Archive for the ‘Finance’ Category

More Thoughts on Income Inequality

Saturday, January 16th, 2016

Paul Krugman recently published a good summary of the historical discussions regarding income inequality.

Before diving into climate change, I thought it would represent a reasonable addendum to what has already been posted.

It does venture in a little bit into the territory of why we should reduce income inequality and how we should go about doing that.

First let’s explore the three generally accepted reasons for the current huge income inequality.

Productivity
People get paid based on the value of their work. The reason some people get paid hundreds or thousands of time more than other people is because they are uniquely capable, skilled, and experienced. It is the old plumber joke. A man calls a plumber because he is having a problem. The plumber walks in, looks around for a minute, and hits a pipe with his hammer. The problem is fixed. The plumber hands the homeowner a bill for $100. The homeowner objects complaining that the plumber was only in the house for 10 minutes. The plumber takes the invoice back, adds these itemizations, and hands it back to the homeowner. Labor – $20. Knowing which pipe to hit and where to hit it – $80.

For the record, I have no problem with those with unique skills getting paid what the market will bear for those skills. Those include athletes, entertainers, and actors as well as brilliant developers and visionary entrepreneurs.

Luck
People get rich because they are in the right place at the right time. No better example of that than the recent Powerball lottery. That event produced roughly 5 people each worth $200M or so after taxes. Their chances of winning were ridiculously thin, but they won none the less because there are always winners. Not many who participated in one of our gold rushes struck it rich either, but the number of people who did participate spoke to the belief in this country that we all have an opportunity to strike it rich. But this sort of windfall has nothing to do with character, talent, or persistence. Just luck. That same luck is evidenced in the fact that parentage directly or indirectly accounts for a significant percentage of those who are wealthy today. This whole concept of “wealthy” luck was explored deeply in Malcom Gladwell’s Outliers book.

I have no problem with those who end up being wealthy because they were lucky. I don’t think that they have any standing to suggest that a higher tax rate will somehow reduce the small percentage of people who figuratively or literally win the lottery. But I agree that we have always been a “gold rush” country where we celebrate the good fortune of those who overcame enormous odds through blind dumb luck.

Power
Executives at large corporations who get to set their own compensation programs. Financial speculators who benefit from information that the rest of the market doesn’t have. Fraudsters who get rich off schemes that fleece the naïve or greedy. Power brokers who are able to exchange political power for financial gain.

These are the segment of wealthy that I think are the most troublesome. That’s because they use their wealth to acquire political influence. They use that political influence to gain an unfair advantage. That process is corrosive in a democratic society.

So What
There is the claim that “it has ever been thus”. We’ve always had income inequality, the claim goes. What is so different now?

The difference is that the income inequality is now larger than it has been since the robber baron gilded age. The public’s disgust about the influence of wealth at that time elected reformers like Teddy Roosevelt and William Howard Taft. These wealthy civic-minded leaders realized that our democracy couldn’t survive if so much wealth was concentrated in the hands of so few people. That’s because our political system then, and our political system now, allows money to purchase political influence. Those that are driven to dominate industries through economic power see political power as just another opportunity to acquire an unfair advantage over their competitors. Reformers passed legislation to break up the trusts and monopolies built by folks like Morgan, Carnegie, Rockefeller, and Schwab.

I’ve documented how the same thing is going on in markets today. It is clearly more sophisticated, but it is no less insidious.

There are certainly those, like Mark Zuckerberg, who built his fortune on the strength of a great idea that created a whole new category of software. We can talk about his luck of being in the right place at the right time, combined with being born into a wealthy family that could afford to send him to the best schools, to getting accepted at Harvard at a time when the college-based social networks were just taking off. But for every Mark Zuckerberg, there are roughly 30 corporate execs just making a salary.

70% of the top .1% of fabulously wealthy wage earners are corporate execs, financial professionals, real estate speculators, and lawyers. It is this dramatic growth in executive salaries that has been the dominant force in creating a new gilded age.

What Should Government’s Role Be?
That leaves the fundamental question of the purpose of progressive taxation, government oversight in market rules making, and money in politics.

The extraordinary gap between the rich and poor, driven by power rather than luck or skill, demonstrates that money is already providing the “Power” wealthy inordinate influence in politics. The powerful have already reduced the impact of taxation on their annual income as well as increased their ability to preserve their wealth for their heirs. They have manipulated the rules of the marketplace to provide their companies an unfair advantage against both competitors and the public. Finally they have achieved this by becoming the primary funders for political campaigns of those politicians who are willing to do their bidding. Four hundred families have provided half the funding for the current presidential campaign. That is unprecedented.

Progressive taxation is not punishment for success. Instead it is a tool that a democratic society can use to balance the political power that naturally accrues to the wealthy. The purpose of that balance is not to discourage success, but rather to lower the barriers that the “Power” wealthy can put in place to make it more difficult for others to succeed.

Revenues generated from higher taxes on those that I characterize as “powerful”, can be used to build a stronger social safety net and provide access for all citizens to the tools (education, investment, and government subsidies) needed to participate in the start-up economy. The 50’s and 60’s were the period of our most rapid growth and technological progress. We also had much higher top tax rates and much lower income inequality. Sweden is a good example of a high-tax, low-inequality state today. They have high marginal tax rates on their top earners and a very healthy start-up economy. They use the revenue generated from these high taxes on top earners to build a strong social safety net. They claim that this strong safety net encourages more risk taking because it reduces the personal costs of failure.

Creating markets that operate more fairly than today’s markets protect investors and reward innovation in ways that our current markets don’t. Most start-ups get acquired today because big companies continue to have significant market advantages over small ones. Freeing up small companies from issues of tortuous patent infringement, contractual barriers to competition, and de-facto monopolies will benefit consumers and the economy in general.

Breaking the connection between money and political influence will deliver on the promise of our democracy. One person. One vote.

Summary
The issue is not wealth.

The issue is not talent.

The issue is not luck.

The issue is how we want our economy to function.

We currently have a wealth-based economy. Wealth-based economies are inherently less stable than consumer-based economies. Our wealth-based economy was not the natural outgrowth of the disruptive events of automation. It was the unnatural influence of money on government policies. Those government policies encouraged a dramatic increase in corporate executive compensation that was not justified by company performance, allowed insider trading and stock manipulation, and increased corporate power and protection which weakening the bargaining power of workers.

I submit that a wealth-based economy is also not sustainable in a democracy. That’s because the natural tendency of those who have wealth is to protect it. That “protection” inevitably becomes influence on government policies from taxation, to market rules, to executive compensation.

At some point, those who are not part of the wealthy class will begin to realize that they are playing a game that is rigged against them. Rewards don’t go to those who are willing to work hard and play by the rules. Rewards go those who make the rules.

In a democracy the rules should be made by and for the largest number of voters. Right now many of our rules benefit only a small minority – an oligarchy.

One of those rules will be a rejection of the myth that high taxes discourage investment innovation. There is no data to support that claim. Innovation suffers when markets are dominated by large companies and rules/monopolies prevent the emergence of disruptive technologies.

If we want to encourage innovation, subsidize education, promote new business formation, expand the social safety net, and invest in emerging technologies. That would increase the number of “Productivity” billionaires even with high marginal tax rates. We would return to the meritocracy of the 60’s where talent and determination opened the doors to opportunity. Today, parentage is the primary determination of success.

We would not reduce the number of “lucky” wealthy because taxes have no impact on luck. Those who are lucky will continue to be lucky and should in some ways be willing to give back to a society that afforded them an opportunity that they didn’t themselves deserve.

We WILL reduce the number of those who achieve their wealth through warping the marketplace to their own benefit. The savings will diversify our economy, reduce those companies that became “too big to fail”, and close all of the loopholes and shortcuts to prosperity that only the “smart” money could take advantage of. In other words, those who in the past depended on Power to secure their wealth will now have to work for it just like everyone else.

That may result in some of the fabulously wealthy becoming just wealthy. It may also reduce inequality, but inequality will always be with us. It will expand opportunity which has always been the basic promise of this country.

Conservative Myth – Income Inequality is Fine

Thursday, December 10th, 2015

We’ve already gone through the question of whether or not an unregulated free market really exists in this country (it doesn’t) and whether that market is a fair distributor of wealth (it isn’t).

Just as a reminder. I’m not attempting to suggest any solution to the problem, but just addressing the conservative myths. I want to separate those two discussions, because so often the defense of a myth is the suggestion that there is nothing reasonable you can do to prevent it. We can get into solutions in future posts. Let’s focus these discussions on existence rather than remediation.

So now let’s dig a little deeper into the related conservative myth regarding their tolerance of income inequality. That myth has three parts.

The first, like many conservative myths, ignores the facts and suggests that income inequality isn’t really that bad for the individual. Everyone has a higher standard of living after all and so those who are concerned about income inequality are really just engaged in class warfare.

The second, is that a concentration of wealth in the hands of a few is good for the economy. It is the ultimate expression of a free market at work and it is the wealthy who create jobs, so any attempt to limit their ability to maximize their income is going to hurt the economy.

The third, is related to the second, but more philosophical. Wealth is the natural outcome of a free market. So progressive taxes and other methods which require the wealthy to pay more than everyone else is unfair. These methods punish success and by implication discourage others from making the same sacrifices that these special individual are willing to make.

Let’s take these in order.

Income Inequality is Harmless

Hopefully we all can agree that income inequality is great if you are part of the small group whose share of the income pie has been growing. We’ll talk about that group in more detail in the next two parts of this myth.

For the purposes of this portion of the discussion let’s focus on the rest of those who are primarily wage earners and whose incomes have been basically flat since roughly 1970.

Here’s how life has changed for this group.
1. Mom’s went to work. They did this to allow their families to remain in the middle class, or as an effort to get into the middle class. One wage earner used to be sufficient for a comfortable middle class life, but it isn’t anymore. The nature of middle class jobs changed for a number of reasons. One of those reasons is that executives began taking a bigger piece of the compensation pie. Up until the 1970’s, workers’ wages kept pace with productivity. After the 1970’s only executives benefited from increased corporate productivity.
2. Families got smaller. Middle class families could no longer afford four kids. The costs to raise kids went up in part because mom’s were no longer at home to help. Smaller families mean smaller schools, slower growth in the consumer economy, and long term fewer workers paying taxes and supporting Social Security and Medicare.
3. Commutes got longer. Middle class work weeks got longer. Middle class workers took less vacation. The United States in some ways turned into Japan in terms of the 24-7 nature of middle class jobs. As a result, the health of middle class workers declined as their stress levels went up.
4. The bargaining power of middle class workers decreased. Several factors at work here. One was an aggressive union-busting strategy championed by Ronald Reagan. Another was an aggressive outsourcing of manufacturing to right-to-work southern states and offshore low cost of labor centers. The third was decimation of the white collar workforce as a result of automation. Many middle management jobs simply disappeared as factory work contracted, clerical work disappeared, and software replaced paper and the workforce that managed that paper.
5. The cost of college skyrocketed as Republicans purposefully cut funding to higher education as part of the larger supply side economic fantasy. The middle class did get a tax break, but that modest increase in income fell far short of the cost to send their kids to college. So those families pulled money out of the only other asset they had, their homes. That asset was dramatically devalued in the financial crisis of 2008. The result is that those families are no longer able to pay for a college education. That burden has now shifted to students who leave college with huge debt burdens that previous generations did not have to deal with. The result of those burdens are being felt across the economy as college graduates spent a decade or more paying off debts rather than buying houses, starting families, or starting new businesses.
6. College education used to be the huge social melting pot where smart kids from modest means could make the jump to high paying jobs based on their willingness to work hard. Now college, particularly the elite colleges that are the gateway to the executive level jobs in this country, are only available to the children of those executives. The meritocracy of the 1950’s has been replaced by an oligarchy.

The Concentration of Wealth is Good for the Economy

I’ve dealt with this in previous posts. But here is a quick summary.
1. There is no trickle down economy. Wealthy people only buy from other wealthy people.
2. The wealthy get a substantial amount of their income from the stock market. As a result, their spending habits fluctuate based on the market. This makes for a far more volatile economy than one based on a large set of middle class consumers.
3. The wealthy are NOT job creators. Most jobs in this country are generated by medium size high growth companies. Most of these companies are privately owned. Those owners are not taking big salaries. They may have high net worth because of the value of their business, but all of their assets are tied up in their business. So they aren’t generally reporting high incomes. Too many small businesses fail or get acquired, so the gains of small business are pretty much offset by the loses. Big companies that can afford high priced CEO’s are the ones doing the acquiring. As a result, they lay off more people than they hire. So they also are not a long term significant contributor to job growth.

Wealth is the Natural Outcome of a Free Market

While it is true that in a free market income distribution is going to produce some wealthy people, we have already proven that in this country, markets aren’t free. Worse yet, markets have become warped by the political influence of wealth. Because we’ve allowed markets to become biased to benefit the wealthy at the expense of everyone else, we shouldn’t be concerned that an effort to remove some of this bias is “unnatural”.

While it is true that wealth is an incentive, there is no evidence that progressive taxes are a disincentive, or that a multi-millionaire is any less driven than a billionaire. If higher marginal tax rates were a disincentive to wealth, we would see it reflected in slower economic growth during times of high marginal tax rates and higher growth during times of low marginal tax rates.

During the period 1951-63, when marginal rates were at their peak—91 percent or 92 percent—the American economy boomed, growing at an average annual rate of 3.71 percent. The fact that the marginal rates were what would today be viewed as essentially confiscatory did not cause economic cataclysm—just the opposite. And during the past seven years, during which we reduced the top marginal rate to 35 percent, average growth was a more meager 1.71 percent.

Finally there is the myth that a progressive tax system removes the incentive for those who aspire to wealth to make the same sacrifices that those who achieved it where willing to make. The reality as we covered in the previous post is that great wealth in this country is much more an accident of birth than the product of hard work. Less than 20% of the billionaires in this country earned all of that income themselves. The other 80% inherited a substantial amount of money, in some cases more than a billion dollars.

That is not to say that those who achieve great wealth weren’t willing to work hard and make sacrifices. They were. But it wasn’t their hard work and willingness to sacrifice that distinguished them from those who didn’t achieve great wealth. The difference is that they were lucky. They stood at the table of life and rolled a 7. They were born into the right family at the right time with the right skill set to take advantage of a disruptive moment in our economy. There is nothing wrong with being lucky, but there is something wrong when we suggest that taxing the lucky will somehow diminish their ability or desire to take advantage of their good fortune.

But that still leaves one question unanswered. What sort of incentive does wealth provide for those who are already wealthy? Turns out that the major incentive is preservation of their family’s wealth through investments to minimize their taxes and secure the future for their children. Over the past 50 years or so, those investments have include political contributions to influence favorable rule making.

Again I’m not trying to make value judgments here, though obviously I do have an opinion. I’m just stating facts. For example, it is entirely natural for parents to try to make a better life for their children. By not paying closer attention to the influence that wealth has in this country, however, we are witness to the meritocracy of the 60’s becoming an aristocracy. That’s because those who benefited from the ability to make the jump from the middle class to wealth have had the means to change the system so that it benefits the children of the wealthy rather than all talented, gifted, and hard working children. There are still the same number of opportunities for Ivy League grads now that existed in the 60’s, but a much higher percentage of those grads are coming from wealthy families.

So it raises the inevitable question of which is more beneficial to our society, one billionaire or 20,000 middle class wage earners. In other words, what kind of a society to we want ?

Here are our choices. The society we have today concentrates wealth in the hands of a few who control the rules of the game for their own benefit. Those rule changes have greatly impacted the middle class which is in steep decline. The society we had during the most prosperous years in our history concentrated economic and political power is in the hands of a middle class. They received a fair share of the productivity gains that they delivered because of strong unions. That fair share was sufficient to allow them to provide their children all of the advantages and support required to also be part of the middle class. The result was a growing middle class that sustained economic growth through the 1970’s when the rules began to change.

Economic prosperity doesn’t trickle down, and neither does civic prosperity. Both are middle-out phenomena. When workers earn enough from one job to live on, they are far more likely to be contributors to civic prosperity — in your community. Parents who need only one job, not two or three to get by, can be available to help their kids with homework and keep them out of trouble — in your school. They can look out for you and your neighbors, volunteer, and contribute — in your school and church. Our prosperity does not all come home in our paycheck. Living in a community of people who are paid enough to contribute to your community, rather than require its help, may be more important than your salary. Prosperity and poverty are like viruses. They infect us all — for good or ill.

Inclusive economies always outperform and outlast plutocracies. That’s why investments in the middle class work, and tax breaks for the rich don’t.

Conservative Myths – Free Market

Saturday, November 14th, 2015

One of the basic claims of conservatives and libertarians is that government intervention in capitalism distorts and ultimately inhibits the free market. More importantly, the implication is that the free market would somehow operate more efficiently if it were unfettered. Republicans have claimed among other things that an unfettered free market will cure poverty, solve global warming, reign in the growth of healthcare spending, and give everyone the opportunity to become wealthy.

So let’s dig into this myth as a precursor to a discussion about income inequality.

Markets, free or otherwise, are places where goods and services are bought and sold.

Markets require rules in order to operate. Sellers want to be assured that they are going to get paid. Buyers what to be assured that they get what they paid for.

eBay is a great example. They created their own market free from government regulation. It had anonymous buyers and sellers. Everything, at least in the beginning was priced based on competitive bidding. As long as there was more than one bidder, prices would always settle on what the real value of that product or service was at that particular point in time. Basic supply and demand. But even eBay had to have rules. They had to have a way to escrow payments to make sure that sellers got paid and buyers actually received what they paid for. They have to have a way to resolve disputes if products turned out to be misrepresented. They also had to protect sellers from unethical buyers who might want to blackmail sellers using bad reviews. eBay is as close to free market as you are going to get in this day and age, and they did it through consistent enforcement of a set of rules that were fair to both buyer and seller.

Government provides the rules that allow markets to operate in efficient and predictable ways. Those rules include contracts, bankruptcy, and fraud just to name a few. The notion that markets are somehow fettered by these rules is folly. In fact, it is very much the opposite as we will soon see.

This brings us to the next step in the myth of the free market. That is the notion that the marketplace is the fairest judge of the worth of both goods and labor. That might be the case if the markets were themselves fair, but if people cheat to gain an advantage it raises the real question of how fair that market is going to be.

Here are a few examples.

Insider Trading
Insider trading is taking unfair advantage of information that you may have that is not available to the rest of the market. The expectation of most people familiar with the term is that insider trading is illegal. The fact is, however, that CEO’s trading with their own stock are exempt from insider trading rules. Even worse, companies no longer have to disclose when they are trading in their own shares, whether that is buying back their own stock or when their senior executives exercise their options and then sell the stock. Rules put in place during the Clinton administration treat executive compensation that is performance-based (e.g. stock options) as tax exempt for the company. These rules have created a perfectly legal situation where a CEO can direct his company to buy back a sufficient number of their own shares to artificially drive up the price, and then sell off shares acquired through their executive compensation package before the stock has had a chance to fall back to the normal trading ranges. This is one of the ways that CEO’s of companies underperforming the stock market can still secure windfall profits for themselves. It is not illegal. But it is certainly cheating on the principle that compensation has anything to do with performance. What’s worse, it is not only cheating those who are investing in this company or its competitors. We tax payers are subsidizing these windfall profits that CEO’s enjoy because we make up the difference that their taxes would otherwise supply.

This is just one example of how large companies since roughly the 70’s have tilted their markets in their favor through manipulation of the rules governing the market. It is also an example of how tax rules put taxpayers in the position of redistributing pre-tax subsidies UPWARD in our economy.

Another example was the subject of a three part story in the NYT.

Contracts
That covers contracts. Companies large and small now include terms of use contracts in all of their online and many of their hard goods packaging. The same language is in many supply contracts as well. Those terms of use preclude the user from participating in a class action suit. Instead the consumer or trading partner agrees to arbitration. The problem is that the arbiters who hear these cases have a built in bias to find in favor of the company. That’s because those who find in favor of the customer quickly find that they fall off the list of arbiters acceptable to the corporations. The result has been that third party arbitrations end up being resolved in favor of the company most of the time. This gives companies wide leeway to behave in predatory ways without fear of consequences.

Here’s another.

Generic Drugs
It is perfectly legal in this country for large pharmaceutical companies to pay producers of low cost generic alternatives to delay producing those drugs. The result is that healthcare costs in this country are artificially inflated because only the higher priced proprietary drug is available. Worse yet, we are the only country in the world that allows this practice. So our drug prices are also the highest in the world. The annual additional cost that the insured and the government bear is estimated to be $3.5B/year. This is another direct subsidy to big pharma.

Cable Monopolies
We also pay more for Internet service that any other country in the world because we have given the cable companies, who dominate the market, a monopoly in most areas. 80% of cable subscribers in this country only have one choice. As a result cable costs 3x more in the US than Europe where consumers have up to 7 providers to choose from.

Big Banks
Too big to fail banks now control 44% of the loans in this country. They are able to offer lower interest rates on those loans than smaller competitors precisely BECAUSE the financial markets know our government will not allow these big banks to fail.

Bankruptcy Law
Similarly the rules for bankruptcy favor corporations and banks over individuals. Corporations can use bankruptcy to walk away from pension obligations or union contracts. Individuals cannot use bankruptcy to walk away from student loan debt.

Ivy League Schools
Because wealthy people get big tax breaks to contribute to private institutions of higher learning like the Ivy League Schools. They also secure the guarantee of enrollment at those institutions for their children through “legacy” preference. The problem is that those tax deductions constitute a government subsidy provided by the rest of us tax payers that is estimated at almost $60K a year per Ivy League student. The tax payer subsidies to state schools generated primarily through direct payments rather than tax deductions is about $6K per student. So we are not only contributing to the wealth of the 1% through the tax avoidance strategies of their companies, we are also paying to educate their kids who will learn how to expand this strategy for their benefit when they follow in their parents footsteps.

Summary
I could go on for quite a while, but I think that you are getting the point.

There is no such thing as a free market because those who control the market would prefer that it operate in ways that benefit big corporations and disadvantage competition and customers.

The result is a massive subsidy that consumers, small companies, and the government provide in the form of anti-competitive rules and regulations. This upward pre-tax distribution of money is why many corporations spend more money on lobbying than they do on R&D.

Our markets are rigged to benefit the powerful and wealthy. The powerful and wealthy are perfectly happy to perpetuate the myth that they earned their wealth because they were smarter and willing to work harder than everyone else. The data, however, suggest otherwise. It shows that corporations with highly paid executives generally underperformed the market and their competitors.

The real story is that a high percentage of the wealthy and powerful got there because they started out on the inside through the accident of birth, learned the game at the same schools their parents attended and supported, and figured out how to expand their unfair advantages when they had their turn at the wheel.

The reality is that if we were able to stem the tide of this massive upward redistribution of wealth, we wouldn’t need nearly the amount of post-tax redistribution to the working poor through transfer payments. We would be able to pay our bills because the existing tax system would be generating a lot more money. We would be able to fix our roads, educate our kids, and feed our hungry.

Instead we are supporting an oligarchy who claims that they deserve what they stole because the “free market” decided that they should have it. While they are promoting the myth of the free market, they are using their wealth to buy political influence. They use that political influence to warp market and tax rules in their favor.

They say publicly that “government is the problem”, but behind the scenes this government is working just fine for them. That’s because they are getting what they paid for.

The Empire Strikes Back

Tuesday, September 15th, 2015

There are plenty of frightening things about Trump’s campaign.

What is most frightening is his xenophobic appeal to nativism. It has given voice to an ugly white bigoted segment of society that has always been there, but was not discussed in polite company. These are the neo-nazi white supremacist racists who have enjoyed resurgence over the past eight years because a black man was in the White House. They were able to scream their bigotry in the public square because conservative Republicans claimed it was all politics. The worst stuff imaginable was suddenly fashionable among those who opposed the President because of his politics AND his race.

While they weren’t looking, however, conservatives have discovered that Trump is not just a racist, which they understand. He is also a populist. Worse yet, he is a rich populist, which seems an oxymoron, but doesn’t seem to disturb his followers. Even more terrifying to the conservative Republican establishment, his populism hasn’t just targeting illegal immigrants. It has also targeted bloated corporations who have had their way for too long and CEO’s who have been packing it in at the expense of their workers.

This is a very interesting turn of events. Ever since Reagan coopted the evangelical political movement awakened by Carter, Republican candidates have run on a whole platform of social issues. Once elected, however, they only delivered on the fiscal issues that were most important to their big money backers. Over the years everyone assumed that social conservatives actually cared about all of these fiscal issues too. Turns out that those supporting Trump don’t really care about the reducing taxes, expanding federal programs, and state’s rights. They understand the impact that big money has had on politics and are just as unhappy about large corporations and high income CEO’s as they are about illegal immigrants. Trump, running as a conservative Republican, hates free trade deals, loves Medicare and Social Security, wants to punish big companies that ship their jobs overseas, wants to tax CEO’s with cushy comp packages, and pledges to hold boards more accountable for their crony capitalism. In that regard Trump is MUCH closer to Bernie Sanders than he is any other candidate on the Republican ticket.

As Paul Krugman points out

The influence of big-money donors meant that nobody could make a serious play for the G.O.P. nomination without pledging allegiance to supply-side doctrine, and this allowed the establishment to imagine that ordinary voters shared its antipopulist creed.

But Mr. Trump, who is self-financing, didn’t need to genuflect to the big money, and it turns out that the base doesn’t mind his heresies. This is a real revelation, which may have a lasting impact on our politics.

The empire has inevitably begun to strike back.

The Club for Growth, that mainline supply side shill for political big money, is raising money to start running ads against Trump because of his tax policy.

Their hope is that they are going to be able to convince enough conservative Republicans that Trump is not their friend. This is going to be really interesting because the moment those ads begin to run I predict his poll numbers will improve. Rather than vilify Trump, these attacks from the conservative Republican establishment will validate what Trump has been saying all along. Those that have been sitting on the sidelines not sure that Trump is the real deal will realize that the Republican establishment, whom they also don’t trust, DOES take him seriously. They believe that he is dangerous. They recognize that he isn’t going to succumb to their influence. And finally, the establishment is terrified of what will happen to them if Trump is elected. This attack will be the sort of endorsement some of those on the sidelines have been waiting for. Trump will use these attacks to double down on his message of change. He will say, “If you really want to see changes, rather than the same old three card Monty that the Republican Party has been running, vote for me”.

If Trump is able to prove that these sorts of attacks will backfire and that organizations like the Club for Growth no longer have the weapon they claimed, the Republican Party will enter a brave new world. They will be required to really debate fiscal policy on the basis of what is best for the voters rather than what is best for their big money interests. If that occurs, we could really see a Presidential election where Bernie Sanders and Donald Trump both agree that the wealthy should pay more taxes, corporations should be penalized when they ship jobs offshore, trade pacts should benefit US workers, the social safety net should be strengthened because it benefits those that depend on it, and healthcare should be available to all at a cost that all can afford.

Compare this to the tax plans of the rest of the clowns on the Republican candidate bus.

Cruz, Paul, and Carson all favor a flat tax. Easy math says that the flat tax has to be somewhere around 25% in order to fund the government at current spending levels. Paul is at 14.5%. Carson at is 10%. Cruz hasn’t said. Beyond that, the flat tax is a huge give away to the wealthy who are paying significantly more in taxes today.

Huckabee is proposing a consumption tax. This federal sales tax would add $.23 to ever $1 spent on anything or an effective rate of 30%. The problem is that economic think tanks across the political spectrum say that it wouldn’t even come close to funding the government at its current level of spending.

Bush’s tax plan is the most interesting just because it is so weird. He has already promised that supply side economics will produce 4% growth for as far as the eye can see. But the details of the plan make that naïve prediction seem rational. Here are some quotes from a good article on the subject from fivethirtyeight.com

Bush’s plan offers an unlikely combination of solutions to the problem of slow growth.

He wants to cut the income tax rate and eliminate the estate tax and the alternative minimum tax — all policies that would benefit mostly the wealthiest Americans. At other times, he sounds like a populist, calling for the closing of loopholes that benefit corporations and hedge fund managers. And at others, he sounds like a policy wonk, arguing to shift tax policy in a way that encourages companies to build rather than borrow.

There’s no way to calculate yet what impact Bush’s proposals would have on the federal deficit, for example, or exactly how much more or less specific groups would pay in taxes. He hasn’t identified the corporate loopholes he would close or said whether closing them would fully offset his proposed cut to the headline corporate income tax rate.

The summary is that this is a politically motivated plan that borrows something from every other candidate including Clinton and Sanders, bundles it all up in a big confusing bag, and then wraps it in a bow of promised 4% growth. The reality once you strip everything away is that it is the same old voodoo economics that Reagan was forced to abandon, Bush I rescinded, and Bush II used to turn a surplus into a deficit.

The reality, at least for the moment, is that there are a lot of angry white voters out there who are unhappy with the Republican establishment. There are also a lot of frustrated progressive voters out there who are eager for a candidate willing to mount a full throated defense of progressive principles. Trump and Sanders are riding these respective waves. It is unclear whether those waves will propel both candidates to their party’s nomination, but the political establishment is becoming very uneasy with this populist uprising.

Trump and the Crazy Train

Friday, August 14th, 2015

There is certainly one thing that you can say about Trump – he is entertaining.

What people aren’t talking about is the fact that ALL of the Republican presidential candidates are in one way or another just as crazy as Trump.

Trump represents an interesting populist anti-establishment uprising that has surprised the party establishment, the media, and Trump. He is also the natural evolution of the “money votes” economy. Rand Paul was on the right track when he said that Trump is “used to buying politicians”. He has simply taken the next step of by passing the middle man and representing his own interests. Whether he is able to translate this into a nomination is yet to be seen.

He gained momentum by demonizing undocumented workers. He fanned the flames of xenophobia by claiming that Mexico was deliberately sending their most dangerous citizens to us to deal with.

All of the rest of the candidates were dragged along to support Trump’s claim that there is a crisis at the border. Rubio tried to distance himself from his previous support of a path to citizenship. Walker also changed his tune. Christie called his previous support a “garbage idea”. Even Trump had flipped from his earlier support of path to citizenship. Only Kasich, Hackabee, Carson, and Paul have resisted the urge to jump on the “we’re being overwhelmed with criminals” bandwagon.

The problem is that fact checkers call this claim false. Illegal immigration peaked in 2007 and has actually declined since. Deportations hit an all time high in 2013 of 400K. Most of those were convicted of crimes in this country. More robust border enforcement has not only dramatically reduced illegal immigration, but it has also discouraged undocumented workers from leaving this country for fear that they won’t be able to get back in. The result is a fairly stable population of undocumented workers in this country of 11M. Their children, at least those born here, will automatically be citizens. If these trends continue, within thirty years the number of undocumented workers will drop by 50% without any other actions on our part.

So the only value in building a bigger wall is that it will likely provide some jobs for those that the wall is intended to keep out.

How about abortion?

Trump flipped from his previous support of abortion.

Rubio lied about never supporting exceptions to abortion.

Bush questioned whether, “we need half a billion dollars for women’s health issues.”

Huckabee said he would ignore the Supreme Court and declare that a “baby inside the mother’s womb is a person at the moment of conception.”

Santorum, who has built his political career on his opposition to abortion, took the opportunity to question Carson’s character because Carson used fetal tissue in his medical research. “When you start to see some of these cracks, I think it may show whether the person is really someone who’s going to take on an issue and be strong on it when they get into the very difficult position of being President of the United States.” An interesting attack from the guy who recently failed a significant test of character when he had to choose between politics and his religious faith on the topic of climate change.

How about healthcare?

Trump flip flopped in his previous support for single payor.

All promise to repeal Obamacare and replace it with something better. NONE have said what that something better would be other than some discussion that health savings accounts would be nice.

How about the use of our military in the Middle East?

Rand Paul is the only one who would not put “boots on the ground”.

Fiorina lied when she claimed that the US wasn’t arming the Kurds. We are doing it through the Iraqi government.

How about the economy?

Jeb promises that he can deliver 4% growth off into the future based on his experience in Florida and his belief in supply side economics. The reality is that he presided over a huge real estate bubble in Florida. When it burst, shortly after he left office, 900K of the 1.3M jobs he claimed to create vanished. Funny the same thing happened to his brother’s supply-side experiment.

Many economists think that 4% is just out of our reach because of the demographic headwinds of the baby boomer retirement. You really have to believe in the fairy dust of supply side economics to project that we would touch 3% as a result of government policies.

Christie claimed some big job numbers, but his state ranked 44 out of 50 in job growth.

Walker did not elaborate on his failure to deliver the 215K jobs he promised would appear as a result of the massive tax cuts he gave business. Instead he talked about job growth and job participation numbers. What he didn’t say is that these were the same numbers that existed prior to his election.

Huckabee solves everything with a consumption tax. One of the advantages of that tax is that even “illegals, prostitutes, pimps, and drug dealers” would be paying this tax. He claims that tax will generate 6% growth. I have to admit that 6 is better than 4 which is certainly better than 2, but just changing the tax policy won’t do it. You have to get more workers which just isn’t going to happen unless there is also a radical change in immigration policy which is not part of Huckabee’s plan. Even if you got more workers, you would also have to have a significant change in productivity because wages would have to track this growth in order to get more money into the economy. Huckabee hasn’t even thought of this because his consumption tax shifts most of the tax burden to the poor. All he has thought about is that 6 is better than 4.

Then there is Doc Carson, who suggest that we should all tithe 10% of income instead of pay taxes. When asked whether or not it would work, he said that if it worked for God, it will work for us.

Summary

In this context it isn’t surprising that Trump is having the success that he has been having. The reality is that the only half-way serious candidate in this train full of clowns is Kasich. Not surprisingly he is the most moderate of the bunch and as a result, the least likely to get the nomination.

This speaks volumes about what the Republican Party has become. This is no longer the party of George HW Bush or even Ronald Reagan. It has become the party of paranoia and extremism as the old white angry men, who have been the party’s backbone, struggle with the reality that they are no longer in control. They failed to defend marriage from the onslaught of gay rights. They failed to prevent the rollout of what they see as another big entitlement program in Obamacare. Black people are demanding justice. Hispanics have discovered the power of the ballot box. Even the Pope disagrees with their abortion obsession. And women are no longer content with staying home and raising children. They not only demand a career, but also equal pay for equal work.

These guys are growing tired of the effort required to hold back the flood of scientific evidence supporting human-caused climate change. Their dam has sprung so many leaks that they are running out of fingers to plug them. Coal-based electrical generation is not only polluting, it is expensive. The most economical and highest performance car is all electric, made in this country, and sold direct over the internet. The world is changing under their feet and there appears to be little they can do to prevent it except perhaps support someone who is willing to give voice to their fears and frustrations – Donald Trump.

Money Corrupts

Friday, June 19th, 2015

One example of modern day corruption is the estate tax repeal that the republican house recently passed.

I’m working on another post that digs into the whole topic of corruption in more detail, but here’s a quick overview to provide some historical context to this discussion.

The framers of the constitution felt that corruption was the single largest threat to democracy.

If you remember your history, the United States was not the first democracy. That was Athens. But democracy was still a novel idea when the colonies decided that they had to be independent of the King. One of the arguments against democracy was the natural instinct of self-interest. The other argument was that the rich and powerful in Europe had been able to undermine democracy. The livelihoods of so many people depended on the good graces of royalty, for example, that few opposed their rule.

The framers, however, believed that individuals would value liberty so highly that civic virtue would trump self-interest. They were not so naïve, however, as to assume that this willingness to sacrifice for the greater good would continue once those who experienced the revolution passed on. So they regarded anything that would subvert civic virtue, or even have the appearance of self-interest, as corruption.

It’s through that lens that I’d like to look at the repeal of the estate tax. This isn’t to suggest that this is the only example of modern corruption. It’s just an obvious one.

The estate tax charges the wealthiest .2% of American households when they pass on amounts in excess of $5.4M in the case of individuals and $10.9M in the case of couples to their heirs.

This estate tax has been part of the US infrastructure since 1797. Its explicit purpose is to prevent the sort of corruption that the founders associated with a permanent aristocracy. By making it difficult for one generation to share their wealth with another, it discourages the formation of families with enough money to damage civic virtue. Specifically the concern was that our representative democracy could erode to an oligarchy if the government didn’t specifically take steps to prevent the concentration of wealth in the hands of a few. James Madison warned that inequality in property ownership would subvert liberty, either through opposition to wealth (a war of labor against capital) or “by an oligarchy founded on corruption” through which the wealthy dominate political decision-making (a war of capital against labor).

Here are some of the justifications leading Republicans have used for eliminating the estate tax.

House Ways and Means Committee Chairman Paul Ryan, R-Wis. claimed that the estate tax is “absolutely devastating” to family farms, and further he claimed the repeal would remove “an additional layer of taxation” from assets that had already been taxed.

“It sounds to me like there’s a lot of wealth envy in this country,” Rep. Virginia Foxx, R-N.C. The bill abolishing the estate tax, she said, “will draw a line in the sand.”

The facts are that only 120 small businesses and farms (100 of them large farms) were hit by the estate tax in 2013. And for that tiny number affected, there are all sorts of provisions already in place to soften the blow: low valuation rules, delayed tax payments and other breaks and discounts. In fact some have characterized the estate tax and a fine for those who failed to pay their accountant, since careful planning can generally avoid this tax.

Also 55% of the value of estates worth more than $100M, according to Americans for Tax Fairness, are unrealized capital gains that have never been taxed. If the issue were double taxation, there is a much better way of addressing the issue than simply eliminating the estate tax.

Besides the obvious risks of increased concentration of wealth in the hands of a few, there are real budget implications of repealing this tax. The tax will bring in $269B over the next ten years. Republicans are going to say that putting this money back into the hands of the wealthy will increase other tax revenue by causing economic growth, but there are no facts to support this claim. What the data shows is that tax cuts to the rich only reduce the middle class, increase the ranks of the poor, weaken our economy, and increase our debt.

To put this gift to the wealthy in perspective, here are some of the other things that could be done with that amount of money.

  • Making community college free for everyone for ten years cost $60B
  • Making four year college free for all that qualify would cost an additional $15B
  • Plugging the current highway trust fund deficit which would support infrastructure improvement costs $164B over the same time period

If at this point you are asking what does all of this have to do with corruption, the house members who voted for this bill received a combined $56M in campaign contributions during the last election cycle from special interest groups specifically advocating the repeal of this tax.

This may not meet the narrow standard of corruption that the Supreme Court used to justify the Citizen’s United case, but it does justify the fears that our framers had regarding the corrupting influence that money has on our democracy.

Institutional Racism

Friday, May 15th, 2015

In the previous post, I made the claim that institutional racism in the form of asymmetrical law enforcement and judicial bias were two of the three motivating factors driving the current demonstrations and violence in black communities across the country.

I suspect that some might dispute the claims of asymmetrical law enforcement or judicial bias, but the numbers here are undeniable. Blacks have many more encounters with police than whites on a per capita basis. They get arrested way more than whites. They are incarcerated at a much higher rate for the same crimes. They receive longer sentences for the same convictions. Ferguson was just one example of collusion between city government, law enforcement, and the judiciary to extort money from the black community for petty infractions. That’s institutional racism.

Another aspect of institutional racism created the ghettos where the vast majority of the black population live. These communities not only have substandard housing, but also no jobs and a very low percentage of home ownership.

Home ownership is the middle class wealth engine. Blacks don’t have access to that engine because they don’t have access to the middle class jobs that can support home ownership. They also don’t have access to that engine because, until the 70’s, they were not able to get mortgages for houses in middle class neighborhoods. Federal Housing policies prohibited it. That’s institutional racism.

Ned Resnikoff dug into the history in an MSNBC piece.

Disparities in homeownership are a major driver of the racial wealth gap, according to a recent study from Brandeis University. According to the authors of the report, “redlining [a form of discrimination in banking or insurance practices], discriminatory mortgage-lending practices, lack of access to credit, and lower incomes have blocked the homeownership path for African-Americans while creating and reinforcing communities segregated by race.”

For those of you unfamiliar with redlining, banks had different policies for different parts of the city. Those policies effectively priced black consumers out of white neighborhoods by charging blacks more to purchase a home in those neighborhoods than they would charge a comparable white customer.

This practice began in 1934 with the National Housing Act which established the FHA and the Federal Home Loan Bank Board. This later agency created “residential security maps” which assessed the risk of real estate investments in different parts of major cities. Black neighborhoods were designated high risk and denied funding. This dramatically reduced both home ownership in black neighborhoods as well as commercial investment.

Speculators stepped into the void left by banks, often with the support of local government.

When selling on contract, the speculator offered the home to a black purchaser for a relatively low down payment – often several hundred dollars would suffice. For bringing the home within the reach of a black purchaser, however, the speculator extracted a considerable price. In the Commission on Human Relations study, the percentage increase in the cost of the home from the speculator’s purchase price to that of the black consumer ranged from a minimum of 35% to 115%; the average increase was 73%.

The next step toward the ghettos that we know today was block busting.

After the riots of the 60’s, whites began to leave inner city neighborhoods for the “safety” of the white suburbs. They took their businesses, jobs, and purchasing power with them. Speculators accelerated that white flight through various tactics intended to convince white home owners that black families were moving into their neighborhood. Realtors and speculators were able to purchase the houses at deep discounts and then convert them to multi-family dwellings that generated significantly more income for their owners.

As neighborhoods transformed from predominantly owner occupied low density to predominantly renter-occupied high density, property values declined. Property tax revenues which are based on property values and which fund local schools also declined. As jobs and purchasing power left neighborhoods, the small business services associated with that purchasing power also left. Neighborhoods that once were vital and sustainable, deteriorated. Whites associated this decline with black pathology. It was in fact a logical result of intuitional racism.

During the 60’s public housing projects were also placed in these same segregated economically depressed neighborhoods as a compromise with conservatives who opposed them completely. These projects were doomed from the start because they also failed to address the fundamental issue of jobs. Instead they simply concentrated all of the pathologies associates with poverty in a smaller geographic area. Gangs, violence, and drug use all became associated with the black family experience rather than the underlying economic conditions that were in fact the root of that behavior.

When you wall-off a whole community from access to the wealth building tools of employment, access to capital, and home ownership – they are unable leave their impoverished areas. Their poverty has a whole set of pathologies that accompany it. This cultural dysfunction and deep generational poverty defines life in the prison that our policies built. Conservative Republican leaders starting with Nixon turned this into a political strategy. Nixon was content to simply play on the same fears of whites that made the block busters wealthy. Reagan was the one who expanded the meme that blacks were dangerous. He convinced angry white voters that the blacks imprisoned in the ghettos that institutional racism created are themselves responsible for the conditions under which our government’s policies have forced them to live.

O brother, where art thou?

Gimmicks and Tricks

Sunday, March 29th, 2015

We do not rely on gimmicks or creative accounting tricks to balance our budget.

This statement is in the introduction of the Republicans 2015 House budget.

This document declares that the most important thing that the country can do is balance the budget.

If you are doing a double-take at this point, so was I. Balance the budget? What about the party that last month said that they should make the poor their top priority. Or the party that said six months ago that the most important thing was to defeat ISIS? Or the party that for the past five years has been trying to repeal Obamacare?

Nope, we are now dealing with the party that says balancing the budget is the most important thing.

So I guess it should be no surprise this Republican budget not only fails to balance, but also includes a spectacular set of gimmicks and creative accounting tricks.

Here’s my list.

Dynamic Scoring – this is the CBO rule change passed by Republicans in September. What this means is that the CBO must now include economic impacts when determining the cost of a particular bill. In the past, the CBO simply projected cost and revenue without any attempt to determine how a particular piece of legislation would affect the economic models that are already in place. Using this new scoring, the Republican budget “gains” an additional $147B in mystery money.

Overseas Contingent Operations – This is a $90B Defense slush fund to allow Republicans claim that they are still abiding by the Sequestration cuts when they really aren’t. To make matters worse, $20B of the $90B is supposed to be offset by future spending cuts which were unspecified.

Obamacare Repeal – Republicans propose to repeal all of the benefits of Obamacare and the taxes that pay for them. The budget assumes that this is a wash, but there are $1T in tax revenues that aren’t accounted for, and the last CBO scoring had Obamacare reducing the deficit.

Missing $500B – The budget claims to save $5.5T over 10 years, but the fine print suggests that Congress is only responsible to find $5T in savings.

Other Mandatory Programs – Republicans cut $1T from this category without specifying which programs were going to be cut and by how much.

Medicare and CHIP fix – This long overdue bi-partisan plan will cost $141B over the next 10 years. It was not included in the Republican budget.

What about the poor?
Those are the people both Mitt Romney and Ted Cruz said should be better represented by the Republican Party. This budget includes deep cuts to food stamps and Medicaid. Rough estimates are that this budget would double the number of Americans without health insurance and that’s before the additional promised $1T in cuts. The stark reality is that there isn’t that much left to cut unless you include Social Security and Medicare.

Spending on government programs other than Social Security and Medicare would fall to 7.2 percent of GDP in 2025 — 40 percent below the average of 12.2 percent of GDP over the past 40 years, and far below the previous post-World War II low (which was 9.4 percent of GDP in the late 1990s). In short, the federal government outside Social Security and Medicare would gradually become a shell of its former self.

Fiscal Responsibility?
During the financial crisis, Republicans pointed at the big deficits and big stimulus programs as irresponsible. In the context of deficits hitting 10% of GDP, the Tea Party took up the cry for a balanced budget.

Today the deficit is 2.7% of GDP, exactly where the Simpson-Bowles deficit reduction committee suggested it should be by 2015. As long as the economy continues to grow at or near 3% a year, the debt as a percentage of GDP will go down without any additional government spending cuts.

Summary
If the Republicans were serious about reducing the debt and balancing the budget, they would not have resorted to smoke, mirrors, and bad math. Instead this is a political document intended to appease the radical right of the party. If they did succeed in passing it, it would never survive the President’s veto. If it did somehow make it into law, Republicans themselves would fail to implement the social program cuts contained in the budget. There are too many Republican senators up for re-election in blue states in 2016.

Instead this budget was best described by conservative Republican congressman Ken Buck.

I don’t know anybody who honestly believes we’re going to balance the budget in 10 years. It’s all hooey.

There you have it – another example of how seriously Republicans take their new responsibility to govern.

Jeb Bush’s Social Darwinism

Saturday, March 14th, 2015

The effort by the state, by the government, ought to be to try to create catastrophic coverage, where there is relief for families in our country, where if you have a hardship that goes way beyond your means of paying for it, the government is there or an entity is there to help you deal with that. The rest of it ought to be shifted back where individuals are empowered to make more decisions themselves.

This is how assumptive 2016 Republican Presidential candidate, Jeb Bush, summarized his replacement for Obamacare.

While we don’t have all of the details, there is a lot to parse in this particular statement.

At first blush, the discussion of catastrophic coverage is at the heart of the Republican message.

Bush advocates replacing the ACA “with a model that is consumer-directed, where consumers, where patients, have more choices … where the subsidies, if there were to be subsidies, are state administered … where people have more customized types of insurance based on their needs; and it’s more consumer-directed so that they’re more engaged in their decision making, and they have more choices than what they have today.”

This was the same message the Romney presented when asked about healthcare for the poor during the 2012 campaign.

Well, we do provide care for people who don’t have insurance. If someone has a heart attack, they don’t sit in their apartment and — and die. We pick them up in an ambulance, and take them to the hospital, and give them care. And different states have different ways of providing for that care.

That is the healthcare system that we had. One where those who couldn’t afford insurance could receive the most expensive form of care our healthcare system had to offer. Those that attempted to pay those bills often ended up bankrupting themselves. Most of those bills were passed on to those with insurance through higher hospital costs.

Catastrophic Coverage
Catastrophic coverage as envisioned by Mr. Bush is just one step away from this model. The stated goals are to make insurance more affordable by introducing high deductibles and cost sharing. In the minds of conservatives, this makes people more thrifty healthcare consumers, since much of the cost of everyday care is coming out of their pockets. The reality is that high deductible plans in many cases are not much different from no coverage at all. They discourage people from seeking preventative care.

While high deductible plans may flow some additional dollars into the hands of hospitals for the expensive emergency room visits that will result from failure to employ preventative care, it will not mitigate the financial risk of those who have a medical emergency. That’s because, as this graph shows, fewer than half of those who are likely to purchase these plans have the money to pay the deductible if in fact they DO experience a medical emergency that their plan covers.

high deductible

Individual Customization
The second problem in Bush’s unraveling of Obamacare is wrapped in the clothing of “more customized types of insurance based on their needs”. This is another conservative hot botton. They have a philosophical problem with the way that insurance works. They feel that people should be free to purchase only the amount of insurance they feel they need without regard to the risks or costs. They don’t seem to have a problem with Banks requiring homeowners to insure their homes up to a particular standard in order to get a mortgage. But they do have a problem with the government setting minimum standards on the sorts of healthcare coverage insurance companies must offer. Bloomberg explains that government standards preserve large risk pools which effectively reduce the costs for everyone.

Republicans are really saying that people should be free to avoid carrying insurance for problems they don’t expect to have (a bout of depression, maybe, or a stroke that requires rehabilitation) or don’t want to help pay for (pediatric and maternity care for men with no children, say). The former view shifts costs onto the unlucky; the latter shifts costs onto women and parents. Both undercut the purpose of insurance, which is pooling risk. Neither saves money. Yet in the abstract the argument sounds compelling. And it’s going mostly unchallenged.

Single Payor
What IS interesting in Bush’s plan is the suggestion that the government either directly or indirectly is the source, or underwriter of these catastrophic plans. This particular statement goes WAY further than Obamacare toward the single-payor socialism fears that birthed the Tea Party. Under Obamacare, the government does not issue insurance. The insurance comes from private companies. Those companies are regulated, but they ultimately get to set their own rates and determine in which markets they are going to participate and which populations they are going to target. The government only offers to subsidize the cost to purchase that insurance for those who don’t have the means to purchase that insurance on their own.

Obamacare is market-driven. The government works to make the insurance market in every state sufficiently lucrative that consumers in every state have choices. It has no mechanism to compel an insurance company to offer coverage in any particular state. Participation by insurance providers is entirely voluntary.

If the government is going to guarantee that every individual is able to purchase some form of catastrophic insurance at a rate that they can afford, who is going to provide that insurance? Who decides what that rate is? Who decides what the minimum coverage should be? How to do you handle the “free riders”, or does everyone get a minimum plan paid for by the government whether they like it or not? How does Bush plan to pay for all of this? A new tax?

That’s how Medicare works. One plan for everyone paid for by a payroll tax. We don’t require seniors to enroll in Medicare, but 85% of seniors do. Medicare doesn’t cover all expenses, but it does allow most seniors to retire without the worry of having to pay increased medical costs.

Summary
Jebcare is not a REAL plan. It is simply a set of talking points that allow Jeb Bush to appeal to the reptile brain of the Republican Party without actually working out any of the details.

Republicans DO NOT want to offer any kind of subsidized care for anyone. This isn’t an issue of cost or efficiency. Obamacare has already demonstrated that this approach saves money and improves health.

This is about philosophy. Republicans are social Darwinists who feel that poverty is the appropriate punishment for bad decisions made by people or their parents. Disease, in their minds, is just another motivation for making better decisions that should be preserved if we want to have a more responsible society. The rich are the vanguard for this righteous society. Their success is proof of their character.

Those of you who read the Bible, might recognize some similarity to the Pharisees. They felt that poverty and disease were punishments God meted out on the sinful. Jesus rejected that whole philosophy. Instead he reminded his disciples that His work (and the future work of all Christians) was to enlighten the world to a new way of thinking where love is the rule.

And as Jesus passed by, he saw a man which was blind from his birth. And his disciples asked him, saying, Master, who did sin, this man, or his parents, that he was born blind? Jesus answered, Neither hath this man sinned, nor his parents: but that the works of God should be made manifest in him. I must work the works of him that sent me, while it is day: the night cometh, when no man can work. As long as I am in the world, I am the light of the world. Matt 9:1-5

There is obviously a lot of work still to be done.

Reaction to Obamacare Good News

Tuesday, March 10th, 2015

The CBO came out with one of their periodic reports on the Affordable Care Act (Obamacare).

Here is the headline of the report.

The ten year projected cost for the ACA has gone DOWN 11%.

The first reason for that cost reduction is that the cost of insurance premiums is rising at a lower rate than what was originally projected. As a result, the cost to subsidize insurance for those who can’t afford to pay the full amount on their own is going down.

The second reason is fewer people overall are signing up for insurance that includes government subsidies (Medicaid or subsidized private insurance). That’s because companies are not canceling healthcare coverage for their employees at the rate originally projected by the CBO. That reduction is about 3M people.

The net is that by 2025, there will be more people with insurance than the CBO originally projected, which is also good news.

cbo graph
There is some controversy on why healthcare costs are growing more slowly. The administration suggests that it is the result of cost saving provisions of the ACA. Conservative sources suggest that it is the result of a weak economy and have been predicting a bounce back as economic growth heats up again. The CBO commented on this in their report.

such a bounce back seems less likely in light of the further slowing of spending growth observed in the most recent data.

BTW, this report only focuses on the cost side of the leger. The agency discontinued their analysis of the budget impact of this particular bill. Instead they pointed to their normal comprehensive deficit reporting as a source for those looking more detailed information. They did, however, provide this guidance when they made their announcement last summer.

the agencies have no reason to think that their initial assessment that the ACA would reduce budget deficits was incorrect.

What is also reliable are the conflations by conservative media sources who refuse to acknowledge that the law is actually working.

Here’s a sample.

Forbes (a long time ACA opponent) chooses the headline “CBO Downgrades Obamacare’s Enrollment And Subsidy Projections” for this same news. Rather than focus on the big news which is the cost savings and the fact the corporations are not laying off employees because of the law, they suggest that the law is failing to meet the original projects that the CBO put in place. Rather than admit that slowing growth in premium costs is a good thing, Forbes says “Obamacare’s premiums: Much higher than before, but lower than CBO projections”. Then they go on to quote their own statistics from a conservative think tank rather than the CBO in order to support that claim. They finish up the article with a suggestion of how much better things would be if a different plan were in place.

The Washington Times is always good for a laugh. Their headline reads, “Obamacare exchange customers set for significant premium spikes, CBO predicts”. They go on to cherry pick the CBO report in an effort to make their case. But the CBO did not predict a spike in premiums. They predicted that premiums would rise SLOWER than what they had previously predicted.

So I guess we should not be surprised that those who choose to live inside the right wing news bubble will continue to insist that the law, as Jeb Bush recently described it, is a “monstrosity”.

Jeb’s plan is replace Obamacare with government-backed catastrophic coverage for those who experience a medical crisis. For everything else, folks should just pay out of their pocket. The challenge, of course, is that the best medicine and cheapest care is the preventive care that is practiced in the primary care physician’s office. The most expensive and least effective care is that practiced in the Emergency Room as the result of a medical crisis.

We’ll dig into Jeb’s plan in another post.

The bottom line is that this is more good news for the country. The ACA is working even better than originally envisioned. The predicted avalanche of layoffs as corporations come under the ACA requirements regarding insurance did not happen. The “spikes” in premiums did not happen. Premiums are going up at the lowest rate in recent history. And finally, the predicted explosion in federal deficits as a result of the subsidies included in the bill hasn’t happened. The projected costs of the bill are going down because healthcare is becoming more efficient under ACA rules.

The real tragedy of our current partisan political environment is that we can’t even welcome good news anymore. All news goes through the filter of whether or not it is good for your particular political tribe with precious little thought about what might be good for the country.