Spiritual wickedness in high places

First a quick summary.

In previous posts we’ve gone through the issues surrounding debt and built a case for economic growth and lower unemployment as viable methods to reduce our debt.  Austerity programs do not stimulate economic growth or lower unemployment, at least in the short term.  They actually make things worse.

We’ve also looked at the REAL problem which is the rate of growth in Healthcare costs.  Austerity programs do NOTHING to bring down the costs of healthcare delivery.  Economic growth also does nothing about this problem.  Yet deficit hawks are not talking about this as the middle term problem we have to solve.  Instead they focus exclusively on reducing the debt.

Why?

Zombie Politics.

This term was originally coined by John Sides.  He defines it as “ideas about politics that have become so cemented in conventional wisdom that it is virtually impossible to dislodge them. It doesn’t matter what the data says, or what published research says. Zombie politics means that even though the ideas are dead, they just can’t be killed.”

Here are a few examples of Zombie Politics in action.

The House prevented any tax increases until after the 12/31 deadline passed and even then only enough Republicans agreed so that it could pass with overwhelming Democratic support.  That’s because a core belief of current Republicans dating back to Reagan is that low tax rates for high income earners have significant economic impact.  Even though this theory has been widely discredited, most recently by the Congressional Research Service; it lives on as the cornerstone of Republican politics.

Hurricane Sandy relief was voted down because, to quote Paul Ryan, “Unfortunately [the bill] refuses to distinguish — or even prioritize — disaster relief over pork-barrel spending.”  Rep. Peter King (R-N.Y.), a powerful House Republican who represents New York’s Long Island, which sustained billions of dollars in storm damage, refuted those claims. “The House bill never contained any of those extraneous provisions,” he said.

New Jersey Gov. Chris Christie (R) said on Wednesday that the failure to vote on the aid bill was the result of “toxic internal politics” in the Republican Party. “Americans are tired of the palace intrigue and political partisanship of this Congress,” Christie said. “Disaster relief was something that you didn’t play games with.”

This isn’t the first time that Republicans have opposed disaster relief.  In each case, the same complaints about “pork barrel spending” and “unsupervised slush funds” are voiced, but those are just code words for the core issue.  They honestly don’t believe that government can play an effective role as the relief agency of last resort.  That’s because they hold fast to the zombie view that government is America’s number one problem, not its solution even in these cases of extreme need.

The first debt ceiling debate is another perfect example.  Republicans claimed that letting the president have increased spending authority is irresponsible.  Quoting FactCheck.org, “Republicans, including House Speaker John Boehner and Rep. Michele Bachmann, have said that the president wants ‘a blank check.’ Not true. First, he’s asking to borrow money to pay obligations Congress has already approved.”  Yet this characterization that increasing the debt ceiling somehow empowers Obama to spend MORE is another zombie proverb.

Another zombie maxim is that jobs are created by less government, lower taxes, and fewer regulations.  This has been boiled down recently to the frequent comment heard during the last campaign that the government doesn’t create any jobs.  Yet World War II is largely credited with the recovery from the Great Depression by the massive government spending which converted the country to a government run munitions factory.

These disproven zombie concepts have been summarized by Grover Norquist when he said, “Our goal is to shrink government to the size where we can drown it in a bathtub.”   The problem is that, contrary to Republican claims, the vast majority of American LIKE much of what modern government does.

What we are left with is a minority segment of the voting public and their representatives who are determined to REDUCE the size of government at every opportunity.  Their beliefs ARE NOT based in fact, but that doesn’t appear to bother them.

The best policies are not those that have the most likelihood to succeed.  The best policies are the ones that will ultimately reduce the size of government because this is their religion.

Don’t get me wrong.  I am a religious person.  I DO believe in God and the power of prayer.  But I don’t believe I have any right to impose my beliefs on anyone else.  When it comes to governing a country, we have to depend on good data rather than religious belief to confirm that our course is going to benefit the majority of our citizens.

In the next couple of posts let’s see if we can dig into data supporting this claim that conservative republicans possess a blind unreasoning commitment to a particular point of view, why this leads to zombie politics, and why this is something that appears UNIQUE to the conservative movement.

As we saw in the previous post, our near term fiscal issues ARE NOT the result of irresponsible spending. They are the direct result of the deepest recession in our country’s history, surpassed only by the great depression. Part of the legislation put in place after the depression to prevent a repeat of that economic collapse included a social safety net. This safety net provides those who find themselves in dire financial condition, a floor of support below which they can’t drop. This set of interlocking programs also limits the economic damage of any contraction by keeping at least some money flowing from consumers to producers. It’s this safety net spending along with the loss in tax revenue from having excess capacity in workers and factories that is driving $600B of our annual deficits. That extraordinary safety net spending is decreasing and tax receipts are increasing as the economy recovers. The spending will disappear when we approach full employment and robust economic growth.

The REAL problem on our economic horizon is handling the cost of the baby boomer retirement and the impact that it will have on Social Security, Medicare, and Medicaid.

Moreover, an increasingly large portion of the debt is money that the government owes to itself because of borrowing from large entitlement programs such as Social Security and the Medicare. That’s because the money spent on discretionary programs has generally declined, as a share of the economy, while spending on mandatory programs has soared — and will only consume a larger share of the economy as the Baby Boom generation heads into retirement.

In fact, the debt owed to entitlement programs is now almost as large a share of the economy as all U.S. government debt before Ronald Reagan became president.

The Demographic Problem

The Baby Boomers are a large cohort of the population (70M+) that are going to be retiring over the next ten years. Programs like Social Security and Medicare use taxes from today’s payroll to pay the benefits for today’s retirees. If the population growth tracked GDP growth, this wouldn’t be a problem. When you have large demographic anomalies like the Baby Boom generation, you end up with a situation where there aren’t enough workers to support the costs of retirees.

Fortunately the solutions to demographic problems are comparatively simple. You either adjust benefits based on income, change the age at which people qualify for benefits, or change the tax formulas on those funding the benefits.

If you did some combination of those things, Social Security would be fine, but Medicare/Medicaid would still be in trouble.

The Healthcare Problem

Our healthcare system is also broken. The result is that the rate at which healthcare costs are growing exceeds the GDP growth rate. That is unsustainable under any circumstances.  When you combine that problem with the undeniable demographic issues of the Baby Boomer, more systematic changes are required.

Spending in General is NOT the Problem

These inexorable demographic changes mask the fact that over the past four years we have experienced historic levels of fiscal discipline. While there was a temporary and necessary spike in spending from the Recovery Act, annual appropriations actually declined by 1.4 percent a year between 2008 and 2012 in inflation-adjusted dollars — after growing by 6.1 percent a year during the George W. Bush administration.

Real Solutions to Real Problems

Obamacare is the first step in changing the healthcare business model. Here is a short list of the next steps to change our healthcare delivery model from a transaction model to an outcomes one. These come from a report by the Commonwealth Fund. The Commonwealth Fund contracted with Actuarial Research Corporation to estimate the cumulative impact on healthcare spending by 2023 if the set of policies were to take effect in 2014. Results showed a $242 billion savings for state and local governments, $189 billion in savings for employers, and $537 billion to consumers because of lower premiums and out-of-pocket costs.

Revise the Medicare physician fee structure and methods of updating payment so that it rewards value. The sustainable growth rate formula should be repealed and replaced with a physician payment policy that incentivizes improvements in health outcomes. Such a system would only provide increases in payments to doctors participating in innovative delivery systems. Fees would otherwise remain at 2013 levels. This will force those physicians reluctant to leave the comfort of their transaction model based medicine to change.

Medicare also should be allowed to institute competitive bidding for medical commodities. The medical commodity lobby has so far prevented Medicare from applying the sort of market-based bidding that every other industry uses to drive down costs.

Strengthen primary care and support teams for high-cost, complex patients. Primary care physicians who participate in a patient-centered medical home would receive enhanced payments. The structure would provide incentives to improve patient outcomes. It will also insure that physicians continue to enter the primary care field of practice, rather than simply being employed by vertically integrated systems like Kaiser.

Bundle hospital payments to focus on total costs and patient outcomes. Providing a single payment for all care during an episode would provide incentives for teamwork and accountability to reduce readmissions and follow-ups.

Adopt payment reforms across markets with public and private payers working together. Ensuring public and private payers employ the same or similar payment methods would reduce complexity for physicians and others in the healthcare system.

 Reform medical malpractice rules and payout policies. Medical liability policies should encourage the disclosure of medical errors and provide fair compensation for injury and medical costs.

The goal is to bring the rate at which healthcare costs grow in line with GDP growth. If that can be done, then the Medicare/Medicaid problems becomes one dimensional just like Social Security and will yield to the same sorts of solutions – means tested benefits, increasing the age requirements, or changing the tax formula.

Summary

The near-term financial issues with large deficits that we face ARE NOT the result of irresponsible spending. They are the result of social safety net increases and tax receipt decreases due to high unemployment and slow financial growth. Those both can be fixed through more robust economic growth. So they are NOT systematic problems.

We DO have some systematic medium to long term problems with Social Security, Medicare, and Medicaid. Those problems are due to the demographic anomaly called the Baby Boom and our antiquated healthcare system. Social Security and Medicare need some changes to deal with the demographic issue, but that won’t fix the healthcare system. That also has to be fixed in order to preserve Medicare and Medicaid as viable programs.

Next let’s look at how some conservatives have tried to create a debt hysteria and what their motives might be.

Let’s do a quick recap to figure out how where we are on negotiations to come up with a better spending and tax plan than the one set to take effect on January 1, 2013

The January 1, 2013 deadline was set two years ago by this same congress as part of a bargain to resolve another artificial crisis.  That artificial crisis was created by newly elected Tea Party Republicans who refused to allow the government to borrow the money required to pay for things that Congress had already approved purchasing.  At the time, both parties agreed to put in place a series of spending and tax cuts so severe that both parties agreed it would force a compromise.

The date for that compromise as well as decisions about a number of related items including Bush tax cuts, exemptions from the Alternative Minimum Tax, FICA reductions, and extensions to unemployment benefits was purposely set after the 2012 election.  The thought was that the voters should have an opportunity to weigh in on these issues.

Republicans were so confident that they were going to win the 2012 election that they admitted that they didn’t have an alternate plan to deal with all of these issues if they lost.  Their plan if they won was to pass the Romney budget and make the Bush tax cuts permanent.

The voters DID express their opinion.

The Democrats won the election which included a promise to raise taxes on those making more than $250,000 a year.

After the election President Obama and House majority leader Boehner began negotiations. The following graph shows how those negotiations progressed.

When negotiations broke down, Boehner and Obama were $200B apart on tax revenue and $200B apart of spending reductions.  Boehner had conceded that taxes on wealthy people had to go up.  Obama had conceded that future spending on Social Security and Medicare should be adjusted.  All that remained to close this deal was split the difference on the numbers and work out the remaining details.  Obama still had to sell this deal to his reluctant Democrats in the Senate and Boehner had to do the same with his reluctant Republicans in the House.  It was those House Republicans who killed the deal when they refused to back the fall back “Plan B” bill that Boehner introduced to improve his bargaining position with Obama.  Rather than strengthen Boehner, this bill demonstrated that Boehner didn’t have the Republican support he needed any of the offers he made to Obama.

The same Republicans who wanted to put these questions to the voters now appear perfectly willing to ignore the will of 2012 voters.

At this point, the only deal than can pass in the few remaining days before this Congress ends, is one that comes from a compromise in the Senate that would allow a majority of Democrats to pass a bill that then would also pass the House.  This would require two things.  First, Senate Republicans would have to agree to allow such a bill to come to a vote rather than filibuster it.  Second, at least 26 House Republicans would have to support the bill along with the 191 Democrats.

The good news is that it if this Congress fails to get this done, the new Congress will have some time in January to act before these tax increases and spending cuts really take effect.  In the new Congress, Democrats only need 17 House Republicans to pass a bill.  Failing to get this deal done before the end of the year will continue to erode the confidence in the global community that the United States is capable of managing its own affairs.

The bottom line is that we live in a democracy.

We get the government that we vote for.

In 2010 voters sent a lot of “no compromise” Republicans to the House.  Those members exerted their power to create this crisis and don’t appear included even after their 2012 defeat to change their behavior.  While there are fewer of these sort in the new Congress, a significant number were sent back to continue the work that they began in 2010.  Many of those re-elected, benefited from 2010 Republican majorities in state legislatures who took advantage of the redistricting process to create “safe” Republican districts for their representatives.

Here are just a few recent examples of Republican dysfunction.

Senate Republicans recently rejected the UN Convention on the Rights of People With Disabilities.  This treaty was negotiated and signed by GW Bush.  Bob Dole came to the Senate floor in his wheelchair to lobby for its passage.  It essentially requires other countries to improve to our level of protection for the disabled, without requiring us to change any laws. It has already been ratified by 126 countries.  Rick Santorum, who holds no elected office, lead the Tea Party charge to defeat the bill based on some loony concept of U.S. “sovereignty” which essentially calls into question the whole premise of the United Nations.

We had the embarrassing moment earlier this month when Senate Minority Leader McConnell called for a vote on Obama’s proposal to change the method in which the debt ceiling is extended.  He was hoping to create an embarrassing moment for Democrats on the issue.  When Senate Majority Leader Harry Reid agreed to an immediate up or down vote, McConnell was forced to filibuster his own bill in order to prevent it getting passed.

Several days later, we have the Boehner Plan B debacle where he had to admit that he didn’t have the power to negotiate a deal with Obama on the fiscal cliff.

Tom Friedman summarized it best quoting James Carville in a recent column entitled “Send in the clowns”.

The political obsessions of the Republican base — from denying global warming to defending assault weapons to opposing any tax increases under any conditions, to resisting any immigration reform — are making it impossible to be a Republican moderate, said Carville. And without more Republican moderates, there is no way to strike the kind of centrist bargains that have been at the heart of American progress — that got us where we are and are essential for where we need to go.

And

But if Republicans continue to be led around by, and live in fear of, a base that denies global warming after Hurricane Sandy and refuses to ban assault weapons after Sandy Hook — a base that would rather see every American’s taxes rise rather than increase taxes on millionaires — the party has no future. It can’t win with a base that is at war with math, physics, human biology, economics and common-sense gun laws all at the same time.

The problem is NOT one of leadership.  Clearly both Obama and Boehner made significant concessions and had a deal on the table that made both parties uncomfortable.  But that deal didn’t get done because a significant portion of the elected Republicans in the House blocked it.

If some voters continue to reward the sort of terrorist behavior that we’ve seen from Tea Party Republicans, there is precious little that can be done.  Our system allows them to effectively shut down the government, if that’s what they choose to do and they have the votes to do it.  At this point, this group appears determined to raise taxes on everyone, cut spending, and likely cause a recession rather than accept a compromise with a President they despise.

As far as what we do in the meantime, we trust in the wisdom of voters to fix the problems created in 2010.  Ronald Reagan said it best during his debate with Jimmy Carter, “We don’t negotiate with Terrorists”.

The fiscal cliff is the first test of Obama’s second term.

Here’s where it stands right now.

Staffs from both the White House and Republican leaders in the House and Senate have been working since the election to determine if there is any middle ground.

The problem is that Republicans appeared so confident that Romney was going to win, that they didn’t have a plan B. They were prepared to simply renew the Bush tax cuts for everyone and kick the debt can down the road with Romney in White House. Instead, they now have to deal with a newly popular President and a majority of Americans who support raising taxes on the wealthy.

The problem is that the Republican plan to limit deductions, doesn’t generate enough revenue (at least from high income tax payers) to replace what would come in just by letting the Bush tax cuts expire.  Also if deductions were limited, charities would likely be hardest hit.

As an aside, the whole concept that the economic impacts vary based on the type of tax increase is hard to swallow. If tax bills go up and that’s a bad thing, then how can there be any difference. And if the economy can survive raising tax bills from limiting deductions, why wouldn’t it also survive from a similar simpler increase in rates?

As that realization is dawning on the American people, the fundamental bargaining position of Republicans is eroding. The Republicans have said that they feel that they have leverage in these negotiations because if the country goes over the fiscal cliff and the economy suffers, Obama will be blamed.

The Obama administration, however, has positioned this differently in the minds of voters. What they have said is that Republicans would rather raise taxes on everyone in order to avoid raising taxes on the wealthy. They have already trotted out data to support the claim that a middle class tax hike will damage the economy by reducing consumer spending. They have trotted out billionaires and small business owners who have said that they are WAY more concerned about the economic impacts of middle class tax increases. The White House has also pointed out that there is a bill before the House right now which extends only middle class tax cuts. Obama challenges Republicans to pass that bill today while the rest of spending reductions are worked out. Obama only needs 17 Republican House votes to pass it. Some Republicans have already said that if Boehner brought the bill up, it would pass.

Some House Republicans are already saying that the House should give Obama the middle class tax cut that he is asking for and then hold him accountable for the economic collapse that they’ve predicted will occur.  This strategy also provides them some political cover since the only thing that they voted for was the middle class tax cut, rather than voting for a tax hike on the wealthy.

The problem that others have with this strategy, however, is that it would be perceived as a clear win for a President that they detest. It would also undermine their claim that this President can’t lead and is ineffective. And if the predicted economic collapse from raising top tax rates fails to materialize it will further weaken Republican prospects in 2014.

What is also interesting is what a low profile Paul Ryan has been keeping since the election. I believe he also knows that this is a losing proposition and would rather have it all fall on Boehner’s shoulders.

That only further confirms that a deal is going to get done. At the very least, it will involve passing the Senate resolution to extend the middle class tax cuts for another year, approving another debt ceiling raise, and kicking spending cuts down a road until the new congress is sworn in.

Everybody wins because the Republicans live to fight another day.

You gotta know when to fold ‘em.