Leverage?

Some members of the chatterati may have taken Archimedes a bit too literally: “Give me a place to stand and with a lever I will move the whole world.”  Often too much emphasis is placed on the fulcrum and not quite enough on the part about the ancient mathematician needing a place to stand.  The word of the week sounds like “leverage” in Washington, D.C. Who has it? Who doesn’t? And, so what? The So What part isn’t all that interesting.

Although the pundit class is thoroughly fascinated at the moment with how much leverage the President and the Republicans may each possess after the self inflicted Fiscal Cliff fiasco, most of their comments can be categorized as post game “analysis” of the variety which is more commonly associated with post game “analysis” of a sporting event.  It’s never quite enough to declare one team or another victorious based on the scoreboard numbers — “we” have to “know” why one team won and the other lost.  In reality, we really don’t.

So, in the parlance of political reporters emulating the post game questions of their sports writer colleagues — can the President win the next game? A game of Debt Ceiling already scheduled by the Republicans and given official status by the post game analysts.

It depends on where you stand.

There are two major elements of the federal debt that deserve serious scrutiny.  First, during the Bush Administration’s policy of credit card conservatism we racked up two wars (off the budget and supported by supplemental appropriations), a major addition to the Medicare program (Medicare Part D, also unpaid for) and one major Recession.  All were guaranteed to increase the national debt.  The first two increased spending and the latter cut into the tax base.

Secondly, we do need to reduce the national debt, but how we do it is important.  This is one of those occasions which calls for a scalpel, not a meat axe.

It is also important to stand on firm ground.

A few facts are in order.  The first part of standing on terra firma before attempting to leverage anything is to dismiss some media mythology about trends in the national budget deficits.  The following chart should provide an illustration of the inaccuracy of the Now That A Democrat Is In The White House The Deficit Is Out Of Control Myth:

The chart illustrates what happens when two wars, one major Medicare addition, and a nasty Recession contribute to national spending. It also shows the effect of Obama Administration policies mentioned earlier, a point at which we should note that the Bush Administration toted up about $5.1 trillion in expenses, while as of last June the Obama Administration’s policies resulted in about $983 billion in spending.

In short, if we are really serious about deficit reduction then we need to eschew the policies that got us into this mess in the first instance, i.e. unnecessary tax cuts, and two very expensive wars.

OK, so if we don’t get involved in more military operations, we resist the myth that tax cuts somehow cause economic growth (which they never have), and we regulate our financial markets more effectively in order to mitigate the excessive enthusiasm of traders who created the last great mess, then where do we cut?

It’s time for another reality check.

Here’s where the money goes:

Since Social Security is a self-funding program, which as President Reagan famously cautioned in 1984 doesn’t add to the federal deficit (video), we can take that 20% out of the equation right now.  Anyone who is truly serious about the single issue of Social Security solvency should be clamoring to increase the cap on earnings liable to the payroll tax, currently set at a measly $110,000. We also need to remove the mandatory spending from the discussion because what we cut will have to be from discretionary spending.

The FY 2013 budget calls for spending $666.2 billion by the Department of Defense.  Another $80.6 billion is allocated to the Department of Health and Human Services (Medicare, Medicaid), and the Department of Education (Pell Grants, Title I, student loan guarantees, etc.) is scheduled to spend or entail $67.7 billion while the 4th largest chunk of the budget goes to the Veterans Administration which has $60.4 billion in scheduled spending.

In short, we’ve budgeted for $1,510 billion in discretionary spending in FY 2013.  The Department of Defense is on track to receive 44.12% of ALL the discretionary spending in the national budget.   Yet calls to cut military spending brings on the wailing of voices, the gnashing of teeth, and the rending of garments about “making us less safe” in an uncertain world.  In spite of all the wailing, gnashing, and rending — that one single department consumes 44.12% of the entire pot of discretionary spending is something we ought to be discussing.

Medicare is another matter.  IF we are truly serious about deficit reduction then we need to have more than the simplistic discourse already in evidence.  There is a false choice being presented, as though the only options are to privatize the Medicare program (give Granny a coupon and let her go out and find her own insurance) or to create a Single Payer national health care system.  While I wouldn’t be sorry to see a Single Payer system, this is an argument for another day.  The point is that there are options between these two proposals.

The central focus point should be that nothing which doesn’t have a bearing on health care cost containment is going to make much difference in the spending levels.   Privatization doesn’t address the cost containment issue, and a single payer system without cost containment elements is merely a recipe for increased expenses.

Now that the campaign season is over we can dismiss the Republican rhetoric about “Obama cut $716 out of Medicare,” and consign to the dust bin the notion that the Affordable Care Act somehow impinges on Medicare benefits.  Business Week explains:

From 2010 to 2019, Obamacare trims payments to providers by $196 billion. They agreed to take a cut because they will get so many new patients, thanks to the individual mandate. Another $210 billion will be generated by raising Medicare taxes on the wealthy (that’s households earning more than $250,000). Another $145 billion comes from phasing out overpayments to Medicare Advantage. About 25 percent of seniors use the program—in which private plans compete for Medicare dollars—instead of traditional fee-for-service Medicare. Under Obamacare, the government has to keep Medicare Advantage costs in line with those of traditional Medicare. More savings come from streamlining administrative costs.

Thus, if we trim payments to providers, phase out over-payments for profitable private health care policies, and put some reins on administrative costs we’ll find about $716 billion in savings for the Medicare program.  Other cost savings may also be the result of more efficient record keeping, especially in the pharmaceutical segment.  Anyone who’s dealt with the medical issues of an elderly parent knows of multiple prescriptions written from several physicians who may or may not consult with one another.  The result can be as minimal as two (or three) prescriptions for the same medication at different dosages; or, as detrimental as two prescription medications which should not be taken together.

However, the bottom line is still the bottom line — unless and until we are ready to discuss health care cost containment we’ll be immersed in the rhetoric of low bludgeon and high dudgeon without much result.

When we discuss funding for the Department of Education it’s important to note that the FY 2013 discretionary requests yield an official number, $69.8 billion — if we include Pell Grants.  Pell Grants constitute about $22.8 billion of the total, a decrease from $23.8 billion in the FY 2011 budget.  Without the Pell Grants the total discretionary spending in the FY 2013 budget is $47 billion.   There are two constituencies with major stakes in arguing about these funds.

Parents.  Unless one is amenable to the elitist argument that kids should have access to only the level of education their parents can afford (which makes social mobility a moot point) parents are going to need assistance paying for their children’s education.  Whether we like it or no, education is a labor intensive business.  We can trim educational spending by continuing what the Obama Administration has started — saving approximately $61 billion by cutting the banks out of their role as middlemen in the student loan program [NYT]– but it really doesn’t do to cut efforts to educate our young people.  It also doesn’t make economic sense since a college degree is worth money in the marketplace.

Local school districts.  Cash strapped and semi-starved local school districts rely on funds for Special Education programs, Title I services, School Lunch programs, to make up budget shortfalls.  While the level of federal involvement at the local level isn’t all that much it does cover expenses local districts would be hard pressed to meet were the monies cut.

Hostage Taking

How we fund, or de-fund, these major activities depends on who is being held hostage and by whom.   Did the President allow the Republicans to gain “leverage” by taking the tax rates off the table in the next Congressionally manufactured debt ceiling debacle. Or, are we going to change hostages?

Will the Republican stance be that all other programs must be cut in order to spare the 44.12% consumed by the Department of Defense?

Will the GOP position be that Medicare must be privatized in order to practice “sound fiscal responsibility?”

Will the GOP position be that Social Security must be “reformed” (read cut) in the interest of “fiscal accountability and deficit reduction” even though it adds not a nickel to the federal debt?

Will the Administration simply say — You manufactured this debt ceiling “crisis” live with it?  Remembering that if the national credit rating is downgraded this will likely mean that the cost of borrowing (yields paid to those who invest in Treasuries) will go up, exacerbating the problem rather than addressing it.

Will the point be made to the American people that while the credit card analogy is handy, the United States of America doesn’t have creditors it has investors.  Our federal government accesses funds by issuing bonds.   And WE own most of those bonds.

Here’s the little chart again:

42.2% of the money “borrowed” by the U.S. government is an asset for U.S. individuals and financial institutions.   Today’s yield curve doesn’t indicate a government which is having to pay all that much to get people and institutions to invest in it:

Even 30 year bonds are paying only 3.0% interest.

The amount of leverage always depends on where one stands and places the fulcrum.

Simple Economics Made Complex: Capitalism vs. Financialism

The 2012 election at almost every level will be determined by turn out, and predicated on economics — micro and macro.  The problem for most voters is that we’re talking about two economies.  The economy of the financialists and the economy of the capitalists.  So far, the capitalists are winning.  Barely.

A capitalist believes that our economy works best when consumers have a choice of products from a variety of manufacturers or providers.  The economy expands as the demand for goods and services increases and providers seek to accommodate consumer needs.  A capitalist believes that capital should move from areas of surplus to areas of shortage, for small business lines of credit, for home loans, for student loans, for consumer credit, for business expansion, for commerce and marketing needs.

A financialist believes that the economy serves to accumulate wealth such that we create financial products and services which can be securitized and manipulated to create more wealth.   The financialists have been doing very well, thank you very much.  Not sure, then consider this chart:

That’s right, 93% of the increases in American income (wealth) in 2010 went to the top 1% of income owners in the U.S.  And the stock market has been doing quite well since 2009:

Of course, it’s not just stocks in which we find increased trading.  Other financial products, derivatives included, have been doing a thriving trade.

The traffic in derivatives hasn’t slowed much either.

So, while those whose income comes from the financial sector have been doing quite well, those in the “real” economy — the capitalist economy have been in something of a bind.

Note, Governor Romney’s complaint that the current economy means “stagnating” wages for middle class Americans he’s omitting a crucial bit of information:  When economic policies favor the accumulation of wealth in the coffers of the o.01%, it shouldn’t be the least bit surprising that middle class Americans aren’t seeing the increases in their bank accounts.

In short, the Financialists (and their presidential candidate Governor Mitt Romney) having secured a deregulated financial sector which rewards them disproportionately, are loathe to adopt any policy which might require them to pay more in taxes or to comply with any regulations on the financial product manipulation which constitutes their wealth accumulation strategy.

It’s up to the Capitalists in the 2012 election to secure a level playing field, or at least a more level field, one in which INVESTMENT is rewarded before SPECULATION.   One in which the economic reality of supply and demand means the supply and demand in REAL markets — not in esoteric “markets” for artificially concocted risk management products.

Let’s hope the Capitalists win.

Miles to Go, Promises to Keep: The Economics of Military Pensions

Pensions matter. The type of pension determines personal financial planning, and personal finances drive our American consumer economy.  Payments from a defined benefit program are predictable, last throughout a person’s retirement, and make household budgeting easier people  — including retirees from our Armed Forces.

So, members of our military at Nellis AFB or the Fallon Naval Air Station are expecting to retire with defined benefits, our promise to members of the U.S. military and to their families.  At this point it’s advisable to step back and look at what the major political parties are offering in terms of Defense spending and how this might impact members of our Armed Forces and future retirees.

On the Republican Side

The Republican Platform is long on rhetoric, and very short on specifics.  We do know that the GOP is calling for military spending equal to 4% of our Gross Domestic Product. [CPI]  The Bureau of Economic Analysis reports  the GDP is now $15,075.7  (add three sets of zeros and we get  $15.075 trillion.) The platform specifically calls for an increase in the nation’s nuclear weapons arsenal, and there are suggestions that spending be increased for a form of nuclear defense shield, although one such program was cancelled for inefficiency.

The Medium Extended Air Defense System (MEADS) is under scrutiny for its current shortcomings:

The Pentagon decided to keep paying until the program attained a “proof of concept,” a status that falls well short of production and deployment but would in theory allow the U.S. or its foreign partners to restart the project later if they chose. DoD requested a total of $804 million over 2012 and 2013. But Congress disagreed, and agreed to fund only the first year. [CPI, May 2012]

So, while the GOP Platform is long on “strong America” talk the lack of specificity and the paucity of comments on veterans leads to the conclusion that the military spending envisioned by the Republicans is mainly for nuclear missile systems and missile defense systems.   Page 43 of the Republican Platform for 2012 (pdf) addresses veterans’ issues, and touches upon retirement:

“…we believe compensation and conditions for our Armed Forces in place at the time military service is initiated should be sufficient to attract and retain quality men and women as we honor our promises and commitments to veterans, retirees, and their families. These shall continue and not be reduced or otherwise diminished while in service, or upon separation, or retirement.”

Readers should assume that “these” refers back to the “promises and commitments” to members of military families.

On the Democratic Side

The Democratic Platform is different in focus and emphasis in terms of military spending and priorities.  The document refers to actions taken by the Obama Administration in terms of national defense and foreign policy and continues:

“These actions have enabled a broader strategic rebalancing of American foreign policy. After more than a decade at war, we can focus on nation-building here at home and concentrate our resources and attention abroad on the areas that are the greatest priority moving forward. This means directing more energy toward crucial problems, including longstanding threats like nuclear proliferation and emerging dangers such as cyber attacks, biological weapons, climate change, and transnational crime. And it means a long-overdue focus on the world’s most dynamic regions and rising centers of influence.”

The section on members of the armed forces is as follows:

“President Obama and the Democratic Party are committed to keeping the sacred trust we have with our troops, military families, and veterans. These brave men and women and their families have borne the burden of war and have always made our military the best in the world. We will not only continue to support them in the field, but we will also continue to prioritize support for wounded warriors, mental health, and the well-being of our military families and veterans. We will keep working to give our veterans the health care, benefits, education, and job opportunities that they have earned. That’s why the President and the Democratic Party supported the Post-9/11 G.I. Bill to provide opportunities for military personnel, veterans, and their families to get a better education.”

Both sides seem in general agreement that benefits and services to veterans, including retirement should not be reduced.  What is troubling is the lack of specificity from either camp on the “shape” of the benefits for retired members of the Armed Forces, the current defined benefit program or a new 401(k) type program?  The lack of specific support for the defined benefit program opens the door for consideration of defined contribution plans which have problems of their own.  Both platforms state promises should be kept, thus the question becomes — What Promises?

The 401(k) Epidemic

As institutions as varied as the National Football League (in the dispute with its officials)  and the Department of Defense look at ways to reduce costs, pension plans nearly always come into play.  The current military pension plan calls for defined benefits — a 2011 proposal by the Defense Business Board is suggesting a 401(k) style defined contribution plan for members of the military.

“The proposal comes from an influential panel of military advisors called the Defense Business Board. Their plan, laid out in a 24-page presentation “Modernizing the Military Retirement System,” would eliminate the familiar system under which anyone who serves 20 years is eligible for retirement at half their salary. Instead, they’d get a 401k-style plan with government contributions.”  [CBS]

The presentation (pdf) begins with rationales for changing to a defined contribution system, including:

“…in light of the budget challenges facing the Department of Defense, the military retirement system appears increasingly unaffordable. In FY11, the retirement plan will accrue 33 cents for each dollar of current pay, for a total of $24 billion.

According to the OSD Office of the Actuary, annual military retirement payments are forecasted to increase from $52.2 billion in 2011 to $116.9 billion in 2035. As of today, the total life cycle program costs will grow from $1.3 trillion, of which only $385 billion is presently funded, to $2.8 trillion by FY34 (see Appendix D of the final presentation). Increases in inflation and life expectancy will further increase military retirement benefit costs. Moreover, as presently structured, any increase to base pay has an automatic and dramatic impact on future retirement liabilities.”

Other voices agreed, including Douglas Holtz-Eakin, recently the chief economic policy adviser to 2008 presidential candidate Senator John McCain:

“Douglas Holtz-Eakin, former director of the Congressional Budget Office says it’s very important that the military attack its retirement issues. “We’re talking about an underfunding that starts to look like hundreds of billions of dollars in the next 20 years. And if you want to maintain the core mission which is to defend the nation and have the strategic capabilities we need, we can’t have all their money tied up in retirement programs.” [CBS]

There are some positive arguments to be made concerning adjustments in the military retirement program — such as how to compensate service which does not extend to 20 years.  The question now becomes: Where DO we want money “tied up?”  Another question might be: Is the 401(k) format the only option, or the best option, by which to address the need to keep our promises to members of the military concerning their retirement income?

The first thing almost any competent investment adviser will say to a client considering a 401(k) plan is that it is market driven.

“Your money, when placed into a 401k, does not have the benefit of being insured. In fact, depending on the investments that you’ve chosen, you could actually lose money while it is tied up in a 401k. If you see that you’re starting to lose money on a particular investment, you might want to consider changing it.”  [InvestHub]   — or to put it less optimistically:

“Hopefully your money is safe in a 401k plan, although you don’t have the luxury of having your investment protected by the Pension Benefit Guaranty Corporation (PBGC) which safeguards the assets of most pension plans. And ultimately your money is only as safe as the investments and funds that you invest it in – any investment plan carries some degree of risk and uncertainty.”  [Essortment]

Any financial adviser who doesn’t almost immediately mention the market based foundation of 401(k) accounts should be avoided in the interest of financial health and safety.  There’s one other point to consider, besides the intrinsic financial market related issues, there are management fees which also impinge on 401(k) account performance.

Here again we meet our old friend — market volatility — a benign face to the Wall Street trading desks, but a real question mark for retirement planning.  Consider the performance of 401(k) plans in the private sector in 2011, as Bette Davis once advised — Buckle Up:

“The average 401(k) balance tracked the year’s bumpy market returns. At midyear, it reached $72,700, the highest since Fidelity began tracking balances in 1998. The average dropped 12 percent over the next three months, amid growing worries about the global economy and the European debt crisis. Those fears eased late in the year, sparking stocks to climb and boost the average account 8 percent in the fourth quarter.

Typically, about two-thirds of annual increases in 401(k) account balances are the result of workers’ added contributions and company matches. It’s only the final third that’s the result of investment returns, said Beth McHugh, vice president of market insights at Boston-based Fidelity.”  [CSM]

Less elegantly phrased, Manic Mr.  Market, buffeted by the rumors and realities of the financial sector in 2010 and 2011, didn’t add very much to 401(k) investors’ accounts.   If the proposed military retirement 401(k) accounts aren’t augmented by much more than more enrollments or company (Defense Dept.) matching contributions, then members of the Armed Forces would do almost as well simply putting their money in a good old fashioned savings account at the local bank.   This statement might even be more unfortunately accurate if Manic Mr. Market behaves badly at just the moment the service member retires.

Yes, the Pentagon could save some $250 billion over the next 20 years, BUT what might have happened to a soldier’s 401(k) account if that individual’s retirement date was — say, March 9, 2009 when the DJIA bottomed at a measly 6507.04?    If there is inequity in the current system, how much more inequity might there be between the unfortunate soul who retired on March 9, 2009 and the person who retires today when the DJIA is at 13,266.99 and the Nasdaq is at 3130.94?

The backgrounds and affiliations of several members of the Defense Business Board make it clear that most are well aware of Manic Mr. Market’s behavior.  There are representatives of Accenture, Veritas Capital, Citigroup, Renaissance Strategy Advisers, Lovell Group Venture Capital, Fall Creek Management, the Regency Group, and Providence Equity Capital.   There’s even an “Outsourcing Superstar” from NEOGROUP.  [DBB]  What can we infer from their presentation about the efficacy of their proposal?

There’s always one clue to how enthusiastic so-called reformers are about the plans they are hawking — do they recommend immediate implementation?  If something is the End and Be All of Hot New Ideas, then why not put it into effect with alacrity?  If something may not be so good, or faces some stiff opposition, then the “phase in” language appears.  However, if some proposal has some really large question marks attached to it — then we get phrasing like this from the Defense Business Board:

“This plan would apply to Reserve and Active Duty personnel. Retired and disabled personnel would be unaffected.”

If we all think we’ve heard this somewhere before — it’s because we have.  The Republican proposals for turning Medicare into a voucher/coupon program are all couched in “this doesn’t apply to current enrollees” verbiage.

If we expect a veteran’s retirement planning to be predictable, and his or her household and other expenses based on a “floor” of defined benefit payments after retirement, then we could do much better than to agree to a plan to make those retirement benefits driven by Manic Mr. Market and his contemporary penchant for volatility.  This election season would be as good a time as any to ask candidates what they think of a plan to privatize military retirement plans?  Plans that could be miles from the promises we should be keeping.

All Right Everyone, Gird Your Loins! The GOP’s Coming For Health Insurance Reform Repeal

We’ve been warned.  (1) We’ve known since the days of astro-turfed Tea Party assaults on Congressional home town sessions that the Republicans had a game plan for making health insurance reform a marker in their campaigns. (2) We’ve known since the beginning that the insurance industry and their political action committee partners were pouring tons of money into opposition to health insurance reform.   And, (3) Stanley Tucci’s character in The Devil Wears Prada (2006) gave us our opening line: “All right everybody, gird your loins.”  We can make another list of things we know.

#1. The Republicans have lied and will continue to lie about the contents of the statute.  A sample:

“Obamacare cuts Medicare,“  is factually inaccurate.  Politifact reports: “The legislation aims to slow projected spending on Medicare by more than $500 billion over a 10-year period, but it does not cut that money from the program. Medicare spending will increase over that time frame.”

“Obamacare is a $500 billion tax increase,” is factually inaccurate.  The tax increase to which Governor Romney is referring is an amalgamation of every excise contained in the bill, whether the tax affects industries or individuals.   There is, for example an excise associated with the so-called Cadillac Health Plans, insurance plans which because of their cost are unavailable to most Americans.  Health insurance corporations are taxed. Medical equipment manufacturers are taxes — BUT the GOP has, and will continue to make it sound as though these taxes will be paid by “you” the ordinary American middle class person.  This is highly misleading.

#2.  The Republicans will attempt to change the language of the debate.  Privatizing Medicare will be called a “free market solution.”  Advocating that people are on their own when it comes to dealing with the behemoth health insurance corporations will be called “individual choice.”  No matter how deftly the language is phrased the intent is the same: You’re On Your Own.

#3. Republicans will speak in generalities.  They will not address the issues that illustrate why health insurance reform is necessary.  They will speak of “freedom of choice,” without noting that for families in which a child has a pre-existing medical condition there may be no health insurance available from any source.  They will speak of “individual responsibility,” without a nod toward the fact that some families were facing the prospect that an elderly parent would have to be institutionally cared for rather than be assisted by home or community health services.

One slightly new wrinkle in Governor Romney’s presentation is a declaration that we should not “discriminate against the individual purchase of insurance.” While this makes a lovely sound bite we are left to our own imaginations to figure out what this might mean.  Does it mean tax deductions for Cadillac Health Plans owned by those in the upper income brackets?    We’ll see this element in the next section, and in the commentary on Governor Romney’s current “plan.”

#4. Republicans will offer nothing new.*  In fact, what they are offering is relatively nothing more than the talking points they issued in 1993-1994 to oppose “HillaryCare.”  What they wanted then were Chamber of Commerce based small business insurance pools.  Hardly a national response to a national problem.  They wanted tax-deductible health insurance premiums.  Not really a solution for those who can’t afford to pay up front for the health insurance in the first place.  Further, the more expensive the health care plan the more “deductions” or tax credits — not something which has the interests of those who can’t even find affordable insurance in mind.  However, the 1% would find this a very agreeable deduction.

They wanted “tax credits” or “vouchers” for low income Americans, as if the low income Americans could afford health insurance plans, and as if the “vouchers” weren’t a form of subsidy for the health insurance corporations.

Back in 1994 they wanted the establishment of health savings accounts, which as has been pointed out during the last two decades are really good for the young and healthy, but not very useful for anyone else EXCEPT the Wall Street bankers who get to re-invest the funds in the Wall Street Casino.  “Banks and others are drawn by the promise of lucrative fees they can generate by offering consumers mutual funds and other investment vehicles as their account balances grow. Most also charge $50 to $75 to set up a health savings account, and they collect perhaps $40 or more each year in maintenance charges and service fees. Not since the creation of the individual retirement account in the mid-1970′s has such a potentially huge mountain of money landed in the lap of the financial services industry.” [NYT] (January 2006)

One of the major features of the 1994 GOP assault on health insurance reform was “malpractice reform.”  Although medical malpractice cases are a miniscule portion of total health care costs in the United States of America.  In fact, “…In 2004, the CBO calculated malpractice costs amounted to “less than 2 percent of overall health care spending. Thus, even a reduction of 25 percent to 30 percent in malpractice costs would lower health care costs by only about 0.4 percent to 0.5 percent, and the likely effect on health insurance premiums would be comparably small.”  [AAJ] (emphasis added)

The old assault talking points called for limiting pre-existing conditions verbiage in employer based health insurance plans.  Nothing about individually owned plans for the self employed?   *(For more on the revamping of the GOP’s 1994 Talking Points see John Perr’s post.)

#5. The Romney/GOP health care “reform” for 2012 centers around tax deductions, and is not focused on expanding health care insurance coverage.   As noted above, giving tax deductions for insurance purchases has been a crucial element in GOP insurance ‘reform’ since 1994.

“One of Mr. Romney’s chief proposals could shake up how the vast majority of Americans get health care — through employers. He would give a tax break to people who buy insurance individually on the open market, so they would enjoy the same advantage as workers who get insurance as a benefit at work, which is not taxed as income.” [NYT]

There are some issues with this, and some obvious questions. For example, if the major focus is on promoting individually purchased insurance plans, then is this not an incentive for employers to drop group insurance plans?  While this might be dulcet musical tones to the ears of private equity firms seeking to pare down corporate expenses in their acquisitions, does it not also create a problem for workers who are dropped from the group plans?  What does the Romney plan do to assure workers that there will be affordable health insurance plans available for a family of four?  A family in which one member has a pre-existing health issue?  A family in which the mother is pregnant?

What, in the Romney proposal, would restrain a health insurance corporation from raising premium costs to the ceiling and stars above while telling customers, “Don’t worry, it’s going to be tax deductible in April?”  Even if individual and small group premium costs are expect to increase in the near future by an estimated 6% to 20%. [KFF]

Finally,  we should gird our loins knowing full well the Republican Party has no real health insurance reform plan in the offing.   They will promote “individual choice,” even when in many parts of the country there are no competitors for health plan sales.  They will promote “tax deductions,” while ignoring the fact that they are loath to restrain the cost of individually procured health insurance policies.  They will promote “individual purchased” plans thus allowing corporations to drop employer sponsored group plans to enhance “shareholder value,” and they will do nothing for small businesses which want to offer group plans except to encourage them not to do so.

For additional information see: John Perr, Republicans Push Twenty Year Old Plan, DKos, June 28, 2012.   Gabriel & Pear, Parsing Romney, New York Times, June 29, 2012.   Eric Dash, Health Savings Accounts, New York Times, January 27, 2006.   American Association For Justice, Malpractice a Tiny Percentage of Health Care Costs. Ezra Klein, Romney’s Bogus Attack on the Affordable Care Act, Washington Post, June 29, 2012.     Kaiser Family Foundation, Survey of Health Insurance Agents in Individual and Small Group Markets, June 15, 2012 (pdf) Karen Davis,  The Commonwealth Fund, What’s Working to Control Costs?  Ethan Rome, HCAN, Obamacare Repeal: Phase One of the Republican Assault on the Middle Class.

Supreme Court Rules In Favor Of ACA: Heller Kicks The Gator Ade Bucket

Senator Dean Heller (R-NV), or as the Fine Wordsmith The Gleaner calls him, “The Senator By Appointment Only,”  wants us all to know that he is not pleased by the Supreme Court’s ruling on the Affordable Care Act and Patients’ Bill of Rights.

“Nevada families and businesses are already struggling in this current economic environment, and the President’s job-killing healthcare law is making a difficult situation worse. Congress spent more than a year debating healthcare legislation while Nevadans were losing their jobs and their homes. Obamacare made sweeping changes to Medicare, impacting thousands of Nevada’s seniors, and cut the program by a half trillion dollars.

“This law has now been affirmed as a colossal tax increase on the middle class, and its excessive regulations are stripping businesses of the certainty they need to hire at a time when Nevadans and the rest of the country are desperate for jobs. The President should work with Congress to find real solutions to healthcare reform so the excessive mandates and taxes in this law do not further add to our national debt or continue to stifle economic growth. This onerous law needs to be repealed and replaced with market-based reforms that will provide greater access, affordability, and economic certainty to our nation,” said Senator Dean Heller.

Let us parse:

Heller: “Nevada families and businesses are already struggling in this current economic environment, and the President’s job-killing healthcare law is making a difficult situation worse.”

Coupling “job-killing” and “healthcare” is a Republican construction which doesn’t do anything more than seek to associate a change in health care statutes with something (anything) negative.  If unemployment in Nevada were at 2%, and the nation’s major problem was smog, then it would be easy to imagine that the ACA and Patients Bill of Right would be “pollution producing.”  That’s speculative, so let’s drill down a bit further.

Let’s go to that bastion of liberal thinking, Forbes, to see if the ACA/PBR is actually “job killing?”  The answer: No.  In fact, when we go to the Urban Institute’s Study the Massachusetts health care reform enacted under Governor Romney’s administration did NOT produce “job killing” results:

The graphic reduction is difficult to read, so click on the image for the full sized version in the Urban Institute’s original study.  What happens when we take a look at the right hand side of the chart?

While the U.S. was experiencing a decline in full time jobs during the Recession of 3.6%, Massachusetts saw a 2.8% drop.  While the U.S. witnessed a 0.8% increase in part time employment, Massachusetts saw a 0.9% increase.  Whether Governor Romney wants to admit it or not, the Massachusetts plan is the closest statutory comparison to the Affordable Care Act we have, and the numbers about “job losses” in Massachusetts don’t make the Republican point.

Neither do the national numbers: “Since the Affordable Care Act was signed into law, the economy has created 3.5 million private sector jobs, including 488,000 jobs in the health care industry. The unemployment rate is 8.3%, lower than it was in March 2010.“  [Hoyer] And this: “360,000 small businesses have taken advantage of tax credits that are making health insurance more affordable for 2 million workers.  As many as four million small businesses are eligible for these credits.” [Hoyer] And, again, this: “…over 2,800 employers are participating in the Early Retiree Reinsurance Program, which is helping provide coverage to 13 million early retirees who are not yet eligible for Medicare.”  [Hoyer]   Whether we look at national numbers or state numbers, or both — the health care reforms enacted in Massachusetts and in the United States are NOT job killing.

Heller: “Congress spent more than a year debating healthcare legislation while Nevadans were losing their jobs and their homes.”

Yes, many things happened while foreclosure rates in Nevada were leading the nation,  and during this time what was the GOP agenda on financial reform and mortgage relief?

On October 12, 2010 Representative Eric Cantor (R-VA) laid out the GOP position on the foreclosure crisis: “Republican leader Eric Cantor chose to break his silence on the foreclosure crisis, with other Republicans quickly picking up the talking points.  And his position should come as no surprise.  Rep. Cantor came to the defense of the housing industry and laid blame squarely on the feet of the American homeowner.” [C2C]

Then, there was the infamous comment from current GOP standard bearer Governor Romney on home foreclosures: “Don’t try to stop the foreclosure process. Let it run its course and hit the bottom,” Romney said when asked what he would do to jump-start the floundering housing market.” [WashMonthly Oct 2011]

Thus, while Congress was debating, the President was signing, and then the Department of Health and Human Services was implementing the provisions of the Affordable Care Act and Patients Bill of Rights, the Republicans were blaming homeowners for the foreclosure debacles and the leader among the GOP presidential candidates was asserting that Nevadans who were in the foreclosure process should close their eyes and Think of the Free Market.  In other words, the Congress could have been debating the desirability of regulating Sea Horse Races, and the GOP wouldn’t have been much interested in legislating solutions to the housing crisis.

Heller: ” Obamacare made sweeping changes to Medicare, impacting thousands of Nevada’s seniors, and cut the program by a half trillion dollars.”  We won’t go into the part in which the Ryan Budgets in their various incarnations cut massive amounts from Medicare AND sought to turn the program into a voucher/coupon program.  Let’s just deal with the blatantly misleading statement about cuts to Medicare, and see what the professional fact checkers had to say:

“Under the act, Congress voted to reduce $500 billion in projected Medicare spending over the next 10 years, not in one substantial chunk. The reductions are aimed at eliminating parts of the Medicare program seen as ineffective or wasteful. For example, the plan phases out payments to the Medicare Advantage program, an optional program set up under the George W. Bush administration, where seniors could opt to enroll in a private insurance program and the federal government would subsidize a portion of their premium.”  [PolitiFact.com, 5/10/11] (emphasis added)

Under the Affordable Care Act the savings were reinvested in the Medicare program itself, not simply cut from the budget and the program privatized.  And note — some cuts were made to the taxpayer subsidies to insurance companies offering highly profitable optional insurance.  The cuts were in areas considered wasteful, and were NOT related to basic Medicare services.

Heller: “This law has now been affirmed as a colossal tax increase on the middle class, and its excessive regulations are stripping businesses of the certainty they need to hire at a time when Nevadans and the rest of the country are desperate for jobs.”   This statement is straight out of the GOP Talking Point Random Generator.

Interesting how Republicans like Senator Heller become really engaged in the problems of the Middle Class when taxes or fees might be increased, but rarely (if ever) when said Middle Class is getting pounded by corporate raiders, union busters, private equity Giant Squids, and stagnating wages.   Be that as it may, if the middle class wants a colossal tax increase — it’s more likely to come from the Republicans.

There is, for example, the tax proposal set forth by Governor Romney, about which the Christian Science Monitor reported:

“In any case, not extending the 2009 tax cuts still in effect in 2012 means that Romney’s plan would, on average, raise taxes for households in the bottom two quintiles, relative to what they’re paying this year.  Mitt Romney’s tax plan would cut taxes, by about $180 billion in 2015 alone, relative to current tax policy. And, despite all arguments to the contrary, a disproportionate share of the savings would go to households with the highest incomes.”  (emphasis added)

Ezra Klein, Washington Post columnist, added this analysis of Governor Romney’s plan:

“Note that the Tax Policy Center could only conduct a partial analysis of Romney’s tax plan. That’s because Romney’s proposal itself is incomplete. He’s said that he wants to scrap various deductions in the tax code, particularly for high earners, in order to broaden the tax base. But he hasn’t offered any details about which deductions he’d scrap or how, so there wasn’t anything for the Tax Policy Center to analyze.

Based on the details Romney has provided so far, his plan would lower tax rates for the top quintile by 5.4 percent, saving the wealthiest an average of $16,134. (The top 1 percent of earners, meanwhile, would save an average of $149,997.) The lowest fifth of earners, by contrast, would see a small tax increase of 1.3 percent under Romney’s plan, owing the federal government an additional $143 extra on average.

Obama’s tax proposal, meanwhile, would keep tax rates roughly the same except for married couples making over $250,000 per year (or single earners making more than $200,000 per year). On average, under Obama’s plan, the top 1 percent would be paying about $87,173 more per year.”

Klein offers the following illustration:

There are many “ifs” involved in the Romney tax proposal, incomplete as it is, but there are some deductions which if eliminated would have a definitely negative impact on middle income level Americans:

“Most middle-class families would get little help. About 18 million working families would actually pay higher taxes because Romney would end the American Opportunity Tax Credit for college and cut tax credits for taxpayers with children and earned income.”  [OCCD]

In fine, if one would like to see a tax structure which bestows the greatest advantages on those who already have great advantages — Governor Romney and the Republicans are your kind of people.

There’s nothing quite like tossing in a phrase like Excessive Regulations to stir the hearts of the financial and insurance sectors, both of whom dislike being told, for example, that using premium payments for CEO compensation and advertising aren’t the best use of consumer dollars.   And, the phrase tickles those who think the EPA is merely a professional thorn in the side of the energy sector — Deep Water Horizon notwithstanding.  It’s often notable that when expounding on the “excessive regulations” in the ACA, very few — if indeed any — examples are offered.

Ah, the now hoary and hirsute talking point “uncertainty and hiring” comes back for yet another encore.   The “uncertainty” allegation is a one size fits all gob-lob at any legislation or legislative proposal which might cause corporations to THINK about what they’re doing.

We’ve been told that implementing the provisions of the Dodd Frank Act on financial regulation reform creates “uncertainty.”  In this instance there’s something to be said for a bit of uncertainty — no bank should believe that it “certainly” has the latitude to use depositors funds to play around in proprietary trades, or has blanket permission to bet against the interests of its own clients, or has leave to arbitrarily play with interest rate reporting because it wants to make its own books look better.

And for the umpteenth time — small business hiring won’t increase until small businesses (not to be confused with Washington, DC lobby shops and hedge funds) see the demand for their goods and services increase such that their current staffing levels are insufficient to meet customer needs.   The only thing that is Certain is that middle class income and middle class jobs need to advance in order to improve aggregate demand.  This has precious little to do with the desires of the Wall Street Wizards to play cowboy with depositors dollars.

Heller: “The President should work with Congress to find real solutions to healthcare reform so the excessive mandates and taxes in this law do not further add to our national debt or continue to stifle economic growth.”

Now what could be adding to the national debt?

So, if we are really serious about reducing the federal deficit — then we get rid of the Bush Tax Cuts! And, we do something to get more “growth” into the economy.  Hardly the austerity prescription being touted by Senator Heller and his Republican cohorts.

Heller: “This onerous law needs to be repealed and replaced with market-based reforms that will provide greater access, affordability, and economic certainty to our nation,” said Senator Dean Heller.”

Yes, the House will make another symbolic move at “repealing” the Affordable Care Act during the week of July 9th.  Meanwhile, what are “market based reforms?”

Representative Paul Ryan has suggested some “market based” reforms which mean that Medicare recipients will get a “coupon” or voucher toward paying their private health insurance premiums.   This is essentially a government subsidy for health insurance corporations to give them an “incentive” to offer health insurance for the elderly.  Meanwhile back in the real world — the reason we have Medicare in the first place was that insurance corporations do not want to offer plans for elderly people — they get sick, and old, and old and sick.

This might be a good time to remind ourselves that it’s not a “free market” when some corporations are being subsidized by the taxpayers to offer services and products they don’t otherwise want to sell.  For those keeping score, “market based solutions” is GOP-Speak for privatization.

Not to belabor the point much further, but the GOP response to the ACA ruling as evidenced by Senator Heller is simply to offer no solutions to demonstrated problems, and demonstrations about issues of primary interest to the upper 1% of the American income earning public.  It is a tale bedecked with focus group tested buzz words and talking points, which can mean almost anything to their devoted listeners, and almost nothing to anyone seeking solutions to real American problems.

Nevada’s not-so-smart ALEC’s?

Who are the ‘smart-ALECs’ in the Nevada Legislature?  Marc Morial, head of the National Urban League sums up the problem with the ultra-conservative organization which promotes ‘model legislation’ for the consideration of state legislatures:

It is bad enough that since its founding in 1981, ALEC has been the shadow author of numerous pieces of legislation aimed at boosting corporate power and profits, reducing worker rights, weakening environmental protections, and restricting voter rights.  Now, the organization is actively supporting a law which is moving this country back to the lawless days of the Wild West when it was common practice to “Shoot First and Ask Questions Later.”  That is not the kind of America we or our children deserve in the 21st century. [NUL]

What does ALEC want, and who in the Nevada legislature might be willing to introduce and support their legislation?

What’s on the ALEC agenda?

1. Bills to privatize public lands, and promote the interests of exploiters and polluters.   In 1995 ALEC supported the Sagebrush Rebellion Act, drafting model legislation to transfer ownership of unappropriated lands from the federal government to the states.   There is serious doubt that any of the bills introduced in western states, and passed in Utah, will withstand judicial scrutiny, but that doesn’t matter to the exploiters and polluters who want to bypass federal environmental rules.  [RSN] ALEC also sponsored a 1995 resolution encouraging rolling back the Endangered Species Act.

In case the federal government doesn’t get the message by 2013, ALEC has a draft resolution ready for members of state legislatures to introduce severely limiting the designation of national monuments, unless there is unanimous agreement from all parties.

2. Promote the interests of corporations, and corporate profitability.

“ALEC works fervently to promote laws that would shield corporations from legal action and allow them to limit the rights of workers. The group’s model legislation would roll back laws regarding corporate accountability, workers compensation and on the job protections, collective bargaining and organizing rights, prevailing wage and the minimum wage. ALEC is a main proponent of bills that undermine organized labor by stripping public employees of collective bargaining rights and “right to work” laws.They also push “regulatory flexibility” laws that lead to massive deregulation. It is no surprise that the director of ALEC’s Commerce, Insurance and Economic Development Task Force previously worked as a Koch Associate at the Charles G. Koch Charitable Foundation.”  [PFAW]

It’s no secret from whence came all the anti-labor legislation in Michigan, Wisconsin, and Indiana.  Nor is it any dark secret about the source of model prevailing wage, or anti-collective bargaining legislation.  “In 2011, Republican governors and GOP-dominated legislatures introduced more than 500 anti-labor bills, many carbon copies of ALEC model legislation, all of them inspired by the group’s work. These proposals restricted collective bargaining, limited project labor agreements and shredded living wage laws and other labor standards.”  [IAFF] 2013 will, no doubt, not be any different.

There was a bit of leftover legislation, S.B. 41 which would have eliminated collective bargaining for local government employees, which by April 16, 2011 was a dead letter issue.   However, this wasn’t the only anti-union bill introduced in the last legislative session.  S.B. 342 removed all supervisors from bargaining units, and removed recognition from the scope of mandatory bargaining. The bill also made dues deductions optional.  S.B. 342 was sponsored by State Senators Roberson, Cegavske, Brower, Gustavson, Halseth, Kieckhefer, and Settelmeyer.   State Senator Barbara Cegavske (R-8) proudly lists her affiliation with ALEC, since 1997, in her official bio.

There is confirmation in public sources of ALEC membership for Dean Rhoads, Greg Brower, Ben Kieckhefer, and Barbara Cegavske, current members of the Nevada Legislature.  [DB]

Senator Gustavson introduced S.B. 162, which prohibited school districts and teachers from negotiating transfers and reassignments. AB 555 was introduced on behalf of the governor on March 28, 2011, and included among other provisions a statement legislating one year contracts for all public school teachers.  ALEC has model legislation for these topics too.   Someone forgot to note that in Nevada all teachers already have one year contracts?

However, nothing says ‘promotion of corporate interests’ quite like legislation to repeal the minimum wage, and Senator Joe  Hardy (R-12) obligingly introduced S.J.R. 4 in the Nevada legislature to do precisely that.   Not surprisingly, ALEC has a model for this legislation as well.

3.  Bills to restrict voting rights and promote corporate influence.   There has been a deluge of anti-voting rights bills in recent state legislatures, and they are directly related to ALEC activity:

“ALEC is directly tied to the emerging trend among state legislatures to consider voter ID laws. Using false allegations of “voter fraud,” right-wing politicians are pursuing policies that disenfranchise students and other at-risk voters,–including the elderly and the poor–who are unlikely to have drivers’ licenses or other forms of photo ID. By suppressing the vote of such groups, ALEC’s model “Voter ID Act” grants an electoral advantage to Republicans while undermining the right to vote. In addition, ALEC wants to make it easier for corporations to participate in the political process. Their Public Safety and Elections taskforce is co-chaired by Sean Parnell of the Center for Competitive Politics, one of the most vociferous pro-corporate election groups, and promotes model legislation that would devastate campaign finance reform and allow for greater corporate influence in elections.” [PFAW]

Enacting burdensome regulations regarding voter identification and access to the polls has been a hallmark of ALEC model legislation.   Thirty three state legislatures considered such legislation in 2011 alone.  Wisconsin, Alabama, Kansas, South Carolina and Tennessee have passed such bills. [Nation]

Compare this piece of model legislation in regard to voter identification from ALEC to the inclusions of A.B. 327 in the 2011 Nevada Legislature. The legislation was introduced by Assemblyman John Hambrick (R-Dist.2). Assemblyman Hambrick does not list ALEC as one of his affiliations, but his sponsorship of A.B. 327 certainly places him firmly in the category of those doing ALEC’s bidding.  A.B. 327 wasn’t the only piece of legislation in the 76th Session which sought to suppress voting,  Assemblymen Lynn D.  Stewart (R-22) and Melissa Woodbury (R-23) sponsored A.B. 425, which would have required specific forms of voter identification.  Again, while their official bio’s do not reference membership in ALEC, they were more than willing to support ALEC’s voter suppression agenda.

The assault on voting rights didn’t stop with Hambrick, Stewart, and Woodbury, because Assemblyman Ira Hansen (R-32 ) sponsored his own vote identification legislation, A.B. 431.   Assemblyman Cresent Hardy (R-20) placed yet another voter ID bill in the hopper, A.B. 434.  For those keeping score, no less than four members of the 76th Session of the Nevada legislature were ready and more than willing to place their imprimatur on bills to suppress the vote in Nevada elections, as per the ALEC agenda.

4. Bills to restrict the application or implementation of federal statutes in the states and territories.   This is the realm of the 10th Amendment campaign, launched by ALEC in 1995. There is, once more, a handy bit of model legislation from ALEC to be used to draft a “10th Amendment” resolution by a state legislature.  We should not be surprised then that AJR 4, introduced in the 76th Nevada legislative session sounds almost exactly like the ALEC model.   The sponsors of AJR 4 were Assembly representatives Goedhart, Goicoechea, Hansen, Grady, Hambrick, Hammond, Hardy, Kirner, Kite, Livermore, Stewart, Woodbury, and Halseth.

5. Bills to promote the NRA’s campaign to remove restrictions on firearms.   Perhaps the most topical item on ALEC’s agenda is the organization’s promotion of the NRA agenda on guns.   Senator Gustavson’s S.B. 176 would have removed any restrictions on concealed firearms, and section 2 of A.B. 231 would have accomplished the same end. A.B. 231 was sponsored by  Assembly members Goedhart, Hardy, Ellison, Goicoechea, Grady, Hambrick, Hickey, Kirner, Kite, Sherwood, and Stewart, along with Senators  Gustavson, McGinness, and Rhoads.

While not the blanket permission sought in ALEC/NRA “carry on campus” [MMA] model legislation, S.B. 231 would have allowed guns on campuses with approval. At the risk of repetition, the bill was sponsored by Assembly members Goedhart, Hardy, Ellison, Goicoechea, Grady, Hambrick, Hickey, Kirner, Kite, Sherwood, and Stewart.

Even more to the contemporary point, NRS 200.120 was amended in 2011 to incorporate a “stand your ground provision” as sought by ALEC and the NRA.   Assembly Bill 231 (NRS 200.120) is summarized as follows:

“Under existing case law, there is no duty to retreat before using deadly force if the person using deadly force is not the original aggressor and reasonably believes that he or she is about to be killed or seriously injured. (Culverson v. State, 106 Nev. 484 (1990)) This bill provides that under the defense of justifiable homicide there is no duty to retreat if the person using deadly force: (1) is not the original aggressor; (2) has a right to be present at the location where deadly force is used; and (3) is not actively engaged in conduct in furtherance of criminal activity at the time deadly force is used. [NVLeg]

Now, find the names in the list of sponsors of A.B. 231 we’ve seen before: Assemblymen Oceguera, Anderson, Kirkpatrick, Atkinson, Hambrick; Aizley, Benitez-Thompson, Bobzien, Bustamante Adams, Carrillo, Conklin, Daly, Diaz, Dondero Loop, Ellison, Flores, Frierson, Goedhart, Goicoechea, Grady, Hammond, Hansen, Hardy, Hickey, Hogan, Horne, Kirner, Kite, Livermore, McArthur, Munford, Neal, Ohrenschall, Segerblom, Sherwood, Smith, Stewart and Woodbury.”

If past practice is any guide at all, the members of ALEC in the Nevada Legislature in 2013, and those who are not ALEC members but who promote ALEC’s corporate sponsored agenda, will be relying yet again on the “model legislation” offered by those corporations which feel they should be subject to less oversight and regulation, lower taxes, and more influence in our elections.

The health of a representative democracy requires citizen participation.  What ALEC and its allies are offering are auctions instead of elections, and corporatism and financialism instead of free market capitalism.  This perspective is all the more reason for citizens to be vigilant in regard to who is promoting what legislation in our state legislatures — and Nevada is no exception.

The Famous Final Scene: Financialism and The People

Bankers and their conservative apologists don’t seem to understand why The People Don’t Love Them Anymore?  Some of the resulting punditry has the ring of the Famous Final Scene — “Does this mean we’re really breaking up?”  Could be, and if so there are some elements which explain the situation.

“You don’t listen to me any more.”  Mortgage foreclosure activity is rising again after a brief hiatus, and Nevada continues to lead the nation in this unfortunate category.  “Nevada had the country’s highest foreclosure rate last quarter, with one in every 44 homes with a foreclosure filing. While foreclosures in Nevada decreased from the second quarter, default notices jumped more than 15 percent.”  [Reuters]

No, the over-heated Housing Bubble and subsequent financial collapse wasn’t the result of those irresponsible ‘little people’ who took on more mortgage than they could afford.  Blaming the victims, who fell for the mortgage bankers’ siren songs, who believed the mortgage bankers when they were told they qualified for a mortgage, and were often horrified to discover esoteric terms that caused their mortgage payments to skyrocket, isn’t the explanation.

No, blaming the mortgage twins, Fannie Mae and Freddie Mac, isn’t the answer either.  Fannie Mae was privatized in 1968, complete with shareholders and profit/loss statements.  Freddie Mac went public in 1989.  Not that these two institutions covered themselves in glory — by January 2007, “According to a report by the Office of Federal Housing Enterprise Oversight (OFHEO), at the end of 2007 Fannie Mae and Freddie Mac own $267 billion in mortgage-backed securities issued by other firms.” [SPL]

On September 7, 2008 Fannie Mae and Freddie Mac are placed in a conservatorship, “to be managed by the Federal Housing Finance Agency. The estimated cost of the rescue is unknown, but analysts say it potentially could put taxpayers at risk of paying billions of dollars if the state of the U.S. housing market fails to improve. The CEOs of both companies, Daniel Mudd of Fannie Mae and Freddie Mac’s Richard Styon, are relieved of their jobs and expected to receive a combined executive payout package of between $10 million to $19 million.” [SPL]

The “government made me do it” argument doesn’t wash because the Mortgage Twins were behaving — not like a government entity exercising responsible oversight — but more like their non-GSE cousins in the private sector, anxious to get further into the highly profitable securitization game.

Well then, the Community Reinvestment Act requirements “must” have caused the banks to make too many subprime loans?  No.  The facts are otherwise: “50% of subprime loans were made by mortgage service companies not subject [to] comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations.”  [BusinessWeek] And, “Not surprisingly given the higher degree of supervision, loans made under the CRA program were made in a more responsible way than other subprime loans. CRA loans carried lower rates than other subprime loans and were less likely to end up securitized into the mortgage-backed securities that have caused so many losses, according to a recent study by the law firm Traiger & Hinckley.”  [BusinessWeek]

Perhaps now the average American victim of the credit meltdown, whose tax dollars were used to guarantee the solvency of the American bankers, are tired of being scapegoats?  Members of the financial sector, whose avarice engendered the over-heated housing bubble, cry “Irresponsible Borrowers, Mortgage Twins, Community Reinvestment Act” in a manner analogous to the practice of putting one’s fingers in one’s ears and repeating “La, La, La, La I Can’t Hear You.”  {stage directions: “door slams, sound of car leaving driveway}

“Mother said you were shiftless.”  There’s nothing a disreputable person loves more than to remain unsupervised.   Likewise, there is nothing an ethically challenged group loves more than deregulation.   Why else would banks revise their charters to place themselves under the eyes of those government agencies most willing to look the other way?  [DB] [NRP] [TBS] And yet the banking corporations and their supporters continue to prescribe deregulation as the way to protect American taxpayers, account holders, and consumers.

Before Congressional investigators the Wall Street barons proclaimed their patriotism and devotion to American “ethics and values,” back in their corporate offices they reinforced the notion that any “market” was ethical as long as there were two willing partners to the transaction — even if one was being sold a pig in a poke — even if the investment bank was betting against its own deal. [Bloomberg] [NYT]   Brooksley Born, former head of the CFTC tried to warn us about the deregulation of credit default swaps before most people had even heard the term, she was rewarded for her prescience by being replaced, and later labeled a Cassandra. [WaPo] [PBS] {stage directions:  two adversaries sit in tense silence across the room…}

“How can you keep running up these bills?”  Corollary to ” You promised you’d stop…“  If we were thinking that the popularity of credit default swaps might have declined in the wake of the housing bubble collapse, consider their use as European economies struggle.  [Bloomberg] As for the infamous CDO’s — some settlements have been agreed upon, but Morgan Stanley was exonerated from charges of defrauding a government pension fund (Libertas Case) because the offerers, not Morgan Stanley, prepared the statements. [Reuters] {stage directions: A throws pile of paperwork at B}

“You expect everyone else to clean up your messes.”  One such mess is “financialism.”

“Over the last 25 years American capitalism has become financialism, which is primarily transactional, unrestrained greed. Financialism embraces the view that the only purpose of business is to create shareholder value, measured primarily by short-term results. The dominance of short-termism is evidenced by the magnitude of institutional stock “renting” for terms of 12 months or less, the volume of high-speed, high-frequency algorithmic short-term trading, the short average tenures of chief executive officers and the dominance of executive compensation tied solely to short-term results.”  [Forbes]

And, this is a truly large mess, something Adam Smith never contemplated.  Financialism distorts capitalism and creates middle class income stagnation, income disparity, off shoring jobs, diminished manufacturing capability, and equity market volatility.   It is the financial equivalent of being “excused” for leaving dirty clothing, empty pizza boxes, half-empty pop cans, and dirty tableware scattered about because “I’m busy.”  It is to trade short term profitability for long term stability.   If it’s messy, so be it, the “taxpayers” will clean up after us.   {stage directions: clothing, pizza boxes, pop cans hurled against wall to make a pile on the floor}

I’m keeping the house…  little wonder people from all walks of life have decided to “occupy” the symbol of the selectively deaf, irresponsible, intractable, and self centered Financialist Universe, Wall Street.  The old excuses (the government made me do it), the tired call for even less supervision, the interminable trading for the sake of making trades,  and the unwillingness to even consider cleaning up the resulting messes, have pushed Americans about as far as conceivable into an adversarial relationship with what should have been one of their essential financial utilities.  Is it surprising those people are beginning to speak of d-i-v-o-r-c-e?

More reading and recommendations:

On financialism and its effects – “The Business Revolution that’s destroying the American Dream,” Hess, Forbes, 2/24/11.  “Occupy Wall Street: Some Thoughts on an Agenda,” Armistead, Seeking Alpha, 10/17/11.  “Jungle Ethics Financialism vs. Free Market Capitalism, Seeking Alpha, 6/8/09.

Hellerisms: Same Old GOP Privatization Message on Social Security

We turn to appointed Senator Dean Heller (R-NV) for our weekly summary of GOP talking points:

“Every member of Congress knows these programs are unsustainable in their current state…They can be fixed, but the lies have to stop. Nobody’s proposing that we end Medicare or Social Security,” Heller said. “If some in Washington would stop campaigning long enough to do their jobs, we could fix both and ensure their existence for generations to come.”  [LVSun]

Don’t you just love it when a politician says “everyone knows…?”  No, Senator Heller “everyone” does NOT  “know” that Medicare and Social Security are unsustainable.  This may be a statement of the received wisdom of Republicans who want to privatize Social Security and eliminate Medicare as we know it today, but “everyone” isn’t convinced — nor should they be.

Social Insecurity

Let’s begin with the Social Security issue.  The “unsustainability” issue takes its nourishment from the long term and 75 year projections made by the Social Security Trust administrators.  First, we need to recognize that these are projections, and projections are first and foremost nothing more nor less than educated conjecture predicated on a given set of fiscal indicators.  The assumptions may be valid, or the underlying assumptions may be invalid, or the assumptions may be somewhere in the midst — but the conclusions should be read as conjecture based on a set of economic assumptions which may or may not be valid.

Secondly, the Trustees’ Report contains not one, but three projections: (1) low cost, (2) intermediate, and (3) high cost.  [SSA faq] Just to make generalizations a bit more complicated, there are not one, but two Social Security Trust Funds, one for Old Age and Survivor’s Insurance (OASI) and one for Disability Insurance (DI).  These are often combined in report summaries as OASDI.  As of the 2011 Trustees Report, the OASI fund is now deemed healthier than the DI fund.

Third, yes, the funds as currently projected can be enhanced by legislative action.  This is the point at which the Republican and Democratic proposal part company.  The Republican version of “enhancement” is contained in the Ryan Roadmap:

Personal Choice in Retirement Accounts. Beginning in 2012, the proposal allows each worker younger than 55 to shift a portion of his or her Social Security payroll tax payment into a personal retirement account, chosen from a group of investment funds approved by the government (see below). When fully phased in, the personal accounts will average 5.1 percentage points of the current 12.4-percent Social Security payroll tax.

The personal investment component is phased in to allow a smooth transition. Initially, workers are allowed to invest 2 percent of their first $10,000 of annual payroll into personal accounts, and 1 percent of annual payroll above that up to the Social Security earnings limit. The $10,000 level will be indexed for inflation. After 10 years, the amount that workers can invest will be increased to 4 percent up to the inflation-adjusted level, and 2 percent above that. After 10 more years, these amounts will be increased to 6 percent and 3 percent. Eventually, by 2042, workers will be able to invest 8 percent up to the inflation-adjustment level, and 4 percent of payroll above that, for an account averaging 5.1 percent.

The choice of personal retirement accounts is entirely voluntary. Even those under 55 can remain in the current system if they choose. Further, those who choose to enter the personal account system also have an opportunity to leave the system, and those who initially opt out of the system of personal accounts can enter into it later on.

There are numerous ways to say “privatization” and the Ryan Plan is definitely one of them.  The first clue is the word “personal” and the second clue is “choice.”  Put these two words together and what we have is a plan to privatize Social Security in the form of optional private retirement accounts.   The Congressional Budget Office (pdf) summarized the effects:

After two decades, the effect of individual accounts on benefits would become significant. CBO assumed that individual accounts would be invested in a mix of stocks and corporate bonds and that the value of an account at a person’s retirement would be paid out as a life annuity.   Under the Roadmap, a federal guarantee would ensure a rate of return of at least the rate of inflation. With such individual accounts, total annual benefits would, on average, exceed those projected under the alternative fiscal scenario, but those payouts would also be more uncertain, despite the guarantee, because returns on stocks and corporate bonds are risky.

This is a lovely case of having one’s cake and attempting to eat it at the same time.  The private retirement accounts would be invested on Wall Street, and be paid out as a “life annuity…at a rate of return of at least the rate of inflation.”  If the rate of return happens to fall (see S&P, or DJIA volatility) then the federal government would make up the difference?   And when might this happen?  According to the CBO:

Voluntary individual accounts would probably also increase the economic cost to the government relative to a plan similar to the Roadmap but without such accounts. People would tend to opt for individual accounts when it was in their economic interest to do so, which would be when the value of taxes redirected to individual accounts exceeded the present value of forgone Social Security benefits. The guarantee of a rate of return on contributions at least equal to the rate of inflation would also involve a cost to the government. Although the probability of the returns on equities and bonds falling short of inflation over a period as long as a worker’s career is small, such an outcome would be more likely to occur during periods of economic stress, when resources were scarce and, hence, the guarantee most valuable.

It is not “prevarication” to contend that the Ryan Plan does, in fact, offer a form of privatization of the Social Security program.  One may seek to sugar-coat this pill with notions like the ‘privatization’ is ‘optional,’ and that the Ryan Plan doesn’t affect those who are already at or near retirement age.  However, the basic fact remains that what the Ryan Plan does is offer a private retirement account scheme.  In order to make this scheme palatable to the general public a little paving needs to be accomplished.

First, younger workers must be convinced that the Social Security system is now or soon will be bankrupt — and there has been no small amount of GOP propaganda to this effect; and, older workers must be convinced that there has been a raid on the Social Security Trust Funds such that their benefits are in peril.  The latter has also been a veritable fountain of GOP and radical right wing talking points.  Both these contentions are patently false.

There are those who will gnash teeth and wail, “But…but…but…look at the Trust Fund Reports,” and to those we could say “yes, there is a deficit in the DI trust fund” and there are ways to fix the issues without resorting to privatizing the program. To wit:

OASI is fully funded through 2039, according to the Congressional Budget Office (2037 according to the Social Security Trustees); DI is fully funded through 2016, according to CBO (2017 according to the Social Security Trustees). Combined, both programs are fully funded through 2037, according to CBO, and through 2035, according to the Social Security Trustees.

To avoid the near-term shortfall in the DI program, Congress can simply pass legislation to reallocate funds between the OASI and DI programs in order to extend the full funding of the DI program for two more decades, consistent with the program’s overall solvency that is projected for the next 25 years or so. Such reallocations occurred most recently in 1994, when funds were reallocated from OASI to DI, and in 1982 when funds were reallocated from DI to OASI.  [SSocSec.org]

There is another fix that isn’t so redolent of accounting treatments, the earnings cap for Social Security was raised every year from 2000 to 2009 in a range from 1.0% to 5.6%, increasing the cap from $76,200 in 2000 to $106,800 in 2009.  The cap has not been raised in the last two years — and if solvency is truly the crisis du jour, then why not raise the cap now as was done throughout the Bush Administration?

Yes, Senator Heller, there are ways to “fix” the Social Security system, and they don’t involve privatizing the system with “personal choice private retirement accounts”  — one of the prime items on the Wall Street Wish List.

GOP Hypnopaedia: The Supply Side Hoax Redux

It’s from a novel but it works.  “One hundred repetitions three nights a week for four years thought Bernard Marx, who was specialist on hypnopædia. Sixty-two thousand four hundred repetitions make one truth.”   Multiply Huxley’s formula by countless politicians endlessly reciting “low taxes create economic growth,” in innumerable elections for offices at every level for the last 30 years, supported in turn by a legion of corporately sponsored think tanks cranking out selective  “documentation” , and we have the Received Wisdom of 21st century American politics: Low taxes cure anything that might ail us.

Receiving The Wisdom

There’s only one problem with this — it isn’t true.   And, perpetual incantations on the hustings may make the notion popular, but they can’t make the statement true.  Supporting low taxation means that there must be an underlying plausible sounding premise which underpins those incantations, and the Think Tanks provided a convenient structure — the Supply Side Hoax.

The 1980 Republican Platform is a paean to the Supply Side Hoax in which lower taxes will cure economic doldrums, empower families, save the elderly, improve the lot of veterans, save minorities, and protect the handicapped, ad infinitum. In the last three decades the repetitions have become more numerous, more intense, and more professionally packaged, but they have not become more accurate.

Hearing The Words

The refutation of the Supply Side Hoax and corollary mythology concerning the efficacy of tax cuts is well traveled territory, and the Center for Budget and Policy Priorities has an excellent summation of the myths and realities.  No, tax cuts do not pay for themselves.  Yes, tax cuts have increased our national deficit.  The economy has not become stronger as a result of the tax cuts.  Capital gains and dividend tax cuts did not turn the economy around in 2003.  Tax cuts have not made our system more equitable, nor have they eased any burden on small businesses.  Numbers support the aforementioned statements; ideology supports the GOP mythology.

We can even take a step further  back and look at one of the earliest claims for the effectiveness of Reaganomics, the Q4 economic expansion of 1982.  Yes, the economy expanded during that period, but wait — the following is a more accurate rendition of what happened during the period:

“1) The overall rate of growth was very good. A 3.85 percent median quarterly rate of GDP growth is a very good number. 2) But the economy was grown on credit. And the rate of growth in total government debt was very high. 3) The high growth rate in total government debt outstanding was caused by a continuing increase in government spending at a rate higher than government revenues. 4) After adjusting for inflation, the growth in receipts in personal income taxes isn’t that impressive.”  [HS, HuffPo/Alternet, 9/10/07]

For those who don’t find the words conducive to belief, the St. Louis Federal Reserve has graphs, this one illustrates the upward trajectory of federal outlays during periods in which those tax cuts were supposed to be paying for themselves, the economy was “expanding,” and the Supply Side Hoax was supposed to be explaining why:

The difference between the perception and the reality is a chasm.  Tax fanatics took credit for economic growth more properly, and obviously, attributable to government spending and the easing of credit.  This turns the GOP incantation “Private Spending Good, Public Spending Bad” directly on its head.

Asking Better Questions

If we want better answers to our economic issues then we need to learn to ask better questions.   For example, when a politician recites, “Lower taxes create jobs,” ASK the speaker to cite data in support of that claim.   When faced with elaborate and colorful charts indicating that employment levels go up during periods of low taxation — ASK the speaker to acknowledge other factors (government spending, etc.) which might have relevance to the overall picture.  While hearing a politician say, “Lower taxes create economic growth,” ASK whether this growth occurred during a period of low interest rates? Of personal income and wage growth? Of a small surge in technological innovation?

It does not redound to our credit that we have allowed the Received Wisdom to go unchallenged.  Nor does it benefit us to substitute political ideology for economic literacy.  When we learn to ask better questions we will get better answers to all manner of economic problems.  However, we’ll not do that if we continue to tolerate the incantation of hypnopædic repetitions to create our own “truth” but which only serve to obscure our own reality.

See also: The Great GOP Unicorn Chase (DB 4/7/11);  Krugman, “Design for Confusion,” New York Times (8/5/05);  Leonard, “The Final Nail in the Supply Side Coffin,” Salon (7/6/11);  New York Times, “Author Indicts New Economy,” (12/21/00); Frank, “Lessons Unlearned,” Wall Street Journal, (8/11/10); H. Stewart, “The Supply Side Fraud,” AlterNet, (9/10/07); CBPP “Tax Cut Myths and Realities,” (5/09/08); L. Mishel, “Tax Cuts Won’t Create Jobs,” EPI (7/10/09); Fieldhouse, “Bush Tax Cuts 10 Years Later” EPI (6/11/11); Linden & Ettlinger, “Bush Tax Cuts…Disaster that keeps on Giving,” CAP (6/07/10).

Round Up and Recommended Reading: GOP Social Insecurity

ICYMI:  Nye Gateway has a ‘must read’ post on the Death of the Middle Class — literally.   Blue Lyon posted a lovely excoriation of the dim-wits who feel they are entitled to something for nothing…or would that be Everything They Want for Nothing? Nevada State Employee Focus reminds us : The State Employee Tax Lives On.  The Nevada Progressive looks at the Assembled Wisdom of the 76th, The Good, the Bad, and the Ugly. The Sin City Siren notes some positive steps in the legislative march.  Is the Ballot Box The Last Hope? [Nevada View] And what of the Screw Lake Tahoe Bill and the Dirty Dozen? [Nevada Spectator]

GOP Social Insecurity: Now that the Republicans in the House of Representatives have decided to give the Bush Social Security Privatization Plan another lap around the track, this would be a good time to review a post from RockBlotter about “Take My Social Security.”  For additional information see “GOP leadership calls for Social Security Privatization in The Gavel.  And, what would a week be like without yet another rendition of the GOP Scare-Care traveling e-mail and health insurance corporation support show, sliced and diced for you at Nevada Rural Democrats.  Not to be missed: The Congressman Joe Heck (R-NV3) who likens Social Security to a pyramid scheme, and the anointed Senator Dean Heller (R-NV) who is being very very quiet on the subject (with video at NV Democrats).