney’s plan provides similar benefits to people once they actually retire, Orszag’s accounting actually reflects an ideological assumption that Social Security is a national retirement and savings plan, rather than a safety net for the elderly.

Orszag has been no more fair-minded on the other key budgetary issue of our time, health care. A 2010 New York Times profile noted that he “has helped popularize the idea that reducing health care costs is essential to the country’s economic future and the sustainability of the federal budget.” Of course, Orszag was a member of the administration that passed the most significant piece of health-care legislation since Medicare, which aims to expand coverage and federal liabilities before reducing costs. Some believe that Orszag didn’t get his way within the administration on health-care policy, but this claim is less credible when one looks at his subsequent writings on health-care costs.

In a Bloomberg View column just before Paul Ryan was picked as the Republican vice-presidential nominee, Orszag critiqued the congressman’s Medicare plan — but he took on Ryan’s 2011 House budget rather than the later Wyden-Ryan plan. Conveniently, the main thrust of Orszag’s argument, that Ryan’s plan would merely shift future cost increases from the federal government to seniors, applies to the former but not the latter. (Under Wyden-Ryan, seniors are guaranteed Medicare benefits equivalent to the current ones.) In the same column, Orszag actually downplayed the problem of health-care costs, noting how much their growth slowed in 2009 and 2010 and attributing the change to Obama-administration reforms and other innovations, some of his own design, rather than to the economic downturn. He was a little too eager in offering this self-serving and soothing explanation, though: In September, the Health Care Cost Institute found that growth of costs had sped up again in 2011.

In a later column, Orszag did consider the core of Ryan’s proposals, competition and privatization, calling it the “private-market tooth fairy.” His evidence that savings from privatization are a fantasy is the Congressional Budget Office’s scoring of Ryan’s House plan, which found that it would result in higher Medicare reimbursement rates and administrative costs. But Orszag elided the CBO’s acknowledgement that its score does not take into account the possible savings from competition, an omission that means it cannot provide any evidence for his argument. And Orszag is not a man for whom ignorance of budget-scoring conventions is a good defense — he was director of the CBO from 2007 to 2008.

In fact, there is increasing evidence that competitive bidding can provide the same health-care services as traditional Medicare at lower cost. Orszag admits this, but attributes it entirely to “risk selection,” the practice through which plans like those in Medicare Advantage attract healthier, cheaper beneficiaries while still collecting top reimbursement rates from the federal government. Even if Orszag is right, as Reihan Salam has pointed out on   National Review Online, the federal government would save substantial sums just by applying competitive pricing to Medicare Advantage and reimbursing plans at rates reflective of their lower costs. Rather than let the evidence take him where it may, however, Orszag insists that we mustn’t “put all our chips down on the health-care competition tooth fairy.” What he seems actually to believe is that we mustn’t put any chips on competition, but must rely on bureaucratic cost controls. He thus rejects reforms that ought to appeal to a true “deficit hawk.”

Just like Cincinnatus, after a second turn of civil service, Orszag has returned to private life, heading to Wall Street to become vice chairman of global banking at Citigroup’s investment bank. The important difference is that if Cincinnatus had resembled Peter Orszag, he’d have spent his private and public lives trying to convince the Romans that the Sabines weren’t really at the walls, and still aren’t.

– Mr. Brennan is a William F. Buckley Fellow at the National Review Institute.

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