POLITICAL ECONOMY: The Original Sin

With the president on the Brink of Waging the Fight Progressives Have Been Hoping for, News Comes of an Original Sin  

Let me just take a moment to thank President Obama and the leadership of our military in overturning the shameful policy of Don't Ask, Don't Tell.  

There I feel better.  It's good to thank the president from time to time for a job well done.  And it will be the last time I do so in this post...

I am suffering today from a serious and painful bout of cognitive dissonance.  On the same day that Obama lifted, at long last, DADT; on the same day that he gave a stinging speech, possibly setting up a trap for the GOP that my friend and co-author John Farley predicted months ago (either the GOP support cutting things like Social Security, or they go back on their no tax pledges); comes this bit of highly depressing news:

http://delong.typepad.com/sdj/2011/09/from-ron-suskinds-confidence-men.html

In journalist Ron Suskind's new book, Obama is reported to have been to the right of Larry Summers on economic policy.  Larry Summers--who more than any other single human on the planet, is responsible for the destruction of the world in 2008--is someone Obama had no business appointing to his economic team in any capacity, let alone putting him in charge of it all.  But now to find out that the president was even more conservative than Summers is a truly despicable reality. 

Forgive me if I rant a bit. Economic policy is my area of expertise.  For all the other aspects of Obama that I admire, I simply can't forgive him for being such a complete stooge to Wall Street and the Conventional Wisdom of the economic elite who sunk the ship. They bailed out Wall Street--a move I supported for the good of all--but then dropped the ball on helping Main Street and average home owners.  Now the public are nearly as likely to associate Democrats with protecting big business as they do the GOP.  So, it is especially damning that Suskind quotes the president as saying the rise in unemployment is essentially the fault of the workers themselves.     

The White House is of course distancing itself from Suskind's book---just as the Bush administration did when he wrote his award winners on them.  But Suskind is no rookie.  He is no suspect muckraker-mud slinger either.  He is a top journalist. If progressives believed him about Bush, it is not credible to distrust him over Obama.    

The president no doubt had some truly daunting odds against him from the start in the weak-kneed blue Dog Democrats in congress--many who came in on his coat tails.  But now it begins to emerge that Obama didn't even see stimulus as the silver bullet.  No wonder he never tried to use the bully pulpit to push for more spending when he had the only chance he would have ever gotten: he didn't buy the argument!

So he thinks a rise in productivity is to blame for the greater rise in unemployment than his "crack team" predicted?  When all the time folks like Paul Krugman and others were screaming at him that he was underestimating unemployment by two percentage points (a claim almost exactly accurate, it would turn out) and that his stimulus package was not large enough! 

I am sick of hearing myself make this argument, but I think the future of progressive politics literally hung on that decision of stimulus.  Because now the public thinks the whole idea of Keynesianism is dead and discredited.  And we all may be saddled with PresidentPerry and a GOP congress as a result. 

Obama's leadership style of compromising with himself before he enters the bargaining table resulted in his not even attempting a stimulus that was large enough.  Partly driven by his refusal to appoint even one member of his economic leadership that saw the crisis coming, and dutifully failed to perceive the depth of the crisis that would come once in office.  We will never know if a stimulus with sufficient size was possible because he ruled it out from the start. 

We can only hope that the president's recent rhetoric signals that he has, at long last, learned his lesson.  The GOP are not interested in compromise, nor have they ever been.  Obama has a habit of coming back from the brink of oblivion.  He also has the luck of usually running against very weak opponents.  Many would say both a Rick Perry and Mitt Romney fit those bills.  But the truth is, Mr. Obama trails them both in several recent head-to-head polls, especially to Romney. 

Let's hope that Obama's new fighting spirit may change that.  For as poor as he has been on economic policy, the GOP candidates are running on a platform that can be summed up in a simple bumper sticker now gaining popularity: "Repeal the 20th Century:Vote GOP."  

Interestingly the GOP candidates are running significantly to the right of most self-identified Republicans in opinion polls.  Indicating they are being controlled the by the extreme right in the so-called Tea Party.  If the GOP hopes to win in 2012 they will need to control this extreme faction in their midst.  That they have thus far been unable to may be Mr. Obama's saving grace.   

One that, as far as economic policy goes, he does not deserve. 

ECONOMY: Securing Social Security

So the President's National Commission on Fiscal Responsibility and Reform has released its proposal. Tasked with the job of looking at ways to reduce the nation's growing debt and deficit, the Commission's proposals have been widely anticipated. And, as to be expected, it is full of lots of really bad ideas and very few good ones.

At least if you define "good" as "doing the most good for the most people"; and "bad" as "doing the most harm to the most people." I don't know, maybe it's just me, but those seem like really reasonable definitions.

One of the biggest targets in the crosshairs of the Commission is Social Security. And the Commission's big brains have clearly thought long and hard on what to do about the future of Social Security (insert sarcasm into this sentence please).

For one thing, the entire enterprise is highly suspect. The best way to reduce the debt and the deficit is to grow out of it. As this graph shows, even the record high deficits of World War II were turned into surpluses by the high rates of economic growth that created the great American middle class, spurred in large part by those very deficits.

(The above source is from a right-wing website, by the way, however the site owner is commendably using the real numbers and the site is very user friendly if you want to play around with the stats).

The other thing that the Commission "achieved" was to propose a whole lot of ideas that have been on the books for years. Literally. For instance, let me point you to a site:

http://www.actuary.org/socialsecurity/game.html

This is the website for the American Academy of Actuaries (the main professional--and non-partisan--organization for the nation's actuaries) as well as a little online game/simulation where you can try your hand at solving the nation's "terribly difficult" Social Security "crisis." Here's what I want you to do. Follow the above link to the site and follow these instructions:

1) Click "Continue" to get to the game.

2) Click "Start Game" (don't worry about reading the instructions for now, you can always go back and do that later). C'mon trust me!

3) On the left hit the button marked "Revenue Increases"

4) You should now be on Question 6 (make sure you are).

5) select 'b" --"Eliminate cap and pay Social Security tax on all taxed earnings. But calculate earnings only on the current law-cap."

6) BOOM! You're done. Congratulate yourself. You just fixed Social Security.

You also fixed one of the worst taxes in American history. You see Social Security is today taxed at 6.2% of all income up to $106,800. After that, nobody pays one red cent! What that means is that for the overwhelming number of Americans who make less than $106,800 per year, they pay a 6.2% flat tax for their part of the Social Security Trust Fund. But for the very few wealthy Americans who make more than $106,800, they pay an increasingly smaller amount of tax the wealthier they are. If you make $300,000, for instance then you only pay that 6.2% tax on a third of your income.

What you did in the game is to pass a law that says all income will be subject to the 6.2% flat tax but the benefits will continue to be paid out as they are now. In other words, the only folks who will be less well off after this change will be the very wealthy, while the bottom 80% of Americans will not have to see their benefits reduced or the retirement age increased or any of that.

But that is not likely to be any of the final proposals that come out of the President's commission. Instead, like the Plutocratic Working Group that they really are, they will propose both a reduction in benefits and an increase in the retirement age. Something that hurts 100% of the population.

Instead, we could make all income taxable and raise the Social Security tax to 6.7% and fund a big benefit increase to every senior in America as well as create robust solvency for the Trust Fund for the foreseeable future.

The answer is quite easy unless your goal is to protect the wealthy at any cost--then the choices you have to make are indeed "painful." Painful because politically they are risky. Voters just hate it when you put them at risk of poverty and destitution. And painful for the vast majority when you cut back life-saving economic security.

But let's not forget what is really behind all of this: the attempt to privatize, either partially or in whole, Social Security itself. There are billions in profits to be made in the private provision of social security.

Gee, I'm feeling quite insecure at the moment...

POLITICAL ECONOMY: After the Speech, The Real Work Begins...

In a masterful speech to a joint session of Congress the president made a forceful call for universal health care. While I would have liked him to be more firm on his commitment to a public option or some other cost-saving and quality-ensuring measure, the speech will very likely change the momentum in the debate. Clearly aimed at shoring up independent voters who had shifted against him over the course of the summer, the speech should make the political points it set out to score. In addition, the president clearly aligned himself with some of the more promising aspects of the various health care bills that have been or are about to be passed in congress.

Having said that, he also embraced a few ideas that take him a step backwards. There remain some very basic problems with the president's approach to universal health care. And in truth the speech was short on specifics. Just what exactly is in the "basic care" package everyone will be entitled to? How much will be too much before the public subsidy kicks in for those cannot afford it? In the end, it is hard to know exactly what "the plan" really looks like, how well it will really work, or what it might actually cost. And the frustrating part is that health care is delivered reliably to millions of people in countries similar to the United States every day.

We know what works. But instead of doing that, because of an irrational fear of the government, we are embarking on an untested experiment in keeping private insurers healthy while gambling with the health of American citizens. The Reagan legacy is still with us, and the president has not taken the opportunity he was given to end it, nor have the Democrats in congress.

So, all hopes of finally putting the Reagan philosophy in its rightful place (the dust bin of history) rest on the success of health care reform. And there are real reasons to be fearful for the chances of success. The problem is primarily economic not political. But it will become political, I fear, and that is where the real problem exists. Without a vehicle to control costs and ensure quality, like a public option could provide, prices are likely to (continue to) sky rocket and quality of care likely to stay at the lowest possible floor companies can get away with.

The problem is complex in the details, but simple in broad outline:

Requiring insurance companies to take all who apply and force everyone to buy coverage will result in profit losses to the insurance companies that they will have to make up somewhere. Now, some of this can be made up from the premiums of young healthy people who are not now insured and presumably would be under the new requirements. But will these new young folks actually enroll and will that cash make up for the losses of the other high risk folks who would otherwise not get insurance? The Congressional Budget Office doesn't seem to think so.

And, as he has hinted at previously, the president once again reiterated his desire for the public option to actually be a "not-for-profit" option that will be funded only by the premiums it collects. This would undermine one of the chief cost control features of a public option: not needing to advertise for healthier and wealthier clients. But if the structure is dependent upon premiums then the option will depend on getting those wealthier, healthier patients on roll and there goes a big chunk (but not all) of your cost saving.

Don't get me wrong, I could care less about the budget deficit. There is simply no evidence that the deficits do any damage to an economy until you get into truly stratospheric numbers--far from where we are right now. Government debt is not paid on the backs of our children as so many often claim and it does not cause interest rates to rise. In fact a deficit can create enormous economic growth. Right now we are probably hurting our economic growth significantly by not running much larger deficits. It could cause inflation and a devaluation of the currency if it gets too out of hand and is spent on non-productive things. But we are not in that territory now. Cost savings matters to me because it matters to everybody else. Politicians of both stripes have bought into this fairy tale and that belief has real consequences.



For instance, a truly troubling part of the speech is when the president added that if the cost reductions he is counting on do not materialize, cuts in spending will be enacted to bring the expenditures into balance. The Congressional Budget Office does not believe his plan will cut costs in the long run and neither does simple logic. So to achieve some mythic balance of the budget, that has never been proven to have any beneficial economic effect, he is going to cut needed government services to pay for a massive tax payer give away to the insurance industry. This is not a good idea.

Let us hope that this is simply an idle threat that is never acted upon. The same logic that is likely with a "public option trigger"--that the trigger would never be pulled no matter how bad things get for the uninsured--might also apply to such cuts. After all they would take place after 2013 and would need to be voted upon.
That might never happen.


In the end, the president's speech was masterful politics, but the economics behind it remain murky and questionable.

But one thing seems likely. The president is back in the game and momentum is on his side. The votes are there in congress. Now it is up to us to put the pressure on.


Check back soon for my secret weapon I will offer the president...

I welcome your comments.

POLITICS: The Public Option is the Only Option

Alright, first post and we already have a debate going. I think I am going to like this blogging thing!



Here is my problem with the argument that we should pass any bill even if it does not have a public option. The current bills up for debate have no real cost control built into them. On the contrary, depending on which one you are looking at, they will probably increase costs. In general here is what is on the table:

1) Require everyone to buy private insurance.

2) Require insurance companies to cover all who apply.

3) Subsidize individuals and families that can't afford their premiums.



Now, it's an unqualified good to cover everyone regardless of preconditions. Bravo for that. But, forcing everyone to buy insurance is not going to be popular. And how are insurance companies likely to respond to having to cover everyone? Trust me, they already know.

If there are no controls on what insurance companies can charge as part of the bipartisan or even "monopartisan" bill (placating Blue Dog Democrats) then they are likely to raise the premiums on the folks that they would have denied coverage to under the old rules. Many of those folks won't be able to pay for their premiums, and thus the government will kick in with the subsidy. In that case we will have secured a very lucrative profit center for already wealthy insurance companies at public expense. So what you would have is all the costs of (in fact a lot more of the costs of) a government program without any of the real benefits.



Republicans will be able to come back and point out the sky-rocketing cost of such a system. Not to mention that you will create a stigmatized subsidy not unlike Medicaid, food stamps or AFDC (and we all know how well that turned out--AFDC was highly unpopular and killed by the stroke of a Democratic president's pen).



Now given those circumstances, it might be that the political winds will shift in favor of a public option to control those costs and reign in the insurance companies. That's one possibility. But the more likely possibility, it seems to me, is that the GOP will rail against government inefficiency and the subsidy program will be eviscerated to the point that it no longer covers everyone. And worst of all, if it all really goes south it could set back efforts to extend government intervention in the economy on the behalf of the poor and middle class another generation. Right Wing talking heads of all ilk will Swift Boat it into being a symbol of government ineptitude that "proves" the government that governs least governs best.



So, I would rather see a loss for the Democratic party than a loss for the progressive philosophy. After all, a Democrat with the economic policies of Richard Nixon would be considered radical today, but in the zeitgeist of that time period he was considered quite conservative. We should be about changing the political zeitgeist, not just winning an election. And who is to say that the cost controls wouldn't blow up before 2012? Maybe I am presenting a false dichotomy, but from up here on the "exalted heights" of Flotaria, that's how I see it!



The public option is the only option.



Actually, I have a secret weapon that the president could use to get us the policy that we really need: a single-payer, Medicare For All bill. But I am saving that for after his speech.



I welcome your comments.

POLITICS: Awaiting the President's Address

With the political winds shifting hard against him, President Obama will face the nation in just a matter of hours. The question is will he sell us down the river and cave into the "Republocrats" (A weird hybrid beast of Republican, Democrat and Plutocrat all thrown into one!) or will he stick to his guns and finally give the American people true universal health insurance?

It all depends on the Public Option. Without it, the reform that passes could actually be worse than doing nothing. With it, we have a real shot at meaningful health reform. The president must make the public option a deal breaker. There should be no bill without it.

Strange that those who are frothing at the mouth over this aspect of the plan forget that the most popular and effective aspects of our current health care "system" are the government run parts: Medicare and the VA system, for instance.

Of course the super rich are pretty happy too...

An interesting question will be if the president and his team think that *any* victory is sufficient or if they actually need to pass something that works.

Let's hope it's the latter.

Here is my prediction: if they do not include a robust public option, the policy will fail to cover everyone and fail to control costs. Then the GOP will be able to turn around and trounce the Dems by arguing that government never works and the health care bill will be proof of their argument.

They'll be right.

Policies designed to fail will pretty much fail every time.