Bait and Switch Political Economy

Free CheeseSo, why are we really stuck in the Silli-quester?  The one option that was supposed to be so distinctly unpleasant and irrational that both major political parties would eschew any connection to it and thereby be inclined to adopt compromise measures?  Bait and Switch.

Why are the punditocracy chattering on about how both sides should exercise some political rationality (if that isn’t an oxymoron) and move to the discussion about serious economic needs, such as job creation (without all the inanity of trickle down hoax-isms) and debt stabilization?  Bait and Switch. Why Bait and Switch?

Beneath all the chatter are some very different world views, political ideologies, and priorities.  In an ideal world there would be less reason to discuss who is to blame for the economic mess in which we find ourselves, and more reason to sit down and talk about how we (1) encourage economic growth and (2) stabilize our indebtedness.  This obviously isn’t a perfect world.

It’s going to take some good old fashioned rational discussion in a FACT based universe to get out of this muddle.  The facts are unpleasant on both sides of the polarized political flanks, but they do need to be the main topics of conversation before we can get out of the Bait and Switch model.

The Bait

This is all about stabilizing the national debt.  Yes, and no.  Those who are truly of sound mind and reasonable thinking recognize two things: (a) We have a situation in which health care costs are driving up federal expenditures just as they are taking a larger chuck out of family finances; and (b) our tax laws need some reform — real reform — not merely another excuse to reduce taxes on the economic elite who are more inclined to indulge in speculation than in the less profitable but more productive investment in industrial and commercial development.   The third fact of life is that we engaged in not one, but two wars, an activity designed to suck the sustenance out of any consumer based economy.

The Switch

This is all about the national debt.  Is it? Or, is it cover for indulging in the enaction of Austerity economics which calls for the reduction of government spending without increasing government revenue?  Consider the vehement opposition of the Tea Party caucus of the House GOP to any suggestion that we need to enhance revenue to reduce and stabilize the national indebtedness.  If this group were truly speaking to the unsustainability of our current debt trajectory then revenue increases would be a logical portion of the debate.  However, it’s not.  The debt level becomes the bait, and the unwillingness to even consider revenue increases signals that their real object is what it has always been — an adherence to the mythology that government (even a government trying to serve the needs of 330 million people) is Too Big and needs to be restricted.  As usual, Robert Reich has summarized the problem succinctly:

“Tea Party Republicans are crowing about the “sequestration” cuts beginning today (Friday). “This will be the first significant tea party victory in that we got what we set out to do in changing Washington,” says Rep. Tim Huelskamp (Kan.), a Tea Partier who was first elected in 2010.

Sequestration is only the start. What they set out to do was not simply change Washington but eviscerate the U.S. government — “drown it in the bathtub,” in the words of their guru Grover Norquist – slashing Social Security and Medicare, ending worker protections we’ve had since the 1930s, eroding civil rights and voting rights, terminating programs that have helped the poor for generations, and making it impossible for the government to invest in our future.”

These are the people who took President Ronald Reagan’s message to heart, “The government is the problem,” and then took the philosophy further than that former President ever considered.  The radical right wing of the Republican Party has created an environment in which even the Speaker of the House can’t get legislation to the floor, or must break his own “Hastert Rule” to get anything passed.  There may be a core of rational Republican members of Congress who might give thought to compromising and indulge in some serious discussions about government spending, taxation, and infrastructure investment — BUT each one of them sits beneath the Damocletian Sword of a primary challenge from some candidate even more conservative than themselves.

Real Problems Should Have Realistic Solutions

While it would be nice to assume that social safety net programs such as Medicare and Medicaid are sustainable in the present context, that really isn’t a reasonable conclusion.  Recognition of the problems associated with maintaining an acceptable level of service to Medicare beneficiaries is essential.

The solution presented by Rep. Paul Ryan to privatize the Medicare system and transform it into a coupon-care or voucher program doesn’t solve the problems any more than calling for the program to continue without further improvements.   The real problem is the rising cost of health care delivery, and until we can address how to reduce the costs increases the programs for health care assistance will be financially unsustainable.

Those who have not yet read Steven Brill’s excellent piece in Time magazine should do so immediately.   Here’s an essential part of the reporting:

“When you look behind the bills that Sean Recchi and other patients receive, you see nothing rational — no rhyme or reason — about the costs they faced in a marketplace they enter through no choice of their own. The only constant is the sticker shock for the patients who are asked to pay.  Yet those who work in the health care industry and those who argue over health care policy seem inured to the shock. When we debate health care policy, we seem to jump right to the issue of who should pay the bills, blowing past what should be the first question: Why exactly are the bills so high?”

Nailed It!  And Brill goes on to explain or describe the basic issues involved, such as the inflated prices for common products, the perverse economics of medical technology, bills to match the catastrophic nature of the illness or injury, and the handcuffs on Medicare.

Tea Party Caucus radicals would have us believe there is no middle ground between transforming the Medicare program into a privatized voucher system and turning Medicaid into a parsimoniously funded block grant program and Socialized Medicine.  This is not the case.  It’s certainly not the case when we examine what happens in the health care market, when “insurance isn’t insurance” and chargemasters determine “opening bids” for costs.  Health care cost containment is the essential issue — we should be asking, as Brill suggests, not who should pay, but how much should be paid — by anyone, public or personal.

The Affordable Care Act has some features which will reduce the costs of medical services and treatment, but it is not the answer to the dilemma of how to fix a “broken market.”  Ideological squabbling over Repeal or Not To Repeal is a waste of time, and of time which would be better spent trying to solve the Gordian Knot of health care cost containment.

There are two things, often suggested, and in the past often done, which would alleviate some of the problems associated with Medicare and Medicaid funding. First, we could allow the Department of Health and Human Services to negotiate prices for prescription medication. Secondly, we could get serious about regulating and rationalizing the pricing structures of hospital and medical services.

The inclusion of Social Security “reform” in the Silli-quester debate is informative,  since the program is self funding and doesn’t add to the national level of indebtedness, the only reason for incorporating it into the “entitlement” discussion is to cut it — as radical right wing adversaries have wanted to do since it was enacted during the Depression.  We could, for example increase the liability cap above the current $113,700 in income for the Social Security program. There’s a boatload of difference in the financial resources of a family with an annual income of $1,113,700 and a family with annual resources of $113,700.  Surely those in the upper 0.1% of the income pyramid could afford to pay in a bit more?

The use of the Chained CPI isn’t a popular suggestion, but the chains may not be shackles.

“While no one knows what a full elderly CPI will show, we do know that switching the COLA to a chained CPI will reduce lifetime Social Security benefits by an average of about 3 percent. This doesn’t raise a huge amount of money, but it would be a big hit to seniors, 70 percent of whom rely on Social Security for more than half of their income.” [CEPR]

The problem, of course, is that elderly people don’t purchase items that show up in the inflation calculations (cars, electronics, etc.) as often as younger people; but, they do spend on housing and health care. (See health care cost containment above).   There is nothing essentially wrong with discussing the Chained CPI if it can be done reasonably.  For example, could the index be adjusted to account for the variance in inflation associated with the consumption patterns of elderly individuals?  Or, if we can achieve some kind of stable economic growth would the reductions in benefits associated with the Chained CPI be mitigated?  Bellowing, “Social Security is a Ponzi Scheme,” or “There won’t be anything left for Junior,” isn’t the way to start a discussion about these details any more than the absolute “Don’t Touch Social Security”  in any way, shape or form is on the other hand.   Note that both the Medicare and the Social Security inflation adjustment issues are related to the bug-bear of health care cost containment?

It’s not just our population that’s aging. So are our bridges, highways, parks, and other public facilities.  We have aging public building that could lower their utility costs with upgrading, and we have aging public structures which should be replaced.   And, then there are schools:

About one-fourth (28 percent) of all public schools were built before 1950, and 45 percent of all public schools were built between 1950 and 1969 (table 1).Seventeen percent of public schools were built between 1970 and 1984, and 10 percent were built after 1985. The increase in the construction of schools between 1950 and 1969 corresponds to the years during which the Baby Boom generation was going to school. [NCES]

Not to put too fine a point on it, but after 60 years most school buildings need so much renovation that they aren’t functional and most are abandoned.

Since we probably can’t build everything at once, how about focusing on roads and bridges?  Various suggestions have been made concerning upgrading American infrastructure, and if we want to have a serious discussion about this topic we might begin with the obvious — crumbling roads and bridges.  Why not allow the U.S. Treasury to issue some long term bonds (30 year) expressly for the purpose of addressing transportation infrastructure needs?  This could be a win-win proposition.  The bondholders have a safe haven investment which is interest earning, the public gets better roads and bridges, and if we must have a “pay for” element we could consider increasing fees or use taxes by a minimal amount, again expressly for the purpose of paying off the bondholders.

These kinds of suggestions deserve more attention than they are getting, but they will not get serious consideration until ideologues stop screeching “the government can’t create jobs,” or “we can’t increase taxes any taxes any time,” as the bridge slowly crumbles beneath us.   The bond issuance idea deserves a serious moment — the public assets values increase, the bonds earn interest for the investors, and everyone’s safer.   Little wonder then that the AFL-CIO and the U.S. Chamber of Commerce are both supportive of infrastructure investment.   Short term, the construction sector of the economy gets a boost; long term the investors and the public benefit from the proposal.

Taxing Issues

We do need tax reform.  What we don’t need is one more scheme to shift the burden of financing government from the economic elites to working men and women in America.  Yes, that would be the old Flat Tax canard.   In case Speaker of the House Rep. John Boehner would like to find the President’s plan for revenue and budget stability it’s located in plain sight right here.  The proposal includes one tax reform that should be given some attention.

The President proposes that itemized deductions be limited to 28% for wealthy individuals.   What should be on the table in addition to this suggestion is the variance in the way we tax earnings.  As former FDIC Chr. Sheila Bair has noted, “Why does a hedge fund manager pay lower tax rates than a shoe store manager?”  Good question. Additionally, no one has yet put forth a credible argument (complete with some hard data) to sustain the idea that the investors are really “job creators,” but factory and office  managers definitely are those making staffing and hiring decisions.   We might also give some time to the issue of allowing corporations to indefinitely defer taxes on profits made overseas.

Republicans in the 2012 campaign season often spoke of closing loopholes, however vaguely those were described.  Let’s get specific.  Why are there loopholes for corporate jets? For yachts?  For highly profitable oil corporations?   Both sides of the aisle might want to talk about the possibility that if a sufficient number of these loopholes were closed then perhaps the overall rates could be reduced?

In short, if we are truly looking toward stabilizing our national debt, as opposed to merely trying to drown our government in a bath tub,  there are rational ways to do it — but in order to accomplish that we need to have some rational discussions about the route we choose.  Bait and Switch is never a good starting point, but abatement in the hyperbole and switching to a more reasonable level of civic discourse would be an excellent place to begin.

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