Health Care Reform: A Victory for the Little Guy?

by Dollars and Sense

David Leonhardt, the New York Times economics reporter, has a cover story in today's paper, In Health Bill, Obama Attacks Wealth Inequality, that depicts the new health care reform law as the first great social legislation in a generation. It is big, and it is social legislation, and it is true that it will be funded partly by raising taxes on higher-income folks. But it is hard to view it as the challenge to inequality that Leonhardt thinks it is--or that Obama & Co. (least of all Larry Summers, whom Leonhardt mentions in a positive light in the article) intended it as such.

As a counterpoint to Leonhardt's argument, here's something from the great, relatively new blog from the good folks at the University of Missouri at Kansas City's econ dept, New Economic Perspectives. This guest post is from Robert Prasch of Middlebury College.

Think The Democrats Just Scored One for the Little Guy? Think Again.

By Robert E. Prasch | Tuesday, March 23, 2010
Professor of Economics
Middlebury College

As a resident of Massachusetts, where the backlash is already well underway, I thought I should add a comment. Let's begin by considering the origins of "Obamacare". It comes from Massachusetts. It was passed early in Gov. Patrick's reign because during the campaign it was already in debate as it was Gov. Mitt Romney's proposal. Now, one might wonder where the conservative, free market, head of Bain Consulting governor might go finding a healthcare plan? Well, he got it from the Heritage Foundation. And why did they have such a plan? Well, they developed its broad outlines during the 1993-4 years as the Republican ANSWER to Hillary's effort. So, that is our new federal plan -- it is a warmed over version of the Heritage Plan. This, I submit, might explain a few things. (1) It was Obama's idea all along to "triangulate" the Republicans on this issue, and (2) why many of them are really very bummed out that their leadership did not take up the chance to show "bi-partisanship" on this issue (see David Frum on this).

Now, I tend to be skeptical of Heritage Foundation health-care plans. For several reasons:

(1) By design, costs are not contained, neither is health care reformed. This means that "affordability" does not come from controlling costs, but by shifting them. Shift to whom? A hallmark of the Heritage/Romney plan is that no change of the distribution of income is to occur with the financing of this plan. NONE. Rather, funding is to be from three sources --- those with supposedly "Cadillac" plans, those who have "opted out' because of the laughably high cost of coverage relative to their own risks, and to the state general fund. (2), In light of state budget shortfalls, it is no surprise that the latter source is declining quickly, and tens of thousands of Mass residents have ALREADY lost their subsidies (this trend will certainly occur on Capitol Hill over the next several years as 'deficit mania" kicks in). So, get this, as your income declines and your house is repossessed, the cost of your health care rises with higher premiums AND lower subsidies. But, make no mistake, even as the subsidies decline, the mandate will stay -- why should the big companies give up this huge windfall of unchecked access to the wages of the low paid?

(3) I also wish to warn against the 'NPR version' of the story that this bill "gives" health care for those without. Nothing is given, it is a MANDATE. Now, while the original 'vision' of the bill had subsidies, these are fading rapidly. So, now we have a dramatically underfunded mandate. Solving the lack of insurance by mandating the poor to buy it is, to be blunt, Dickensian. Obama himself stated it very well during the campaign "It is like solving homelessness with a mandate that those living on the streets buy a house". Those who are poor understand this point, and resent it. True, there are some young people who are in good health and, understanding statistics and rapacious health care insurance firms, "choose" not to get health insurance (as I did for several years in my 20s as the teaching assistantship I got from DU during my years studying for my MA could not cover my living expenses AND health insurance), yet the bulk of non-buyers are people who have found that with little in the way of family funds, other priorities (rent, car repairs, food, school fees, etc.) are a greater priority.

So, now the Democrats have taken it upon themselves to decide the priorities of millions of our poorest citizens. Thus, thanks to the Democrats, non-negotiable required fees from the insurance industry will be several multiples of the current income taxes of the lowest paid. This is sticker shock at its worse. Even Republicans know that the money will go to rapacious, soulless, insurance companies under the careful guidance of the IRS (here in MA, we have several extra highly-complex pages on an already long tax form where we have to prove that we have insurance). Stated simply, the Democrats have decided to go into the business of being the "enforcers" of the big insurance firms. This is NOT a good place to be in an election year. This is ESPECIALLY not a good place to be when you are already presenting yourself to voters, as Obama seems committed to do, as the die-hard supporter of the big banks that foreclosed on people's homes and blew up their economy.

With such a context, along comes someone who calls himself a "regular guy" with a pickup truck (he failed to mention that he has five homes, one in Aruba, but the truck was in all the ads), and he takes Kennedy's seat in Mass. In MASSACHUSETTS! Only one year after Obama wins this state by 20 points! Wow. This, folks, is what a backlash looks like, and it is enormous. Turning the wages of the working classes over to the insurance companies, without recourse or mercy, is not going to win this state, and it will not win in many others. If the Democrats lose any less than 35 house seats this election I will be amazed. And, note my wording, the Republicans did not, and will not, win them. No, the Democrats have decided to lose these seats. Amazing.

Sorry about bringing the bad news. But this bill is a disaster, and it is worse than nothing, as it will destroy the incomes of those it purports to help along with the Democratic Party. It is especially bad since a public option was always an option, I do not believe the D.C. spin on this for even a minute. Just as Obama never wanted to renegotiate NAFTA or leave Iraq, it was clear from the outset that the White House never wanted a public option, which explains why Rahm said so early last summer. Why? Because the big insurance companies did not want it, so Rahm did not want it. End of issue.

Read the original post.

Labels: David Leonhardt, health care, health care reform, Lawrence Summers, Obama administration, UMKC

 

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3/24/2010 02:29:00 PM 3 comments

 

It's Better than the Alternative

by Dollars and Sense

...to wit, nominiating Lawrence Summers. From Reuters:

Obama renominates Bernanke as Fed chief
Tue Aug 25, 2009 9:55am EDT

OAK BLUFFS, Massachusetts (Reuters) U.S. President Barack Obama nominated Ben Bernanke to a second term as Federal Reserve chairman on Tuesday, entrusting him with guiding the economy out of the worst downturn since the Great Depression.

Obama interrupted his vacation on the Massachusetts island of Martha's Vineyard to make the announcement with Bernanke at his side.

"Ben approached a financial system on the verge of collapse with calm and wisdom; with bold action and outside-the-box thinking that has helped put the brakes on our economic freefall," Obama said.

U.S. stock index futures were slightly higher on Tuesday on the news. There was no significant impact on financial markets in Asia and Europe, however, where investors were more focused on whether a global economic recovery was really under way.

Obama is counting on Bernanke to nurse the economy back to health at a time when unemployment, home foreclosures and bank failures are still mounting.

Obama's Democrats control the Senate, but Bernanke has faced criticism from lawmakers of both parties who say he has gone too far in extending Fed support that will be difficult to unwind, threatening future inflation.

"While I have had serious differences with the Federal Reserve over the past few years, I think reappointing Chairman Bernanke is probably the right choice," Senate Banking Committee Chairman Christopher Dodd said in a statement.

Dodd vowed a "thorough and comprehensive" hearing to consider the nomination.

(Additional reporting by David Lawder, Tim Ahmann and Anthony Boadle in Washington)

Labels: Barack Obama, Ben Bernanke, Federal Reserve, financial crisis, Lawrence Summers, Monetary Policy

 

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8/25/2009 09:15:00 AM 1 comments

 

Frank Rich on Larry Summers

by Dollars and Sense

A follow-up on the last post (about Harvard money managers lost $11bn): Frank Rich's column in Sunday's New York Times made a nice connection between recent revelations of Larry Summers' $5.2 million hedge fund earnings in 2008 and the fact that Summers, while president of Harvard, chided Cornel West for making a hip-hop album and supposedly thereby neglecting his professorly duties. It turns out that Summers did some real moonlighting while president of Harvard, consulting for the hedge fund Taconic Capital Advisors:

On the same Friday that the Labor Department reported the latest jobless numbers, the White House released (in the evening, after the network news) some other telling figures on the financial disclosure forms of its top officials. From those we learned more about how much the bubble's culture permeated this administration.

We discovered, for instance, that Lawrence Summers, the president's chief economic adviser, made $5.2 million in 2008 from a hedge fund, D. E. Shaw, for a one-day-a-week job. He also earned $2.7 million in speaking fees from the likes of Citigroup and Goldman Sachs. Those institutions are not merely the beneficiaries of taxpayers' bailouts since the crash. They also benefited during the boom from government favors: the Wall Street deregulation that both Summers and Robert Rubin, his mentor and predecessor as Treasury secretary, championed in the Clinton administration. This dynamic duo's innovative gift to their country was banks "too big to fail."

Some spoilsports raise the conflict-of-interest question about Summers: Can he be a fair broker of the bailout when he so recently received lavish compensation from some of its present and, no doubt, future players? This question can be answered only when every transaction in the new "public-private investment plan" to buy the banks' toxic assets is made transparent. We need verification that this deal is not, as the economist Joseph Stiglitz has warned, a Rube Goldberg contraption contrived to facilitate "huge transfers of wealth to the financial markets" from taxpayers.

But perhaps I've become numb to the perennial and bipartisan revolving-door incestuousness of Washington and Wall Street. I was less shocked by the White House's disclosure of Summers's recent paydays than by a bit of reporting that appeared deep down in the Times follow-up article on that initial news. The reporter Louise Story wrote that Summers had done consulting work for another hedge fund, Taconic Capital Advisors, from 2004 to 2006, while still president of Harvard.

That the highly paid leader of arguably America's most esteemed educational institution (disclosure: I went there) would simultaneously freelance as a hedge-fund guy might stand as a symbol for the values of our time. At the start of his stormy and short-lived presidency, Summers picked a fight with Cornel West for allegedly neglecting his professorial duties by taking on such extracurricular tasks as cutting a spoken-word CD. Yet Summers saw no conflict with moonlighting in the money racket while running the entire university. The students didn't even get a CD for his efforts—and Harvard's deflated endowment, now in a daunting liquidity crisis, didn't exactly benefit either.

Summers's dual portfolio in Cambridge has already led to one potential intermingling of private business and public policy in his new White House post. He tried—and, mercifully, failed—to install the co-founder of Taconic in the job of running the TARP bailouts. But again, Summers's potential conflicts of interest seem less telling than the conflict of values that his Harvard double-résumé exemplifies.

In the bubble decade, making money as an end in itself boomed as a calling among students at elite universities like Harvard, siphoning off gifted undergraduates who might otherwise have been scientists, teachers, doctors, entrepreneurs, artists or inventors. The Harvard Crimson reported that in the class of 2007, 58 percent of the men and 43 percent of the women entering the work force took jobs in the finance and consulting industries. The figures were similar everywhere, from Duke to the University of Pennsylvania. Dan Rather, on his HDNet television program in December, reported that at Penn this was even true of "over half the students who graduated with engineering degrees—not a field commonly associated with Wall Street."

Clearly the last person to serve as an inspiring role model for alternative values would have been Summers. But in her first baccalaureate address last June, his successor as Harvard president, Drew Gilpin Faust, stepped into that moral vacuum, zeroing in on the huge number of students heading into finance, consulting and investment banking. "Find work you love," she implored the class of 2008. The "most remunerative" job choice "may not be the most meaningful and the most satisfying."

Read the whole column; hat-tip to TM.

Labels: financial crisis, Frank Rich, Harvard University, Lawrence Summers, Wall Street

 

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4/14/2009 09:41:00 AM 0 comments

 

Obama Econ Team's Flawed Cosmology (AHuff)

by Dollars and Sense

From HuffPo:

The Obama Economic Team's Flawed Cosmology: Still Believing the Universe Revolves Around the Banks

Arianna Huffington | Posted April 6, 2009 | 10:10 PM (EST)

A series of recent meetings with members of Barack Obama's economic team (including running into Larry Summers on my way to an appointment in the West Wing, leading to a spirited back-and-forth that made me feel like I was back at Cambridge, debating the smartest kid in the class), left me with a pair of indelible impressions:

1) These are all good people, many of them brilliant, working incredibly hard with the best of intentions to solve the country's financial crisis.

2) They are operating on the basis of an outdated cosmology that places banks at the center of the economic universe.

Talking about our financial crisis with them is like beaming back to the 2nd century and discussing astronomy with Ptolemy. Just as Ptolemy was convinced we live in a geocentric universe -- and made the math work to "prove" his flawed theories -- Obama's senior economic team is convinced we live in a bank-centric universe, and keeps offering its versions of "epicycles" and "eccentric circles" to rationalize their approach to the bailout. And because, like Ptolemy, they are really smart, they are really good at rationalizing.

It's easy to get lost debating the complexity of each new iteration of each new bailout, but the devil here is not in the details -- but in the obsolete cosmology.

If you believe the universe is revolving around the earth -- when, in fact, it isn't -- all the good intentions in the world, and all the endless nights spent coming up with plans like Tim Geithner's Public-Private Investment Program will be for naught.

The successive bailout plans have been frustrating to many observers (yours truly included), but when you realize how fully the economic team is mired in a bank-centric universe, all the moves suddenly make perfect sense.

Here is one example. Everybody agrees on the paramount importance of freeing up credit for individuals and businesses. In a bank-centric universe, the solution was a bailout plan giving hundreds of billions to banks. It failed because, instead of using the money to make loans, the banks "are keeping it in the bank because their balance sheets had gotten so bad," as the president himself acknowledged on Jay Leno. As a result, the administration, again according to the president, had to "set up a securitized market for student loans and auto loans outside of the banking system" in order to "get credit flowing again."

But think of all the time we wasted while the first scheme predictably failed. And how much better off we'd now be if we had provided credit directly through credit unions or small healthy community banks or, as happened during the Depression, through a new entity like the Reconstruction Finance Corporation.

Luckily, there is a plethora of economic Galileos out there who recognize that the old bank-centric cosmology is just plain wrong. But while Joseph Stiglitz, Simon Johnson, Jeffrey Sachs, Nassim Taleb, Niall Ferguson, Paul Krugman, etc. are not being imprisoned for life for their heretical views -- they are also not being listened to. Which is really surprising for an administration that has prided itself on a "team of rivals" approach.

Read the rest of the article.

Labels: Arianna Huffington, bailout, banking crisis, Barack Obama, financial crisis, Galileo, Lawrence Summers, Ptolemy, Timothy Geithner

 

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4/07/2009 11:22:00 AM 0 comments

 

The Committee To Screw the World

by Dollars and Sense

Excellent article from the Washington Post on the deregulatory atmosphere that enabled the formation of the overlapping super-bubbles in derivatives, credit default insurance, and all the other gizmos we've come to know and love (and will pay handsomely for):

What Went Wrong

How did the world's markets come to the brink of collapse? Some say regulators failed. Others claim deregulation left them handcuffed. Who's right? Both are. This is the story of how Washington didn't catch up to Wall Street.

By Anthony Faiola, Ellen Nakashima and Jill DrewWashington Post Staff WritersWednesday, October 15, 2008; A01

A decade ago, long before the financial calamity now sweeping the world, the federal government's economic brain trust heard a clarion warning and declared in unison: You're wrong.

The meeting of the President's Working Group on Financial Markets on an April day in 1998 brought together Federal Reserve Chairman Alan Greenspan, Treasury Secretary Robert E. Rubin and Securities and Exchange Commission Chairman Arthur Levitt Jr. -- all Wall Street legends, all opponents to varying degrees of tighter regulation of the financial system that had earned them wealth and power.

Their adversary, although also a member of the Working Group, did not belong to their club. Brooksley E. Born, the 57-year-old head of the Commodity Futures Trading Commission, had earned a reputation as a steely, formidable litigator at a high-powered Washington law firm. She had grown used to being the only woman in a room full of men. She didn't like to be pushed around.

Read the rest of the article.

Labels: Alan Greenspan, Brooksley Born, Commodity Futures Trading Commission, financial crisis, Lawrence Summers, Robert Rubin

 

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10/17/2008 03:02:00 PM 0 comments