Could California's Crisis Kill Health Reform?

In Bloomberg, Kevin Hassett argues that when Americans get wind of how California is dealing with its $24 billion state deficit -- that is, paying with IOUs -- they will rebel against Obama's health care plan and bury the number one policy initiative of his first term. Does this make any sense?



California's fiscal disaster was brought on by the state lawmakers' unwillingness to spend less for fear of denying constituents services, and taxpayer's unwillingness to pay more for fear of paying more. Hassett calls this an impasse (I would call it politics), and in Washington, this kind of thing happens all the time. Ronald Reagan thought that if Americans paid lower taxes, the government would raise more money. George Bush thought Reagan was right, so he lowered taxes even more. And Barack Obama's health care and climate change bills both operate under the principle that we can create savings opportunities in the future if we spend money on new programs today.

But here's Hassett on why this time is different:

If Obama's health-care plan passes, then we may well end up paying for it with federal slips of paper worth less than California's. Obama has bet everything on passing health care this year. The publicity surrounding the California debt fiasco almost assures his resounding defeat.

Is that true? Could publicity over California's deficit problem really translate into falling support for health care? The most recent study I could find on this, a Gallup poll from late June, finds that Democrats still value health care reform, even over deficit reduction. It's Republicans who seem to be drawing the line between state government budget problems and an increase in the federal budget deficit.

Ultimately, Hassett falls into the same trap as his Bloomberg buddy Amity Shlaes -- he derides Obama's deficits without providing any sort of alternative to our long-term fiscal crisis. Spending cuts? Nope. A tax increase? Don't make me laugh. Instead, Hassett is hopeful that we'll get "some [health care] bill that has health in the title but costs almost nothing and does even less." In the short term, that idea will absolutely 100 percent keep deficits lower than Obama's plan. In the long term, however, it does nothing to solve this:

Or this: