Q&A Part Two with Alice Rivlin ’52: Health Care, Technology, and the Economy

Posted November 6th, 2009 at 1:21 pm.

rivlin-aliceAlice M. Rivlin ’52 is a Senior Fellow in the Economic Studies program at the Brookings Institution and director of the Brookings’ Greater Washington Research Program. Before returning to Brookings, Rivlin served as Vice Chair of the Federal Reserve Board (1996-1999). She also has had a remarkable career in public service, including her appointment as the founding director of the Congressional Budget Office (1975-1983) and director of the White House Office of Management and Budget (1994-1996).

In part one of Bryn Mawr S&T’s interview,  Rivlin discussed some of the highlights of her career in public service, including her role on President Clinton’s economics team, which drove the turnaround from a massive budget deficit to the biggest federal budget surplus in U.S. history. In part two, she talks about health-care reform and the impact of technology on the economy.

S&T: You have said that the nation missed an opportunity to shore up Social Security, Medicare, and Medicaid during the boom times of the federal budget surplus that you helped to create under the Clinton Administration. Why was there no action?

Rivlin: Despite the budget surplus, we still had the problem that spending on Social Security, Medicare, and Medicaid would rise rapidly as soon as the Baby Boom generation began retiring, and then it would continue rising. It has been known for decades that expenditures on these programs—especially the health-care programs—would rise faster than tax rates, even before the [George W.] Bush tax cuts. But nobody wanted to tackle the problem by cutting back on benefits, instituting controls on medical costs, and possibly cutting Social Security benefits. Those are difficult things to do. Now the problem is much more urgent.

S&T: Now that we are back in deep deficit, and you have said this is the time to accelerate health-care reform, not back away from it. How so?

Rivlin: Health-care spending will drive federal spending over the next several decades both because the population is aging and because health-care costs are rising more rapidly than anything else. So Medicare and Medicaid spending will rise faster than revenues. If we’re going to get on top of the budget deficit in the long run, we’ve got to “bend the curve” so that health-care spending is not rising as rapidly. That’s one reason why we need drastic health-care reform.

The other reason, of course, is that 47 million people are uninsured, and until we cover those people, it’s going to be harder to institute efficiencies in the system that are necessary to slow the growth rate of spending. There are other reasons for wanting to cover the uninsured, obviously, and those are being dramatized in this recession because people are losing their health insurance as they lose their jobs. It is a dramatic illustration of how vulnerable people are to a downturn in the economy.

S&T: Is there a place for a government-backed “public option” in a health-care reform plan?

Rivlin: I don’t think it’s necessary. It’s much more important to get universal coverage by setting up exchanges so that people who don’t have insurance can buy it, and by subsidizing people who can’t afford it. So if the public option will sink the program, it’s not worth having.

S&T: What lessons can one learn from Clinton’s failed effort at health-care reform in 1994?

Rivlin: The lessons learned then are being learned again: there are many people who are fairly satisfied with their health insurance, and they are worried that reform means that they will lose something. And there are enormous interests among health-care providers, insurance companies, health-care equipment manufacturers, pharmaceutical companies, and others who make a lot of money from the U.S. health system, who are worried that reform will cut into their profits.

This is big business: it’s 17 percent of our GDP, which is a much higher fraction of GDP than for any other country. We are spending a lot of money and not getting enough for it.

S&T: Let’s turn to the impact of technology on other sectors of the economy. In the early 1990s, you formed the Brookings Institution Task Force on the Internet, and asked a group of experts on various sectors of the economy to discuss how the Internet might impact the economy. One conclusion drawn by the task force was that the Internet would most likely spur productivity growth across sectors such as the automobile industry, manufacturing, financial services, government, and retailing, as well as health care.

Rivlin: It already has. The task force was making this point at a time when people were thinking, “Oh, this technology is all very exciting but it just applies to high-tech industry.” The increase in productivity has shown up not just in high-tech industry, but much more generally in manufacturing, retail, transportation, and finance.

Take retail, for instance. Using the Internet, it is possible for a retailer to maintain lower inventories because you can order things more quickly, you can control your supply chain much more effectively, and you can get things to where they need to go much more efficiently. The trucking industry can use the Internet for scheduling, resulting in less downtime and less empty backhaul because they can see where the next load is coming from.

We were trying to change that focus, and although the points weren’t so well understood at the time, they are today.

S&T: The spectacular dot-com collapse in the 1990s made investors skeptical of new Internet, computer, and telecommunications start-ups. Yet several digital businesses have emerged as titans of the U.S. economy, including Apple, Google, Microsoft, and Oracle; all rank among the top 20 U.S. corporations by market value. How do these types of companies benefit the economy?

Rivlin: Through increased productivity in the rest of the economy. Productivity is what makes the economy work and determines our future standard of living. We certainly got an enormous increase in the whole economy from the applications of information technology—computers and communications—over the last 20 years. And it’s still going on.

S&T: There is a lot of talk today about the potential impact on job creation and the economy of new types of energy technologies and other so-called “green” technologies. What do you think about their potential?

Rivlin: I think it is devoutly to be hoped, but it isn’t very specific right now. Certainly, alternative energies—non-carbon technologies—are very promising, but not clearly economical yet. Some of the other innovation going on is very exciting—for example, how to construct buildings that are more energy-efficient and reduce pollution. If we really get serious about that, there is a huge amount of employment that could be devoted to that end. It’s also an expensive thing to do, and one has to worry about how we are going to finance it. Clearly, global warming is a threat, so we are going to have to transition to less-polluting forms of energy and to more effective use of resources. That will be a major preoccupation over the next several decades.

S&T: Has there been a particular achievement in your career to date that you have found the most satisfying?

Rivlin: Oh, yes: I am most proud of the Congressional Budget Office. It was very needed, we did a good job setting it up, and it has remained a strong and valuable institution. I am very pleased looking back on what we did.

S&T: You have come full circle, returning to the Brookings Institution as a senior fellow in Economic Studies and director of Brookings’ Greater Washington Research Program. Are you enjoying it?

Rivlin: Yes, I enjoy it here. I’ve been in and out of Brookings over the years. I used to tell my children it was my “home room.” I’ve been back for almost 10 years; I also teach at Georgetown University.

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