Monthly Archives: October 2013

Bold Promises, Promises

President Obama made a bold promise before, during, and after the passage of the Affordable Care Act that every American had the right to keep their existing health insurance. Period. Now, millions of Americans are getting the terrifying news that their insurance has been cancelled because of President Obama’s ACA regulation. The scope of damage is bigger than I realized:

Florida’s Blue Cross and Blue Shield, for instance, said about 300,000 members are affected while California’s Blue Shield and Oakland-based Kaiser Permanente will withdraw policies for a combined 280,000. Highmark Health Services of Pittsburgh said 40,000 customers will need to find new plans. CareFirst Blue Cross Blue Shield sent notices to more than 70,000 customers in MarylandWashington, D.C., and Virginia that their current plans don’t comply with the law.

As many as 80 percent of people who don’t have a company-hosted plan or insurance through the Medicare or Medicaid government programs may have to find new health coverage, said Robert Laszewski, an insurance-industry consultant in Arlington, Virginia. About 19 million people are included in this market.

Young professionals who were paying $250 a month will now have to buy a new plan costing $500 or more a month. And no, it is not always a better product, which is the fallback line of ACA defenders. Definition of irony: but for the Affordable Care Act, people could have kept their affordable care.

Here is the promise, which the Washington Post now gives 4 Pinocchios :

“That means that no matter how we reform health care, we will keep this promise to the American people: If you like your doctor, you will be able to keep your doctor, period. If you like your health care plan, you’ll be able to keep your health care plan, period. No one will take it away, no matter what.”

– President Obama, speech to the American Medical Association, June 15, 2009 (as the health care law was being written.)

Three points, then some analysis:

1.  The insurance that millions of people are not allowed to keep is what they freely chose. They could have purchased the “superior” product, but their freedom to choose has been outlawed. Why?  (Subpoint: when pressed to provide an alternative to the ACA, the answer is simple. Free choice!)

2. It is a gross, false assertion that the cancelled plans will be replaced by superior ones. In fact, the core logic of the ACA is that the costs paid by middle class consumers will be increased dramatically so as to subsidize the poor, unhealthy, and elderly. Smokers pay less, nonsmokers pay more: that’s the engine of the ACA in a nutshell. This is a simple observation, not a moral judgement, but let’s not fall for the Jedi Mind Trick that the old care was “substandard.”

Analogy: imagine the government telling people what they shouldn’t prefer and thus will no longer be allowed to drive inexpensive, compact Hondas with 4-cylinder engines. Cadillac or nothing. Oh, and “nothing” will be punished with a 1% tax on your income. So, would you like to see the Cadillacs? Oh, and Cadillacs are actually not very reliable cars, but whatevs.

3. The bold promise was a false promise. The conceit of creators of Obamacare was that the sales pitch was, at worst, unclear. No, the reverse is more like it. Obama claimed that not one person would be forced to lose their insurance. Not one.

Let’s think about the kind of bold, absolute statements that we make and what they really mean.  Then let’s think about what the bold promise that Obama, in fact, could have honestly made.

  • Never leave a man behind.” Central to the creed of the U.S. military is this promise. The promise is not abandoned once a brother is killed. His (or her) corpse is not left to the enemy. The universality of the promise is its power. If this were the Obamacare promise, it would be “Well, what he meant is that the new way of fighting is going to make life better for MOST soldiers.” Not the same! Not a glitch in translation.
  • “The elimination of German, Japanese and Italian war power means the unconditional surrender of Germany, Italy and Japan.” – President Roosevelt, January 24, 1943.  FDR’s decision was controversial and many still question it, but the demand for surrender without conditions meant that peace was more than the absence of war and occupation. It meant totalitarianism ended, the Holocaust was exposed, colonies were freed (not all, but Korea, for certain), war criminals were shamed and killed. Plus, democracy was born/reborn in the occupied nations instead of bitterness and plans for revenge which would have followed a conditional peace treaty (see: Versailles). In short, there was no double-talk from FDR or Truman to modify the U.S. commitment when the going got tough.
  • “I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the Moon and returning him safely to the Earth.” – President John F. Kennedy, May 25, 1961. JFK didn’t promise to land a probe on the moon, or have a man orbit the moon.

What Obama could have boldly promised is this: “The ACA will help cover millions of uninsured people. It will create a minimum baseline for everyone with insurance so that high quality is mandatory, not optional.” We might quibble with that, but it would have been much more honest than the promise he gave.

Reform is hard, and reformers have learned that making changes to existing law will often create winners and losers. So the modern approach is to “grandfather” the potential losers. Think of it as the “everyone gets a trophy” approach to fiscal policy. So when we talk about converting military pensions away from the coercive 20-year cliffed lifetime defined benefit and towards a 401k-style plan, the discussion cannot even begin without a commitment to honor the existing veterans. That’s how it should be.

Obama made this kind of no-loser commitment, and it was insincere. It was a sales pitch, not a policy description. And it probably will hurt future reform efforts of all kinds, notably the military pension overhaul.  The administration’s own analysis after the law was passed and before it was implemented found that roughly half of policyholders would actually lose their coverage immediately. It’s rightfully a scandal. But it’s worse than that.

What happens to the millions of Americans who have lost their coverage? All will be inconvenienced, outraged, and scared. But what happens to the percentage of them that are financially unable to buy new coverage? Let’s say 10% of this cohort of middle class Americans decide to go without insurance, reluctantly, in 2014. Then what happens to the small percentage of these ACA-induced uninsured people – moms, sons, babies – that get really sick? Strokes, cancer, Lyme disease, accidents. The horror of the ACA is that some number of Americans are going to suffer, some die, without health care in 2014 because of the law that took away their insurance.

It is cold comfort that most Americans might get better care. Very cold comfort.

When Speeches Matter (and when they don’t)

President Obama’s speech today on the launch of Healthcare.gov and the Affordable Care Act more generally was nice but pointless in the grand scheme of things. I think Ezra Klein summed it up nicely —

In the end, though, Obama’s speech doesn’t matter. Either the Web site will be fixed in a reasonable time frame, and the law will work, or it won’t be fixed and the law will begin to fail. The Affordable Care Act is no longer a political abstraction. It’s the law, and it will be judged not on how well politicians message it, but how much it does to improve people’s lives.

— except that he leaves out some other possibilities. Number 3 is: The web site may be fixed and the law still fails. Number 4 is: The web site continues to fail but the law itself survives. My guess is that #4 is the least likely, and #3 is the most likely. The point is that speeches and, to a lesser extent, web sites are not definitive to whether the underlying economic forces of policy will work or not. There are countless cases in history of bad economics being forced to work, sometimes for centuries, on pain of death. Name a price control that worked in the economic sense, yet plenty continue to be operational in the legal sense.

Add the Obamacare launch speech to the long list of presidential speeches that meant nothing. That’s not a suggestion that Obama shouldn’t have spoken, though sometimes less is in fact more. No, in this case, saying nothing in the face of policy failure is not an option. Hence the odd mix of tones: it was a condemnation; it was a celebration.

Presidential speeches matter in the sense they either (1) educate or (2) persuade. Obama’s speech fit neither category. It wasn’t quite the mess of Carter’s scolding of the American public in the 1979 Malaise speech. But it wasn’t educational like, for example, Reagan’s address to the nation on the economy on February 5, 1981 in which he explained inflation using a handful of coins. Nor was it persuasive like Bill Clinton’s speech in support of NAFTA at the JFK presidential library twenty years ago.

I suspect the most meaningful speeches, like the one that Obama gave at the 2004 Democratic national convention, bring people together rather than dividing them apart. It would be nice to hear more of those.

Lessons from the Debt Showdown of 2013

No long faces or hanging heads here. The government shutdown of 2013  was a tough fight with all of the ugliness of modern politics on display. The White House is saying there were no winners, but like almost everything else from 1600 Pennsylvania, the statement was disingenuous. Politics has trumped policy during this whole sorry year, and behind every public statement was an obvious political signal, motivation, or celebration. And today, as the dust settles on the Senate deal, it is clear the House Republicans lost and the uncompromising Democrats won. Lost in the drama are the deeper historical lessons about what has happened and is happening to America’s political economy. Here are three things worth noting:

1. Politics of Extremism and its Causes. The shutdown was not an unprecedented event (they occur roughly once every two years since I was born), nor was it like Clinton-Gingrich clash that many expected. The fiscal issues highlighted by the Tea Party are real and much more serious than in the 1990s. Americans know that. What was unprecedented in this debt-ceiling increase was the Obama administration’s hostility to compromise, highlighted terrorism analogies by Democrats and the phone call made by the President himself to House Speaker John Boehner with the simple message: I will not negotiate. This is not the post-partisan leadership expected by independent voters.

It is understandable that Obama wouldn’t agree to defund or delay his signature legislation, but not understandable to non-partisan observers why the President refused to use this crisis to forge a bipartisan consensus for a Grand Bargain. Boehner offered to negotiate that, but Obama wouldn’t talk. Why?

It is not unreasonable to view the actions of the White House as nakedly political, fomenting the crisis in order to turn the public against the Republican brand, perhaps to regain Dem majority control of the House of Representatives in the 2014 election. That is a corrosive strategy.

Clearly, U.S. politics are broken. A pox on both sides is the most common sentiment among the public. However, the pundits who are angriest about political dysfunction are also the most irrational. The most common error is to blame extremists in one party while silent or defensive or in denial about the other. The second error is to rant about “too much money in politics.” Fact is that American politics has become increasingly polarized on both sides since the 1970s — a measurable fact (see the data at voteview.com). What pundits and journalists do not seem to appreciate is that the poison is not personal — it’s not about Obama, or Bush, or the Tea Party, or Lewinsky, or special prosecutors. It predates all that!

Go back to the 1970s to find what caused the rise of partisanship. The smoking gun is that campaign reformers in the 1970s made changes to election laws designed to do exactly what has been done: increase partisanship. That was their goal. By restricting 1st Amendment rights, reformers like Norm Ornstein and Thomas Mann designed campaign finance rules to control money, not reduce it. Money was funneled away from candidates who have been limited in the amount of money they can raise directly, but opened up the funnels of indirect campaign giving that goes to the national parties. That’s the law. Just follow the money, oh Woodwards and Bernsteins of today. Follow the money. Is it any surprise that the campaign finance reformers got exactly the partisan control they wished for?  And the ultimate irony is the new battle cry: “We need MORE campaign finance reform.” What Americans actually want is not a stronger 2-party system and weaker representatives, they want more independent thinking in Washington. This is all covered in chapter 12 of our book or the recent Foreign Affairs essay.

2. Prioritization must return to Fiscal Policy.  This is nuanced, but stick with me. One of the more revealing statements in the heat of shutdown was when the Democrats objected to GOP efforts to pass “piecemeal” funding. That word piecemeal was used a lot, an obvious talking point to push back against GOP efforts to fund DOD and NIH cancer trials for children. Senator Reid made the biggest gaffe on the Left when he ridiculed a question from CNN reporter Dana Bash about why the Democrats wouldn’t save a few lives if they could. What was revealed is the fiscal foundation of Democrats: all-or-nothing. But the mocking tone of GOP efforts to prioritize funding is at odds with the normal course of business, and also at odds with the ultimate search for fiscal balance.

Democrats tend to be very sanctimonious about the damage to “research, schools, and health care” any time cuts are discussed. Okay then, what should be cut?  America needs that conversation, and it needs it be led by an honest president. What are the priorities?

The conversation was instead an all-or-nothing argument about a “clean” CR. Odd. CR stands for continuing resolution, which is itself a technique born of dysfunction (read the wikipedia entry). The normal course of business is not budget by  CRs, rather it is for both chambers to produce appropriations bills that are piecemeal. We’ve come full circle here! The fiscal function of the legislature is to prioritize – to be piecemeal – not to numbly continue spending levels from last year. The absolutist “clean CR” as the rallying cry of Democrats was the most revealing bit of theater of all.

3. Obamacare got a reprieve, not a save. The notion that the disastrous launch of Obamacare on October 1 was less damaging to Democrats because of the shutdown distraction is true, and also irrelevant. Absent the government shutdown, media coverage of the “failure” of Obamacare as described Ezra Klein would have been even harsher. So what? This is analogous to the Captain of the Titanic celebrating the fact that he was “lucky” the iceberg was hit at night when so many people on board were asleep. Well, Captain, guess what? The long run matters. The fact the Republicans are even more clearly identified with trying to repeal the law is not going to hurt them in 13 months.

However, I do believe this experience affirms the tactical mistake of the defund caucus in the GOP. One conservative economists likened it to Pickett’s charge at Gettysburg. I disagree that the tactic will be so fatal to the cause, but it’s a useful point. A less direct attack, and perhaps no attack at all, might have won the Civil War. In the case of Obamacare, if Republicans truly believe the law is unworkable, then why not simply let it not work?  Let Obamacare implode all on its own.  A better focus in the months ahead would be on reforms to the big three entitlements, programs that will never be repealed but desperately need reforms at the margin. 

In sum, there is ample space for compromise here on substance. But, as Glenn likes to say, “American politics have not kept pace with its economics.” You might even say they are moving in different directions. I am hopeful that political reforms will bring a new crop of policymakers to Washington in the decade ahead. Let’s not be discouraged by the extremists in office today, because as I wrote earlier, this too shall pass. If we can get our political institutions fixed, the economics will be easy.

U.S. Economic Outlook

Here’s a pithy and insightful U.S. economic outlook by David J. Stockton in about 15 charts, presented today at the the Peterson Institute. Easy to understand why we are in the New Normal. The decomposition of labor compensation is something I hadn’t seen before — simple time series charted, worth 1000 words.

 

This too shall pass

The creeping sense of crisis as the federal government shuts down is understandably real but also makes it difficult to think about the long-term. How will this mess look ten years from now?  Fifty?

History will rightly interpret the shutdown of 2013 in the context of the hyperpartisan passage of Obamacare in 2009. The ACA’s economic and budgetary impact are debatable at best, but it has been a political disaster. Here’s POLITICO:

No major law of the 20th century — not Medicare, nor the 1957, 1964 and 1965 civil rights and voting rights acts, nor the 1938 Fair Labor Standards Act nor Social Security — passed the Congress by anything like the narrow, partisan margin of Obamacare.

Indeed, Obamacare’s passage was brutally partisan, which caused a backlash in both the minority party but also in the public at large. President Obama will be blamed for opening this wound, and also for creating the seed bed for the representatives (key word) who are so hostile to the law today. They did not emerge spontaneously — they were elected precisely to counter his partisan violence. And they are the majority party now. Any president with a shred of bipartisan sense or leadership acumen would be working on a compromise. Instead, we have a case study in failed executive leadership.

It is sad. It didn’t have to be this way. But this too shall pass.