Archive for ‘Economics’

Trying to Save Health Care Reform

By , 10 September, 2009, 1 Comment

The speech exceeded expectations. As I’ve argued in earlier posts, there are only two routes to achieving GUARANTEED universal coverage: an individual mandate and an employer mandate, both with subsidies for the poor. There are also only two routes to finance those subsidies: massive regulatory overhaul or economies of scale in a state-supported public insurance system. Any plan that tries to compromise by having a mandate without a finance mechanism won’t be able to achieve universal coverage goals; any plan that doesn’t have a mandate isn’t even trying.

Since the presidential campaign, Obama has promised to achieve the liberal goal of universal coverage while speaking the conservative language of efficiency, positing universal coverage as a possible byproduct. Then, when challenged from the Left, he would try to hedge it by offering universal mandates without a finance mechanism, afraid to commit to either regulatory overhaul or a public option.

That changed last night.

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Health Care, Revisited

By , 5 September, 2009, 2 Comments

Before the President addresses Congress on Wednesday, I thought it was time to revisit health care reform.

Throughout the town-hall melodrama this summer, I have been struck by the focus, from liberals and conservatives alike, on the politics, rather than the policy merits, of reform. To some degree, that is the legacy of Hillarycare: the Clinton administration went so deep into closed-door policy sessions to actually produce a pretty decent bill, that they forgot to sell their plan politically and alienated all the constituencies they needed to get it passed.

Obama, by contrast, has become so preoccupied by having something—anything—to show for himself by year’s end, that he has tried to float above the policy debate, be all things to all people, and avoid tying himself to any specific proposals. (This is a recurrent problem with Obama’s liberal-tarian decision-making process.)

The result is that the right has been able to destroy all the major bills with surface-level claims about their political or ideological implications rather than engaging with their content.

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How to Handle Health Care

By , 20 June, 2009, 7 Comments

Here’s how insurance works. You sign up for a plan, and based on how likely to be sick you are, you get a quote for your monthly premium. If a particular insurer has a roster of clients who are 90% sick folk and 10% healthy folk, the base premiums they use will be higher than if the balance were 50-50, because they will need to pay out more funds to cover their clients and need more revenue from premiums to do it. But the people who have an incentive to buy health insurance are A. old or B. sick, precisely the demographics that drive premiums up. Now factor in that we have two insurance companies that are state-run, Medicare and Medicaid, populated ENTIRELY by the elderly and ill. The cost to the taxpayer of maintaining those is even higher.

Meanwhile young people elect not to buy insurance because they are cavalier about their health; by the time they want coverage, they are old or sick, so the cost of a plan is high. Some of them wind up being poor enough that Medicaid covers them, but that only adds to high cost and inefficiency of Medicaid as an insurance plan populated only by the most expensive clients. (Proposals to make Medicaid open to all would only make this worse.) Some of them wind up being wealthy enough that they can pay the high premiums of the private insurers. The rest are our 50 million uninsured.

Why can’t these consumers bid down the cost of private sector insurance? Once reason is that regulatory oddities prevent them from voting with their wallets–if I, a New York resident, see a plan in California that suits me better (maybe it covers more of what I want and less of what I don’t), I should be able to buy it, sending a signal to New York area firms that they should lower their prices to compete. The HMOs have successfully lobbied state and federal governments to prevent that from happening. Certainly lifting such odd regulations would bring private sector costs down, but it wouldn’t solve the tax-dollar-drain that is Medicare/Medicaid, nor would it guarantee costs falling enough to insure everyone.

Why are the costs of insuring the sick so high anyway? Other countries–most of the EU–pay for ALL their citizens out of tax money and still spend less than we do. One reason is that they make sure their state-run insurers don’t cover the silly things some of our private ones do (Viagra) and that they do cover smart preventative care (testing people with the right risk factors for chronic diseases like diabetes, then following through with them on diet and exercise). Granted, preventative care can be done wrong or wastefully, but this is more a matter of improving medical education than one of insurance pricing.

Another reason is that they ration care by buying just one brand of everything in bulk: you don’t get to choose between Prozac and Zoloft. Getting rid of coverage for discretionary things like Viagra and improving preventative care would be smart things to steal from them. Getting rid of drug diversity probably isn’t, because our population is larger and more diverse than theirs and the effectiveness of these drugs has a lot to do with genes. So copying the European model wholesale (ie going for single-payer) is a bad idea.

Moreover, we need a robust drug development sector in this country because it’s one of the few areas where America can still lead innovation and create jobs. Manufacturing is dying, IT is migrating, clean-tech is light-years away from maturity and services (hoteliers, accountants) can only take you so far. We have to make stuff, and this is one thing we’re still relatively good at. So economically, crippling pharma by going for single-payer doesn’t make much sense.

Here’s a better system:

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China’s Strategy

By , 26 May, 2009, 1 Comment

Despite being a business writer, a sports fan and a devotee of Michael Lewis, I have yet to blend sports and business on this blog, until now. This article on Chinese investments in U.S. sports franchises got me thinking:

One of the patterns of history is that empires usually extend their culture and values along with their political/military/economic might. Rome, according to Vergil, spread “peace and war.” Spain spread Christianity. Britain spread the English language. America spread McDonald’s. But even as policy wonks and strategists come to terms with the reality of China’s impending dominance, there’s skepticism about a world in which we all speak Mandarin; Beijing doesn’t seem to care about that either.

That is because they are planning to achieve their might by profiting from the spread of American influence, by investing enough in both the dollar and Cleveland Cavaliers that the popularity of McDonald’s, basketball, or McDonalds-eaten-at-basketball-games is more their gain than ours. In other words, they’re trying to transition the world from America’s empire to China’s without anyone noticing.

Letting the growth of the opposing system lay the groundwork for yours? How perfectly Marxist.

Gordon’s Day

By , 2 April, 2009, 2 Comments

Gotta hand it to Gordon today. Somehow, he’s pulled world leaders back from their insanity to agree to principles for that were, only a day ago, the butt of jokes among policy wonks. A triumph.

In the past week, much of the American media has referred to the IMF infusion in particular as though it were proposed by President Obama in the lead-up to this meeting. That’s wrong.

As readers of this blog will know, the whole combination of trade, aid, and regulation was the brainchild of Gordon Brown and the subject of his speech in Congress some weeks ago. At the time, the American media focused on his praise of the United States and on the symbolism of the moment, so American readers never processed the weight of his policy prescriptions.

Meanwhile, the Obama administration, realizing that a dramatic expansion of fiscal stimulus was not in the cards, began talking up the IMF infusion as though it were their plan, and journalists in the US political press have followed suit. World leaders were smart enough to let Gordon announce the comminque himself (he did superbly; video below), but the talking heads in the American press still spent the evening news discussing whether this as an achievement of the Obama team.

Obama and his celebrity charm get some credit for helping curmudgeonly Gordon get this done; surely Obama had some role in stopping Nicholas Sarkozy from throwing another tantrum. But the policies–using the IMF as a form of trade subsidization and trade as a form of development aid–don’t bear any signs of his input. That my colleagues in the political media insist on declaring otherwise only facilitates conservative critiques that they are in Obama’s tank.

Moreover, I find this strategy of taking credit for others’ ideas unnerving. There were two stories buried in the inside section of the NYT these past weeks about a Congressional effort–led by Ted Kennedy–to devise a health care bill, even before the administration has a Health Secretary. The emerging plan sounds a lot more like Hillary Clinton’s proposal from last spring than the Obama plan, but if it looks liable to get Congressional passage, you can bet it will get Obama branding.

Come on, Mr. President. Your popularity ratings are sky-high, where Gordon Brown is fighting for his political life. You are young with years ahead of you, where Ted Kennedy is singing his swan song. Take a back seat, for once, and give credit where it’s due.

The Only Cure for Populism is Prosperity

By , 18 March, 2009, 2 Comments

I know you’re all fed up with my approving quotes of right-wing critics but this one is too spot-on. David Frum said the above in a conversation with Daniel Drezner on Monday and I was listening to the dialogue while trying to formulate my thoughts on AIG’s bonuses, Cramer vs. Stewart and the administration’s financial plan; his quip tied it all together. Joe Scarborough (another rightwinger whom I generally deplore) pointed out the other day that the anger over each of these issues is grounded in a knee-jerk populism.

I am a populist. Not in the sense the word is often (mis)used, as a synonym for political pandering, but in its actual sense of being concerned with the needs of the masses. And I believe the only way to fulfill those needs is to increase growth for all. I’m not a supply-sider: I think government should use Keynesian spending models to spur that growth, and I think we need to heavily tax-adjust growth on the way up to make sure it’s broadly shared. But there’s just no way to have economic growth without benefitting some people at the top. Get over it.

Nobody will get out of their present economic rutt unless we bail out the banks and as the TARP legislation was written, the Treasury doesn’t have strong powers over how banks spend that money. For the record, I think that’s too bad, and that we probably should have included some clause on compensation when we passed this bill in the fall. But we didn’t. Those who are really riled up about this are whining over bonuses as a focal point for their general angst over bailing out banks.

Here’s the problem: neither Obama nor Geithner, nor Bush nor Paulson before them, has been able to explain how the financial system works or why it matters. Obama’s town hall today is a good example; he was spot on for the first 45 minutes or so, speaking about schools and health care (even I was sold), but when he tried to address the banks, he stopped making sense, even to the biz journos I was watching with, who spend all their time on this stuff. The people on the audience all had glazed expressions–it was clear he wasn’t communicating; it even seemed to me he didn’t understand the math himself–he kept confusing securities with derivatives. Before you crow that such matters are too complicated for the attention spans of ordinary political audiences, listen to the speech FDR gave before bailing out the banks of his day. The only contemporary policymaker who I think has spoken with such clarity is Ben Bernanke, both in his October speech and his 60 Minutes interview this past Sunday. Unfortunately, explaining policy is NOT Bernanke’s job; it’s the job of elected officials and the press. The only person in media I’ll credit with getting this one right is my friend Vikas Bajaj at the NYT.

It’s because elected officials and the mainstream media are doing such a lousy job that Americans are turning to info-tainment outlets like Jim Cramer for investment advice and Jon Stewart for political analysis. Jim Cramer has been wrong-wrong-wrong on many stock calls, but it was never the proposition of his show to be right all the time; it always depicted itself as bullish market propoganda for enthusiasts. By the same token, business journalists defending Cramer should watch their words: the only reason Jon Stewart had to take him on is because professional reporters beyond the elite/expert outlets, like the government, did not do a proper job explaining the financial markets to Cramer’s middle America audience.

The result is that firms like AIG have us in their palms. I’m reminded of the moment in Richard III, when Richard, self-described as “deformed, unfin ish’d” woos Anne, a woman whose first husband he actually killed. First, he tells her he wants her, so bad that’s why he killed her hubby and no one else will love her as he does. She’s flattered, but she hates his guts. So he hands her a spear and dares her to kill him in revenge; the moment she fails to do so, she admits she’s his. We have already failed to kill these banks, but it means all our whining about bonuses is wasted breath and they know it. Like Richard, they take the opportunity to adorn themselves with fineries and enjoy the license we have given.

The reality is that we do need the banks, but that we’ll have to regualte them more aggressively as we give them more aid. I for one would much rather our elected officials devoted their attentions to devising a plan for such aid, and explaining it, in real detail, than to righteous indignation. I am hoping that my peers in the media and I will then focus on dissecting and analyzing such a plan, rather than taking pot shots at one another. Until that happens, I suppose I’ll just curl up with Lawrence Olivier.

I have drunk the Pimms

By , 6 March, 2009, 5 Comments

Larry Smith, one of my favorite political bloggers, has held my interest this year because he’s a liberal who has refused to drink the Obama Kool-Aid, and as a Brit, has risen above ideology by being able to critique his own Labour Party. But he has a ghastly post this week detailing all the reasons he’s ga-ga over President Obama’s first month in office, for which I took him to task in his comments section.

To be honest, I’m not in a great place to point fingers. Because while I am still pretty irked by President Obama, I have gone ga-ga for Gordon Brown. It’s been coming on for some time–for a while I was able to separate my admiration for his intelligence and his principles from his lack of political savvy and charisma. That division shattered when he addressed Congress on Wednesday–it was a personal, eloquent and yet forceful policy address the likes of which, as the British papers were quick to point out, Brown has never made in Westminister.

So in part, I just swooned to see Brown succeed on both political and policy fronts. But I was also bowled over by the content of his argument:

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Friday Night Stimulation

By , 6 February, 2009, No Comment

The Senate finally reached a compromise on the stimulus package and we should see it passed by both houses at some point in the coming week. I can’t resist the urge to have an I-told-you-so moment about the politics here: the final bill will probably pass without any Republican support, and it will emerge from aggressive back and forth on the Senate floor today, NOT from the “postpartisan” charm offensive President Obama was so psyched about last week. Obama gets points for fast learning, though: his tone was full of red meat today.

Obama’s leadership style was a topic of discussion at a panel I attended last night about the economic challenges we face. Common criticisms were
–Obama does not yet recognize that the rest of his domestic agenda is never going to happen because all political (and real) capital for his first term will get spent on the stim
–Obama trumps the previous crowd in the quality of the experts he’s got BUT he has a problem actually making decisions that use their expertise effectively because the experts are all competing prima donnas. We should thus expect a lot of waffling on his economic policy.

The panel was overall pretty impressive:
BusinessWeek’s Steve Adler
CNBC’s Steve Liesman
NYTimes’ Floyd Norris
Credit Suisse’s Neil Soss
and author Bill Holstein
and they made some good points:

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Economists to America: “Honey, we broke the calculator!”

By , 1 December, 2008, 2 Comments

Once a month, the US government locks a bunch of Econ PhDs in a room to calibrate changes in employment, payroll, production and consumption. Today, the experts announced the results of their November gathering. Guess what? We’re in a recession, and we’ve been there since December 2007.

Well, duh. Americans have been feeling the hit for months.

But economists usually wait around for two consecutive quarters of negative GDP growth before calling a recession. That definition rests on the fact that production, consumption and income are interlinked: what a country makes must add up to what it buys. In theory, when GDP is rising, it should be because consumption (roughly 70% of the domestic product figure) is rising too. And when people consume more, it should be because their employers are making more and passing it on.

That means that most of the time, the line about the rich getting richer while the poor get poorer is just gas. Income disparity is growing, but that usually reflects the rich getting richer faster than the poor are emerging from poverty. Assuming that income, consumption and production all move in the same direction justifies A) the 2-quarter definition of a recession and B) the argument that getting people to make and buy more stuff must implicitly raise our standard of living.

That’s apparently no longer the case.

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Now What?

By , 31 October, 2008, No Comment

It may be speaking way too soon, but I’m betting that the panic phase of this financial crisis is over. It will get worse before it gets better, but at least most of the experts and analysts I’ve called are starting to agree upon how long it might be (a year-ish downward, then a slow recovery into 2011 is the prediction I’m hearing). So imperfect as it was, the enormous infusion of cash into the banks across the world has addressed the immediate doom.

Now the real challenge. With Alan Greenspan of all people saying uber-deregulation might have had “a flaw” (or two or three hundred?), it’s time to rethink the long-term system. I’ve suggested before some reflections on how to fix the public sector regulators and recruit smarter people to those roles. But what about a financial industry that equates “innovation” with unsustainable assets (those mortgage bundles) and irresponsible risks?

Interestingly, the best reflections on that problem aren’t coming from financial experts (who remain stunned by it all) but from design blogger Bruce Nussbaum (full disclosure: He’s a former boss of mine). Nussbaum says the future of capitalism will be a lot like the ZipCar–based on bottom-up, collaborative growth instead of top-down, proprietary models. His BusinessWeek colleagues make the point that even Web 2.0 (collaborative and bottom-up by default) will have to change in the ZipCar world–the techies too have been hooked on “irrational exuberance” before.
Link
I’ve got my usual bones to pick with the collaboration theory–how is it capitalism if you aren’t motivated by ownership; how do you incentivize sharing–but overall, I think Bruce is right. So, as a Halloween gift, no long diatribes. Just an encouragement to read Bruce’s blog.Link