The President's (Former) Economy Guru

DATE January 26, 2006 ACCOUNT NUMBER N/A
TIME 12:00 Noon-1:00 PM AUDIENCE N/A
NETWORK NPR
PROGRAM Fresh Air

Interview: Douglas Holtz-Eakin discusses his position at the
Congressional Budget Office and his recent resignation
TERRY GROSS, host:

This is FRESH AIR. I'm Terry Gross.

Let me read what editorials in The Washington Post and New York Times had to
say when my guest Douglas Holtz-Eakin left his position as executive director
of the Congressional Budget Office, the CBO, in December. That's the office
that prices proposed legislation and analyzes its economic impact. The Post
wrote, "When Douglas Holtz-Eakin was named to head the CBO, we were a bit
jittery. Mr. Holtz-Eakin was going to the nonpartisan budget office from a
stint as the White House economist. Now he is leaving, and we're sorry to see
him go. He has been an honest and clear thinking director, who has resisted
political pressures to skew or sugarcoat the difficult policy choices
confronting Congress." The New York Times editorial said, "Often what Mr.
Holtz-Eakin said wasn't what his bosses wanted to hear. By going where the
facts and figures led, Mr. Holtz-Eakin also protected his agency, which may
be the last bastion of neutral government analysis in Washington."

Holtz-Eakin resigned from the CBO in December, three years into his four-year
term. He is now at the think tank the Council on Foreign Relations. We asked
him to talk with us about remaining nonpartisan in a partisan world, and to
talk about the analysis he gave Congress on taxing and spending.

Were you ever amazed at some of the creative ways that people in Congress spun
your reports?

Mr. DOUGLAS HOLTZ-EAKIN: Oh, the ingenuity of the Congress and the staffs is
limitless. And, yes, I was amazed. I can't remember a specific one, but the
art of spinning the numbers is really something that I came to admire in some
sort of clinical and distant way. The numbers really don't ever speak for
themselves. That's one of the, I think, interesting truisms that is just
wrong in Washington, at least. The facts don't speak for themselves. People
present the facts, and they spin them all the time.

GROSS: So you can't think of one really good example of crazy spinning?

Mr. HOLTZ-EAKIN: The tax ones are the best example. They always got
attention, even if what I thought was a pretty straight forward analysis was
being rolled out, there was attention paid to it and it was spun in the most
dramatic way.

We did a piece on the estate tax and small businesses and farmers. I had
worked on the estate tax as an academic. I believed it was widely known and
appreciated by everyone that very few farms were actually sold in order to pay
the estate tax and that while this was a nice talking point, no one would
really believe it, so I didn't really focus on this report. I thought, `Oh,
this is something everyone knows.' Out it came, immediate firestorm, and you
get the spin on one side, which is the estate tax is this awful thing, and
then you get the spin, interestingly enough, on exactly the same side that
says, well, the fact that they're not paying the estate tax, the fact that
they're not selling the farm means that they've already had to mess up their
business operation so badly to make sure that they aren't big enough to pay
the estate tax, so it's bad either way. So it was ingenuous spinning, and it
was one that I didn't really expect.

GROSS: You were recently on NPR's "Morning Edition" and you told Steve
Inskeep, you said, "I have the dubious honor of presiding over the largest
dollar deficits in federal history and, I promise you, it's not my fault." So,
what is it like to have been the head of the...

Mr. HOLTZ-EAKIN: I don't know why I say these things.

GROSS: It's a great quote. So what is it like to have that dubious honor?

Mr. HOLTZ-EAKIN: I get teased a lot, that's for sure. There are some people
who think it is my fault, who would either write or call and say, you know,
"Why are you doing this?" and I'd have to explain gently that, while I added
them up, I didn't make the choices that gave us those results. In the end,
it's hard sometimes to look at the fiscal picture which I think has some
serious challenges, to see them going unaddressed and to be in a position
where you think your advice is something that is important and might actually
change things. But it's a lesson in what really matters to the voters, and
that's appropriate. You can get too caught up in your importance in
Washington, and one of the things I learned was that's a danger.

GROSS: Were there times when you felt like you were watching us getting
deeper and deeper and deeper into debt, you were holding up the numbers, you
were issuing the reports about how policies were getting us even deeper into
debt, and, well, it didn't matter.

Mr. HOLTZ-EAKIN: I don't ever think it didn't matter, to be honest, and I
get asked a lot whether members of Congress understand what's going on with
the budget, whether they understand the kinds of long-term challenges we face
with Medicare, Medicaid, Social Security, and the answer's yes. They do, and
I'm, in the end, a great fan of Congress. I have a lot of fondness for the
Congress and a deep respect for the talents that are in the Congress. But
there is a public version of this, and it's a place where the widely discussed
partisanship really does come into play, where members are sticking to their
talking points, sticking to a message, and it gives the public the impression
they are either unaware or uncaring about the outlook when that's really not
actually the case.

GROSS: The President would like to continue his program of tax cuts. Can you
sum up your warnings about how the debt will increase if we continue to cut
taxes without significantly decreasing our spending?

Mr. HOLTZ-EAKIN: The easiest way to imagine the future is to just suppose we
go on fiscal autopilot and change nothing from where we are now. The really
dramatic growth will be on the spending side as the baby boom retires and
there are more individuals eligible for the old-age programs--Social Security,
Medicare, Medicaid. Those programs will grow dramatically.

Social Security, right now, benefits are about 4 1/2 cents out of every
dollar, and in the next several decades that will rise to 6 1/2 cents, so it
will go up by about 50 percent, and then ultimately get to about 7 cents on
the national dollar. So that program, which is our single largest program,
will get 50 to 60 percent bigger. That's the good news. Medicare, Medicaid,
currently also about 4 cents on the national dollar, will grow easily to 12
percent, 12 cents on our national dollar, triple in size, and may get bigger,
depending on how fast health care costs go up. So given that kind of spending
pressure, it certainly is the case that you cannot continue to lower the
amount of money coming into the federal government and, even if you raise
taxes, it may be the case that we can't keep up with the spending growth.

So it's really important to get these two sides of the budget to talk to each
other and form a coherent plan. I think the fairest characterization of
what's going on at the moment is nobody is looking at the complete picture.
Some people are looking at taxes, some are looking at war costs, some are
focused on Social Security, others on Medicare. But it really doesn't add up
in a coherent, planning fashion, which is what the budget is supposed to be.

GROSS: This is the first time, as far as I understand it, that we've cut
taxes during war time. What does the math look like, paying for Iraq while
cutting taxes?

Mr. HOLTZ-EAKIN: In the end, the income tax cuts that people have focused
on--2001, 2003 especially--constitute about 1 1/2, maybe 2 cents on the
national dollar. I think that's about the easiest way to get your head around
how much money is at stake. Iran and Afghanistan war costs are running on the
order of $60 to $70 billion a year. That's half a cent on the national
dollar. If you count in some broader costs, you might get up to a penny if
you count in some additional benefits that the returning servicemen will get
and the cost associated with medical care for those that are harmed while at
war. So, certainly, if you do that horse race, the tax reductions vs. the
Iraq war costs, you can make a fiscal case. You can't make the tax cuts match
up with the broader problem. They aren't big enough to take care of Social
Security; they aren't even close to the Medicare problem. So, again, one of
my frustrations in listening to the talk around Washington for the past couple
of years has been the nearly exclusive focus on taxes. And, in the end, if
you spend the money, you're going to pay for it one way or another, and to
talk about taxes when the real action is on what the government does--how much
does it spend, where does it spend it?--is, I think, very incomplete and very
misleading.

GROSS: Can you make the connection for us the amount of money that the tax
cuts take out of the budget with the amount of money that the war adds to the
budget? Like, can you put the equal sign and add that for us?

Mr. HOLTZ-EAKIN: Certainly. From a narrow budget perspective, the war adds,
say, on the order of a hundred billion dollars to the federal budget, probably
a little bit less. The tax cuts, they're easily twice, maybe three times
that, depending on the year in which take place. So it's real clear that the
tax cuts are bigger than the war costs, from a straight budget perspective.
The caveat that always has to come in from the economics perspective is
whether the broad swing in the budget, the swing from a surplus to a deficit,
had additional ramifications above and beyond just what the federal budget
looked like. And the answer is, yes, it did. The economy was very weak in
the early part of this century, and in the absence of the genuine stimulus
that came from the federal budget, we probably would not have come out of the
recession as well. And we were the sole source of growth in the global
economy, and so the global economy would have suffered somewhat. So it's hard
to stop at just the budget because there really are ramifications in economic
policy and, indeed, broader international policy that go beyond how it adds up
in the budget.

GROSS: So, are you saying that you have kind of a mixed review of the tax
cuts? You think on the one hand it stimulated the economy, which was good; on
the other hand, it's making it much harder to pay for the war in Iraq.

Mr. HOLTZ-EAKIN: It certainly makes it harder to pay for things, but there
were benefits as well, and the difference between looking back, where the
economy was weak and we certainly needed to do some things to put our economic
house in order and survive the recession and the war, vs. looking forward,
where the economy has now recovered, things are in pretty good shape, and we
have these big spending plans and not enough money to cover them, those are
two very different pictures.

GROSS: So what advice would you have about the wisdom of continuing the tax
cuts now, which is what the president would like to do?

Mr. HOLTZ-EAKIN: The central issue, and this is how it always breaks out, is
how big a government does the United States want? Now, if the current tax
laws are kept in place, we will raise about 18 percent of national income in
federal taxes. That's business as usual in the United States. We always
spend about 20 cents on the dollar, raise about 18 cents on the dollar in
taxes, and borrow the remaining two. That's how the federal government's been
essentially for the entire post-war. If we keep the current tax code...

GROSS: Post World War II?

Mr. HOLTZ-EAKIN: Post World War II.

GROSS: OK.

Mr. HOLTZ-EAKIN: Pretty much on average, current tax code would raise about
18 cents on the national dollar, so it would keep us at business as usual.
The real issue is whether that will be enough to cover the bills because we
are on track to have much more than the typical 20 cents on spending. We're
on track to go toward 30 cents in spending. So it's really an issue of just
how much you care about controlling the spending side. If you don't, then
it's impossible to imagine this current tax code will survive.

GROSS: My guest is Douglas Holtz-Eakin, and he resigned just a few weeks ago
as the director of the nonpartison Congressional Budget Office.

And let's take a short break here, and then we'll talk some more.

(Announcements)

GROSS: If you're just joining us, my guest is Douglas Holtz-Eakin, and he
recently resigned from his position as director of the Congressional Budget
Office, and he's now with the Council on Foreign Relations, a think tank.
Well, there were spending cuts made by Congress, and many of those cuts were
in programs like, you know, Medicaid, food stamps, student aid and loan
programs, day care subsidies. What kind of dent does that kind of spending
make on the larger problem of the debt that we face and that we're going to
continue to face, the debt that's going to keep growing?

Mr. HOLTZ-EAKIN: None. Those cuts are politically painful, evidently, and
symbolic in nature. They are tiny. They are $40 billion over five years.
That's $8 billion a year. We have a 2.2 trillion dollar spending budget.
This is pennies and doesn't even come close to the kinds of problems we face.

GROSS: So why do you think they were targeted, you know, as the places that
were cut? You know, Congress was saying, `Look,' you know, `we've got tough
choices to make, so these are the programs we're going to cut.'

Mr. HOLTZ-EAKIN: I think if you look at the places where the money is, the
big money is, number one, in Social Security. We have been through a year of
Social Security debate. I don't think anyone in Congress had the appetite to
touch that again. Number two, they are in Medicare, and Medicaid to a smaller
degree because the states pick up part of the cost there, so in the presence
of the prescription drug benefit and the heat that surrounded the expansion of
Medicare, that's another area where Congress, I think, was loathe to go again.
Third big spending item is defense. It's impossible to imagine cutting the
operating budget for overseas operations in Iraq and Afghanistan. It's
difficult to imagine cutting the baseline defense budget when you're at war.
So, if you take off the table all the places where the money is, what you're
left with are the kind of programs that got targeted, and there's not a lot of
money there, but there was certainly a tremendous amount of contention over
whether it was worth doing at all.

GROSS: So tell me if this is an unfair description. I think what you're
saying is that Medicaid, food stamps, student aid and loan programs, day care
subsidies were cut in the name of helping to balance the budget, but really
it's not going to help at all, but the people who were recipients of those
programs are paying the price.

Mr. HOLTZ-EAKIN: I'd agree up to the point where you say that it's the
recipients of the programs which are paying the price. For example, student
loans, a big chunk of the reductions were intended to come out of lenders in
the student loan programs, those banks who make student loans, get guarantees
from the government, and make a hefty profit on those loans. There was an
attempt to carve that back. That strikes me as a sensible thing to do. In
some cases, particularly Medicaid, the focus was on the cost of drugs, and
there the attempt was to make sure that the manufacturers of drugs paid
greater rebates back to the federal government. That's more money being given
to the federal government. It counts as negative spending in the magic of
federal budgeting, so that's a spending cut. So the broad characterization I
think you have to be careful with, program by program, there are places where
I know there are legitimate concerns, but as a general characterization, not
all the recipients are the ones at risk.

GROSS: Let me ask you another question about cutting taxes. This gets more
into opinion rather than just like a cold look at the numbers, but some
critics of the tax cuts say that the staunchest advocates of the tax cuts, who
have been very effective in advocating their plan, advocated for one of two
reasons. One is that they are ideologically committed to tax cuts as being
like the cure for everything. Or two, that the advocates represent the
wealthy or represent big business, which would stand to benefit from the tax
cuts. I don't know if you want to get into that level of opinion or not, but
from your perspective of having crunched the numbers, knowing the people in
Congress, trying to make all the arguments and all the numbers add up, what
would you say to those critics?

Mr. HOLTZ-EAKINS: There's a grain of truth to some of it, and I think some
of it is not on the mark. So in order--there are those who believe that tax
cuts are the cure for everything, and I don't have much sympathy for that
viewpoint. Number one is I told members of Congress when I took the CBO job,
not all tax cuts are created equal. Removing a dollar from the tax code by
cutting the top marginal tax rate and removing a dollar from the tax code by
having a health insurance tax credit and removing a dollar from the tax code
by fixing the alternative minimum tax are all three very different things.
And so the notion that somehow just cutting taxes regardless of how you do it
is just uniformly going to solve your problems is just misplaced. I have very
little sympathy for that.

There's another line of reasoning that really comes down to the point that I
made earlier about how big do you want the government to be? And there are
some advocates of the taxes, the tax cuts who really wanted to keep the
federal government's share of national income at 18 percent. That's that.
`We don't want a bigger government, so we're going to hold the line at that 18
percent,' and this becomes the starve-the-beast area where that's the money
coming in and eventually the beast has to live on 18 percent and you're done.
We haven't lived on 18 percent, so I think that you have to cast some doubt
about whether that's going to work.

And then the third piece is this fairness issue. And the part that I find
frustrating about that is that this is not your grandfather's income tax.
There's still a widespread perception that, as in the 1960s and even the
1970s, the income tax is a very broad-based, revenue raiser that affects all
Americans. That's no longer true. The income tax has slowly but surely been
adjusted to remove lower and lower income individuals from the tax rolls
entirely and, at this point, the bottom one-half of Americans pays only 5
percent of the taxes; the bottom quarter pays none at all. So the income tax
is really a tax on rich people. It's on the top 50 percent for sure, and the
top 5 percent pay half the taxes. And so I cannot imagine how you could have
a tax cut using the income tax that's fair, because there's so many people
that aren't on it at all. And it will in the end always be tilted towards the
upper income folks, and that's a fact of life that I think Americans need to
come to terms with.

GROSS: If there were a new office that was created called The Congressional
Office on How to Have an Honest and Meaningful Debate on Taxing and Spending
Without Spin, how would you--just to kind of--sum up the debate you think we
should be having on taxes?

Mr. HOLTZ-EAKINS: I would frame up the debate by talking about what we
should have on spending. I think we need to decide how much we will devote to
old-age programs in America, how much will we have in the way of retirement
support, health insurance and health care support, long-term care support,
nursing home support. What will that look like? We are moving to a world in
which there will be more old people. The baby boom will retire, one year goes
by, each year without fail, and people get older as a result. So that's
coming. It's plain as day. We need to accept that fact, put together a set
of programs that we believe are sensible programs for the 21st century, and
then come up with the money to pay for them. But to talk about taxes without
deciding what we're going to be paying for gets the cart before the horse, and
it's my biggest frustration with the way Washington has done business for the
past five years.

GROSS: Douglas Holtz-Eakin spent three years as the director of the
Congressional Budget Office. He resigned in February--that is, in
December--and he's now with the think tank the Council on Foreign Relations.
He'll be back in the second half of the show.

I'm Terry Gross, and this is FRESH AIR.

(Soundbite of music)

(Announcements)

GROSS: Coming up, why Social Security may be easier to reform than Medicare.
We continue our conversation with Douglas Holtz-Eakins, former director of the
Congressional Budget Office, and Maureen Corrigan reviews "Arthur and George,"
the new novel by Julian Barnes, based on an incident in the life of Arthur
Conan Doyle.

(Announcements)

(Soundbite of music)

GROSS: This is FRESH AIR. I'm Terry Gross back with Douglas Holtz-Eakin. He
served three years as the director of the CBO, the Congressional Budget
Office. It's the office that determines how much money the government is
spending and taking in, and estimates the cost of proposed legislation. The
CBO is not supposed to make policy recommendations. When Holtz-Eakin resigned
in December, he was praised in Washington Post and New York Times editorials
for remaining nonpartisan. He formerly served as the chief economist on
President Bush's Council of Economic Advisers.

Let's talk a little bit about the spending on the war in Iraq. Now, a lot of
the money we're spending isn't included in the actual budget. It's coming
under the category of "supplemental spending." What does that mean?

Mr. Holtz-Eakin: In the end, it means that it shows up in the budget after
the fact without fail. Nothing can escape the fact that to get payment, it
has to go through the US Treasury. So it is in the budget in that sense.
However, when the president proposes a budget at the beginning of each year,
this administration has chosen not to put the cost of the war in Iraq and
Afghanistan in the base budget. They've left it out entirely, sent the budget
up to Congress, and then Congress has begun its deliberations on how much it
wants to spend on different things in the absence of that piece of
information. So, if you think of the budget as a planning document trying to
weigh the costs of various different national needs, it's been left out of
that planning process. Now, Congress has tried to fill this gap to some
extent by putting an allowance in their budgetary plans for the cost, but the
administration is uniquely positioned to know how much the war is likely to
cost during the year. It has knowledge of its desires in terms of the number
of troops that are overseas and the scale of the effort that will be
necessary, and that's not been brought into the budgetary process.

GROSS: So what is the logic of leaving it out? Or what are the motives of
leaving it out of the actual budget and keeping it a supplemental spending?

Mr. Holtz-Eakin: The idea of a supplemental spending bill is typically an
emergency. Something has arisen that was not possible to plan for at the
beginning of the year, and the defense of leaving it out of the federal budget
comes in two forms. One, we don't really know what it will cost in a year in
Iraq, and I think that there are situations where that was defensible. After
the initial invasion, I don't think anyone had a great feel for how long the
United States would be there or how many troops would be necessary, and in
those circumstances, coming up with a number to put in budget would be very
hard. And that's been one defense. As time has passed, I think that defense
has gotten weaker and weaker, and the Pentagon has been fairly public about
its plans for troop rotations, and one could budget based on those plans. The
second is really a political argument that says, if we put it in the budget,
we'll raise the base defense budget and it will never come out. And that one
I don't have a whole lot of sympathy for. If we can make the decision to
raise spending, we can make the decision to lower spending as well.

GROSS: Does this kind of supplementary spending for the war create an
illusion that we're in better fiscal shape than we really are because the
budget--the full debt of the war doesn't show up in the official budget?

Mr. HOLTZ-EAKIN: It doesn't create that illusion. In fiscal year 2005, the
last year of which the government closed its books, money coming in was short
of money going out by $319 billion, and included in the money going out were
the costs of the war in Iraq and Afghanistan. So, in the end, the books show
the full cost of everything the government does. The question is, at what
point does that enter into the bookkeeping, and the administration has chosen
to take it out of the first couple of steps.

GROSS: One of your responsibilities when you were head of the Congressional
Budget Office was to review all the money that was spent in Iraq, and this
week the Office of the Special Inspector General for Iraq Reconstruction
issued a new audit of our spending in Iraq, and it found fraud and
incompetence. Money was paid for projects that were never completed.
Millions of dollars were just kept in the living and working quarters of
Americans and were never kept track of. You know, Paul Bremer, who's been on
a book tour and was been on our show, as well as many others, has said that
you couldn't do the kind of accounting that the Inspector General's office
wanted because there were things you had to pay for in a hurry. there was a
war around you. You can't do--it's hard to do all the administrative work and
so on. But I'm wondering if, from your point of view, having approved all the
money going to Iraq and then reading this report and seeing the level of fraud
and incompetence reported, what goes through your mind?

Mr. HOLTZ-EAKIN: I haven't read the report--I'll be honest--so I don't know
either the degree to which the dollars were frittered away in ways that seem
undesirable, or exactly what the list was. I think it's important in defense
of these kinds of findings to recognize that when the government tries to do
reconstruction in Iraq, when the government tries to do recovery from
hurricanes--whether it be Katrina, Rita, Wilma, or going back to Hurricane
Andrew--if you give people on the ground the authority to spend money and say,
`You know the situation. Do your best,' after the fact, you're going to find
situations where they made the wrong call, and you're going to find situations
that look, in some cases, absolutely silly, or you bought trailers or
undertook a restoration project that made no sense. So I'm a little bit
forgiving of the notion that it's easy to be a Monday-morning quarterback
sitting in an office in Washington. I'm not sitting on the ground in a war
zone. So with that caveat aside, it's the taxpayers' money. We have to spend
it wisely, and one of the things that I've learned is that you need to prepare
extensively to make sure that when people go into a situation like this, and
you give them authority, they also have the right reflexes, the right
training. They've drawn the experience of past operations in Bosnia and
Kosovo and a variety of other areas, so that we don't waste the money, despite
the natural pressures that lead to that. And I think that this kind of report
is testament to that, that not enough anticipation was in place about the
kinds of pressure that would come to bear on an Iraq reconstruction.

GROSS: My guest is Douglas Holtz-Eakin. He headed the Congressional Budget
Office for three years and resigned in December.

We'll talk more after a break. This is FRESH AIR.

(Announcement)

GROSS: Let me reintroduce you for our listeners just joining us. My guest is
Douglas Holtz-Eakin, and just a few weeks ago he resigned from the nonpartisan
Congressional Budget Office. He was the director of the office. He's now
with the think tank the Council on Foreign Relations.

You were talking about the importance of us a nation figuring out what our
priorities are in spending when it comes to Social Security, you know, health
insurance, Medicare, and then figuring out what is it going to take for us to
get enough money to pay for those programs. So let's talk a little bit about
the tough choices that had to be made about entitlements. You said you think
Social Security is easier to fix than Medicare. Why?

Mr. HOLTZ-EAKIN: Social Security is just money. And not to be cynical or
trite about it, but it's much simpler when a program just involves dollars.
Social Security picks up money in one part of the economy, transfers it to
another part of the economy. It has taxes; it has benefits. Pretty
straightforward program. It's been around for 70 years. Its problems are
fundamentally driven by the demography, the fact that we're getting older as a
nation. So its problems are well-understood, well-diagnosed, and there's a
big menu of fixes, regardless of whether you would like to have individual
accounts in or not like to have individual accounts in, whether you prefer
higher taxes or lower benefits. There are big menus. This is an easy to
solve policy problem.

Health care is very different, and Medicare and Medicaid are built on our
underlying health care challenges, and those involve very difficult ethical
issues. Access to the best technologies. Is it appropriate that everyone
should get the same thing regardless of their ability to pay? How do we
handle end of life expenditures, and what are the ethical norms there? And
health care costs are rising. In America, costs have outstripped the growth
of income by 2 1/2 percent per year. And so, if you think of income as the
well from which you can draw resources to pay the bills, and you look at costs
going up 2 1/2 percent faster every year than the well is getting filled,
you've got a big problem. That's a lot harder to solve than Social Security.
So I think it'd be useful for us to do Social Security first, put it on a
sound footing, remove the uncertainty, everyone will know the deal for their
retirement, n and then move on to the much more difficult challenge of health
care in America.

GROSS: Does the president's plan of privatizing Social Security accounts help
solve the Social Security deficit that we are likely to face a little down the
line as the baby boomers retire?

Mr. HOLTZ-EAKIN: No. Individual accounts are a policy decision. It might
be the case that--and people disagree on this--but it might be the case that
we decide that we want to have a Social Security system where individuals save
at least in part for their own retirement. Right now the Social Security
system relies on taxing young people to pay for the retirement of old people.
The old people do not save for their own retirement through Social Security.
So we could decide to have a different system, one in which people saved at
least in part for their own retirement. But in doing that the current young
workers would have to save for their own retirement, but they also have to pay
for the old people's retirement, so they're going to get hit twice, and that
doesn't make financing it any easier. It actually makes it harder. So
individual accounts are an important policy issue. They're worthy of an
extensive debate, but they're not a solution to Social Security's financial
problems at all.

GROSS: Are there, like, tune-ups we could do without overhauling the whole
system that would help the math?

Mr. HOLTZ-EAKIN: Certainly. There was a widely discussed proposal by a
gentleman named Robert Pozen in the past year. And that tune-up would take
the form of changing the initial retirement benefits that individuals will
get. So low-income individual will get the same deal they get now, but
high-income individuals would get smaller benefits in the future. They would
only go up with the rate of inflation. Low-income workers' benefits would go
up faster than that. The Pozen plan by itself brings the gap between spending
on Social Security and payroll taxes into alignment. Unfortunately, it only
does it after, you know, four, five decades, so the question is how do you
accelerate the process to take care of the fact that the baby boom's starting
to retire now. That would require something more dramatic in spending cuts or
more taxes going in. But there are tweaks that make the system look entirely
in alignment over the long term.

GROSS: We were talking about Social Security. Let's look briefly at the new
prescription drug benefit for Medicare. When you had to do an analysis for
Congress on what this would mean, what did you find?

Mr. HOLTZ-EAKIN: The CBO was asked at the time the bill was passed to
estimate its cost. It was actually an unbelievable undertaking. It's hard to
dial the clock back, but at the time there was no such thing in the American
market as an insurance benefit for outpatient prescription drugs, so that you
couldn't go buy from any private insurer a policy that says if I go to my
doctor and he prescribes some drugs that I'll have part of that cost covered.
So we had to imagine a new product and firms competing to provide that product
to 42 million seniors, the federal government picking up 75 percent of the tab
and just the enormous intricacy of the whole thing. We took our best stab at
it, said it would cost about $400 billion over the first 10 years.

And I think it remains to be seen exactly whether that estimate is right or
not, and our feeling at the time was it was obviously an estimate. We were
almost certainly going to be wrong to some extent. And our goal was to put
the estimate in the middle of the range, so we were just as likely to be too
high as to be too low. And I think it'll be interesting to see in the next
couple of months whether as many seniors sign up for this as the CBO
originally anticipated. If not, it'll look cheaper, not more expensive, which
is has been the real focus of attention. Or, if the seniors do sign up to the
degree that the CBO did, you know, will it turn out to be more expensive than
we thought? There's a, at least to me, a little academic aspect to this just
seeing how we did. But there's a real life experience on the ground of just a
very important expansion of the most important old-age program in America.

GROSS: Yeah, but if fewer seniors sign up for the program and the program is
there for cheaper than you envisioned, it will be cheaper because people
weren't using it. And if people aren't using it...

Mr. HOLTZ-EAKIN: Oh, I'm not saying it's a good thing.

GROSS: ...it's probably because they're too confused, right?

Mr. HOLTZ-EAKIN: I don't know the degree to which the confusion will
persist.

GROSS: Mm-hmm.

Mr. HOLTZ-EAKIN: There's always a mixed blessing in numbers. The original
concern was that not enough insurance firms would participate in this to get
healthy composition, hold cost down. Now the concern is too many are
participating, and the confusion in choosing is getting in the way. My guess
is that after a year we won't see 15 providers offering five different plans
each. We'll see the number of providers weed itself out, and it'll come down.
We'll see plans settling on a single program that they think is the best for
their clients. And the choices will, in fact, become streamlined, and
familiarity will really start to be more widespread. The beginning has
clearly been a challenge for both sides actually, both for the seniors and for
the drug companies.

GROSS: If you're just joining us, my guest is Douglas Holtz-Eakin, and he
spent three years as the head of the Congressional Budget Office. He resigned
just a few weeks ago and is now with the think tank the Council on Foreign
Relations.

When you left the Congressional Budget Office, The New York Times wrote an
editorial praising you for your true nonpartisan research. And the editorial
said, "Often what Mr. Holtz-Eakin said wasn't what his bosses wanted to
hear." Do you feel that that was so? And were there times that people said to
you, `Hey, we thought you were on our team?'

Mr. HOLTZ-EAKIN: Oh, yeah, certainly. But it wasn't just the Republicans
who, you know, had, in the end, the power to appoint me. The Democrats were
also discontent at times, and that's the nature of the business. It is your
job to tell people things that they sometimes just recognize will make their
lives much more difficult, and hearing it out loud frustrates them, sometimes
it angers them. I guess one of the things that I've been uncomfortable
with--although it's, you know, certainly very flattering to have important
papers like The Washington Post and New York Times write editorials saying,
you know, `Good job,' `Ah, gee, this merits special recognition'--in the end
what I really did was my job, and I find it troubling that so much attention
has been paid to something that should be commonplace. And if it is the case
that simply doing one's job has become such a rare event in Washington, then
that's a depressing fact. I don't savor that very much. So this little, you
know, episode of publicity is a mixed blessing to me. I sometimes feel that
it's a sign of bad things, not really a good thing.

GROSS: A sign of how partisan Washington has really become, that it's...

Mr. HOLTZ-EAKIN: Yeah.

GROSS: ...a big shock that somebody can actually be non partisan.

Mr. HOLTZ-EAKIN: Yeah. I find that troubling, and, you know...

GROSS: And in...

Mr. HOLTZ-EAKIN: ...in the end it's the job, and hopefully I did it well. I
would like to think I do jobs well. That's what you get up and go to work to
do, try to do a good job. But that's really what I thought I did, not more,
and this makes it sound like it was more.

GROSS: Mm-hmm. Why did you resign? It's a four-year term. You resigned
after slightly less than three?

Mr. HOLTZ-EAKIN: In the end, I had just a fabulous opportunity that I wanted
to be able to take at the Council on Foreign Relations. The council has a lot
of the same attributes as the CBO. It's a nonpartisan organization. It is a
think tank designed to produce research on policy issues to help inform the
Congress, the administration, the public as a whole. That's the same mandate
as the CBO.

It's broader in a way that I really found attractive. It is attempting to
integrate thinking about economic policy into thinking about foreign policy,
so that you don't find situations where if you don't know the economics, you
get the foreign policy wrong, or if you don't know foreign policy, you get the
economics wrong. I found that really appealing, having been more narrowly
concentrated on the economics for so many years, and it's, you know, clearly
recognizing that there aren't any great lines between domestic issues and
international issues any more. Farm policy's an international issue, not
about just the Midwest. And so that kind of environment was attractive to me.
And this opening might very well have gone away, so I took the chance. I
greatly enjoyed my time at CBO, but sometimes there is an offer that just--you
can't say no to, and this was one of those.

GROSS: What do you and do you not miss about your job as head of the
Congressional Budget Office?

Mr. HOLTZ-EAKIN: There's a certain amount of withdrawal not knowing what's
going on. There's an enormous amount of information that flows through the
CBO. The old truism that budget is policy is true, and, as a result, you know
a lot. By keeping track of the budget you find out a lot about what is being
proposed and contemplated, and I miss that, that sense of having a feel for
what's happening.

The flip side is that I think an honest assessment is that after five years in
government, two at the White House, three at the CBO, I am more tired than I
realize. And I enjoy the notion that perhaps I could catch up a little bit on
my sleep and have a little less pressure on a day to day basis, and I'm
looking forward to that.

GROSS: I find it really difficult to think in terms of trillions of anything,
you know?

Mr. HOLTZ-EAKIN: So do I. I always try to think of this as fractions of our
national dollars. The trillions are overwhelming. What does 2.2 trillion
mean anyway?

GROSS: Yeah. Well, that's what I'm wondering. Like, how do you deal with
numbers of that magnitude?

Mr. HOLTZ-EAKIN: I don't. But if I can at all avoid it, I try not to think
of $2.2 trillion in revenue and $2.4 trillion in spending. I try to think of
it as, `OK, Americans get up, they go to work, they earn a buck. Out of that
buck, government's going to spend 20 cents, it's going to take 18 in taxes and
we're going to borrow two cents.' I always try to bring it back to that `Out
of every dollar what are we doing?' Otherwise the numbers become too
overwhelming to feel real.

GROSS: Have you made out your taxes yet?

Mr. HOLTZ-EAKIN: I'm in the midst of filling out my 2005 taxes, and that's
always a good moment of reality, no question about it.

GROSS: All right. I want to thank you so much for talking with us.

Mr. HOLTZ-EAKIN: Sure. My pleasure. Thank you very much.

GROSS: Douglas Holtz-Eakin spent three years as the director of the
Congressional Budget Office. He resigned in December and is now with the
think tank the Council on Foreign Relations.

Coming up, Maureen Corrigan reviews a new novel by Julian Barnes that's based
on an incident in the life of Arthur Conan Doyle, the creator of Sherlock
Holmes.

This is FRESH AIR.

(Announcements)

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Review: Julian Barnes' book "Arthur and George"
TERRY GROSS, host:

The award-winning writer Julian Barnes has just published a novel called
"Arthur and George" that focuses on an incident in the life of Sir Arthur
Conan Doyle, the creator of the immortal detective Sherlock Holmes. But
critic Maureen Corrigan says that Barnes' investigations and conclusions are
far from elementary.

Ms. MAUREEN CORRIGAN: Julian Barnes' latest superb novel starts out in
surprisingly plodding fashion. First, there are a few paragraphs devoted to
Arthur, next a few paragraphs dutifully accorded to George, then Arthur, then
George, Arthur, George, Arthur, George. The choppy two-step sets the pace for
Book One of this novel that Barnes calls, with a perverse devotion to
literalness, "Arthur and George," and it could trip up many a lesser writer.
But Barnes' perceptions are so frequently startling, his language at once so
precise and gorgeous, that the predictable narrative structure serves as a
kind of necessary mental relief. And perhaps Barnes is also doffing his hat
to Arthur Conan Doyle, the Arthur of the title, who himself clung to the most
mechanical of narratives in the Sherlock Holmes stories and, yet, out of them
created literary marvels.

The Holmes stories, in their formulaic fashion, engage the big questions: the
mystery of evil, the slippery quality of human identity, the elusive nature of
truth. Those are the very same questions Barnes considers here in this moving
novel that's based on an actual incident in the life of Arthur Conan Doyle.

In 1901, or thereabouts--Barnes has deliberately hazy with dates--a
27-year-old solicitor at law named George Edalji was arrested, tried and
convicted for savagely mutilating horses in the vicinity of his village
outside Birmingham, England. Edalji was sentenced to seven years in prison
but only served three because the evidence against him was later deemed to be
so shaky. For one thing, George Edalji was, in the parlance of the day, a
half-cast. His mother was Scottish and his father, the vicar of the village,
was Indian. Race prejudice was hinted at as a motive for his conviction. Sir
Arthur Conan Doyle became involved in the case after George Edalji's release.
Despondent after the death of his first wife, Doyle publicly threw himself
into the effort to secure a full pardon and a financial compensation for
Edalji. And in so doing, Doyle was instrumental in eventually getting the law
allowing criminal appeal passed by the parliament.

Tracking the faint footprints of the Edalji case found in Doyle's
autobiography, Barnes fleshes out a giant hound of a tale. In Arthur's
sections we follow the messy personal evolution of this great, late-Victorian
writer who, even as he's penning the tales of ratiocination, of cool reason,
that would make him famous, is becoming more and more drawn into the world of
the occult, experiments in table-tapping, Ouija boards and seances. Like many
other prominent figures involved in the spiritualist craze that swept Great
Britain and America roughly 100 years ago, Doyle felt, as Barnes puts it, that
he was pushing at the iron-clad walls of a materialist universe.

It's a testament to Barnes' ingenuity as a storyteller that George Edalji's
sections never seem to be standing in the shadow of Doyle's larger, more
public story. Nor do the intersections of the two men's stories feel forced.
In George's passages, we readers are transported back into the cloistered
childhood of a clever boy in a mixed race family, a family who's so silently
anxious about their status and safety in their provincial English village
that, as Barnes describes, even into adulthood George Edalji sleeps with his
father in a locked bedroom while his mother sleeps with his sister.

What framework will make human suffering comprehensible? That was chief among
the metaphysical mysteries that preoccupied thinkers great and small during
the late 19th century as Darwin ushered in the modern age of doubt. Both
Arthur and George endured awful personal ordeals. For Arthur, the long fading
away of his first wife from consumption and the death of his eldest son in
World War I. For George, of course, his wrongful imprisonment and lifelong
sentence to loneliness. To make sense of their suffering, both men here grasp
at various systems like spiritualism, the law, Christianity and romantic love,
most of which turn out to be nothing but slim reeds. As Doyle was, Barnes, in
this powerful novel, seems to haunted by the omnipresent threat of the great
Grimpen Meyer, that swamp of formless menace that in "The Hound of the
Baskervilles" so very nearly swallows up our greatest fictional champion of
the powers of reason.

GROSS: Maureen Corrigan teaches literature at Georgetown University. She
reviewed "Arthur and George" by Julian Barnes.

(Credits)

GROSS: I'm Terry Gross.
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