Archive for the ‘health care’ Category

It’s Not the Stimulus It’s the Regulation

Saturday, August 13th, 2011

Marco economics is an observational science. It is difficult to construct controlled experiments. There always seems to be enough differences from situation to situation to introduce doubt. Nonetheless, sometimes unfair, or at least unsupported, conclusions can enter the conventional wisdom. The concept of a Keynesian stimulus may suffer this fate.

The Keynesian approach suggests that during a recession the government can stimulate the economy via spending to replace economic demand from private markets. An alternative approach championed by Milton Friedman suggests that monetary policy is more important than fiscal policy.

Democrats have traditionally favored a Keynesian approach, in no small part because it provides an additional excuse for the government to initiate spending programs to address Democratic priorities.

When President Barack Obama came into office, it was natural for the progressive to institute a massive, nearly trillion-dollar stimulus. So confident were Democrats in the efficacy of the stimulus that they promised that unemployment would not exceed 8%. We were warned that if no stimulus were instituted, unemployment would reach 9%. We now know that following the stimulus, unemployment blasted past 10%. Moreover, growth remains anemic and unemployment two-and-half years after the stimulus still exceeds 9%. More disappointing is that the officialunemployment value would be far higher if so many people had not given up hope of finding a job. The lack of growth and employment has reduced revenues exacerbating the deficit.

It is rhetorically convenient to declare in the face of these facts that Keynesism is dead, believe by only those immune to the evidence. I lend far more weight to the Friedman approach and would love to offer our current situation as definitive proof.

However, let me offer a slightly heretical view. While the current situation lends no support to the Keynesian idea of stimulus, the regulatory anchor on growth makes it impossible to tell whether the stimulus has indeed failed. Perhaps It is economic uncertainty that is restraining the economy irrespective of the stimulus.

Companies are uncertain because of a massive influx of regulations. Obamacare has passed, and mountains of rules based on the legislation are still being written. Companies, particularly small ones, are reluctant to hire uncertain of what Obamacare would require of them. The Dodd-Frank bill to regulate financial markets has introduced new banking regulations. Until these are finalized and better understood, there will be a backward tug restraining lending. This is not to mention the new regulatory aggressiveness of the the EPA anxious to implement policies bureaucratically that could never be passed legislatively. The EPA has more regulatory actions pending that the Department of Human Services which is responsible for implementing Obamacare.

Imagine the metaphor of the stimulus package being a foot on the accelerator of the economic car, with a chain of regulations strapped to the bumper. The stimulus accelerator may or may not work, but the regulatory chains make it impossible to diagnose whether the accelerator is functioning properly. The Keynesian approach may deserve death, but the current situation cannot be said to have inflicted the true final blow.

A Unique Economic Situation

Sunday, July 4th, 2010

Economic analysis is complicated by the fact that controlled experiments are generally not possible. One cannot test different policy prescriptions on exact same economy and evaluate the different results. Arguments are made by analogy to previous circumstances. For this reason, it is difficult to conjure up a consensus among economists as to the best way to help the American economy recover from its current high unemployment and sluggishness.

There are two basic schools of thought: one that emphasizes monetary policy and one fiscal policy. Is the economy more or less responsive to controlling the money supply or federal taxation and spending, or some combination.

Milton Friedman won the Nobel prize in economics in 1976, for his explication of monetary policy and in part on his analysis of monetary policy during the Great Depression. Friedman argued that that collapse of the economy in the 1930s after its initial signs of trouble was caused the exact wrong policy followed by the central bank. The central back tightened rather than loosenes the money supply cause radical deflation and a lack of money available for investment.

The economist John Maynard Keynes is the champion of fiscal policy. Keynes has argued that federal deficits make up for demand in the private sector during recessions and provide a means for recovery. It should be noted deficits can be increased either by increased spending on reducing taxes

Since the banking crisis in 2008, the Federal Reserve has loosened the money supply about as much as it could. Perhap by this more than any other policy, the Federal Research helped avert a 1930s-like collapse in economic activity. At this point, however, the Federal Research has exhausted much of its ammunition. Interests rates are at historic lows. Monetary policy has helped, but all the Federal Reserve can do now is maintain a loose monetary policy until a strong recovery commenses.

In February 2009, after the immediate banking crisis had abated, the Obama Administration passed its stimulus package with nearly a trillion dollars of deficit spending. Results have been at best mixed. Growth remains anemic and unemployment and under employment remain much higher than the Obama Administration promised. Nobel-prize winning economist and NY Times columnist, Paul Krugman, recently argued that given the lack of economic response, we need to re-double fiscal stimulus. We note in passing that Krugman always argues from more governement spending and not reduced taxes. Either would increase the fiscal stimulus.

We submit the thesis here, that additional fiscal stimulus now would be ineffective because of collective physcology. Given the massive deficits we have already incurred, people will become more apprehensive about the future and hoard cash if the deficit increases much more. The problem was that the Obama stimulus was accompanied with health care changes and progressive agenda that promised not a one-time fiscal punch, but a fiscal trajectory that would incur even greater deficits or significant tax increases. In the face of this uncertainity, people are saving more. in anticipation of future bad times. Ironically, this fear is suppressing consumer demand. Business, also faced with uncertainty, sits greater than average cash reserves.

By creating what seemed to be a permanent and expontenially expanding deficit, rather than a short-term stimulus, the Obama Administration undermined the effectiveness of its signature economic policy. At this point, the best that can done is to reduce uncertainity by maintaining the current tax code and creating an economic plan that restrains federal spending. In any case, it will take a long time to dig out of the current situation, but if certainty returns, businesses will be more willing to invest their acccumulations of cash and consumers wil be more willing to spend some of their savings.

Public Sentiment is Everything

Saturday, March 6th, 2010

“In this and like communities, public sentiment is everything. With public sentiment, nothing can fail; without it nothing can succeed. Consequently he who moulds public sentiment, goes deeper than he who enacts statutes or pronounces decisions. He makes statutes and decisions possible or impossible to be executed.”Abraham Lincoln.

Abraham Lincoln and Stephen Douglas engaged a series of debates in pursuit of the Senate seat from Illinois in 1858. The campaign was indirect in that state legislatures appointed Senators at the time. Hence, Lincoln and Douglas were entrusted with the banners of their respective parties (Republican and Democrat) to wrestle control of the Illinois legislature.

The key Lincoln argument was that the Federal Government can and ought to control whether or not slavery was permitted in the territories as they became states. That had been the conventional wisdom since the adoption of the US Constitution. Moreover, Lincoln was concerned that the logical extension of the infamous Dred Scott decision — a radical departure from Constitutional precedent asserting that local state law against slavery was superseded by Constitutional protections of property — was that states would be prohibited from banning slavery. Douglas argued for local popular sovereignty as to the question of the extension of slavery. Douglas refused to concede that the logic of the Court in Dred Scott would be used to compel slavery to by recognized in all states.

Lincoln was subject to the criticism of hypocrisy. He personally objected to slavery, but it was not his position to abolish slavery in those states in which it had already been established. The key [1] he used to free himself cage of hypocrisy was the observation that “Public sentiment is everything.” In the South, public sentiment would make the abolition of slavery impossible. Perhaps with time, public sentiment would change, but it was imprudent to impose a policy against which there was strong public antipathy. Lincoln was right. Ultimately, it would take a bloody Civil War to eliminate slavery.

We do not argue here that opposition to the particular health care reform offered by the Democrats is morally equivalent to the abolition of slavery  in 1858, or opposition to the current bill is as blind to the real moral issues as Stephen Douglas was. Indeed, there is a strong argument that individual freedom and liberty, at the very core of the anti-slavery position, animates opposition to the current health care bill. However, independent of the correctness of one policy or another, it is clear that a majority of Americans oppose the health care reform as the Democrats have cobbled it together. Most people want to start over with a clean slate to construct a more reasonable, less radical, and more transparent approach to change. Public sentiment is strongly against the President and Congress.

President Barack Obama fancies himself in the mold of Abraham Lincoln, a tall well-spoken person from Illinois, elected President despite modest beginnings. If the comparison is to be more than superficial, Obama ought to adopt the profound wisdom of his erstwhile political model. Leadership in this case requires making a successful public case for Obama’s brand of health care reform before compelling its implementation against the clear public sentiment. Obama has the opportunity to be one who is “deeper than he who enacts statutes or pronounces decisions.”

[1] David Zarefsky, “‘Public Sentiment Is Everything’: Lincoln’s View of Political Persuasion,” Journal of the Abraham Lincoln Association, Summer 1994.

Edward Kennedy’s Gifts

Sunday, January 24th, 2010

All politicians make political calculations, weighing different options in the messy process of legislation and forming political arrangements. Political compromise and adjustment is a necessary and important skill for free societies governed by a combination of chief executives and legislatures, often of different political parties. However, is it wrong to admit a guilty pleasure – schadenfreude – when Machiavellian manipulations, outside the scope of political good faith and respect for free institutions, backfire?  For at least a couple of these pleasures, we can turn to the late Senator Edward Kennedy.

Perhaps Edward Kennedy’s greatest unintentional gift to Conservatives came during the 1980 presidential campaign. High inflation, high unemployment, and high interest rates had severely eroded the political popularity of President Jimmy Carter. The political positions of  Kennedy and Carter did not differ much substantively, but a weak incumbent gave Kennedy an opportunity for a primary challenge and ti serve personal ambition. Although Kennedy won only ten primaries to Carter’s twenty-four, Kennedy ate away at Carter’s support by continuing his challenge to the convention, hoping for rules changes there that might give Kennedy the nomination. The number of Carter delegates was too overwhelming and they defeated Kennedy’s procedural challenges at the convention. Out of respect, Kennedy was given the opportunity to address the convention. In a rousing conclusion, Kennedy acknowledged defeat but despite his loss “the work goes on, the cause continues, the hope still lives, and the dream shall never die.”   The speech made Carter’s later performance seem mediocre. Although Carter survived the Kennedy challenge, he emerged from the Democratic National Convention weaker, leading a demoralized and divided Democratic Party, helping in part to usher the Reagan era. Thank you.

In 2004, the other Senator from Massachusetts, John Kerry, was running against President George W. Bush. If Kerry managed to defeat the incumbent president, under state law, Republican Governor Mitt Romney would appoint a Senator to fill out the term. A Republican Senator from Massachusetts was too much for Democrats to stomach. With the encouragement of Kennedy, the Democratically-dominated state legislature gamed the system. They changed the law to establish a special election to fill vacancies.  Reasonable and well-intentioned people can disagree about  the appropriate procedure  for filling a senatorial vacancy. However, this change was not based on principle, but was intentionally designed to gane the system for immediate political advantage. This decision would ultimately come back to haunt Kennedy and Democrats in Massachusetts.

Kennedy’s signature issue was health care. He has always advocated a government managed and financed health care system. When he unfortunately took ill in 2009 with what proved to be terminal cancer he knew that he might not survive to usher through health care reform. His last votes in the Senate were in early April 2009. If Kennedy had resigned under these circumstances, he could have provided ample opportunity for a hand-picked successor to win election as Senator with his direct endorsement. However, political vanity was more important and Kennedy hung on to his office until his death in August, 2009. The cause of health care reform would have been better served if he resigned, but a personal desire to keep his office-for-life overwhelmed this calculation. Kennedy did not know with certainty that  clinging to office would undermine the cause of his life, but he did know that he was no longer capable of leading or even participating in the fight in the Senate. Kennedy clutched to his office until the end. Is it too mean-spirited to exploit the metaphor that while health care legislation was drowning, Kennedy was swimming to the shore of personal political indulgence?

If the Massachusetts senatorial succession procedure had not been altered in unashamedly political manipulation in 2004,  Democratic Governor Deval Patrick would have appointed a Democrat to fill out Edward Kennedy’s term. There would have been no opportunity for Republican Scott Brown to ride a wave a political dissatisfaction with conspicuous manipulations and payoffs to arrive at medicare legislation, and  to  upset the Democratic candidate Martha Coakley. Scott’s election killed health care legislation in its current form and wounded the Democratic Party. For this we, we can in no small measure thank Edward Kennedy and recognize the justice that self-aggrandizement and political corruption was not in this case rewarded.

Cool and Sedate Reflection

Sunday, January 17th, 2010

There are two traditional models for political representation: that of  a “delegate” or a  “trustee.”

A delegate is sent to a representative body to vote the way he believes his constituents would want him to. Such a delegate aligns his views directly with the collective views of the people he represents. He embodies his constituency. The delegate theory of representation is favored by populists and some early founders.  In the extreme limit, the delegate theory reduces to a more efficient way to implement a plebiscite democracy — the kind of democracy that through referenda has made California almost ungovernable.

The trustee model of representation holds that a constituency votes for a representative whose judgment they trust and rely upon. A trustee has the time to consider legislation in detail, and pursues legislation that would balance the benefits of the whole polity and the local constituency – even if the constituency disagrees with a particular position. In the extreme limit, a trustee model of the representation can degenerate to rule by the elite.

Some Congressional and Senatorial representatives subscribe to a hybrid of the above models. They believe they are sent to Washington to vote a certain way on one or two conspicuous issues  (e.g., gun control, abortion, farm legislation), while they are free to exercise their judgment in most other areas.

Conservatives, at least those who have not surrendered to populist temptations, subscribe to the trustee theory of representation, as advocated by William Burke and articulated by Alexander Hamilton in Federalist 71:

“The republican principle demands that the deliberate sense of the community should govern the conduct of those to whom they entrust the management of their affairs; but it does not require an unqualified complaisance to every sudden breeze of passion, or to every transient impulse… When occasions present themselves, in which the interests of the people are at variance with their inclinations, it is the duty of the persons whom they have appointed to be the guardians of those interests, to withstand the temporary delusion, in order to give them time and opportunity for more cool and sedate reflection.”

How should the trustee model of representation apply to the current debate about health care “reform?” A clear majority of Americans are doubtful of and opposed to the current version(s) of health care reform as they understand it (them) . Nonetheless, if in its  best deliberative judgment, Congress believes the reform is in the best interests of the country, then  the trustee model of representation would suggest that they vote in accordance with their best judgment.

There remain, however, several mitigating factors. The current health care reform proposal represents very radical adjustments of present arrangements,  and prudence suggests that we can expect comparably large unintended consequences. The results of truly “cool and sedate” deliberation rarely result in abrupt or radical changes.  Moreover, the ultimate success of such a complicated enterprise depends in part on its acceptance by the polity. Even if one believes that health care reform could theoretically produce better results, if the country does not subscribe to the same conclusion, it may reduce the probability of success. Strong public animosity to legislation is not an irrelevant consideration to someone entrusted as a representative.

It would be disingenuous for Democrats to argue that they are modulating the passing whims of the people with “cool and sedate  reflection,” while negotiating behind closed doors and buying  off special interests with targeted deals for Louisiana, Nebraska, and the unions. Rather than reducing volatility, Congress seems to be rushing headlong to pass a bill before popular sentiment makes it more difficult for representatives concerned about re-election to support the bill.

Liberal Democrats would be understandably disappointed if they cannot manage health care reform. However, the compromises  being agreed to (and supported by large pharmaceutical and  insurance companies) will likely create a system far different from the one they originally envisioned. Indeed, if presented with the current proposal a year ago, they would likely be embarrassed by it. The drive to get something — anything — rather than calm consideration is the driving ethos. Part of the discipline of a democracy is to maintain the good judgment not to push the polity too far from the direction they can be persuaded to travel. This political discipline and respect for the governed has been trampled in the stampede to health care. It is time for Congress to step back, pause, and reflect coolly and sedately about appropriate changes to current health insurance arrangements.

Health Care and the Consent of the Governed

Sunday, January 3rd, 2010

It is easy to fall into the conceit that we face greater political challenges than our predecessors; that politics now is meaner and more divisive than it used to be. One virtue of studying American history is to remind us that the many of the same challenges we face now were faced before, albeit on a different political terrain and by almost certainly greater minds.

Modern students should also be suitably chastened to recall that political positions have shifted over time in unanticipated ways. Contemporary Democrats, who worship at foot of their political patron saint Thomas Jefferson, should remember his visceral antipathy to a strong national government. Republicans, who trace their political heritage to the first Republican president, Abraham Lincoln, may be disconcerted as his willingness to use strong national power when necessary.

In their eagerness to pass heath care reform, Democrats should perhaps consider the counsel of the first chief justice, John Marshall.  In 1823, many were focused on legislation to limit the power of the national judiciary. Ultimately, the effort failed in no small part because the passions of the moment created bills that were so single-minded that legislators failed to provide due deliberation on the full impact of what they were considering. It seems that the perceived necessity of passing something is overwhelming the true necessity of passing something well considered.

With the current health care bill widely unpopular and that structure of the bill complex to accommodate the necessity of cobbling together a narrow majority, Democrats would do well to consider the words on Marshall in a letter to Henry Clay.

“One of the most dangerous things in legislation is to enact a general law of great and extensive influence to effect a particular object; or to legislate for a nation under a strong excitement which must be suspected to influence the judgment. If the mental eye be directed to a single object it is not easy for the legislator intent on that object to look all around him and to perceive and guard against the mischief with which his measure may burn.”

If we are to embark changes of wide consequence in a society ruled by the consent of the governed, it is undoubted wise to do so only buttressed with wide public acceptance and support.

High Front End Costs, Back End Benefits

Sunday, December 27th, 2009

“The welfare of the people in particular has always been the alibi of tyrants, and it provides the further advantage of giving the servants of tyranny a good conscience.” Albert Camus.

While individual and private collective charity is noble and common, welfare payments  viewed as charity financed by taxes have never been particularly popular. This is the reason why social welfare programs like Social Security and Medicare, despite of the fact that they largely represent transfer payments with clear winners and losers, are depicted as social insurance not welfare. People are persuaded that they are participating in a large pension program, where they contribute now and receive benefits at retirement as if money were stored is some specific account for them. Moreover, at the start of these programs, there were few beneficiaries so the costs and pain were low. Long-term sustainability was not an issue.Correctly or incorrectly, there is a sense of underlying justice to the transaction. That is why seniors remain so defensive about these programs. They feel entitled on the basis of their previous payments, even if those payments are in no way actually related to the benefits. This is the political genius underpinning the social welfare state — and why Democrats may have overstepped on the current“health care reform.”

It is impossible to predict the final state of the health care bill once it leaves conference committee. However, in order to make the bill financially palatable, the goal was to have a program that is deficit neutral. One can argue about whether the economic assumptions provided the Congressional Budget Office for the forecasts were realistic. However,  here is no question that in order to maintain plan deficit neutrality over the first decade, the taxes start for the first few year before the benefits commence in earnest. The pain is front loaded while the benefits come along the back end, the exact opposite of traditional strategies for extending social welfare programs. In the longer term, no one seriously believes that the program is financially balanced.

The strategy of the Left should be to get as many people dependent upon the benefits, to feel a sense of entitlement, before the costs come tumbling in. There is a precedent for a social program that did not work out because the costs were too obvious and the benefits less so. In 1987, Congress passed a catastrophic health care program for seniors. The idea was to limit the out-of-pocket expenses for seniors will chronic long-term health expenses. The goal may have been laudable, but it was largely paid for by middle class seniors, many of whom had difficulty affording the additional premiums (really taxes).  Seniors largely did not feel that they were benefiting from the new social contract. Two years later, the program was ended as frustrated seniors marshaled their ample political power against Congress. We shall see whether the health care changes suffer the same fate.

Obama Undermines His Own Credibility

Saturday, October 3rd, 2009

Scott Rasmussen is at the peak of the polling industry having been one of, if not the most, accurate predictor of the last presidential election. It is pretty straightforward for anyone to conduct a poll, but to adjust polls properly for how many Democrats and Republicans or how many likely voters there are in the sample, is either a very sophisticated science or an art. Rasmussen has been tracking the standing of President Barack Obama with likely voters since the inauguration.

Obama came into office with a 65% approval rating among likely voters, with 44% percent strongly approving. Rasmussen has been trying to estimate the passion behind approval or disapproval by also tracking the difference between those who “strongly approve” and those who “strongly disapprove.” When Obama became president, this index was at +28%. Clearly Obama came into office as a very popular figure, even for a freshly minted president.

Since then, his approval rating has steadily dwindled. Among likely voters, the total approval or disapproval rating is about 50-50, just as many people approve of Obama’s job performance as disapprove. However, the passion has definitely shifted toward those who disapprove. The difference between those who strongly approve shifted negative somewhere in June 2009, now hovers at about -10% though it fluctuates daily in the Rasmussen poll.

A general decline is to be expected. Some of this has been due to a worsening unemployment rate, now far higher than Obama promised when arguing for his stimulus package. As always, to govern is to decide. To decide is to make some people angry with your policies. Obama has been able to pass or at least propose very consequential legislation, from the stimulus package, to cap-and-trade, to medical care (now insurance) reform. There will be winners and losers as a result. This would explain a drop in Obama’s approval rating and an increase in those who strongly disapprove. However, there has been no parallel increase in those who strongly approve.

Allow me to respectfully suggest that this may be due in part to the fact Obama’s early mountain of credibility has been continuously eroded by the flow of his own words. A case a point is his argument that there is no intention for the “public option” for health insureance to be used as a wedge to create a single-payer system for health care. In this prime-time speech on health insurance reform, he said: “Now, my health care proposal has also been attacked by some who oppose reform as a `government takeover’ of the entire health care system… So let me set the record straight here. My guiding principle is, and always has been, that consumers do better when there is choice and competition. That’s how the market works.”

However, neither supporters of the President or others believe this. Congressman Barney Frank and others have spoken candidly about using the public option as a wedge for a single-payer system. The only thing that seems to unite those who support the President’s health insurance reform  and those who oppose it, is the conviction that a public option will inevitably lead to a single-payer system roughly analogous to Canada’s or England’s. Most realize that if the President was focused solely on more competition, he could simply urge the removal of  cross-state barriers to health insurance competition. The government could mandate the publication of doctors and hospital prices and institute health care savings accounts to increase competition in the health care and health insurance market. Very few people believe the public option is really about competition.

Obama supporters are forced to quickly glide by the president’s words and rationalize them as a way to get the health insurance reform bills passed in the current political environment. Supporters are left with a disappointment that Obama does not make the open case for the type of reform they want. Others are provided further evidence of duplicity. The president cannot  maintain his credibility if neither his supporters or opponents believe his words. If Obama and the Democrats cannot  make the open case for the reform they want — a single payer system —by being honest about it then in a society ruled by the assent of the governed, it should not pass.



Radical Past

Sunday, August 9th, 2009

One of the advantages enjoyed by President Barack Obama when running last year for president was his deliberately opaque past. The electorate wanted “change,” and Obama’s pleasant and moderate demeanor allowed people to project whatever qualities they wanted on the young senator. Senator McCain had a long political record that was right-of-center, but often (too often for Conservatives) crossed the aisle and voted with Democrats. Obama’s political associations in Chicago, by contrast, had been far Left, but neither the polity or the media much cared. Indeed, to ask the question seemed mean-spirited.

Now that the country is considering an overhaul — perhaps radical overhaul — of the US health care delivery system, some of Obama’s radical past may be coming back to haunt him. One key issue in the present health care (now the Administration has decide to call it “health insurance”) debate surrounds the “public option.”

The public option is the provision of a separate, government-run health insurance. The theory is that the government will provide competition to private insurance companies, driving down costs. The fear among Conservatives is that a subsidized pubic option will drive out private insurance options and create a Canadian-style, “single-payer” system.  Ultimately, choice will be effectively eliminated. Liberal House member Barney Frank produced evidence supporting this fear view by publicly promising exactly that outcome as an outgrowth of a public option.

New suspicions are growing about Obama’s intentions in this regard. A 2003 video of Barack Obama as an Illinois State Senator saying, to cheers, that he supported a single payer option has emerged. A later video has Obama explaining that it make take many years, but he want to move toward elimination of employer-provided insurance.  It does, therefore,  seem reasonable to question the intentions of Liberals supporting a public option as a Trojan Horse.

It is possible the Obama has changed his mind on the health-care system since he claimed support for a single-payer system, or that he was carried away while speaking to labor groups. Changing one’s mind is not a failing, and can indicate intellectual growth.

If Obama wants a single-payer system, like he publicly claimed in 2003, he should admit as much and explain to us his reasons for such a plan. If he doesn’t he should explain why he changed his mind. What has he learned in the interim? However, the Administration is not owning up to Obama’s previous positions. If the Administration does not recognize and explain the change, if there has been one, in Obama’s position, it will serve to undermine public trust.