Stephen Foley: The US finances may be going to hell, but at least someone has noticed

US Outlook: Even writing this down feels like it might jinx it, but here goes: it has been a rather optimistic week in US politics. Finally, the nation's leaders appear to be having a grown-up debate on how to reduce the government's massive deficit and on how the country might live a little closer to within its means. Finally.

The glorious irrelevance of the battle over whether to cut $61bn (£37bn) or $38bn in the last months of the current fiscal year has been something to behold. That has been the source of the sound and thunder of the past few weeks. The parties took their fight down to the last hour before a federal shutdown – though the gap of $23bn amounted to 0.16 per cent of the national debt. Meanwhile, the handcart carrying the government's long-term finances sped over the horizon, destination: hell.

But that was a week ago. Now the 2011 budget deal is in place, and politicians appear to have lifted their eyes to the horizon. There will be unedifying fights to come, for sure, over raising the debt ceiling this summer and then the 2012 budget. But this week everyone started talking about the long-term and the gritty details of budget reform.

Fearful of ceding the debate to Republicans, whose Paul Ryan unveiled a plan earlier this month that would gut the social safety net, President Barack Obama, too, has issued a $4 trillion deficit-reduction package covering the next 12 years. A report by the cross-party deficit commission, led by Erskine Bowles and Alan Simpson, which had been gathering dust since November, is suddenly being read anew.

The reason for optimism is that the political class suddenly seems to have stopped pretending that you can cure the US's fiscal woes by cutting discretionary spending alone. The exploding costs of the government's healthcare programmes – Medicare for the elderly, Medicaid for the poor – have to be brought under control if deficit reduction is to be possible and sustainable in an era of baby-boomer retirement. It is the projected expense of fulfilling Medicare and Medicaid commitments that has led Bill Gross, the head of Pimco and the most famous bond investor in the US, to short-sell US government debt and warn that the US is "out-Greeking the Greeks" with more than $60trn of off-balance sheet liabilities.

Paul Ryan's plan shifts the burden of rising healthcare costs from the government to the elderly themselves, by giving them a fixed-value voucher for variable-cost insurance. Mr Obama promised a cocktail of measures to push down healthcare costs, by using the buying power of Medicare to pressure drug companies and adopting value-for-money tests for treatments, as in the UK. So the deficit reduction debate is – gulp – another healthcare debate. Such a lot of President Obama's first two years were taken up with healthcare reform, with only mixed results and the expending of so much political capital, but I'm afraid it all has to start up again.

At least the US political class seems willing to talk properly about it this time. Hopefully.

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