Economist's View

Paul Krugman: Paranoia Strikes Deep

If the economic crisis allows Republicans to gain enough ground in the midterm elections to gridlock government, watch out:

Paranoia Strikes Deep, by Paul Krugman, Commentary, NY Times: Last Thursday there was a rally outside the U.S. Capitol to protest pending health care legislation, featuring the kinds of things we’ve grown accustomed to, including large signs showing piles of bodies at Dachau with the caption “National Socialist Healthcare.” It was grotesque — and it was also ominous. For what we may be seeing is America starting to be Californiafied.

The key thing to understand about that rally is that it wasn’t a fringe event. It was sponsored by the House Republican leadership — in fact, it was officially billed as a G.O.P. press conference. Senior lawmakers were in attendance, and apparently had no problem with the tone of the proceedings.

True, Eric Cantor, the second-ranking House Republican, offered some mild criticism after the fact. But the operative word is “mild.” The signs were “inappropriate,” said his spokesman, and the use of Hitler comparisons by such people as Rush Limbaugh, said Mr. Cantor, “conjures up images that frankly are not, I think, very helpful.”

What all this shows is that the G.O.P. has been taken over by the people it used to exploit. … Conservatives had long believed that history was on their side, so the G.O.P. establishment could, in effect, urge hard-right activists to wait just a little longer: once the party consolidated its hold on power, they’d get what they wanted. After the Democratic sweep, however, extremists could no longer be fobbed off with promises of future glory.

Furthermore, the loss of both Congress and the White House left a power vacuum in a party accustomed to top-down management. At this point Newt Gingrich is what passes for a sober, reasonable elder statesman of the G.O.P. And he has no authority: Republican voters ignored his call to support a relatively moderate, electable candidate in New York’s special Congressional election.

Real power in the party rests, instead, with the likes of Rush Limbaugh, Glenn Beck and Sarah Palin (who at this point is more a media figure than a conventional politician). Because these people aren’t interested in actually governing, they feed the base’s frenzy instead of trying to curb or channel it. So all the old restraints are gone.

In the short run, this may help Democrats, as it did in that New York race. But maybe not: elections aren’t necessarily won by the candidate with the most rational argument. They’re often determined, instead, by events and economic conditions.

In fact, the party of Limbaugh and Beck could well make major gains in the midterm elections. The Obama administration’s job-creation efforts have fallen short, so that unemployment is likely to stay disastrously high through next year and beyond. The banker-friendly bailout of Wall Street has angered voters, and might even let Republicans claim the mantle of economic populism. Conservatives may not have better ideas, but voters might support them out of sheer frustration.

And if Tea Party Republicans do win big next year, what has already happened in California could happen at the national level. In California, the G.O.P. has essentially shrunk down to a rump party with no interest in actually governing — but that rump remains big enough to prevent anyone else from dealing with the state’s fiscal crisis. If this happens to America as a whole, as it all too easily could, the country could become effectively ungovernable in the midst of an ongoing economic disaster.

The point is that the takeover of the Republican Party by the irrational right is no laughing matter. Something unprecedented is happening here — and it’s very bad for America.

Paul Krugman: Obama Faces His Anzio

The failure to give the economy the fiscal stimulus it needs may be costly Democrats:

Obama Faces His Anzio, by Paul Krugman, Commentary, NY Times: Remember those Republican boasts that they would turn health care into President Obama’s Waterloo? Well, exit polls suggest that to the extent that health care was an issue in Tuesday’s elections, it worked in Democrats’ favor. But while health care won’t be Mr. Obama’s Waterloo, economic policy is starting to look like his Anzio.

True, the elections weren’t a referendum on Mr. Obama. Most voters focused on local issues... Yet there was a national element to the election. Voters ... are in a bad mood, largely because of the still-grim economic situation. And when voters are feeling bad, they turn on whomever currently holds office. ...

This bodes ill for the Democrats in the midterm elections next year ... because all indications are that ... unemployment will still be painfully high. And Republicans may well benefit, despite having become the party of no ideas.

Which brings me to the Anzio analogy.

The World War II battle of Anzio was a classic example of the perils of being too cautious. Allied forces landed far behind enemy lines, catching their opponents by surprise. Instead of following up on this advantage, however, the American commander hunkered down in his beachhead — and soon found himself penned in by German forces on the surrounding hills, suffering heavy casualties.

The parallel with current economic policy runs as follows: early this year, President Obama came into office with a strong mandate and proclaimed the need to take bold action on the economy. His actual actions, however, were cautious... They were enough to pull the economy back from the brink, but not enough to bring unemployment down.

Thus the stimulus bill fell far short of what many economists — including some in the administration itself — considered appropriate. ... Meanwhile, the administration balked at proposals to put large amounts of additional capital into banks, which would probably have required temporary nationalization of the weakest institutions. ...

Administration officials would presumably argue that they were constrained by political realities... But they never tested that assumption, and they also never gave any public indication that they were doing less than they wanted. The official line was that policy was just right, making it hard to explain now why more is needed.

And more is needed. Yes, the economy grew fairly fast in the third quarter — but not fast enough to make significant progress on jobs. And there’s little reason to expect things to look better going forward. The stimulus has already had its maximum effect on growth. ... Many economists predict that the economy’s growth, such as it is, will fade out over the course of next year.

The problem is that it’s not clear what Mr. Obama can do about this prospect. Conventional wisdom in Washington seems to have congealed around the view that budget deficits preclude any further fiscal stimulus — a view that’s all wrong on the economics, but that doesn’t seem to matter. Meanwhile, the Democratic base, so energized last year, has lost much of its passion, at least partly because the administration’s soft-touch approach to Wall Street has seemed to many like a betrayal of their ideals.

The president, then, having failed to exploit his early opportunities, is pinned down in his too-small beachhead.

If the Democrats lose badly in the midterms, the talking heads will say that Mr. Obama tried to do too much, this is a center-right nation, and so on. But the truth is that Mr. Obama put his agenda at risk by doing too little. The fateful decision, early this year, to go for economic half-measures may haunt Democrats for years to come.

Paul Krugman: The Defining Moment

Centrists have a choice to make:

The Defining Moment, by Paul Krugman, Commentary, NY Times: O.K., folks, this is it. It’s the defining moment for health care reform. ...[L]egislation ... will almost surely pass. It’s not a perfect bill, by a long shot, but it’s a much stronger bill than almost anyone expected... And it would lead to near-universal coverage.

As a result,... politicians, people in the news media,... whoever is in a position to influence the final stage of this legislative marathon — now has to make a choice. The seemingly impossible dream of fundamental health reform is just a few steps away..., and each player has to decide whether ... to help it across the finish line or stand in its way.

For conservatives, of course, it’s an easy decision: They don’t want Americans to have universal coverage, and they don’t want President Obama to succeed.

For progressives, it’s a slightly more difficult decision: They want universal care, and they want the president to succeed — but the proposed legislation falls far short of their ideal. There are still some reform advocates who won’t accept anything short of ... Medicare for all... And even those who have reconciled themselves to the political realities are disappointed that the bill doesn’t include a “strong” public option, with payment rates linked to those set by Medicare.

But the bill does include a “medium-strength” public option, in which the public plan would negotiate payment rates... It also includes more generous subsidies than expected, making it easier for lower-income families to afford coverage. And according to Congressional Budget Office estimates,... 96 percent of legal residents too young to receive Medicare ... would get health insurance.

So should progressives get behind this plan? Yes. And they probably will. The people who really have to make up their minds, then, are ... the self-proclaimed centrists.

The odd thing about this group is that while its members are clearly uncomfortable with the idea of passing health care reform, they’re having a hard time explaining exactly what their problem is. Or to be more precise and less polite, they have been attacking proposed legislation for doing things it doesn’t and for not doing things it does.

Thus, Senator Joseph Lieberman ... says, “I want to be able to vote for a health bill, but my top concern is the deficit.” That would be a serious objection to the proposals ... if they would, in fact, increase the deficit. But they wouldn’t, at least according to the Congressional Budget Office...

Or consider the remarkable exchange that took place this week between Peter Orszag, the White House budget director, and Fred Hiatt, The Washington Post’s opinion editor. Mr. Hiatt had criticized Congress for not taking what he considers the necessary steps to control health-care costs — namely, taxing high-cost insurance plans and establishing an independent Medicare commission. ... Mr. Orszag pointed out, not too gently, that the Senate Finance Committee’s bill actually includes both of the allegedly missing measures.

I won’t try to psychoanalyze the “naysayers”... I’d just urge them to take a good hard look in the mirror. If they really want to align themselves with the hard-line conservatives, if they just want to kill health reform, so be it. But they shouldn’t hide behind claims that they really, truly would support health care reform if only it were better designed.

For this is the moment of truth. The political environment is as favorable for reform as it’s likely to get. The legislation on the table isn’t perfect, but it’s as good as anyone could reasonably have expected. History is about to be made — and everyone has to decide which side they’re on.

"A Clunker of a Climate Policy"

Jeff Sachs says we need to be sure that climate control legislation is not captured by powerful special interest groups:

A Clunker of a Climate Policy, by Jeffrey D. Sachs, Commentary, Scientific American: The Cash for Clunkers program offers a cautionary tale for the future of climate change control. ... The broad principle of climate change mitigation is to reduce greenhouse gas emissions ... to target levels at the minimum net cost to society. There are many ways to reduce emissions: drive more efficient or electrically powered vehicles; produce electricity with renewable energy sources; capture CO₂ from power plants and store it geologically; restart the nuclear power sector; weatherproof homes... The list is long, with different time horizons, costs and uncertainties.

Clearly, not every method of reducing emissions makes equal sense. ...McKinsey & Company has recently published estimates of the abatement costs of various technologies. Highly efficient lighting, appliances and vehicles, along with better insulation and other technologies, can save more in energy costs during their lifetime than the upfront capital for installing them: they are better than free to society. Other options—notably, renewable energy sources, forest conservation programs and carbon capture and storage—tend to come in below $60 per ton of avoided CO₂ emissions.

Some carbon-reduction ideas are so expensive they should play no part in the policy mix. Yet because lobbyists overrun our legislative processes,... lots of terrible ideas will no doubt be advocated.

Let’s make a rough calculation of how much mitigation per dollar the Cash for Clunkers program really achieved. ...[calculations]... The net annual cost of the CO₂ reduction is therefore ... $141 per ton of CO₂. ... This crude calculation is subject to many refinements but shows that Cash for Clunkers represented a very high cost per ton of CO₂ avoided. Countless ways to reduce CO₂ emissions are less expensive than smashing up autos five years before their natural demise.

We will blunder badly and repeatedly in climate change control unless we put some transparent control systems in place. We should rely heavily on price signals rather than one-by-one subsidized programs, except for the subsidies needed to bring new technologies such as electric vehicles to the commercial phase. An economy-wide tax on each ton of CO₂ emissions, programmed to rise gradually over time at an appropriate social discount rate, would induce the marketplace to take actions that are less expensive per ton than the tax and to leave behind measures such as Cash for Clunkers or corn to ethanol. A carbon tax would be far more effective in this regard than the cumbersome cap-and-trade system proposed by the House of Representatives.

We’ll need to spend trillions of dollars over time to save the planet from climate change. All the more reason not to let lobbyists make a financial game out of this deadly serious effort.

"Pro-Market Populism"

Luigi Zingales is worried that populist anger might fall into the hands of evil Democrats rather than Republicans who would, of course, use this strong populist force for good:

Pro-Market Populism Is GOP's Out, by Luigi Zingales, Commentary, investors.com: ...[T]he financial crisis has created significant discontent. In a survey taken last December, 60% of Americans declared themselves "angry" or "very angry" about the economic situation.

If Republicans ignore this popular anger, as the party establishment did last autumn, they leave a powerful and potentially disruptive force in the hands of Democrats. The Democrats could channel popular anger into protectionism, 90% tax rates and onerous new market constraints.

In Republican hands, populism could become a strong force for positive change.

And Republicans would do this by adopting Democratic ideas:

The Republican Party has to move from a pro-business strategy that defends the interests of existing companies to a pro- market strategy that fosters open competition and freedom of entry.

While the two agendas sometimes coincide, they are often at odds. Established firms are threatened by competition and frequently use their political muscle to restrict new entries into their industry, strengthening their positions but putting their customers at a disadvantage.

Reducing market power through regulation and is something Democrats have long advocated, but Republicans have argued that the market takes care of this itself, there's no need for government to intervene. So how would Republicans solve the problem in, say, the financial industry?

A pro-market strategy aims to encourage the best conditions for doing business, for everyone. Large banks benefit from trading derivatives (such as credit default swaps) over the counter, rather than in an organized exchange. ... For this reason, they oppose moving such trades to organized exchanges, where transactions would be conducted with greater transparency, liquidity and collateralization — and so with greater financial stability. This is where a pro-market party needs the courage to take on the financial industry on behalf of everyone else.

Again, that sounds like what Democrats have been saying, that these markets need to be regulated.

What else is involved in this pro-market strategy that will save the Republican party?

A pro-market strategy rejects subsidies because they're a waste of taxpayers' money and because they prop up inefficient firms, delaying the entry of new and more efficient competitors.

And a pro-market approach holds companies financially accountable for their mistakes — an essential policy if free markets are to produce sound decisions.

A pro-market party will fight tirelessly against letting firms become so big that they cannot be allowed to fail, since such firms may take risks that ordinary companies would never dream of.

I can imagine a few people on the left supporting some types of subsidies, but generally I don't think you'll get much disagreement here either (e.g. see Sachs on subsidies in the post above this one). The accountability thing sounds like a jab at government intervention to save the bank (as does the first point), but take a look at the latest proposal from Democrats that attempts to put the cost of bailouts on the companies themselves while still protecting the economy (as opposed to just letting it melt down). But go on...

A pro-market party should favor a robust safety net — for people, not companies. Of course, this safety net should be run on market principles as much as possible. Unemployment insurance should retain incentives for people to look for work, and the health-insurance industry should be opened up to competition. But defenders of markets cannot ignore the importance of providing such security for citizens.

The details would differ a bit, e.g. the health insurance competition part certainly differs from a Medicare for all structure many Democrats endorse (but not all), but the general idea of a "robust safety net" for people seems consistent with Democratic ideas, less so with Republican principles.

Besides robust safety nests, what else is on the long-time concern of Republican's list?

They also cannot ignore the nation's growing income inequality and the widespread loss of confidence that the future will be better than the past. The knee-jerk Democratic reaction is to give these poorer citizens entitlements disguised as rights.

The Republican response should focus on providing opportunities. Parents should have access to good schools for their kids, regardless of their financial means or where they live. The best way to deliver on that promise is through a voucher system.

Entitlements disguised as rights? Such as?  The general idea that some kids are disadvantaged by the education they receive has been a mainstay within the Democratic party for a long time, and quite a few Democrats endorse vouchers as part of the solution (even breaking up teacher's unions in some cases).

And concern over inequality? From Republicans? Generally Republicans argue that inequality isn't really increasing or as bad as you think (the attack the data when you don't like the answer approach), or that it's necessary to fuel the engine of capitalism.

What's next on the list of Democratic ideas disguised as Republican concerns?

Students should have better access to loans to finance their education because everyone gains from a better-educated work force. The unemployed should have access to retraining, which can also be designed through a voucher system.

Student loans, help with finding new employment? Yet again, strong Democratic ideas. The only thing new is to toss in a voucher system, but that's a debate about how best to reach the goal, not what the goal is (and again, vouchers aren't automatically rejected by all Democrats). I suppose you'll want to adopt health care as a Republican idea as well?

Health care should be available in the marketplace. The current system, in which only employers get a tax deduction for health insurance, reduces labor mobility and increases the cost of becoming unemployed.

What is the goal here? If it's to make health care affordable and available to everyone, simple saying it ought to be "in the marketplace" is far from enough. The incompleteness of the proposal makes this hard to evaluate (but given the proposals so far, you have to think the work "vouchers" would be involved in the solution).

Finally:

The U.S. has been the inspiration for all who believe in freedom, both political and economic. Its identity, however, is predicated on maintaining a political consensus that supports market values.

Growing income inequality, the financial crisis and the perceived unfairness of the market system are undermining this consensus. If Republicans don't stand up for markets, who will?

If standing up for markets means -- running down the list above in order -- reducing market power, regulating financial markets, eliminating subsidies, breaking up too big to fail firms, providing a robust safety net, overcoming income inequality, fixing schools, increasing the availability of student loans, providing retraining, and providing health care, then the answer is Democrats.

"The Chamber's Mistakes"

Daniel Gross says it's no mystery why the Chamber of Commerce suddenly finds itself on the outside looking in:

The Chamber's Mistakes, by  Daniel Gross, Commentary, Slate: This has been a rough period for the Chamber of Commerce, the Washington, D.C., organization that claims to be the voice of American business. Its doubts about climate change ... have led prominent members to quit... With Democrats controlling both Congress and the White House, it doesn't have natural allies. ... The change in political facts ... and its own poor choice of words have left the chamber feeling a bit left out. CEO Thomas Donahue gave a long interview to the Wall Street Journal (the editorial page) complaining about the chamber's poor treatment, lamenting that its wise counsel wasn't being sought in the formulation of policy, and vowing to fight. ...

But there is a fundamental reason why the chamber isn't being invited into the rooms where legislation and policy are being made these days: It doesn't have much to offer. For generations, the Chamber of Commerce has held itself out as the sensible, we-know-better voice of business: Follow the policies we—i.e. American business—approve and advocate, and the nation will grow and prosper. We'll have more jobs, higher wages, rising asset values, and widely shared prosperity. ...

From 2001 to 2008, the nation listened. It elected and then put into place exactly the policies the chamber advocated. And the chamber utterly failed to deliver.

The Chamber of Commerce may not have ruled the country during the Bush years. But it had the next best thing: a Republican administration in the White House and Republican control of Congress for most of that period. The chamber applauded as they delivered cuts in marginal tax rates and in taxes on capital gains, dividends, and estates. The government was supportive of free trade and largely hostile to labor unions, which continually lost ground. We saw aggressive moves to outsource government functions and increase the use of private-sector contractors. We opened up energy resources to development. Interest rates were low. Regulation? Virtually nonexistent in many sectors. Business lobbyists were allowed essentially to write crucial legislation. These policies, the Bush administration economic team promised us, would be superior to the ones that prevailed in the 1990s. And the proof would be in the numbers: jobs, market performance, income, wealth.

But it didn't work out for anybody. By pretty much any measure, the years from 2001 to 2008 were lost ones. Job creation was extraordinarily weak... Wealth didn't expand, either. In fact,... in this decade, income inequality rose, the percentage of people living below the poverty line rose..., the number of people getting health insurance from their employers fell, and median income failed to budge. The stock market? Forget about it. Oh, and at the end of it, the financial system, which got precisely the regulatory environment it wanted from Washington, blew itself up, inflicting hundreds of billions of dollars of costs on taxpayers. ...

These were excellent conditions for businesses to do what the Chamber of Commerce says they're supposed to do. But the policies failed in their intended results, which is the reason Democrats now control every lever of power—and why the Chamber of Commerce is standing with its face pressed against the glass.

Merriment and Diversion

Felix Salmon wonders what Hank Paulson was thinking. Me too:

The secret Paulson-Goldman meeting, by Felix Salmon: Andrew Ross Sorkin’s new book is out today, and breaks some pretty stunning news, dating from the end of June, 2008. At this point, we’re still months away from the now-famous but then-secret waiver, issued in mid-September, which allowed Hank Paulson to talk to Goldman Sachs; he’d promised not to do that when he moved from Goldman to Treasury.

But it turns out that Paulson just happened to be in Moscow at the same time that Goldman’s board of directors was having dinner there with Mikhail Gorbachev. (You know, as one does.) Take it away, Andrew:

When Paulson learned that Goldman’s board would be in Moscow at the same time as him, he had [Treasury chief of staff] Jim Wilkinson organize a meeting with them. Nothing formal, purely social — for old times’ sake.

For f#&%’s sake! Wilkinson thought. He and Treasury had had enough trouble trying to fend off all the Goldman Sachs conspiracy theories constantly being bandied about in Washington and on Wall Street. A private meeting with its board? In Moscow?

For the nearly two years that Paulson had been Treasury secretary he had not met privately with the board of any company, except for briefly dropping by a cocktail party that Larry Fink’s BlackRock was holding for its directors at the Emirates Palace Hotel in Abu Dhabi in June.

Anxious about the prospect of such a meeting, Wilkinson called to get approval from Treasury’s general counsel. Bob Hoyt, who wasn’t enamored of the “optics” of such a meeting, said that as long as it remained a “social event,” it wouldn’t run afoul of the ethics guidelines.

Still, Wilkinson had told [Goldman chief of staff John] Rogers, “Let’s keep this quiet,” as the two coordinated the details. They agreed that Goldman’s directors would join him in his hotel suite following their dinner with Gorbachev. Paulson would not record the “social event” on his official calendar…

“Come on in,” a buoyant Paulson said as he greeted everyone, shaking hands and giving bear hugs to some.

For the next hour, Paulson regaled his old friends with stories about his time in Treasury and his prognostications about the economy. They questioned him about the possibility of another bank blowing up, like Lehman, and he talked about the need for the government to have the power to wind down troubled firms, offering a preview of his upcoming speech.

How on earth did Paulson think this was OK? Goldman Sachs was a hugely powerful for-profit investment bank, and there he is, giving private chapter and verse on his opinions about the US and global economy, talking about internal Treasury matters, and previewing an upcoming (and surely market-moving) speech. All in secret, at a “social event” which somehow got kept off his official calendar. Oh, yes, and one other thing — the whole shebang took place in the Moscow Marriott Grand Hotel, in the context of Goldman directors joking about how all the Moscow hotels were surely bugged.

This is sleazy in the extreme, and will only serve to heighten suspicions that Paulson’s Treasury was rigging the game in favor of Goldman all along. ...

Paulson didn’t have this meeting out of fear or necessity... There was nothing in the way of extenuating circumstances which could possibly justify the secret rendezvous. This is definitely a situation where Wilkinson should have pushed back and said no way — but it’s hard to say no to Hank Paulson. Whose reputation has now taken yet another serious lurch downwards.

"An Obama Report Card"

Alan Blinder grades the administration's accomplishments on macroeconomic and banking issues:

Comedy Aside, an Obama Report Card, by Alan Blinder, Commentary, NY Times: First, “Saturday Night Live” parodies President Obama’s “achievements.” Then Mr. Obama wins the Nobel Peace Prize, bringing yet more head-scratching. Clearly, the nation’s attention is focused squarely on a question few presidents want to answer just nine months into their term: What has your administration accomplished?

I’ll leave foreign and military affairs to the Oslo Five and concentrate on domestic economics. ...

Stopping the Slide Let’s remember that the new president was dealt a dreadful hand on Inauguration Day — including a shattered financial system and a national economy teetering on the brink of disaster. The administration’s chief accomplishment to date surely is devising and executing — with huge assists from the Federal Reserve — a comprehensive program to pull us back from the abyss. ... Thus Job No. 1 — stopping the train wreck — appears to have been done rather well.

Enacting the Stimulus Package The much-maligned fiscal stimulus has been criticized from both the left (as too small) and from the right (as too big, especially the spending parts). My own judgment is that both its magnitude and composition were reasonable, though not perfect. But ... speed of enactment merits substantial weight in the overall grade. By that standard, the stimulus package scores well — especially considering that Republican obstructionism... Give it a B or B+.

Rescuing Banks ...[T]he Treasury secretary ... wisely resisted the siren songs coming from both the left (“nationalize the banks”) and the right (“let ’em fail”), opting instead for the high-risk “stress tests” of 19 big financial institutions. Today, all 19 are alive and breathing. None have been nationalized. ... Most are not just showing a pulse but also actually have pink in their cheeks. ... (In fairness, the Fed and other regulators deserve great credit for executing this delicate task so skillfully.)

So give the bank rescue plan an A–. The minus comes from being too soft on many banks and bankers, who failed us and then benefited from public largess.

Reducing Foreclosures Mr. Obama’s efforts to mitigate foreclosures have been more modest — and less successful. ... Give them a C.

Trying for Regulatory Reform While it is still only a set of proposals,... the Treasury worked at breakneck speed ... to produce an intelligent and comprehensive set of financial regulatory reforms after just five months in office. The ... proposals ... are not perfect. ... And I continue to be distressed that the president, having overloaded his plate, has been unable to devote enough time and effort to pushing the proposals through Congress — leaving the lobbyists far too much running room.

At this point, we can’t even guess what may pass. So give this policy an “incomplete,” noting, however, that the first draft shows promise.

Etc. In addition to these efforts on the macroeconomic and financial fronts, the president appears to be making some headway on health care reform... By contrast, the betting is against getting through Congress a cap-and-trade system for reducing carbon emissions.

On balance, then, this assessment leads to a Nobel-like verdict in the areas of financial regulation, health care and energy: the ideas have great merit, but any real achievements are hopes for the future. They don’t award prizes for that in Washington, even if they do so in Oslo.

Yet on the crucial macroeconomic and banking issues,... Mr. Obama’s accomplishments in just nine months are palpable and were very much needed. ...

Let me add one more category, how the benefits from the stimulus package and the bank bailout package have been distributed. With so many of the benefits of the financial bailout accruing to the same people and institutions that helped to cause the problems, with employment still lagging, and with social insurance programs to help those who cannot find employment coming under increased budgetary pressures, particularly at the state and local levels, it seems evident that the distribution could have been much better without compromising (and perhaps even enhancing) the speed of recovery.

Paul Krugman: A Hatchet Job So Bad It’s Good

The health insurance industry's recent "hatchet job" attacking health care reform may have actually done health care reform a favor:

A Hatchet Job So Bad It’s Good, by Paul Krugman, Commentary, NY Times: In the past, the insurance industry’s power has been a major barrier to health-care reform. Most notably, the industry paid for the infamous “Harry and Louise” ads that helped kill the Clinton plan. But times have changed.

Last weekend, the lobbying organization America’s Health Insurance Plans, or AHIP, released a report attacking the reform plan just passed by the Senate Finance Committee. Some news organizations gave the report prominent, uncritical coverage. But health-care experts quickly, and correctly, dismissed it as a hatchet job. And the end result of AHIP’s blunder may be a better bill than we would otherwise have had.

For 2009, it turns out, is not 1993. Once again, Republicans have tried to kill reform with smears and scare stories. But all they seem to have killed with their cries of “socialism” and warnings about “death panels” is their own credibility. Some form of health-care reform is highly likely to pass.

So it’s a different game than it was 16 years ago. And it’s a game that the insurance industry apparently doesn’t know how to play.

The motivation for the AHIP report seems to have been the decision by the Finance Committee to weaken the penalties for individuals who don’t sign up for insurance, even as it retains regulations requiring that insurers offer the same policies to everyone, regardless of medical history. The industry worries that some people will game the system, remaining uninsured as long as they’re healthy, then signing up when they get sick.

This is, believe it or not, a valid concern. Many health-care economists believe that a strong individual mandate, requiring that almost everyone sign up, will be needed to make health reform work. And the Finance Committee probably did weaken the mandate too much.

But AHIP, apparently unable to help itself, didn’t stop there. Instead, the report threw every anti-reform argument the authors could think of at the wall, hoping that something would stick. ...

Which brings us to the ways in which AHIP may have done health reform a favor.

As I said, the individual mandate probably should be stronger than it is in the Finance Committee’s bill. But there’s a reason the mandate was weakened: fear that too many people would balk at the cost of insurance, even with the subsidies provided to lower-income individuals and families. So why not address that cost?

Aside from making the subsidies larger, which they should be, there are at least two changes to the legislation that would help limit costs. First, health exchanges — special, regulated markets in which individuals and small businesses can buy insurance — can be made stronger, in effect giving small buyers a better bargaining position. Second, the public option — missing from the Finance Committee’s bill — can be brought back in, giving private insurers some real competition.

The insurance industry won’t like these changes, but that matters less than it did a week ago.

There’s also another point, which House Speaker Nancy Pelosi has stressed. Part of the opposition to a strong individual mandate comes from the sense that Americans will be forced to buy policies from a greedy insurance industry. Giving people, literally, another option — the right to buy into a public plan instead — would defuse that opposition.

Even with stronger exchanges and a public option, health reform would probably increase, not reduce, insurance industry profits. But the insurers wanted it all. The good news is that by overreaching, they may have ensured that they won’t get it.

Obama's Nobel

In case you want to talk about it:

Obama Says He’s ‘Surprised and Humbled’ by Nobel Prize

Here's the response from the White House:

Remarks by the President on Winning the Nobel Peace Prize

"So Much Happening in Washington and So Little To Show for It"

Robert Reich is not pleased with the proposals from congress for health care reform, financial regulation, environmental legislation, and job creation, all of which come up far short of what is needed, and he says lobbyists are to blame:

So Much Happening in Washington and So Little To Show for It, So Far, by Robert Reich: The Senate Finance Committee is set to vote Tuesday on a healthcare bill that just got a seal of approval from the Congressional Budget Office and is very likely to garner the vote of Republican Senator Olympia Snowe -- a twofer that gives the bill preeminence over four other healthcare bills that have emerged from House and Senate committees... Unlike those bills, though, the Senate Finance bill won't it have a public insurance option to compete with private insurers. Nor does it allow Medicare to use its bargaining power to negotiate lower drug prices, or adequately subsidize millions of middle-class families who will be required to buy health insurance that will be hard for them to afford. In short, it's a great deal for private insurers and Big Pharma but not such a great deal for middle-class Americans.

Meanwhile, the House Banking Committee is quietly circulating a draft set of reforms of financial markets... Barney Frank, who heads the Committee, is a thoughtful progressive. But the draft has gaping loopholes that will let most financial firms escape -- such as one that exempts corporations that deal in financial derivatives from any requirements for capital, business conduct, record-keeping, and reporting if they use derivatives for the purpose of "risk management," which is the very thing they all claim they're doing. Neither the draft bill, nor the Committee, nor anyone on the Hill having anything to do with financial regulation, is ... resurrecting the Glass-Steagall Act that once separated commercial from investment banking, and applying antitrust laws to the remaining five biggest Wall Street banks so none is "too big to fail."

At the same time, environmental legislation is now slinking its way through Congress..., but the bills are, frankly, far short of what's needed. ...

And what's happening on the job's front? Nothing except a blip of interest in tax credits to small businesses that create new jobs. That's not a bad move (I suggested it myself), but it's rather like bailing out the ocean with a teacup. If that's all there is, we're headed toward two years of double-digit unemployment. No one on the Hill or in the Administration is yet willing to say openly and clearly that the stimulus plan must be larger, and continued through 2010 and 2011.

My friends in the Administration and on the Hill repeatedly tell me "don't make the perfect the enemy of the better," or words to that effect. Politics is the art of the possible, blah blah blah. True. But in each of these areas -- healthcare, financial regulation, environment, and jobs -- the "better" is really not that much better. Forget perfect; anything that offered real reform would suffice for now. But in every case, what should be the centerpieces of reform are being left out.

Why? Congress is overwhelmed with corporate and Wall Street lobbyists (far too many of whom are former Democratic office holders). The White House is trying best it can to push ... in the right direction but there's too much going on, too many arenas where private interests are framing the debate and stifling major reform, and too many friends of friends and relations of relations who are making tons of money working for the other side. The public doesn't know what's going on because the national media would rather report on the sexual escapades of famous people... And progressives -- that is, progressive organizations in our nation's capital -- have been remarkably and consistently outgunned, outmaneuvered, or just plain ineffectual. This is largely due to the fact that they're sitting in Washington rather than organizing and mobilizing the rest of the country.

And I haven't even brought up Afghanistan.

Will Health Insurance Exchanges Work?

Most of the health care reform proposals being considered by congress include some form of health insurance exchanges. What are they and why are they needed?

...The idea of an insurance exchange is relatively straightforward. If you work for a big company or, say, the federal government, every year you choose from among a set of insurance plans--all of them conforming to some minimal standard, all of them available to you regardless of pre-existing medical condition. They've been chosen by your human resources or benefit department, who--ideally--have some clue about what they're doing, more at least than you do.

If, by contrast, you work on your own or in a small company, then you may have just one choice--or no choice at all. Affordable coverage probably won't be available to you if you have existing medical problems; even if you're healthy, the coverage you get could have major gaps or be otherwise unreliable. It'd be good to know which policies work and which ones don't. But unless you happen to be an actuary or insurance broker yourself, chances are you're clueless when it comes to navigating this complex world.

It's you, the individual or small businessperson trying to buy insurance, for whom the exchanges are being created. They're basically regulated marketplaces, where you get to choose from among insurance plans more or less the same way folks in large companies do. Your premiums should be more affordable, since now you're part of a large bargaining group. You should be able to get coverage regardless of preexisting conditions, since insurers can't pick and choose which exchange customers to cover. And you should have the peace of mind that the coverage is good, since you know it's been screened by the exchange.

Do we have any experience with exchanges?

The concept has been around for a while... And ... one state, Massachusetts, managed to create such an institution three years ago, when--as part of a more comprehensive health reform plan--it started a pair of insurance pools for small businesses and individuals who couldn't get coverage through employers.

The results, so far, are encouraging. People once unable to penetrate the private insurance market because of income or medical condition can now go online and select from a menu of insurance options--all of them covering essential services and providing solid financial protection, for rates not previously available. And although overall medical costs in Massachusetts have continued to rise,... premiums for ... the insurance option that the exchange manages most closely ... have risen at a far slower rate.

There are both weak and strong forms of exchanges:

The strong version is national, or at least regional. It's open to everyone: The unemployed, the self-employed and any business, no matter the size, that wants to buy in. There's risk adjustment to reduce the incentive for cherry-picking. The huge pool of users gives the exchange tremendous advantages in scale, simplicity and standardization (experts say that you need at least 20 million to fully achieve these benefits -- easy in a national exchange but harder in a regional or state-based one). With so many potential customers, insurers are eager to participate, and they will bid aggressively to ensure they're included in the market and compete aggressively to make sure they're successful within it. Over time, the combination of increased efficiencies and greater competition drive down costs, which will lead more employers to use the exchange, which will in turn give it more scale and bargaining power. You could easily see this exchange slowly emerge as the de facto American health-care system. And not through government fiat. Through consumer choice.

The weak version is state-based. It's open to only the unemployed, the self-employed and small businesses. Risk adjustment, if it exists at all, is crude. With such a limited pool of applicants, insurers aren't driven to compete, and the efficiencies of scale and competition are minimal. It never really grows, and instead exists as a marginal policy to mop up those who aren't covered by employers. Sort of an outlet shopping model for health-care, accessible only to the few able to get there.

Which version are we likely to get?

The bills moving through Congress all set up exchanges modeled more or less on what Massachusetts has done. But there are a few critical differences ... in how the exchanges would select which plans to offer...

In the bills that passed three House committees and the Senate Health, Education, Labor, and Pensions (HELP) Committee, the exchange would be a "prudent purchaser." In other words, it would have a staff that bargained with insurers to bring down premiums--and that made sure all plans lived up to strict guidelines for coverage and customer service. In effect, any insurer that wants to offer coverage through the exchanges has to get the equivalent of a "Good Housekeeping Seal of Approval" from the administrators. This is precisely how it works in Massachusetts.

By contrast, the Senate Finance bill envisions much weaker exchanges. Instead of choosing which plans to make available, the exchange administrators would, by law, have to accept any plan that meets a relatively minimal set of standards.

Jon Kingsdale, who runs the Massachusetts exchange, calls that a recipe for "policy disaster," as consumers faced a dizzying array of more expensive, less regulated choices. "It would be like telling your grocery store they have to offer every single kind of bread baked by every single bakery. ... The exchanges would be nothing more than an automated Yellow Pages." ...

Massachusetts senator, Kerry,... proposed to fix it by giving the exchanges the same powers envisioned in the House and HELP bills. But when Kerry introduced his plan last week, he couldn't get the votes to pass it. The reason, several sources on Capitol Hill say, was opposition from Olympia Snowe, the Maine Republican... Snowe seems to be concerned that a more aggressive exchange would amount to more government--which, in fact, it would be. But, as Massachusetts has shown, sometimes more government is exactly what health care needs.

Here's a bit more:

...Congress must also decide whether the exchanges would have any authority to decide which plans are offered and at what price, said Paul Fronstin, a policy analyst with the Employee Benefit Research Institute... “The exchange can have a more active role if it negotiate rates,” he said, “but it is not clear what is going to happen.”

In Massachusetts, for example, the state’s exchange, called the Connector, negotiates directly with the state’s private insurance companies in offering a small number of state-subsidized plans — similar to what an employer does when it screens the policies offered to its work force. ...

Jon Kingsdale, the executive director of the Commonwealth Health Insurance Connector Authority ... said the agency’s ability to negotiate on behalf of 180,000 customers who required state subsidies was a reason it achieved a 6 percent reduction in the cost of premiums this year.

But the Connector would be less effective if it had no say over which plans were offered on the exchange, said Mr. Kingsdale, who criticized the Senate Finance committee’s proposal, for example, as potentially creating little more than “an automated yellow pages.”

Because formulating an effective exchange is so difficult, some policy analysts are still arguing that only a new government-run competitor could create a powerful enough force in many parts of the country to offset the home-court advantage many insurers already wield. ...

And finally:

Chances are reasonably good that Kerry's vision of reform will prevail... But it's not a sure thing, which is why this seemingly narrow question deserves a lot more attention. Exchange design doesn't get the attention of controversies like the public option, abortion, or supposed death panels. In the long run, though, it could be far more decisive in whether reform works.

What is the bottom line to all of this? If exchanges are the way we are going to go, then how they are designed is essential. If we let lobbyists and misguided fears about government intervention stop us from giving the exchanges the breadth and authority they need, then they won't be effective.

Paul Krugman: The Politics of Spite

Why have Republicans positioned themselves as defenders of Medicare?:

The Politics of Spite, by Paul Krugman, Commentary, NY Times: There was what President Obama likes to call a teachable moment last week, when the International Olympic Committee rejected Chicago’s bid to be host of the 2016 Summer Games.

“Cheers erupted” at the headquarters of the conservative Weekly Standard, according to a blog post by a member of the magazine’s staff, with the headline “Obama loses! Obama loses!” Rush Limbaugh declared himself “gleeful.” “World Rejects Obama,” gloated the Drudge Report. And so on.

So what did we learn from this moment? For one thing, we learned that the modern conservative movement ... has the emotional maturity of a bratty 13-year-old.

But more important, the episode illustrated an essential truth...: the guiding principle of one of our nation’s two great political parties is spite pure and simple. If Republicans think something might be good for the president, they’re against it — whether or not it’s good for America.

To be sure, while celebrating America’s rebuff by the Olympic Committee was puerile, it didn’t do any real harm. But the same principle of spite has determined Republican positions on more serious matters... — in particular, in the debate over health care reform. ...

The Republican ... line of attack [against health care reform] is the claim — based mainly on lies about death panels and so on — that reform will undermine Medicare. And this line of attack is utterly at odds both with the party’s traditions and with what conservatives claim to believe.

Think about just how bizarre it is for Republicans to position themselves as the defenders of unrestricted Medicare spending. First of all, the modern G.O.P. considers itself the party of Ronald Reagan — and Reagan was a fierce opponent of Medicare’s creation, warning that it would destroy American freedom. (Honest.) In the 1990s, Newt Gingrich tried to force drastic cuts in Medicare financing. And in recent years, Republicans have repeatedly decried the growth in entitlement spending — growth that is largely driven by rising health care costs.

But the Obama administration’s plan to expand coverage relies in part on savings from Medicare. And since the G.O.P. opposes anything that might be good for Mr. Obama, it has become the passionate defender of ineffective medical procedures and overpayments to insurance companies. ...

The key point is that ever since the Reagan years, the Republican Party has been dominated by radicals — ideologues and/or apparatchiks who, at a fundamental level, do not accept anyone else’s right to govern.

Anyone surprised by the venomous, over-the-top opposition to Mr. Obama must have forgotten the Clinton years. Remember when Rush Limbaugh suggested that Hillary Clinton was a party to murder? When Newt Gingrich shut down the federal government in an attempt to bully Bill Clinton into accepting those Medicare cuts? And let’s not even talk about the impeachment saga.

The only difference now is that the G.O.P. is in a weaker position, having lost control not just of Congress but, to a large extent, of the terms of debate. The public no longer buys conservative ideology the way it used to; the old attacks on Big Government and paeans to the magic of the marketplace have lost their resonance. Yet conservatives retain their belief that they, and only they, should govern.

The result has been a cynical, ends-justify-the-means approach. Hastening the day when the rightful governing party returns to power is all that matters, so the G.O.P. will seize any club at hand with which to beat the current administration.

It’s an ugly picture. But it’s the truth. And it’s a truth anyone trying to find solutions to America’s real problems has to understand.

Pre-Commitment to Austerity?

In a recent column, David Brooks says that our recent troubles are partly the result of moral decay, and that we need to return to "our tradition of Calvinist restraint, self-denial and frugal responsibility."

But haven't consumers started showing restraint? Aren't saving rates are rising? To this, Brooks replies:

Over the past few months, those debt levels have begun to come down. But that doesn’t mean we’ve re-established standards of personal restraint. We’ve simply shifted from private debt to public debt.

Is Brooks right that the recent increase in public debt is evidence of moral decay, or is the increase in the deficit actually the wise and prudent thing to do? Even though Thomas Palley wrote this before David Brooks gave us his moral lesson, it's still a pretty good response to this part of his austerity message:

The Fiscal Austerity Trap, by Thomas Palley: I Déjà vu all over again The U.S. economy is still struggling to find a bottom in face of the deepest recession since the Great Depression of the 1930s. ... Yet, even as the recession rages, much of the economic policymaking community is already back to arguing ... [that] massive budget deficits ... threaten future financial stability.

Budget deficit alarmism has been a perennial feature of the Washington policy landscape for the past thirty years, and the return of budget deficit alarmism represents a case of "déjà vu all over again." The push for fiscal austerity was the agenda of Concord Coalition Republicans and Hamilton Project New Democrats long before the crisis, and these groups have now opportunistically seized on the crisis-induced spike in the budget deficit to revive that agenda. With economic policy largely controlled by former Hamilton Project personnel, there is a grave risk the Obama Administration could go along with this renewed alarmism.

The fiscal austerity program is rooted in wrong-headed economic analysis. It was the wrong economic agenda before the economic crisis, and it is even more wrong in light of the deep economic weaknesses the crisis has revealed.

Not only is fiscal austerity the wrong economic agenda, it is also the wrong political agenda. At a time when the nation is trying to recover from three decades of laissez-faire excess, the fiscal austerity agenda revives neo-liberal anti-government sentiment by presenting profligate government as the problem. The real problem is flawed market arrangements that have promoted income inequality and financial excess that has undermined shared prosperity and can no longer deliver growth.

The fiscal austerity message does triple damage. First, it makes reform of existing flawed market arrangements more difficult by misdirecting public understanding and saying government is the source of problem. Second, it uses budget deficits as a "Trojan Horse" for launching an assault on vital public programs - including Social Security, Medicare, and spending on education and public infrastructure. Third, it threatens to create a fiscal austerity trap in which fiscal austerity lowers growth, thereby lowering tax revenues and necessitating more austerity.

Fiscal conservatives claim that closing the budget deficit represents "fiscal responsibility." That claim is absolutely wrong. The reality is fiscal austerity under current circumstances would constitute "fiscal irresponsibility." The U.S. likely confronts an extended period of economic weakness in which budget deficits will be needed to ensure adequate aggregate demand (AD).

Budget deficits also have an important role to play in spurring growth. The old growth model, based on debt and asset price inflation, is broken. That calls for a new growth model in which deficit-financed public investment should be a central part.

The economic crisis has discredited neo-liberal economics. It should also have discredited the neo-liberal obsession with fiscal austerity. The fact that the fiscal austerity agenda has managed to regain traction so easily shows how deeply ingrained are the misunderstandings of neo-liberal economics, and how far there is to go to establish a new healthier economic conversation. ...

However, there will come a time when the deficit needs to be addressed:

Hurry Up and Wait, by Christopher Beam: When it comes to the national debt, says Paul Krugman, the best advice may come from St. Augustine: "Oh Lord, make me chaste and continent—but not yet." That was the rough consensus among the economists who convened Wednesday ... for a conference held by the Center for American Progress and the Center for Budget and Policy Priorities: We absolutely have to do something about this deficit. Just not right now.

Their advice is on the merits, but it just so happens to be politically convenient. We wanted to reduce the deficit ... Democrats can say, but the experts told us not to! ...

Before the economists gave the politicians permission not to act right away, however, they established the need to do something eventually. Right now, CBPP president Robert Greenstein said, the annual deficit is about 8 percent of gross domestic product, while the national debt—the sum of all past deficits—is about 70 percent of GDP... If current policy persists, the deficit will inflate to become 20 percent of GDP by 2050, with a total national debt of 300 percent of GDP. ...

If those numbers don't scare you, maybe the practical consequences will. Princeton Professor Alan Blinder explored the possibilities. Inflation? "I don't think we're going to see that in the United States," he said, even though it happens all the time in other countries when debt mounts. Skyrocketing interest rates? That's a "very obvious candidate." But the most likely risk, he said, is a weakening dollar: "If the economy cracks, it cracks on the dollar."...

Another possibility, said Blinder, is that the political system cracks first. He cited the New Deal as an example of a good political crackup. What a mountain of debt could mean for our political system, he said, "I wouldn't even begin to forecast." A questioner, however, did just that. Recall 1992, he said, when Ross Perot ran on a platform of deficit reduction. Perot didn't win, but his influence—he drew enough votes to allow Bill Clinton to become president—produced a bipartisan obsession with deficit reduction, which occupied much of Clinton's first term. "It's highly likely we're about to see that happen again," he said.

So if the stakes are so high and the future so dire, why wait? ... Because the economy is still fragile. ... As Berkeley economist Laura Tyson put it, "We have two risks: If we do something too precipitously fast, we undermine recovery … but if we don't do something," we risk the dystopian future described above.

The first deficit-reduction measure—health care reform—is already on the table. Health care spending is by far the biggest driver of the deficit, the panelists reminded the audience. "No path to a balanced budget doesn't go through health care," said Harvard professor David Cutler. Bend the curve ("Whoever is responsible for that phrase should be shot," said Krugman) and we're well on our way to digging out.

Aside from that, we should start thinking about getting ready to maybe soon reduce the deficit. The word Tyson used was "pre-commit." The idea: Pass deficit reduction legislation now that kicks in as soon as the economy stabilizes. That would reassure creditors now that we're serious about paying off our debt. ...

There's just one problem: Deficit reduction may be politically impossible, now or later. A surprise cameo by former Treasury Secretary Robert Rubin reinforced the point. Taking the mic, Rubin reminded the panel that in 1993, during his tenure, the Deficit Reduction Act passed by a single vote in the House and required the vice president to break a tie in the Senate. "Not exactly a dramatic rallying around with respect to fiscal discipline," he said. "So what would make you think that our political system is likely to respond more effectively today?" ...

How to get around this paradox is an open question. Greenstein suggested incrementalism: a bit of deficit reduction here, a bit there. Once members realize that voting for fiscal responsibility won't kill their electoral chances, the political calculus will change. "My hope is that people don't get punished," he said. Krugman strained for optimism: "What we have to hope is that 10 years from now we will have a much saner political landscape"...

I like the idea of pre-commitment, but since we cannot bind future legislators using this device, it is, at best, a means of establishing a default option that might be politically difficult for legislators of the future to move away from. A "saner political landscape" in the future is the best hope, but trends over the last few decades don't point in that direction.

"An Inside Look at How Goldman Sachs Lobbies the Senate"

I am not as negative toward naked short-selling as Matt Taibbi (feel free to convince me I'm wrong), but his insights into the lobbying effort against financial reform are useful, and I share his concerns about the distortions (e.g. regulatory capture) this brings to the reform process:

An Inside Look at How Goldman Sachs Lobbies the Senate, by Matt Taibbi: ...Later on this week I have a story coming out in Rolling Stone that looks at the history of the Bear Stearns and Lehman Brothers collapses. The story ends up being more about naked short-selling and the role it played in those incidents than I had originally planned..., but it turns out that there’s no way to talk about Bear and Lehman without going into the weeds of naked short-selling...

It’s the conspicuousness ... that is the issue here, and the degree to which the SEC and the other financial regulators have proven themselves completely incapable of addressing the issue seriously, constantly giving in to the demands of the major banks to pare back (or shelf altogether) planned regulatory actions. There probably isn’t a better example of “regulatory capture” ... than this issue.

In that vein, starting tomorrow, the SEC is holding a public “round table” on the naked short-selling issue. What’s interesting about this round table is that virtually none of the invited speakers represent shareholders or companies that might be targets of naked short-selling, or indeed any activists of any kind in favor of tougher rules against the practice. Instead, all of the invitees are either banks, financial firms, or companies that sell stuff to the first two groups.

In particular, there are very few panelists — in fact only one, from what I understand — who are in favor of a simple reform called “pre-borrowing.” Pre-borrowing is what it sounds like; it forces short-sellers to actually possess shares before they sell them.

It’s been proven to work, as last summer the SEC, concerned about predatory naked short-selling of big companies in the wake of the Bear Stearns wipeout, instituted a temporary pre-borrow requirement...

The lack of pre-borrow voices invited to this panel is analogous to the Max Baucus health care round table last spring, when no single-payer advocates were invited. So who will get to speak? Two guys from Goldman Sachs, plus reps from Citigroup, Citadel (a hedge fund that has done the occasional short sale, to put it gently), Credit Suisse, NYSE Euronext, and so on.

In advance of this panel and in advance of proposed changes to the financial regulatory system, these players have been stepping up their lobbying efforts... Goldman Sachs in particular has been making its presence felt.

Last Friday I got a call from a Senate staffer who said that Goldman had just been in his boss’s office, lobbying against restrictions on naked short-selling. The aide said Goldman had passed out a fact sheet about the issue that was so ridiculous that one of the other staffers immediately thought to send it to me. When I went to actually get the document, though, the aide had had a change of heart.

Which was weird, and I thought the matter had ended there. But the exact same situation then repeated itself with another congressional staffer, who then actually passed me Goldman’s fact sheet.

Now, the mere fact that two different congressional aides were so disgusted by Goldman’s performance that they both called me on the same day — and I don’t have a relationship with either of these people — tells you how nauseated they were.

I would later hear that Senate aides between themselves had discussed Goldman’s lobbying efforts and concluded that it was one of the most shameless performances they’d ever seen from any group of lobbyists, and that the “fact sheet” ... was, to quote one person familiar with the situation, “disgraceful” and “hilarious.” ...

"The Side He Picked in Economics was an Odd One"

David Warsh on Irving Kristol:

The Straw That Stirred the Drink, by David Warsh: Irving Kristol, who died earlier this month at 89, meant many different things to many different people. One way to remember him is as the editor who, with his friend and City College of New York classmate Daniel Bell, founded The Public Interest in 1965, at just the moment the phenomenon known as “the counterculture” was beginning to grip the popular imagination of the West.

The first issue featured Robert Solow on “Technology and Unemployment,” Daniel Patrick Moynihan on “The Professionalization of Reform,” Nathan Glazer on “The Paradoxes of Poverty,” Jacques Barzun on “Art – By Act-of-Congress,” Daniel Greenberg on “The Myth of the Scientific Elite,” Martin Diamond on “Conservatives, Liberals and the Constitution,” and Daniel Bell on “The Study of the Future.”

And for the next fifteen years, while the Americans lost their way in Vietnam, the Soviet economy stagnated, the Chinese people suffered Mao Tse Tung’s Cultural Revolution, The Public Interest was the quarterly that kept its head, serving as a focal point for meliorists of all kinds. Magazines such as People, Money and Rolling Stone built huge audiences in those years; The Public Interest rarely sold more than 12,000 copies. But the people who read it would in due course take over the nation’s politics.

An extraordinary galaxy wrote for Kristol in those days on nearly every social issue of the day (Bell, a professor of sociology at Harvard, cut back his participation after the two disagreed on the presidential election of 1972): Peter Drucker, Milton Friedman, Seymour Martin Lipset, James Coleman, Robert Nisbet, Henry Fairlie, Aaron Wildavsky, William Bennett, James Tobin, Richard Zeckhauser, Thomas Schelling, Herbert Stein, Gordon Crovitz, Anthony Downs, David Gordon, John Meyer, Jeffrey O’Connell, Paul Starr, Christopher Jencks, Charles Reich, Michael Novak, Charles Lindblom, Josiah Lee Auspitz. They were conservatives and liberals alike, but the quarterly’s content steadily trended over the years towards the stance that in time would become known as “neoconservative.” (A terrific full issue-by-issue archive can be found here.)

Kristol “was able to pick a side without losing his clarity,” wrote David Brooks in his New York Times column last week.

The side he picked in economics was an odd one. A 1975 issue featured a pair of articles: “The Social Pork Barrel” launched the career of a young Michigan Congressman, David Stockman, who would become budget director for Ronald Reagan; and “The Mundell-Laffer Hypothesis – a New View of the World Economy,” by Wall Street Journal editorial writer Jude Wanniski, introduced the world to economists Arthur Laffer and Robert Mundell, and their newly-invented brand of “supply side economics.”

The striking thing about Wanniski’s article was its anti-establishment tone, anti-Chicago as well as anti-Cambridge, Mass. The new hypothesis might be as transformative as the Copernican Revolution, he averred – or at least that of John Maynard Keynes. Mundell and Laffer’s enthusiasms for a gold standard, fixed exchange rates, large tax cuts and tight money were picked up and greatly amplified by the editorial page of The Wall Street Journal. The Republican Party was divided – insouciant economic populists in one wing, sober technocrats in another.

In the neo-conservative firmament, the stars of ordinarily first-magnitude conservatives Milton Friedman and Martin Feldstein dimmed, while Laffer and Wanniski brightened. The success of The Way the World Works, Wanniski’s 1979 book for editor Midge Decter, nearly ripped apart the boutique social science publisher Basic Books, where Kristol worked as an editor as well.

By then The Public Interest was losing its force. As James Q. Wilson wrote the other day in The Wall Street Journal, “It began to speak more in one voice and the number of liberals who wrote for it declined.” Daniel Bell quietly resigned, in 1980. It didn’t matter. The Republicans were in power; and Kristol was ready for a second act. He would become widely known as “the Godfather” of neo-conservatism, dispensing favors and advice as a political activist operating out of the American Enterprise Institute in Washington.

In its obituary last week, The Economist summed up this second act of Kristol’s career: “American conservatism, before he began to shake it up, was dour, backward-looking, anti-intellectual and isolationist, especially when viewed from the east coast. By the time Mr. Kristol … had finished with it, it was modern and outward looking, plumped up with business-funded fellowships and think tanks and taking the lead in all policy debates.”

Success profoundly changed the game. The Cold War ended. The discipline and sense of fair play seemed to go out of civic life. There hasn’t been anything like The Public Interest since. But for fifteen crucial years in the late ’60s and ’70s, Kristol’s editing was the straw that stirred the drink.

I'm running short on time, so I'll leave the commentary to all of you, but I will note this:

Irving Kristol explains where the economics articles he published in The Public Interest came from:

Among the core social scientists around The Public Interest there were no economists.... This explains my own rather cavalier attitude toward the budget deficit and other monetary or fiscal problems. The task, as I saw it, was to create a new majority, which evidently would mean a conservative majority, which came to mean, in turn, a Republican majority - so political effectiveness was the priority, not the accounting deficiencies of government...

Irving Kristol explains where the economics articles he published in The Public Interest came from:

Among the core social scientists around The Public Interest there were no economists.... This explains my own rather cavalier attitude toward the budget deficit and other monetary or fiscal problems. The task, as I saw it, was to create a new majority, which evidently would mean a conservative majority, which came to mean, in turn, a Republican majority - so political effectiveness was the priority, not the accounting deficiencies of government...

"The Public Option Lives On"

Robert Reich says of the public option for health care insurance, "yes we can," even if it means overriding the promises of the person identified with the phrase:

The Public Option Lives On, by Robert Reich: Tomorrow (Tuesday) is a critical day in the saga of the public option. Democrats Charles Schumer ... and Jay Rockefeller ... are introducing an amendment to include the public option in the bill to be reported out by the Senate Finance Committee -- the committee anointed by the White House as its favored vehicle for getting health care reform.

Before you read another word, call and email the Senate offices of Democrats Max Baucus (Montana), Tom Carper (Delaware), Robert Menendez (New Jersey), Kent Conrad (North Dakota), and Ben Nelson (Florida) -- telling them you want them to vote in favor of the public option amendment. And get everyone you know in these states to do the same. Hell, you might as well phone and email Republican Olympia Snowe (Maine) and make the same pitch.

Background: Every dollar squeezed out of Big Pharma and Big Insurance is a dollar less that you'll have to pay ... to cover healthcare costs. The two most direct ways to squeeze future profits are allowing Medicare to use its huge bargaining leverage to negotiate lower drug prices, and creating a public insurance option to compete with private insurers...

"Auditing the Fed"

Bruce Bartlett and Barry Ritholtz on Ron Paul's call for the Fed to be audited:

Auditing the Fed, by Bruce Bartlett: Ron Paul finally got his wish yesterday and the House Financial Services Committee held a hearing on his legislation to audit the Federal Reserve. There were only two witnesses: the Fed's general counsel and Tom Woods, a historian from the Ludwig von Mises Institute. The testimony is available here.

I urge those curious about this issue to read both statements. I think it is abundantly clear that this is a crackpot idea. The Fed is already thoroughly audited in every area except two: monetary policy and dealings with foreign central banks. The only purpose of having additional audits of the Fed is to undermine its independence precisely with regard to these two areas. If Woods presents the best argument for doing so, the argument is very shallow indeed.

Whatever one thinks of the Fed's policies in recent years--and there certainly are grounds for criticism--there is no reason whatsoever to believe that undermining its independence and putting the Congress in control of monetary policy--Ron Paul's goal--would improve matters at all. Indeed, there is every reason to believe that full congressional control of monetary policy would be a disaster. Instead of getting Switzerland-like stability, as Paul foolishly imagines, the more likely result would be Zimbabwe-like hyperinflation.

In the end, I agree with Barry Ritholz that whatever the Fed's failings, those of Congress are vastly worse.  As he put it in explaining why he didn't testify yesterday:

I was invited to testify this week to the House Financial Services Committee about reform and regulation.

I politely demurred.

While I have been critical of the Federal Reserve (especially the Greenspan years), my beef with them has been their judgment and decision-making process. Congress, on the other hand, is a whole different matter. Its not their judgment, but rather, the fact they are owned not by the American people, but by lobbyists, and corporate interests. They have become structurally deformed.

How weird is it for me, who spent so many pages blaming the Fed for a lot of the recent crisis, to find myself in a position of defending them from outside political pressure? The choice we face is the recent Fed regime of secrecy, nonfeasance, irresponsibility, and easy money — versus something possibly likely to be a whole lot worse. ...

If the Fed has been a major source of problems, Congress is much worse. They were the great enablers of the crisis, readily corruptible, bought and paid for by the banking industry. I find Congress to be the worse of two evils — lacking in objectivity, incapable of producing legitimate regulatory review. ...

As I've made clear in the past, I also think that auditing the Fed, or reducing its independence in other ways, is a bad idea. The strange marriage of the populists and libertarians on this issue has given it more momentum that I expected, but hopefully not enough to carry the day.

"Fiscal Responsibility Requires Higher Taxes"

Bruce Bartlett reiterates his disappointment with Republican attitudes toward taxes and the deficit:

Fiscal Responsibility Requires Higher Taxes, by Bruce Bartlett, Commentary, Forbes: Throughout most of our nation's history,... everyone who thought of themselves as a conservative believed absolutely in the necessity of balancing the budget... Today, the notion seems quaint. Republicans pay lip service to balancing the budget, but only when Democrats are in office. ... [T]he now-universal view among conservatives [is] that ... taxes must never be raised to reduce deficits. That's a cure worse than the disease...

This reversal of the historical conservative position has had enormous implications for our national finances. ... The reason why conservatives supported a balanced budget in the first place wasn't so much about the economics as a belief that it was a constraint on spending and the growth of government. That deficits were inflationary, raised interest rates and led to crowding out in financial markets, which reduced economic growth, was really a secondary consideration.

A key reason why a balanced budget requirement constrained spending is that deficits led to higher taxes. Since people don't like paying taxes, they put a brake on spending that couldn't be financed out of current revenues. In the event that there was some new program that was widely deemed to be desirable,... it was commonly understood that new taxes dedicated just to these programs were an essential requirement for enactment.

Programs that couldn't be financed weren't seriously considered until the Bush 43 administration. Contrary to the experience of Social Security and Medicare, he offered no dedicated financing for the Medicare drug benefit. It simply added to the budget deficit and will add as much to it over the next decade as the February stimulus package that every Republican voted against.

And, of course, no effort was made to pay for tax cuts or pork barrel projects. In fact, Republicans jettisoned PAYGO (pay as you go) budget rules in 2002. ... When pressed about their abandonment of support for the balanced budget, Republicans say that supporting higher taxes to reduce deficits only made them tax collectors for the welfare state. ...

In the 1970s, conservatives talked themselves into believing that cutting taxes was a better way of restraining government's growth than supporting a balanced budget. Just take away Congress's credit card, Ronald Reagan used to say, and it will be forced to cut spending.

This reversal of the long-held conservative position proved to be extremely popular, politically, and had a lot to do with the Republican takeover of Congress in 1994. It is now Republican dogma that taxes must never be increased no matter how big the deficit. The last Republican to do that, Bush 41, got thrown out of the White House..., Republicans believe. ...

During Bill Clinton's administration, Democratic economists got religion on deficits. They believe that his 1993 tax increase sparked an economic boom. They also saw that ... the federal budget [go] from deficit to surplus... Clinton's big mistake was in not locking up the surpluses in some way. One idea would have been to use the surpluses to create private Social Security accounts that Republicans wouldn't have dared to touch any more than they would dare to cut Social Security benefits.

Instead, the surpluses were completely dissipated on temporary tax cuts and spending programs that bought reelection for Republicans in 2002 and 2004, but made no lasting contribution to the economy's growth. Even as the surpluses turned into deficits, Republicans' position didn't change--they were still for big tax cuts...

Indeed, back in February when Congress was debating the stimulus package and the Treasury was facing a deficit of $1.2 trillion this year, the Republican position was that tax cuts--and only tax cuts--would stave off a deep recession. How that would have helped when incomes were falling to such an extent that tax revenues were virtually collapsing on their own was never explained. Tax cuts were a mantra to be repeated endlessly whether they had any rational connection to the economy's problems or not.

Everyone knows that fiscal discipline must be restored eventually, or we will face truly horrifying consequences... Everyone also knows that this will involve a combination of higher revenues and lower spending. The idea that we can restore fiscal health only with spending cuts is childish, as I tried to explain last week.

What we face is a game of chicken. Republicans think if they wait until the last possible second to support the smallest possible tax increase necessary to make a budget deal work, they can get the largest possible spending cuts. The problem is that there is not one iota of historical evidence that this strategy will work. The budget deals of the 1980s and 1990s were all roughly 50-50: half tax increases, half spending cuts.

At some point, taxes have to be back on the table as the price that must be paid for profligate spending. Only then will the American people realize that they can't have their cake and eat it too, as Republicans have preached for the last decade. Only when the American people go back to believing that spending must be paid for will they stop demanding something for nothing and put the country back on the path to fiscal sanity.

Paul Krugman: Baucus and the Threshold

Should "serious supporters of health care reform" vote for the Baucus plan?:

Baucus and the Threshold, by Paul Krugman, Commentary, NYTimes: So Senator Max Baucus, the chairman of the Senate Finance Committee, has released his “mark” on proposed legislation — which would normally be the basis for the bill that eventually emerges from his committee. And serious supporters of health care reform will soon face their long-dreaded moment of truth.

You see,... whatever health-care bill finally emerges will fall far short of reformers’ hopes. Yet even a bad bill could be much better than nothing. ... How bad does a bill have to be to make it too bad to vote for?

Now, the moment of truth isn’t here quite yet: There’s enough wrong with the Baucus proposal as it stands to make it unworkable and unacceptable. But that said, Senator Baucus’s mark is better than many of us expected. If it serves as a basis for negotiation, and the result ... is a plan that’s stronger, not weaker, reformers are going to have to make some hard choices about the degree of disappointment they’re willing to live with.

Of course, those who insist that we must have a single-payer system — Medicare for all — won’t accept [this] plan... But ... European countries, including Switzerland and the Netherlands, have managed to achieve universal coverage with a mainly private insurance system. ...

So something along the general lines of the Baucus plan might be acceptable. But ... the bad news is that the plan, as it stands, is inadequate or badly conceived in three major ways.

First, it bungles the so-called “employer mandate.” Most reform plans include a provision requiring that large employers either provide their workers with health coverage or pay into a fund that would help workers ... buy coverage on their own. Mr. Baucus, however, gets too clever, trying to tie each employer’s fees to the subsidies its own employees end up getting.

That’s a terrible idea. As the Center on Budget and Policy Priorities points out, it would make companies reluctant to hire workers from lower-income families — and it would also create a bureaucratic nightmare. This provision has to go and be replaced with a simple pay-or-play rule.

Second, the plan is too stingy when it comes to financial aid..., suggesting that for many people insurance would not, in fact, be affordable. Fixing this means spending more than Mr. Baucus proposes.

Third, the plan doesn’t create real competition in the insurance market. The right way to create competition is to offer a public option... The Baucus plan instead proposes a fake alternative, nonprofit insurance cooperatives — and it places so many restrictions on these cooperatives that, according to the Congressional Budget Office, they “seem unlikely to establish a significant market presence in many areas of the country.”

The insurance industry, of course, loves the Baucus plan. Need we say more?

So this plan has to change. What matters now is the direction in which it changes.

It would be disastrous if health care goes the way of the economic stimulus plan, earlier this year. As you may recall, that plan — which was clearly too weak even as originally proposed — was made even weaker to win the support of three Republican senators. If the same thing happens to health reform, progressives should and will walk away.

But maybe things will go the other way, and Mr. Baucus (and the White House) will, for once, actually listen to progressive concerns, making the bill stronger.

Even if the Baucus plan gets better, rather than worse, what emerges won’t be legislation reformers can love. Will it nonetheless be legislation that passes the threshold of acceptability, legislation they can vote for? We’ll see.

"Afghanistan"

William Easterly has a question:

Afghanistan, William Easterly: Maybe I have a biased selection, but it seems like every sensible economist, political scientist, development worker, and journalist that I know thinks our current course in Afghanistan can have only one outcome -- disaster. Disaster for Americans, for our NATO allies, AND for Afghans.

Why is nobody listening?

"Are Tire Tariffs Stupid?"

Brad DeLong (I've added a few comments are at the end):

Barack Obama Does Something Really Stupid: Tire Tariffs, by Brad DeLong: Why oh why can't we have better Democratic presidents?

Barack Obama does something stupid. So does Harold Meyerson, who writes an op-ed on the tire tariff that clouds the issues.

Meyerson:

A Trade Test for Obama: Sometime before Sept. 17, President Obama has to make a decision that will tell us a lot about his commitment to American manufacturing. By that date, Obama has to accept, reject or modify a recommendation from the International Trade Commission (ITC) to impose tariffs on the Chinese-made tires that are swamping the U.S. market. The importance of this battle goes well beyond its impact on the tire industry. Much of Americans' skepticism toward free trade comes from their empirically verifiable sense that their government has been reluctant to enforce its own trade laws -- an issue that candidate Obama tackled head-on last year by his repeated pledges to enforce those laws.

Between 2004 and 2008, tire imports from China increased 215 percent, while imports from other nations decreased 5 percent and U.S. tire production declined 27 percent...

Harold: you need to provide people with the right numbers--which are that Chinese tires rose from 6 to 20 percent of U.S. purchases. You don't.

Meyerson goes on:

[T]he ITC's staff analysis forecast an increase of only $3.50 per tire -- not nothing, to be sure, but a cost that has to be measured against the possibility of tens of thousands of job losses in U.S. tire factories (where more than 5,000 jobs already have been lost because of Chinese imports)...

Let's see... 250 million cars in America... need 4 tires per car... need new tires every 2.5 years. 400 million tires a year... $1.4 billion dollars a year... 10,000 worker jobs saved... $140,000 dollars per worker-job per year.

Looks like we could (a) let the Chinese sell us tires, (b) tax each tire by $2.50, (c) pay each tire worker who loses his or her job $100K a year, and we come out ahead: American households have more money to spend on other things, China has more jobs to help what is still a very poor country grow, and tire workers have higher incomes and more leisure as well.

But, you say, it would be stupid to impose a $2 a tire tax and use the money to pay each laid-off tire worker $100K a year.

That's the point: when the policy you are adopting is worse for everybody than a policy you agree is stupid, the policy you are adopting is best characterized as really stupid.

"Too Big to Take a Pay Cut"

Dean Baker says "Tyler Cowen Is on the Money":

Where Politics Don’t Belong, by Tyler Cowen, Commentary, NY Times: For years now, many businesses and individuals in the United States have been relying on the power of government, rather than competition in the marketplace, to increase their wealth. This is politicization of the economy. It made the financial crisis much worse, and the trend is accelerating.

Well before the financial crisis erupted, policy makers treated homeowners as a protected political class and gave mortgage-backed securities privileged regulatory treatment. Furthermore, they allowed and encouraged high leverage and the expectation of bailouts for creditors... Without these mistakes, the economy would not have been so invested in leverage and ... the financial crisis would have been much milder.

But we are now injecting politics ever more deeply into the American economy, whether it be in finance or in sectors like health care. ... President Dwight D. Eisenhower warned of the birth of a military-industrial complex. Today we have a financial-regulatory complex, and it has meant a consolidation of power and privilege. We’ve created a class of politically protected “too big to fail” institutions, and the current proposals for regulatory reform further cement this notion. ...

We should stop using political favors as a means of managing an economic sector. Unfortunately, though, recent experience with health care reform shows we are moving in the opposite direction...

One disturbing portent came over the summer when it was reported that the Obama administration had promised deals to doctors and to pharmaceutical companies under the condition that they publicly support health care reform. That’s another example of creating favored beneficiaries through politics. ...

Even worse, these political deals threaten open discourse. The dealmaking may be inhibiting some people in health care from speaking out in opposition to the administration’s proposals. ... The banking sector has been facing similar constraints; if bankers criticize the Treasury or the Fed, they ... could get a bad deal when the next bailout comes. When major economic sectors can be influenced in this way, are we really very far from the nightmare depicted by Ayn Rand in “Atlas Shrugged”?

So if we’re looking for a major lesson from our banking mess, it is undoubtedly this: We have made a grave mistake in politicizing the economy so deeply, and should back away now. ...

In short, we should return both the financial and medical sectors and, indeed, our entire economy to greater market discipline. We should move away from the general attitude of “too big to take a pay cut,” especially when the taxpayer is on the hook for the bill. If such changes sound daunting, it is a sign of how deep we have dug ourselves in. ...

The "Undeserving Rich" and White Working Class Voters

Hmmm. Did the working class voters who favored Bush over Kerry do so because they believed Bush, unlike Kerry, was part of the "deserving rich"?:

Democrats seen as the 'undeserving rich' face rejection by party voters, EurekAlert: In a recent study, researchers from several universities looked at why white working-class voters voted Republican in recent national elections even when they didn't like Republican policies.

The study, "The Undeserving Rich: 'Moral Values' and the White Working Class," is in the current issue of Sociological Forum. It finds that, even when Republican policies are unpopular, they often come bundled with an overarching moral framework that is extremely resonant to this set of voters, a framework marked by what voters considered an "appropriate" attitude toward personal wealth. [Note: ungated version of the paper.]

This attitude was characterized by respondents as a "down to earth" quality as opposed to "aloofness." Whether candidates see themselves as better than "normal human beings" because of their wealth, say the researchers, was to many respondents more important than how much money they actually have.

Did the Administration Make a Tactical Error?

Barry Ritholtz says the administration should have pursued financial reform before health care reform:

Tactical Error: Health Care vs Finance Regulatory Reform, by Barry Ritholtz: I believe the brain trust behind the Obama White House has made a huge tactical error.

As Rahm Emmanuel likes to say, one should “never waste a crisis” — and the White House has done just that.

There was a narrow window to effect a full regulatory reform of Wall Street, the Banking Industry and other causes of the collapse. Instead, the White House tacked in a different direction, pursuing health care reform.

This was an enormous miscalculation. ... What we got instead, was the usual lobbying efforts by the finance industry. They own Congress, lock stock and barrel, and they throttled Financial Reform. It did not help that the Obama economic team is filled with defenders of the Status Quo — primarily Summers, but it appears Geithner also — the dynamic duo that fiddled while the economy burned.

Such dithering can be fatal to an administration.

This was a colossal blunder.  Passing reform legislation successfully would have fulfilled the campaign promise of “Change;” it would have created legislative momentum. It could have provided a healthy outlet for the Tea Party anger and the raucous Town Hall meetings. It might have even led to a “throw the Bums out” attitude in the mid-term elections, forcing the most radical de-regulators from office.

Also wasted: The enormous anti-Bush attitude throughout the country that swept team Obama into office. He should have been “Hooverized,” and O should have tapped into that same wave to force the greatest set of Wall Street and Banking regulatory reforms seen since the 1930s.

Instead, we have a White House that appears adrift, and the most importantly, may very well have missed the best chance to clean up Wall Street in five generations.

Never waste a crisis, indeed . . .

I also believe that the administration should have moved faster on financial reform, but if the cost is to delay and possible endanger health care reform (lobbying efforts would have been in full force there too), then it's less clear. Would it have been impossible to do both? And where does climate change legislation fit into all of this?

"The Public Plan Is Not the Same Thing as Cost Control"

Ezra Klein is worried that opposition to any health care reform plan that does not contain a public option will prevent legislation that is "a useful first step" from moving forward. He argues that the public plans that have been proposed would do very little to control costs, so giving them up is not much of a sacrifice:

The Public Plan Is Not the Same Thing as Cost Control, by Ezra Klein: This will not be a popular post, I fear. But one of the themes I'm seeing in a lot of the commentary is that the absence of a public plan is essentially equivalent to the absence of cost control, and the presence of a public plan is pretty much the presence of cost control. For the public plans on the table, that's not true, at least not in any way I can see.

You can control costs in one of three ways: use less treatment, need less treatment, or pay less for treatment. The theory of the public plan rested on paying less for treatment, as Medicare does (though it's important to note that Medicare's costs are still rising at a totally unsustainable rate, albeit a slightly less unsustainable rate than private insurance). The problem is that the public plan no longer has the attributes that permit Medicare to pay less for treatment.

The strongest public plan on offer is in the bill being considered by the House of Representatives. This plan is limited to the health insurance exchanges, which are in turn limited to employers with fewer than 20 workers. So that's the first point: The vast majority of Americans would be ineligible for the public plan, even if they wanted it. The CBO estimates that by 2019, the public plan would have a likely enrollment of 10 million Americans — and that estimate (pdf) imagines a world in which the exchanges are opened to businesses with 50 or fewer employees, which is to say, it's more favorable than the actual bill.

The end result is that the public plan is unlikely to have a very large customer base, which means it will be unable to use market share to bargain prices far lower than private insurers. That might not matter if the plan could attach itself to the rates that Medicare uses. In the first draft of the House bill, the plan could do that, at least for its first three or four years of existence, after which point it was cut loose from Medicare. But the deal Henry Waxman cut with the Blue Dogs erased that advantage, and now the public plan, even in the House bill, is on its own. That is to say, the plan has neither Medicare bargaining power nor the sort of customer base that gave Medicare its bargaining power.

Is that an argument against the public plan? Nope. There are real advantages to the presence of a public alternative. Competition matters, for one thing, and there are a lot of states where one or two private insurers essentially control the market. Experimentation matters, too, and the public plan could be used alongside Medicare to test payment reforms and disease management programs that could pay off in the long run. The public plan could also usher in a fairly radical level of transparency in pricing and behavior, forcing private insurers to follow suit. And lastly, the public plan is something of a corporate accountability measure. Its presence in the market ensures that health-care reform won't simply be a large reward to the insurance companies absent any serious changes in their behavior.

These were the original arguments for the public plan, and they're as strong today as they were then. But they are not the same as cost control. ... This step in health-care reform is largely about expanding coverage and creating a structure — with universality and the exchanges and so forth — that will make cost control easier down the road. None of the bills, on their own, really do all that much to control costs.

He's correct - the options for a public plan that have been proposed do not do much to control costs, and even in this weakened form, there is still considerable opposition to the proposed public plans from the right. The frustration on the left is over why the proposals for a public plan are so limited. Why don't they do more to control costs? Democrats control the White House and Congress, yet they cannot get this legislation passed? That is puzzling to many supporters. The practical realities of enacting legislation are far from the vision that many people had about what would happen after the election. For these people, cost control or lack of it is not the point, this is all about political power and allegiance to the people who put the president and congress in power. They would be far more willing to accept something like the Baucus plan if they felt that the administration had gone down fighting rather than giving in to the wishes of the other side whenever they manage to make a little noise.

I also agree with this. Here's Paul Krugman discussing Obama's health care speech to Congress tomorrow:

I, for one, won’t be obsessing about exactly which pieces of proposed reform he emphasizes — because that’s not what’s driving the politics. Americans haven’t become skeptical about Obamacare because they’d rather shave an extra $30 billion a year off the cost; they have not, contrary to “centrist” fantasies, been turned off by the details of the stimulus plan or cap-and-trade. What has been missing is a vision. And this is probably the last chance to supply that vision.

There are people on the left who want to feel as though they've finally triumphed over Republicans, and triumph has been defined, in part, as enacting a public plan (if for no other reason than the fact that Republicans oppose it). Compromise is not a win to many of the administration's supporters, and that's a problem since some form of compromise may be the only way to get legislation enacted. But if the goals are made clear, and that requires a clear statement of the administration's vision, then a "win" can be clarified as well. Is the vision cost control? Expanded coverage? What is the main goal of reform? The administration needs a clear statement of where it wants to go and how the proposals on the table will get us there, it needs to give supporters something besides a public plan to rally around. If it can do that, then health care legislation that does not include a public plan can still be a "win" in the eyes of supporters.

Reich: The Lessons from History on Health Care Reform

Robert Reich says one of the keys to health care reform is to ignore or disregard economists:

The Lessons from History on Health Care Reform, by Robert Reich: With Congress returning from recess to consider health care legislation and the President set to deliver a major address on the subject to both houses of Congress tomorrow, a bit of history may be in order. An excellent starting place David Blumenthal's and James Marone's "The Heart of Power," which I reviewed for the New York Times this past weekend. Here are the major points:

Universal health care has bedeviled, eluded or defeated every president for the last 75 years. ...

Devising a plan is easy compared with the politics of getting it enacted. Mere mention of national health insurance has always prompted a vigorous response from the ever-vigilant American Medical Association; in the 1930s, the editor of its journal equated national health care with “socialism, communism, inciting to revolution.” Bill Clinton’s plan was buried under an avalanche of hostility that included the now legendary ad featuring the couple Harry and Louise voicing their fears that the Clinton plan would substitute government for individual choice — “they choose, we lose.”

One lesson is that a new president must move quickly, before opponents have time to stoke public fears. ...

Congress can be just as much of an obstacle:... a president must set broad health reform goals and allow legislators to fill in the details, but be ready to knock heads together to forge a consensus. ...

Presidents who have been most successful in moving the country toward universal health coverage have disregarded or overruled their economic advisers. Plans to expand coverage have consistently drawn cautions or condemnations from economic teams in every administration, from Harry Truman’s down to George W. Bush’s. An exasperated Lyndon Johnson groused to Ted Kennedy that “the fools had to go to projecting” Medicare costs “down the road five or six years.” Such long-term projections meant political headaches. “The first thing, Senator Dick Russell comes running in, says, ‘My God, you’ve got a one billion dollar [estimate] for next year on health. Therefore I’m against any of it now.” Johnson rejected his advisers’ estimates and intentionally lowballed the cost. “I’ll spend the goddamn money.” An honest economic forecast would most likely have sunk Medicare.

It’s not so much that presidential economic advisers have been wrong — in fact, Medicare is well on its way to bankrupting the nation — but that they are typically in the business of thinking small and trying to minimize risk, while the herculean task of expanding health coverage entails great vision and large risk. Economic advice is important, but it’s only one source of wisdom.

Yet since Johnson, presidents have found it increasingly difficult to keep their economists at bay, mainly as a result of the growth of Washington’s economic policy infrastructure. Cost estimates and projections emanating from the White House’s Office of Management and Budget and the Congressional Budget Office, both created during the Nixon administration, have bound presidents within webs of technical arguments, arcane rules and budget limits. To date, Democratic presidents have felt more constrained by this apparatus than Republicans, perhaps because they have felt more of a need to prove their cost-cutting chops.

President Obama seems to have anticipated many of these lessons. He’s moved as quickly on the issue as this terrible economy has let him, and he has not been too rattled by naysaying economists (although the cost estimates of the Congressional Budget Office set him back). But although he outlined his goals but left most details to Congress, the lesson from history is that he may have waited too long to force a deal on that disorderly body (especially disorderly when Democrats are in charge). The question remains whether, in the weeks and months ahead, he can knock Congressional heads together to clinch it, and overcome those who inevitably feed public fears about a “government takeover” of health care and of budget-busting future expenditures. He needs to work fast, and be tough as nails.

But even if Obama fails, there is an art to losing, too — in a way that can tee up the issue for future presidents. Truman lost but nonetheless redefined the terms of debate, setting the stage for Medicare (which is why Johnson honored Truman when he signed it into law). Compare him with Clinton, who walked away from the wreckage of his health care plan and rarely mentioned the subject again. This allowed opponents to gain control over the spin and history, so that the Democrats’ signature cause slipped out of political sight for a decade. ...

Making the Sale on Health Care Reform

Matt Miller says the framing of health care reform is crucial:

Lessons for Obama from Ted Kennedy’s noble flops, by Matt Miller, Commentary, Financial Times: ...Senator Kennedy has rightly been hailed as a passionate voice for the voiceless and a master of the legislative process. But any assessment of his legacy is incomplete if it fails to ask why American liberalism’s modern icon proved so ineffective in persuading his country to share his vision.

This is not a matter of abstract interest. President Barack Obama stands little chance of succeeding in the coming healthcare endgame without understanding why, for all his passion, Kennedy could not make the sale. ... There is no single answer. But one reason was the sense among voters that liberals tended to worry more about the poor than about the struggling middle class. This same sentiment now threatens Mr Obama’s health reform.

“We have to do better at making this issue a moral imperative,” Tom Daschle, former Senate majority leader (and Obama confidante) told the New York Times Magazine last month. “This in many respects is the civil rights battle of the early part of this century.” But middle-class voters do not see healthcare as a “civil rights issue” – a cause in which they should enlist to bring justice to others. With soaring premiums and shrinking and precarious coverage, the 85 per cent of Americans who have health insurance see reform as a matter of economic security for their families.

Unfortunately, the American left has for years defined the issue predominantly as a matter of ending the scandal of the uninsured. ... The Democratic argument has failed to emphasize how health reform can deepen the economic security (and improve the health status) of the middle class. Yes, one part of that argument is to ensure that no American in the 21st century goes without coverage. But the liberal instinct – to focus first on the neediest in ways that lead squeezed middle-income voters to conclude liberals want to take their hard-earned money and spend it on someone else – helps explain why Kennedy-style politics never prevailed.

Democrats need to frame their goals as inclusive measures to promote security and opportunity in a global economy – improving the life chances of society’s most luckless but also bolstering the security and prospects of America’s vast middle class. This is also the only way to persuade average Americans to pay for such policies...

I've also argued that the debate needs to be framed in terms of how it will help the typical household (while maintaining the goal of expanding coverage), so while I might have stated it differently, I think the argument that the benefits to middle class voters need to be emphasized is essentially correct. The moral argument for extending care to those who currently cannot afford it is important, and I wish it was enough by itself to motivate changes, but I suspect too many people will wonder why the government wants them to help pay for someone else's health care when they can't afford to the coverage they need for their own families. Unless and until reformers can answer that question satisfactorily, reform will be difficult to bring about.

*****

[A quick, far from comprehensive comment on the Baucus health care plan: The plan s far from perfect, and it doesn't do a lot for typical households, but it does provide a cap on out of pocket expenses thereby eliminating the risk that a serious medical condition will create severe financial hardship. Protecting people from catastrophic outcomes is an important and worthy goal, and that does provide additional security to typical households, but I'm not sure the additional security the plan provides is enough by itself to make the sale on health care reform to the voters who matter. Most people will be required to have health insurance and people on this plan will still face high deductibles and high co-payments for regular care.]

Do Corporations Have a Right to Free Speech?

The Supreme Court is going to decide if corporations have First Amendment rights that allow "direct, unlimited corporate participation in campaigns." Let's hope the decision is that they don't:

Corporate free speech? Since when?, by Jim Sleeper, Commentary, Boston Globe: ...Theodore B. Olson, George W. Bush’s solicitor general until 2004 ... is now the lead advocate for Citizens United, a nonprofit corporation that produced “Hillary: The Movie’’ to swift-boat Senator Clinton’s presidential campaign.

“Hillary’’ didn’t get much distribution because campaign-finance laws ... and court rulings ... bar corporate-funded ads from elections. But now the Supreme Court will review Citizens United v. Federal Election Commission on Sept. 9. Free-speech absolutists, from the National Rifle Association to the American Civil Liberties Union, support Citizens United ’s claim that FEC restraints were unjustified.

But if they win, free speech will be drowned out... Corporations are creations of the republic, not its equals or superiors. We citizens charter them, protect them legally, subsidize them, and even bail them out - and punish them when, as with Pfizer Chemical, their profit-maximizing violates drug-safety rules. We couldn’t do that if a level playing field of “robust speech’’ were overwhelmed by corporate speech...

That’s what’s at stake in the Supreme Court’s worrisome readiness to consider overturning restrictions the republic was wise enough to enact. If Olson’s business clients want to smear Clinton, let them do it openly, not from behind the façade of a corporation claiming First Amendment rights. ...

And:

Will Deep Pockets Always Win? It's In Roberts's Court., by Robert G. Kaiser, Commentary, Washington Post: ...This year or next the court could ... remake the American system by permitting a flood of corporate money into our electoral campaigns..., such a decision would create vast new opportunities for a particular class of Americans..., corporate elites. ...

Until this summer, the barriers preventing the use of corporate and union funds in political campaigns -- the oldest dating to 1907 -- were "firmly embedded in our law"... Could the court really allow corporations and their agents -- the Chamber of Commerce, say, or coalitions of companies created for the purpose -- to campaign openly for or against individual candidates for federal office? Yes, it could. Campaign finance reformers are afraid that the two newest conservative members of the court, Chief Justice John Roberts and Justice Samuel Alito, may be eager to overturn a long line of precedents. ...

How would the political world be changed by legalized corporate campaigning? There would be a vast increase in the influence of corporations. ... Not surprisingly, corporate interests have always done well in Congress. More than a quarter-century ago, then-Sen. Bob Dole ... told the Wall Street Journal: "When these political action committees give money, they expect something in return other than good government."

"We may reach a point," Dole predicted, "where if everybody is buying something with PAC money, we can't get anything done." Dole was prophetic. Congress has failed to legislate on urgent issues for years -- think of health care, climate change, immigration, Social Security and Medicare. The organized interest groups that surround those issues rely on money to defend their positions and frustrate new initiatives. This is the wall our new president ran into this summer.

What is now called "corporate" money in our politics is raised from the shareholders and executives of the companies that maintain PACs. Unions similarly collect PAC contributions from their members. Executives and their families can make personal donations. These are the only legal ways for corporate executives and companies to contribute to campaigns. The law sets limits on how much both PACs and individuals can raise and give...

A decision to allow direct, unlimited corporate participation in campaigns would nullify the impact of those rules. American corporations ... would obviously have enough money to blow the roof off campaign spending standards.

But the most dramatic effect of eliminating legal restrictions on corporations' spending could come not in campaigns but in the realm of lobbying. Fred Wertheimer of Democracy 21 ... explained: "Just imagine the impact on a member of Congress in the midst of deciding what to do on health care or climate control or banking legislation if the member knew that dozens of companies in affected industries each could spend millions of dollars . . . on full-scale campaigns to defeat or elect the member." ...

Study Hard and Stay in School = Socialism?

Apparently, people who are upset that prayer has been removed from schools are worried the president's "study hard and stay in school" message is an attempt to indoctrinate students.

They are worried the speech will "spread President Obama’s socialist ideology."

Of course, this is fine:

While Republicans are busy gnashing their teeth over President Obama's imminent indoctrination of the nation's schoolchildren, there's an education story bubbling up in Texas that could have considerably more far-reaching consequences.

The GOP-controlled State Board of Education is working on a new set of statewide textbook standards for, among other subjects, U.S. History Studies Since Reconstruction. ...

Approved textbooks, the standards say, must teach the Texan student to "identify significant conservative advocacy organizations and individuals, such as Newt Gingrich, Phyllis Schlafly, and the Moral Majority." No analogous liberal figures or groups are required...

Paul Krugman has it right, these are not people that will be persuaded by logical arguments:

The point is that whatever is driving all this doesn’t have anything to do with the realities of what I, or, much more important of course, Obama say or do. Obama could have come in proposing to pursue an agenda identical to Bush, and he would still be a socialist/Commie/fascist, with those of us who don’t see it that way lying Nazis ourselves.

Something is going very wrong in the heads of a substantial number of Americans.

There is no middle ground, no ideological center, no place to meet these people halfway. Any attempt to appease these is a waste of valuable time, gives the media a controversy to cover, and encourages more of the same.

But how do you defend against this nonsense when the media's coverage gives it the status of a legitimate claim? If the administration stays silent, the media will build the controversy up in an attempt to force a response - they do very well ratings-wise when there are controversies - and that amplifies the false, negative message. If the administration engages the false charges and responds, that too simply stokes the fires and encourages more. So what's the answer?

Somehow, the focus needs to be on the messengers rather than the message, and Barney Frank's "On what planet do you spend most of your time" is a start in this direction.

Update: Joe Klein:

It Gets Worse, by Joe Klein: I was at a Blanche Lincoln town hall meeting in Russellville, Arkansas, yesterday--and the number of people who believe that the President has larded the government with communists (!) was astonishing. One woman said there were four known communists in the government and that she'd researched it on the internet. When I asked her afterwards, she said environmental adviser Van Jones, legal advisor Cass Sunstein (who was last spotted being excoriated by the left for supporting the FISA revisions), someone named Lloyd and she didn't remember the fourth. And wasn't it suspicious that Obama had all these czars working for him--that was a Russkie commie term, wasn't it? When I asked, the woman admitted that, among other things, she occasionally listened to William Bennett's conservative radio show. I pointed out that Bennett had once been the Drug Czar, appointed by Ronald Reagan. Life sure can be complicated sometimes. ...

The amazing thing remains not only the unwillingness of responsible Republicans--a term that is in danger of becoming an oxymoron--to call bull-- on this, but also the willingness of many prominent Republicans to join in the slinging of garbage. Michelle Cottle reports that there are Republican-sanctioned efforts afoot to have parents not send their children to school on September 8 because the President is scheduled to address the nation's school-children that day and they are afraid that he will fill their little heads with socialist propaganda. That is somewhere well beyond disgraceful. 

Could I just say that the intensity of this getting pretty scary...and dangerous? We are heading toward a cliff and the usual brakes of civil discourse are not working. Indeed, the Republicans have the pedal to the metal--rushing us toward a tragedy far greater than the California health care forum finger-biting Karen describes below. I'm usually not one to panic or be overly worried about the state of our country--even when we do awful things like invade Iraq and torture people, we usually right our course before long--but I have a sinking feeling about where we're headed now. I hope I'm wrong.

We'll see about the "usually right our course before long" claim for torture and Iraq (and Afghanistan?), and so far our progress doesn't bode well if that's the model for repairing civil discourse and public debate.

Update: Speaking of speaking to schoolchildren:

...On November 14, 1988, Reagan addressed and took questions from students from four area middle schools in the Old Executive Office Building. According to press secretary Marlin Fitzwater, the speech was broadcast live and rebroadcast by C-Span, and Instructional Television Network fed the program “to schools nationwide on three different days.” Much of Reagan’s speech that day covered the American “vision of self-government” and the need “to keep faith with the unfinished vision of the greatness and wonder of America” but in the middle of the speech, the president went off on a tangent about the importance of low taxes... During the question-and-answer portion of the event, Reagan ...[told] students that lowering taxes increases revenue...

Ideas versus Discipline

"This is just the latest chapter of a long saga":

The Guns of August, and Why the Republican Right Was So Adept at Using Them on Health Care, by Robert Reich: What we learned in August is something we've long known but keep forgetting: The most important difference between America's Democratic left and Republican right is that the left has ideas and the right has discipline. Obama and progressive supporters of health care were outmaneuvered in August -- not because the right had any better idea for solving the health care mess but because the rights' attack on the Democrats' idea was far more disciplined than was the Democrats' ability to sell it.

I say the Democrats' "idea" but in fact there was no single idea. Obama never sent any detailed plan to Congress. Meanwhile, congressional Dems were so creative and undisciplined before the August recess they came up with a kaleidoscope of health-care plans. The resulting incoherence served as an open invitation to the Republican right to focus with great precision on convincing the public of their own demonic version of what the Democrats were up to -- that it would take away their Medicare, require "death panels," raise their taxes, and lead to a government takeover of medicine, and so on. ...

This is just the latest chapter of a long saga. Over the last twenty years, as progressives have gushed new ideas, the right has became ever more organized and mobilized in resistance -- capable of executing increasingly consistent and focused attacks, moving in ever more perfect lockstep, imposing an exact discipline often extending even to the phrases and words used repeatedly by Hate Radio, Fox News, and the oped pages of The Wall Street Journal ("death tax," "weapons of mass destruction," "government takeover of health care.") I saw it in 1993 and 1994 as the Clinton healthcare plan -- as creatively and wildly convoluted as any policy proposal before or since -- was defeated both by a Democratic majority in congress incapable of coming together around any single bill and a Republican right dedicated to Clinton's destruction. ...

You want to know why the left has ideas and the right has discipline? Because people who like ideas and dislike authority tend to identify with the Democratic left, while people who feel threatened by new ideas and more comfortable in a disciplined and ordered world tend to identify with the Republican right. Democrats and progressives let a thousand flowers bloom. Republicans and the right issue directives. This has been the yin and yang of American politics and culture. But it means that the Democratic left's new ideas often fall victim to its own notorious lack of organization and to the right's highly-organized fear mongering. ...

August is coming to a close, and congressional recess is about over. History is not destiny, and Democrats and progressives can yet enact meaningful health care reform... But to do so, we'll need to be far more disciplined about it. All of us, from Obama on down.

[On another issue - people "who like ideas and dislike authority" are the types who tend to end up in universities, so this would also explain how self-selection could lead to a disproportionate number of Democrats in academia.]

Update: Andrew Samwick says this all sounds familiar:

Robert Reich Is Having Deja Vu, Too, by Andrew Samwick: But he doesn't quite realize it.  In his latest post..., he laments the way Democrat "ideas" couldn't persevere against the onslaught of Republican "discipline."  Change a few details, and he's talking about failed Social Security reform in 2005:

I say the Democrats' "idea" but in fact there was no single idea. Obama never sent any detailed plan to Congress. Meanwhile, congressional Dems were so creative and undisciplined ... they came up with a kaleidoscope of health-care plans. The resulting incoherence served as an open invitation to the Republican right to focus with great precision on convincing the public of their own demonic version of what the Democrats were up to... The Obama White House -- a veritable idea factory brimming with ingenuity -- thereafter proved unable to come up with a single, convincing narrative to counteract this right-wing hokum. Whatever discipline Obama had mustered during the campaign somehow disappeared.

Being "coherent" enough to overcome "hokum" ought to be the minimum standard for legislation on this scale.  Like it or not, if you want to use the tools of a democratic government to reorganize markets for health care, you need more than an idea factory and staged townhall meetings.  You need some discipline yourself.  And we're not talking about Ironman triathlon level discipline.  We're only talking about government level discipline: white papers, Congressional hearings, and, critically, a forum in which the ideas in the bills that are moving through Congress are shown to be better ideas than the alternatives.  We haven't seen that at all.  In particular, show me why the bills moving through Congress, with all of their attendant costs, are better than a simple reform consisting only of:

1. Community rating
2. Guaranteed issue
3. Ex post risk adjustment
4. An individual mandate, with Medicaid for a fee as the backup option

And spare me the whining about how the Republicans don't have a better plan.  They don't have the White House.  They don't have the Senate.  They don't have the House.  They don't have to have a better argument than the claim that the Democrats' plan isn't better than the status quo.  It's not as if the Democrats shot down Social Security in 2005 and have now done something better.

Paul Krugman: Till Debt Does Its Part

Should you be worried about the national debt, or the politicians in charge of it?:

Till Debt Does Its Part, by Paul Krugman, Commentary, NY Times: So new budget projections show a cumulative deficit of $9 trillion over the next decade. According to many commentators, that’s a terrifying number, requiring drastic action — in particular, of course, canceling efforts to boost the economy and calling off health care reform.

The truth is more complicated and less frightening. Right now deficits are actually helping the economy. In fact, deficits here and in other major economies saved the world from a much deeper slump. The longer-term outlook is worrying, but it’s not catastrophic.

The only real reason for concern is political. The United States can deal with its debts if politicians of both parties are, in the end, willing to show at least a bit of maturity. Need I say more?

Let’s start with the effects of this year’s deficit. ... Consider what would have happened if the U.S. government and its counterparts around the world had tried to balance their budgets as they did in the early 1930s. It’s a scary thought. If governments had raised taxes or slashed spending in the face of the slump, if they had refused to rescue distressed financial institutions, we could all too easily have seen a full replay of the Great Depression.

As I said, deficits saved the world.

In fact,... the ... White House forecast shows a nation stuck in purgatory for a prolonged period, with high unemployment persisting for years. If that’s at all correct — and I fear that it will be — we should be doing more, not less, to support the economy.

But what about all that debt we’re incurring? That’s a bad thing, but it’s important to have some perspective. ...

Here’s one way to look at it: We’re looking at a rise in the debt/G.D.P. ratio of about 40 percentage points. The real interest on that additional debt (you want to subtract off inflation) will probably be around 1 percent of G.D.P., or 5 percent of federal revenue. That doesn’t sound like an overwhelming burden.

Now, this assumes that the U.S. government’s credit will remain good so that it’s able to borrow at relatively low interest rates. So far, that’s still true. Despite the prospect of big deficits, the government is able to borrow money long-term at ... less than 3.5 percent, which is low by historical standards. People making bets with real money don’t seem to be worried about U.S. solvency. ...

So is there anything to worry about? Yes, but the dangers are political, not economic.

As I’ve said, those 10-year projections aren’t as bad as you may have heard. Over the really long term, however, the U.S. government will have big problems unless it makes some major changes. In particular, it has to rein in the growth of Medicare and Medicaid spending.

That shouldn’t be hard in the context of overall health care reform. After all, America spends far more on health care than other advanced countries, without better results, so we should be able to make our system more cost-efficient.

But that won’t happen, of course, if even the most modest attempts to improve the system are successfully demagogued — by conservatives! — as efforts to “pull the plug on grandma.”

So don’t fret about this year’s deficit; we actually need to run up federal debt right now and need to keep doing it until the economy is on a solid path to recovery. And the extra debt should be manageable. If we face a potential problem, it’s not because the economy can’t handle the extra debt. Instead, it’s the politics, stupid.

Update: A response to Jim Hamilton:

The burden of debt. by Paul Krugman: I respect Jim Hamilton a lot, so I take his criticism seriously — and he raises questions that others raise too about my relatively sanguine assessment of the debt situation. Yet I think that he and others are quite wrong, on several counts.

First off: the assertion that the post-World War II debt was sui generis, that it offers no guidance on what we can afford. It’s true that right after the war it was possible to get a drastic reduction in spending easily, since we didn’t have to fight the Axis any more. But let’s take a slightly later start date: in 1950, federal debt in the hands of the public was 80 percent of GDP, which is in the ballpark of what we’re looking at for 2019. By 1960 it was down to 46 percent — and I haven’t heard that anyone considered America a debt-crippled nation when JFK took office.

So how was that possible? Was it through drastic cuts in defense spending? On the contrary: we’re talking about the height of the Cold War (with a hot war in Korea along the way), and federal spending actually rose as a share of GDP. So yes, it wasn’t entitlement programs, but it wasn’t exactly discretionary either.

How, then, did America pay down its debt? Actually, it didn’t: federal debt rose from $219 billion in 1950 to $237 billion in 1960. But the economy grew, so the ratio of debt to GDP fell, and everything worked out fiscally.

Which brings me to a question a number of people have raised: maybe we can pay the interest, but what about repaying the principal? Jim gets scary numbers about the debt burden by assuming that we’ll have to pay off the debt in 10 years. But why would we have to do that? Again, the lesson of the 1950s — or, if you like, the lesson of Belgium and Italy, which brought their debt-GDP ratios down from early 90s levels — is that you need to stabilize debt, not pay it off; economic growth will do the rest. In fact, I’d argue, all you really need to do is stabilize debt in real terms.

So where Jim Hamilton has us paying $1 trillion a year to service $9 trillion in debt, I have us paying $225 billion — 2.5% real interest on that sum.

Now, how does that compare with the tax base? Hamilton rather mysteriously compares debt service only with current personal income taxes. If we use the overall tax take, and talk about what that tax take will be a decade from now, things look much less severe.

So: in 2008, with revenues already depressed by the recession and housing bust, the federal government took in $2.5 trillion in revenues. If we assume 2.5% real growth* and 2% inflation, by 2019 that would rise to $4 trillion. So debt service costs due to the next decade’s deficits would be less than 6 percent of revenue under current law.

So, to review: to make the debt look scary, you have to dismiss the post-World -War II experience, even though it turns out that the 50s offer a quite good lesson; assume that in the future the federal government will have to amortize debt over a quite short period, even though it never had to in the past; compare this inflated debt burden with a narrow piece of the federal tax base; and ignore the likely growth in the tax base over the next decade.

I’m not convinced.

*Contrary to what some think, we’d actually expect growth over the next decade to be somewhat above trend, as the economy picks up some of the current slack. That’s what the historical record tells us actually happens.

"Obama Lucky to Have Bernanke"

Brad DeLong explains why presidents are willing to reappoint Fed chairs that are members of opposing political parties:

Obama lucky to have Bernanke, by J. Bradford DeLong, Commentary, Project Syndicate: William McChesney Martin, a Democrat, was twice reappointed chairman of the ... Federal Reserve by Republican President Dwight D. Eisenhower.

Paul Volcker, a Democrat, was reappointed once by the Reagan administration (but not twice: there are persistent rumors that Reagan's treasury secretary, James Baker, thought Volcker too invested in monetary stability and not in producing strong economies to elect Republicans).

Alan Greenspan, a Republican, was reappointed twice by Bill Clinton. And now Barack Obama has announced his intention to renominate Republican appointee Ben Bernanke...

The reason American presidents are so willing to reappoint Fed chairmen from the opposite party is closely linked to ... confidence of financial markets that the Fed will pursue non-inflationary policies.

If financial markets lose that confidence - if they conclude that the Fed is too much under the president's thumb to wage the good fight against inflation, or if they conclude that the chairman does not wish to control inflation - then the economic news is almost certain to be bad.

Capital flight, interest-rate spikes, declining private investment, and a collapse in the value of the dollar - all of these are likely should financial markets lose confidence in a Fed chairman.

And if they occur, the chances of success for a president seeking re-election - or for a vice president seeking to succeed him - are very low. By reappointing a Fed chairman chosen by someone else, a president can appear to guarantee to financial markets that the Fed is not too much under his thumb. ...

It may or may not be true, especially these days, that what is good for General Motors is good for America and vice versa, but certainly what is good economically for America is good politically for the president.

It is here that Obama has lucked out. Ben Bernanke is a very good choice for Fed chairman because he is intelligent, honest, pragmatic and clear-sighted in his vision of the economy. He has already guided the Fed through two very tumultuous years with only one major mistake - the bankruptcy of Lehman Brothers.

This probably helped with Obama's willingness to reappoint Bernanke:

For years, some of his closest friends did not know that Ben S. Bernanke was a Republican. ... "If you read anything he's written, you can't figure out which political party he's associated with," said Mark L. Gertler, a professor of economics at New York University who has written more than a dozen papers with Mr. Bernanke. Mr. Gertler, who said he did not know his close friend's political affiliation until relatively recently, added: "He's not ideological. I could imagine Ben working with economists in the Clinton administration." Alan S. Blinder, a longtime colleague at Princeton who has advised numerous Democratic presidential candidates, also said he had worked alongside Mr. Bernanke for years without having any sense of his political views. "We wrote articles together and sat at the same lunch table thousands of times before I knew he was a Republican," Mr. Blinder recalled. "We never talked politics." ...

Paul Krugman: All the President’s Zombies

The age of Reaganism should be over, but it isn't:

All the President’s Zombies, by Paul Krugman, Commentary, NY Times: The debate over the “public option” in health care has been dismaying in many ways. Perhaps the most depressing aspect for progressives, however, has been the extent to which opponents of greater choice in health care have gained traction — in Congress, if not with the broader public — simply by repeating, over and over again, that the public option would be, horrors, a government program.

Washington, it seems, is still ruled by Reaganism — by an ideology that says government intervention is always bad, and leaving the private sector to its own devices is always good.

Call me naïve, but I actually hoped that the failure of Reaganism in practice would kill it. It turns out, however, to be a zombie doctrine: even though it should be dead, it keeps on coming.

Let’s talk for a moment about why the age of Reagan should be over.

First of all, even before the current crisis Reaganomics had failed to deliver what it promised. Remember how lower taxes on high incomes and deregulation that unleashed the “magic of the marketplace” were supposed to lead to dramatically better outcomes for everyone? Well, it didn’t happen. ...

President George W. Bush, who had the distinction of ... presiding over the first administration since Herbert Hoover in which the typical family failed to see any significant income gains.

And then there’s the small matter of the worst recession since the 1930s. There’s a lot to be said about the financial disaster..., but the short version is simple: politicians in the thrall of Reaganite ideology dismantled the New Deal regulations that had prevented banking crises for half a century, believing that financial markets could take care of themselves. The effect was to make the financial system vulnerable to a 1930s-style crisis — and the crisis came.

“We have always known that heedless self-interest was bad morals,” said Franklin Delano Roosevelt in 1937. “We know now that it is bad economics.” And last year we learned that lesson all over again.

Or did we? The astonishing thing about the current political scene is the extent to which nothing has changed.

The debate over the public option has, as I said, been depressing in its inanity. ... But it’s much the same on other fronts. Efforts to strengthen bank regulation appear to be losing steam, as opponents of reform declare that more regulation would lead to less financial innovation — this just months after the wonders of innovation brought our financial system to the edge of collapse...

So why won’t these zombie ideas die?

Part of the answer is that there’s a lot of money behind them. ... In particular, vast amounts of insurance industry money have been flowing to obstructionist Democrats like Mr. Nelson and Senator Max Baucus, whose Gang of Six negotiations have been a crucial roadblock to legislation.

But some of the blame also must rest with President Obama, who famously praised Reagan during the Democratic primary, and hasn’t used the bully pulpit to confront government-is-bad fundamentalism. That’s ironic, in a way, since a large part of what made Reagan so effective, for better or for worse, was the fact that he sought to change America’s thinking as well as its tax code.

How will this all work out? I don’t know. But it’s hard to avoid the sense that a crucial opportunity is being missed, that we’re at what should be a turning point but are failing to make the turn.

Many people - people who make up key voting blocks - are happy with the health care coverage they have now (employer based or Medicare for the most part) and they do not want it to change. Thus, if they can be convinced that they will have to give up some of their own health care (and/or pay much higher taxes) in order to expand coverage to the uninsured, then they will be unlikely to support reform. The government death panel lie plays into people's fear of losing what they have now by implying that choices will be much more limited if reform is enacted, and worse, that someone else will make the choices for you. It promotes the general fear that government involvement means less options than are available now, and that many of the choices will be mandated.

Democrats made a mistake, I think, by not emphasizing that just the opposite is true. It is the failure to reform health care that will limit future choices, perhaps severely if cost projections are realized. Government is the best hope of maintaining the choices that are available now, and of expanding the choices available to those who currently have no health insurance. In light of this, the message from reform supporters has emphasized the need for both cost control and expanded coverage.

The problem with the message is that cutting costs and expanding coverage sounds like it's a tradeoff. That is, it sounds like the intent is to cut costs - partly by limiting choices for those who now have coverage - in order to expand coverage to those who are currently uninsured. Because of this, people who have adequate coverage are afraid of losing options and control over their care. Democrats need to explain that universal coverage and cost control are not tradeoffs in this sense, but rather both of these are elements of an overall strategy to do the best we can to maintain the choices that people now have. It's not one of the other, both are part of a system-wide approach to reform. The same is true with other elements of the plan such as the public option. This doesn't take away the choice of health care plans, it adds one and if people don't like it, they don't have to use it.

The point that Democrats must make clear is that doing nothing puts people's existing health care coverage at substantial risk. People should be very afraid if reform fails, especially people who have good coverage now since they're the ones with the most to lose. So while I wholeheartedly agree that Democrats need to confront "government-is-bad fundamentalism," they also need to make clear how government can do good. System-wide reform of health care is the best chance people have for a health care system that meets their needs at least as well as what they have now, and the necessary reform cannot be accomplished without government's help.

Paul Krugman: Obama’s Trust Problem

The fight over the public plan is about more than just health care policy:

Obama’s Trust Problem, by Paul Krugman, Commentary, NY Times: According to news reports, the Obama administration — which seemed, over the weekend, to be backing away from the “public option” for health insurance — is shocked and surprised at the furious reaction from progressives.

Well, I’m shocked and surprised at their shock and surprise.

A backlash in the progressive base — which pushed President Obama over the top in the ...election... has been building for months. The fight over the public option involves real policy substance, but it’s also a proxy for broader questions about the president’s priorities and overall approach. ...

One purpose of the public option is to save money. Experience with Medicare suggests that a government-run plan would have lower costs than private insurers; in addition, it would introduce more competition and keep premiums down.

And let’s be clear: the supposed alternative, nonprofit co-ops, is a sham. That’s not just my opinion; it’s what the market says: stocks of health insurance companies soared on news that the Gang of Six senators trying to negotiate a bipartisan approach to health reform were dropping the public plan. Clearly, investors believe that co-ops would offer little real competition to private insurers.

Also, and importantly, the public option offered a way to reconcile differing views among Democrats. Until the idea of the public option came along, a significant faction ... rejected anything short of true single-payer, Medicare-for-all reform... The public option ... settled some of those qualms.

That said, it’s possible to have universal coverage without a public option — several European nations do it — and some who want a public option might be willing to forgo it if they had confidence in the overall health care strategy. Unfortunately, the president’s behavior in office has undermined that confidence.

On the issue of health care itself, the inspiring figure progressives thought they had elected comes across, far too often, as a dry technocrat... Mr. Obama’s explanations of his plan have gotten clearer, but he still seems unable to settle on a simple, pithy formula...

Meanwhile, on such fraught questions as torture and indefinite detention, the president has dismayed progressives with his reluctance to challenge or change Bush administration policy.

And then there’s the matter of the banks.

I don’t know if administration officials realize just how much damage they’ve done themselves with their kid-gloves treatment of the financial industry...

So there’s a growing sense among progressives that they have, as my colleague Frank Rich suggests, been punked. And that’s why the mixed signals on the public option created such an uproar.

Now,... Mr. Obama was never going to get everything his supporters wanted.

But there’s a point at which realism shades over into weakness, and progressives increasingly feel that the administration is on the wrong side of that line. It seems as if there is nothing Republicans can do that will draw an administration rebuke: Senator Charles E. Grassley feeds the death panel smear, warning that reform will “pull the plug on grandma,” and two days later the White House declares that it’s still committed to working with him.

It’s hard to avoid the sense that Mr. Obama has wasted months trying to appease people who can’t be appeased, and who take every concession as a sign that he can be rolled.

Indeed, no sooner were there reports that the administration might accept co-ops as an alternative to the public option than G.O.P. leaders announced that co-ops, too, were unacceptable.

So progressives are now in revolt. Mr. Obama took their trust for granted, and in the process lost it. And now he needs to win it back.

"The Rationing Canard"

Free Exchange responds to a WSJ editorial by Martin Feldstein charging that "rationing health care is central to President Barack Obama's health plan":

The rationing canard, Free Exchange: Many, many people have already weighed in on whether or not the health care plan making its way through Congress will involve "rationing", and it was inevitable, I suppose, that Martin Feldstein would eventually decide that it's his turn. Here he is:

...The Obama strategy is to reduce health costs by rationing the services that we and future generations of patients will receive.

The White House Council of Economic Advisers issued a report in June explaining the Obama administration's goal of reducing projected health spending by 30% over the next two decades. That reduction would be achieved by eliminating "high cost, low-value treatments," by "implementing a set of performance measures that all providers would adopt," and by "directly targeting individual providers . . . (and other) high-end outliers."

The president has emphasized the importance of limiting services to "health care that works." To identify such care, he provided more than $1 billion in the fiscal stimulus package to jump-start Comparative Effectiveness Research (CER)... Comparative effectiveness could become the vehicle for deciding whether each method of treatment provides enough of an improvement in health care to justify its cost. ...

...The deployment of scare quotes would seem to suggest that Mr Feldstein has a problem with the government limiting high cost, low-value treatments, even though they're costly and not very valuable. In his third paragraph he says that Comparative Effectiveness Research—that is, research to determine whether treatments are effective or not—could lead to a cost-control mechanism which could become the vehicle for deciding whether a treatment's effectiveness justifies its cost. And then he says something about a system that in no way resembles the one America would have if the current reform package passed. Left unaddressed is whether it counts as rationing if you're still allowed to pay for additional services out of pocket.

It's fair for Mr Feldstein to recommend certain changes in the tax code, as he then proceeds to do, as a useful policy step. But why the long and dishonest preamble?

The bigger problem with the argument by rationing is that it seems to ignore how resources are allocated in a perfectly free market—by willingness or ability to pay. Mr Feldstein writes:

But unlike reductions in care achieved by government rationing, individuals with different preferences about health and about risk could buy the care that best suits their preferences. While we all want better health, the different choices that people make about such things as smoking, weight and exercise show that there are substantial differences in the priority that different people attach to health.

Certainly, preferences regarding the level of health insurance to carry vary, as do preferences for overall healthiness, as revealed by choices about things like smoking and diet. But to what extent are lifesaving treatments had or not had on the basis of preference? What about costly but effective therapies for chronic conditions?

The nub of the matter is this—government can afford to provide basic coverage to everyone, but it can't afford to provide every treatment everyone may want to everyone who wants it. It must therefore decide how to limit its expenses, and it can leave open the option of using a private practitioner to those who are denied care based on a cost-benefit analysis. Or government can provide coverage to no one, and those who cannot afford a treatment—effective or not—will go without. Those people will be just as fine as they'd be with treatment in some cases, they'll suffer in others, and occasionally they'll die because they couldn't afford coverage.

That's the nub of it, really. Faced with the prospect of a plan that provides effective treatments to everyone but forces people who want relatively ineffective treatments to pay for them on the private market, Mr Feldstein says he'd prefer a system where people who are unable to afford effective treatments don't get them, calling concern for those unable to pay for treatments "misplaced egalitarianism".

It's all well and good to let the market allocate televisions. Many people live happy lives without televisions, and lack of a television hasn't ever killed anyone. Attempting to provide a basic level of access to television to every American would be misplaced egalitarianism. I would have thought Mr Feldstein could understand the ways in which the market for televisions is different from that for health insurance.

I've discussed rationing via price and other mechanisms previously, (e.g. here), so let me instead try to characterize the political debate on this topic with an overly simplified example. We can, very roughly, break down medical costs as:

total medical costs = (cost per person)*(number of people covered)

The cost per person can be broken into two components:

cost per person = (number of procedures per person)*(cost per procedure)

The number of procedures per person is intended as a rough proxy for the level of care each person receives (i.e. the quality of care, and it includes all aspects of a particular procedure, including prescription drugs). Putting these together gives:

total medical costs = (cost per procedure)*(procedures per person)*(number of people covered)

The Republican attacks are, essentially:

Democrats intend or will be forced to reduce costs by reducing the number of people covered (perhaps focusing on the elderly) and by reducing procedures per person (i.e. a lower level of care on average). Dramatic tax increases may be needed as well.

The Democrat's response runs along the following lines:

That's a fabrication. There's no intent to reduce the number of people covered or to reduce the level/quality of care. In fact, the number of people covered must rise to achieve universal coverage, and procedures per person, i.e. the level of care, will only fall to the extent that procedures with little or no benefit are eliminated. The number of procedures (i.e. the quality  of care) will, if anything, go up.

To achieve the goal of universal coverage while controlling costs, it is necessary that costs per person fall. However, this will not be achieved through rationing care. Instead, costs per person will be reduced by lowering the cost per procedure (through lower administrative costs, increased competition, lower drug costs, etc.) and by eliminating unnecessary procedures. Additional revenue may also be used to broaden coverage. Cross-country studies indicate that the reduction in costs per person needed to provide universal coverage without reducing the level of care is achievable.

The goal of Democrats is to lower costs without sacrificing the quality of care (which will allow coverage to be expanded). Whether that's achievable or not is a legitimate point to debate, I think the experience in other countries suggests there's quite a bit of excess in the system that can be removed without affecting the quality of care people receive, but accusing Democrats of intending to cut the quality of care or to ration care within particular segments of the population (or overall) mischaracterizes what they are trying to achieve.

"The Public Option as a Signal"

More from Paul Krugman on the public option:

The public option as a signal, by Paul Krugman: Look, it is possible to have universal care without a public option; Switzerland does. But there are some good reasons for the prominence of the public option in our debate.

One is substantive: to have a workable system without the public option, you need to have effective regulation of the insurers. Given the realities of our money-dominated politics, you really have to worry whether that can be done — which is a reason to have a more or less automatic mechanism for disciplining the industry.

The second is what the option debate says about Obama.

If progressives had real trust in Obama’s commitment to doing the right thing, the administration would have broad leeway to do deals. But the president doesn’t command that kind of trust.

Partly it’s a matter of style — as many people have noted, he has been weirdly reluctant to make the moral case for universal care, weirdly unable to show passion on the issue, weirdly diffident even about the blatant lies from the right. Partly it’s a spillover from his other policies: by appointing an economic team that’s Rubin redux, by taking such a kindly attitude to the banks, he has squandered a lot of progressive enthusiasm.

Add in the dealmaking as part of the health care process itself, and progressives can be forgiven for having the impression that Obama (a) takes them for granted (b) is way too easily rolled by the other side.

So progressives have their backs up over one provision in health care reform that’s easy to monitor. The public option has become not so much a symbol as a signal, a test of whether Obama is really the progressive activists thought they were backing.

And the bizarre thing is that the administration doesn’t seem to get that.

I think there's another factor as well. It's not just that Democrats don't trust Obama's commitment to progressive issues, and it's not simply a matter of style, or a spillover from other appointments, though I do agree these are issues. It's also the sense that the same old right-wing crazies are driving the public debate to a much greater extent than is justified by the last election. This was supposed to be a new era, one where progressive ideas would dominate public policy, not an era where a false charge of "death panels" would dominate the public discourse, and certainly not an era where misrepresentations from the far right extreme would cause the public option to be dropped from the legislation.

Whether the administration simply does not have the political power, lacks sufficient will, doesn't understand the political significance, or what, it's hard for supporters to watch the same political game unfold once again in what was supposed to be a new era in progressive politics. It's a frustrating slap in the face for progressives who support the administration, and it's the sense of powerless against the right-wing false message machine that is driving that frustration.

The administration needs to take a stand against something important - and win. And not just for what is signals to supporters. Compromise will never appease the crazies on the right, strength is the only way to beat them.

Update: Robert Reich isn't ready to give up on the public option:

The Public Option's Last Stand, and the Public's, by Robert Reich: I would have preferred a single payer system like Medicare, but became convinced earlier this year that a public, Medicare-like optional plan was just about as much as was politically possible. Now the White House is stepping back even from the public option...

Without a public, Medicare-like option, health care reform is a bandaid for a system in critical condition. There's no way to push private insurers to become more efficient and provide better value to Americans without being forced to compete with a public option. And there's no way to get overall health-care costs down without a public option that has the authority and scale to negotiate lower costs with pharmaceutical companies, doctors, hospitals, and other providers -- thereby opening the way for private insurers to do the same.

It's been clear from the start that the private insurers and other parts of the medical-industrial complex have hated the idea of the public option, for precisely these reasons. A public option would cut deeply into their current profits. That's why they've been willing to spend a fortune on lobbyists, threaten and intimidate legislators and ordinary Americans, and even rattle Obama's cage to the point where the Administration is about to give up on it.

The White House wonders why there hasn't been more support for universal health care coming from progressives, grass-roots Democrats, and Independents. I'll tell you why. It's because the White House has never made an explicit commitment to a public option. ... If Obama tells Senate Democrats he will not sign a healthcare reform bill without a public option, there will be enough votes in the United States Senate for a public option.

I urge you to make it absolutely clear to everyone you know, everyone who cares about universal health care and what it will mean to our country, that the bill must contain a real public option. Tell that to your representatives in Congress. Tell that to the White House. If you are receiving piles of emails from the Obama email system asking you to click in favor of health care, do not do so unless or until you know it has a clear public option. Do not send money unless or until the White House makes clear its support for a public option.

This isn't just Obama's test. It's our test.

I'm not sure this is the place for the administration to take a stand, perhaps it is, but I am sure that they need to take stand on something. Let me ask a question. Can you articulate with a simple statement what the administration's primary goal for health care reform is? Is it to make coverage universal? To control costs and reduce future deficits? To stop the insurance companies from taking advantage of people who already have coverage? All of the above? Something else? I don't think you can take a solid stand on the issues until you've clearly articulated the main goal, and that has not been done. I suspect that the goals will be defined after reform is passed - if it is - and the goals will be defined as whatever they were able to get. We got the main things we were after we will be told, whether that is true or not. But if, in the end, reform is mostly cosmetic, I don't think that strategy will work.

To say that your goal is whatever you can achieve, whatever that is, would be fine if what is possible is independent of how clearly and forcefully the administration articulates its goals, but what can be achieved is not independent of the administration's articulation of its goals. When the goals are vague, it allows the other side to define reform, and do so on their terms and with their terminology, and that limits the possibilities that are available, perhaps fatally.

Paul Krugman: Republican Death Trip

What's the best way to respond to the lies that are being used to scare people into opposing health care reform?:

Republican Death Trip, by Paul Krugman, Commentary, NY Times: “I am in this race because I don’t want to see us spend the next year re-fighting the Washington battles of the 1990s. I don’t want to pit Blue America against Red America; I want to lead a United States of America.” So declared Barack Obama in November 2007, making the case that Democrats should nominate him ... because he could free the nation from the bitter partisanship of the past. ...

So, how’s it going? Sure enough, President Obama is now facing the same kind of opposition that President Bill Clinton had to deal with: an enraged right that denies the legitimacy of his presidency, that eagerly seizes on every wild rumor manufactured by the right-wing media complex. This opposition cannot be appeased...

Right now, the charge that’s gaining the most traction is the claim that health care reform will create “death panels” (in Sarah Palin’s words) that will shuffle the elderly and others off to an early grave. It’s a complete fabrication...

And not long ago, some of the most enthusiastic peddlers of the ... smear, including Newt Gingrich ... and Mrs. Palin herself, were all for “advance directives” ... the event that you are incapacitated or comatose. That’s exactly what was being proposed — and has now, in the face of all the hysteria, been dropped from the bill.

Yet the smear continues to spread. And ... Senior G.O.P. figures, including so-called moderates, have endorsed the lie. Senator Chuck Grassley, Republican of Iowa, is one of these supposed moderates. I’m not sure where his centrist reputation comes from..., his role in the health care debate has been flat-out despicable.

Last week, Mr. Grassley claimed that ... Ted Kennedy’s brain tumor wouldn’t have been treated properly in other countries because they prefer to “spend money on people who can contribute more to the economy.” This week, he told an audience that “you have every right to fear,” that we “should not have a government-run plan to decide when to pull the plug on grandma.”

Again, that’s what a supposedly centrist Republican, a member of the Gang of Six trying to devise a bipartisan health plan, sounds like.

So much, then, for Mr. Obama’s dream of moving beyond divisive politics. The truth is that the factors that made politics so ugly in the Clinton years — the paranoia of a significant minority of Americans and the cynical willingness of leading Republicans to cater to that paranoia — are as strong as ever. In fact, the situation may be even worse ... because the collapse of the Bush administration has left the G.O.P. with no real leaders other than Rush Limbaugh.

The question now is how Mr. Obama will deal with the death of his postpartisan dream. So far, at least, the Obama administration’s response ... has had a deer-in-the-headlights quality. It’s as if officials still can’t wrap their minds around the fact that things like this can happen to people who aren’t named Clinton...

What, then, should Mr. Obama do? It would certainly help if he gave clearer and more concise explanations of his health care plan. To be fair, he’s gotten much better at that over the past couple of weeks.

What’s still missing, however, is a sense of passion and outrage — passion for the goal of ensuring that every American gets the health care he or she needs, outrage at the lies and fear-mongering that are being used to block that goal.

So can Mr. Obama, who can be so eloquent when delivering a message of uplift, rise to the challenge of unreasoning, unappeasable opposition? Only time will tell.

Maybe the answer is to scare people with the truth. Without health care reform that reduces the growth in costs, we won't be able to sustain the level of health care we are delivering now let alone cover those who don't have access to the care they need. Other countries have demonstrated conclusively that it's possible to deliver high quality universal care at a much lower cost than in the US, so a failure to implement reform is also a failure to maximize the availability of high quality health care. For that reason the people trying to block reform are -- to put it in their terms -- the death squads. They are the the the ones putting health care at risk, particularly care for those reliant upon government programs such as Medicare that will face budget pressures if costs aren't controlled, so lets hope the fabrications and other antics don't deter us from implementing the changes that are necessary to ensure that we can meet our health care needs.

"The GOP's Misplaced Rage"

Bruce Bartlett argues that conservative anger is misplaced, it ought to be directed at George Bush rather than the current administration. That may be, but I don't blame conservatives for trying to hang our problems on the Obama administration. If they can get away with it, why not? I suppose you could argue that displacing the blame delays adjustments the GOP needs to make, the argument below is that conservatives will not reestablish credibility until they begin holding Republican Party memebers publicly accountable for transgressions of conservative ideals. I'll let conservatives figure out what is best for their own party, public blame of themselves or public blame of the current administration, my concern is that they can falsely blame the current administration and make questionable assertions without getting called on it in the media. It doesn't hurt your credibility to say false or misleading things about the Obama administration if there is no accountability for it from the major media (who instead seem to fan the flames of outrage irrespective of the underlying truth in their attempt to grab viewers). If the media carries the message without effective rebuttal, why not make outrageous claims?:

The GOP's Misplaced Rage, by Bruce Bartlett: ...Does anyone believe the economy would be growing faster or that unemployment would be lower today if John McCain had won the election? I know of no economist who holds that view. The economy is like an ocean liner that turns only very slowly. The gross domestic product and the level of employment would be pretty much the same today under any conceivable set of policies enacted since Barack Obama’s inauguration. ...

I think conservative anger is misplaced. To a large extent, Obama is only cleaning up messes created by Bush. ... Conservative protesters should remember that the recession, which led to so many of the policies they oppose, is almost entirely the result of Bush’s policies. According to the National Bureau of Economic Research, the recession began in December 2007—long before Obama was even nominated. ...

[T]he extremely poor economic performance of the Bush years really set the stage for the current recession. This is apparent when we compare Bush’s two terms to Bill Clinton’s eight years. ...

Throughout the Bush years, many conservative economists ... extravagantly extolled Bush’s economic policies. As late as December 21, 2007, after the recession already began, he wrote in National Review: “the Goldilocks economy is outperforming all expectations.” In a column on May 2, 2008, almost six months into the recession, Kudlow praised Bush for having prevented a recession.

But the truth was always that the economy performed very, very badly under Bush, and the best efforts of his cheerleaders cannot change that fact because the data don’t lie. Consider these comparisons between Bush and Clinton... [list of comparisons] ...

Conservatives delude themselves that the Bush tax cuts worked and that the best medicine for America’s economic woes is more tax cuts; at a minimum, any tax increase would be economic poison. They forget that Ronald Reagan worked hard to pass one of the largest tax increases in American history in September 1982 ... even though the nation was still in a recession that didn’t end until November of that year. Indeed, one could easily argue that the enactment of that legislation was a critical prerequisite to recovery because it led to a decline in interest rates. The same could be said of Clinton’s 1993 tax increase, which many conservatives predicted would cause a recession but led to one of the biggest economic booms in history.

According to the CBO, federal taxes will amount to just 15.5 percent of GDP this year. That’s 2.2 percent of GDP less than last year, 3.3 percent less than in 2007, and 1.8 percent less than the lowest percentage recorded during the Reagan years. If conservatives really believe their own rhetoric, they should be congratulating Obama for being one of the greatest tax cutters in history.

Conservatives will respond that some tax cuts are good while others are not. ... According to the supply-side view, temporary tax cuts and tax credits are economically valueless. Only permanent cuts in marginal tax rates will significantly raise growth.

On this basis, we see that Bush’s tax cuts were pretty much the opposite of what supply-side economics would recommend. The vast bulk of his tax cuts involved tax rebates—which failed in 2001 and again in 2008, because the vast bulk of the money was saved—or tax credits that had no incentive effects. While marginal rates were cut slightly—the top rate fell from 39.6 percent to 35 percent—it was phased in slowly and never made permanent. Neither were Bush’s cuts in capital gains and dividend taxes.

I could go on to discuss other Bush mistakes that had negative economic consequences, such as ... starting unnecessary wars in Iraq and Afghanistan, which will burden the economy for decades... But there is yet another dimension to Bush’s failures—the things he didn’t do. In this category I would put a health-care overhaul.

Budget experts have known for years that Medicare was on an unsustainable financial path. ... In 2003, the Bush administration repeatedly lied about the cost of the drug benefit to get it passed, and Bush himself heavily pressured reluctant conservatives to vote for the program.

Because reforming Medicare is an important part of getting health costs under control generally, Bush could have used the opportunity to develop a comprehensive health-reform plan. By not doing so, he left his party with nothing to offer as an alternative to the Obama plan. Instead, Republicans have opposed Obama's initiative while proposing nothing themselves.

In my opinion, conservative activists, who seem to believe that the louder they shout the more correct their beliefs must be, are less angry about Obama’s policies than they are about having lost the White House in 2008. They are primarily Republican Party hacks trying to overturn the election results, not representatives of a true grassroots revolt against liberal policies. ...

Until conservatives once again hold Republicans to the same standard they hold Democrats, they will have no credibility and deserve no respect. They can start building some by admitting to themselves that Bush caused many of the problems they are protesting.

I think he's right that the real anger is about losing the White House, but they only have themselves to blame for that. They do need to recognize this, it wasn't Democrats acting like they are acting that caused the downfall, it was their own choices. But that doesn't mean they can't be effective in tearing down the current administration in the face of a complacent and enabling media that refuses to analyze and report on the veracity of the claims and the true underlying causes of the anger from the right.

Wrong Message

The administration has been trying to sell health care reform by reassuring people that if they are satisfied with the coverage they have now, they can keep it.

That is, so long as it's still available. Given the way employers have been shedding responsibility for health care and the way escalating costs have been reducing affordability, it's unlikely that it will be. And, of course, if you do get sick, you may find you don't have the coverage you thought you had.

So the message should be that health care reform is the only chance people have to keep the coverage they have now.

The Reconstruction of Authority

David Warsh on how attitudes toward authority have changed over time:

Public Turmoil, Then and Now, Economic Principals: ...The protests of the ’60s and ’70s – not just in the West, but in the communist countries as well – were mainly criticisms of overbearing governments, dedicated to modernist principles of growth by means of administration and planning, but subject to capture by special interests of every sort, and often completely uninterested in obtaining the consent of the governed. The dissent of that time was remarkably effective. In the end Jane Jacobs and Milton Friedman (and Rachel Carson, Martin Luther King, Betty Friedan and the Stonewall generation, for that matter) had pretty much the same effect. The world has become much more alert to the problems involved when regulation is top-down.

Today, we are in the early stages of very different times – an era of reconstruction of authority. The broad symbols of this are everywhere: an American president seeking to govern by bipartisan consensus, a Russian premier bare-chested on horseback in a Siberian stream, Chinese central bankers chiding their American counterparts about responsible borrowing (while conjuring a worrisome financial asset bubble of their own). The subtler mechanics of impending changes – in health care, in climate change, in national security – are harder to grasp. ...

Meanwhile, don’t worry overmuch about those raucous meetings, as unpleasant as they are. They’re a sideshow, further signs of the breakup of the traditional Republican Party. It will take another generation to work out the colossal differences of opinion that exist today within its ranks. Something new and worthwhile will replace today’s GOP, though not without a good deal more travail. But that’s a story for another day.

"Astro-Turf Trolls for the Blogosphere"

Great. Organized, paid blog trolls:

Make no mistake: GOP is paying trolls to "blog attack", by Politics and Technology: This is unbelievable. We always knew that there were right-wing political hacks trolling the blogosphere, but this is a new low.

There's a company called Advantage Consultants that's offering up "professional blog warriors" to "flood the zone" with comments. In short, astro-turf trolls for the blogosphere.

Click to zoom on their ad..., but here's the text:

Are you ready for a blog attack?

Get ahead of your opponent with Professional Blog Warriors.

Be prepared to "flood the zone" with comments from professionals who are ready to put your talking points on the blogosphere 24/7.

Whether it's defense or offense, Advantage Consultants has a dedicated team of experienced blog warriors ready to advance your candidate or campaign.

Why wait for the attack? Launch your attack with a battery of blog and forum comments aimed at all media and blog sites in your district.

Contact us today and let us show you the Advantage in professional blog warfare.

 ...Incidentally, who are these people? Who is Advantage Consultants? Their president is Doug Guetzloe, a right-wing radio host and anti-tax activist in Florida.

The marketplace of ideas is far from ideal. This goes on in a variety of different formats, people are paid to call into radio shows, to write letters to the editor at local papers, to attend public meetings, if there's a public forum on an important issue you can bet someone, somewhere is doing their best to figure out how to manipulate the discussion in their favor. This is just the extension of an old technique to a new format (e.g. here's the same consulting group explaining how to manipulate talk radio).

But the basic dishonesty of it all bugs me.

"The White House's Deal With Big Pharma Undermines Democracy"

Robert Reich says the administration's promise not to use the government's purchasing power to lower the price of drugs in return for a large, pharmaceutical industry sponsored ad campaign in support of health care reform undercuts and threatens the democratic process:

How the White House's Deal With Big Pharma Undermines Democracy, by Robert Reich: I'm a strong supporter of universal health insurance, and a fan of the Obama administration. But I'm appalled by the deal the White House has made with the pharmaceutical industry's lobbying arm to buy their support.

Last week,... the White House confirmed it has promised Big Pharma that any healthcare legislation will bar the government from using its huge purchasing power to negotiate lower drug prices. That's basically the same deal George W. Bush struck in getting the Medicare drug benefit, and it's proven a bonanza for the drug industry. ... Let me remind you: Any bonanza for the drug industry means higher health-care costs for the rest of us...

In return, Big Pharma isn't just supporting universal health care. It's also spending a lots of money on TV and radio advertising... Big Pharma has budgeted $150 million for TV ads promoting universal health insurance, starting this August (that's more money than John McCain spent on TV advertising in last year's presidential campaign), after having already spent a bundle through advocacy groups like Healthy Economies Now and Families USA.

I want universal health insurance. And having had a front-row seat in 1994 when Big Pharma and the rest of the health-industry complex went to battle against it, I can tell you first hand how big and effective the onslaught can be. So I appreciate Big Pharma's support this time around...

But I also care about democracy, and the deal between Big Pharma and the White House frankly worries me. It's bad enough when industry lobbyists extract concessions from members of Congress, which happens all the time. But... [a]n industry is using its capacity to threaten or prevent legislation as a means of altering that legislation for its own benefit ... at the highest reaches of our government, in the office of the President.

When the industry support comes with an industry-sponsored ad campaign in favor of that legislation, the threat to democracy is even greater. Citizens end up paying for advertisements designed to persuade them that the legislation is in their interest. In this case, those payments come in the form of drug prices that will be higher than otherwise...

I don't want to be puritanical about all this. Politics is a rough game... Perhaps the White House deal with Big Pharma is a necessary step to get anything resembling universal health insurance. But if that's the case, our democracy is in terrible shape. How soon until big industries ... have become so politically powerful that secret White House-industry deals ... are prerequisites to any important legislation? When will it become standard practice that such deals come with hundreds of millions of dollars of industry-sponsored TV advertising designed to persuade the public...? (Any Democrats and progressives ... should ask themselves how they'll feel when a Republican White House cuts such deals to advance its own legislative priorities.)

We're on a precarious road -- and wherever it leads, it's not toward democracy.

Paul Krugman: The Town Hall Mob

Lack of passion is hazardous to health care reform:

The Town Hall Mob, by Paul Krugman, Commentary, NY Times: There’s a famous Norman Rockwell painting titled “Freedom of Speech,” depicting an idealized American town meeting. The painting, part of a series illustrating F.D.R.’s “Four Freedoms,” shows an ordinary citizen expressing an unpopular opinion. His neighbors obviously don’t like what he’s saying, but they’re letting him speak his mind.

That’s a far cry from what has been happening at recent town halls, where angry protesters — some of them, with no apparent sense of irony, shouting “This is America!” — have been drowning out, and in some cases threatening, members of Congress trying to talk about health reform. ...

[W]ell-heeled interest groups are helping to organize the town hall mobs. Key organizers include two Astroturf (fake grass-roots) organizations: FreedomWorks, run by the former House majority leader Dick Armey, and a new organization called Conservatives for Patients’ Rights.

The latter group, by the way, is run by Rick Scott, the former head of Columbia/HCA, a for-profit hospital chain. Mr. Scott was forced out of that job amid a fraud investigation; the company eventually pleaded guilty to charges of overbilling state and federal health plans, paying $1.7 billion — yes, that’s “billion” — in fines. You can’t make this stuff up.

But while the organizers are as crass as they come, I haven’t seen any evidence that the people disrupting those town halls are Florida-style rent-a-mobs. For the most part, the protesters appear to be genuinely angry. The question is, what are they angry about?

There was a telling incident at a town hall held by Representative Gene Green, D-Tex. An activist turned to his fellow attendees and asked if they “oppose any form of socialized or government-run health care.” Nearly all did. Then Representative Green asked how many of those present were on Medicare. Almost half raised their hands.

Now, people who don’t know that Medicare is a government program probably aren’t reacting to what President Obama is actually proposing. They may believe some of the disinformation opponents of health care reform are spreading, like the claim that the Obama plan will lead to euthanasia for the elderly ... coming straight from House Republican leaders... But they’re probably reacting less to what Mr. Obama is doing ... than to who he is.

That is, the driving force behind the town hall mobs is probably the same cultural and racial anxiety that’s behind the “birther” movement, which denies Mr. Obama’s citizenship. Senator Dick Durbin has suggested that the birthers and the health care protesters are one and the same; we don’t know how many of the protesters are birthers, but it wouldn’t be surprising if it’s a substantial fraction.

And cynical political operators are exploiting that anxiety to further the economic interests of their backers.

Does this sound familiar? It should: it’s a strategy that has played a central role in American politics ever since Richard Nixon realized that he could advance Republican fortunes by appealing to the racial fears of working-class whites.

Many people hoped that last year’s election would mark the end of the “angry white voter” era in America. Indeed, voters who can be swayed by appeals to cultural and racial fear are a declining share of the electorate.

But right now Mr. Obama’s backers seem to lack all conviction, perhaps because the prosaic reality of his administration isn’t living up to their dreams of transformation. Meanwhile, the angry right is filled with a passionate intensity.

And if Mr. Obama can’t recapture some of the passion of 2008, can’t inspire his supporters to stand up and be heard, health care reform may well fail.

"Astroturf Along American Highways"

Robert Reich is worried that Republican opposition to health care reform will result in "a watered-down set of reforms that still leave millions of Americans uninsured and don't slow healthcare costs":

Astroturf Along American Highways, and the Republican Plan, by Robert Reich: On our drive across America, my son and I have spotted spiffy white vans emblazoned with phrases like "ObamaCare will raise your taxes" and "ObamaCare will put bureaucrats in charge of your health." ...

This isn't grass roots. It's Astroturf. The vans carry the logo "Americans for Prosperity," one of the Washington front groups orchestrating the fight against universal health. They're using Congress's August recess to heckle Democratic representatives when they meet with their constituents, stage erszatz local anti-universal health rallies, and fill home-town media with carefully-crafted, market-tested messages demonizing healthcare reform.

The Republican party's fingerprints are all over this. FreedomWorks, another group now Astroturfing its way around America, is chaired by former House Republican Leader Dick Armey. Texas Republican Pete Sessions, who chairs the National Republican Campaign Committee, says the days of civil town halls are "now over.” Key Republican funders are forking out big bucks. The U.S. Chamber of Commerce, whose ties to the GOP are legion, announced in June it would “develop a sweeping national advocacy campaign encompassing advertising, education, political activities, new media and grassroots organizing" to battle universal health and other Democratic initiatives.

The Republicans' goal isn't ideological. It's power. Republicans smell 1994 all over again. That's when they defeated Clinton's healthcare plan -- and in doing so convinced large numbers of Americans that Clinton and the Democrats couldn't be trusted. This enabled the Republicans to retake control of Congress. ...

But this Republican strategy will fail. 2010 will not be 1994. There's too much momentum behind universal health care right now to stop it. Yet the Republicans' fake grass-roots campaign may cause some Democratic lawmakers to become even more nervous about universal health care than they already are... The result will be a watered-down set of reforms that still leave millions of Americans uninsured and don't slow healthcare costs. This is why Obama has to fight for this so hard over the August recess, why he has to be far more specific about what he wants in the bill...

I don't think it's clear cut that Clinton's failure to enact health care reform was the primary cause of the Democrat's troubles in 1994, though it probably contributed to some extent. But I want to note something else, the generational difference in attitudes toward reform:

Fifty percent of those questioned in a CNN/Opinion Research Corp. survey released Wednesday morning say they support the president's plans, with 45 percent opposed. The results indicate a generational divide.

"Obama's plan is most popular among younger Americans and least popular among senior citizens," CNN Polling Director Keating Holland said. "A majority of Americans over the age of 50 oppose Obama's plan; a majority of those under 50 support it."

It's interesting that the age group most likely to be covered by a government health plan -- the elderly who are covered in large part by medicare -- is also the group most opposed to change.

What's the Matter with the Blue Dogs?

Jacob Hacker wonders why the Blue Dogs oppose health care reform that could provide significant help to their constituents:

Health Care for the Blue Dogs, by Jacob S. Hacker, Commentary, Washington Post: The fate of health-care reform ... hinges on ... the ... "Blue Dogs" -- who are threatening to jump ship.

The main worry expressed by the Blue Dogs is that the ... leading bills ... won't bring down medical inflation. The irony is that the Blue Dogs' argument -- that a new public insurance plan designed to compete with private insurers should be smaller and less powerful, and that Medicare and this new plan should pay more generous rates to rural providers -- would make reform more expensive, not less. The further irony is that the federal premium assistance that the Blue Dogs worry is too costly ... would make health-care affordable for a large share of their constituents. ...

Increasing what doctors and hospitals are paid by the new public plan, as the Blue Dogs desire, would only raise premiums and health costs for their constituents. It would also fail to address excessive payments to hospitals and specialists...

Many Blue Dogs fret that a new public health insurance plan will become too large... Their concern should be that a public plan will be too weak. A public health plan will be particularly vital for Americans in the rural areas that many Blue Dogs represent. ...

Yet the Blue Dogs have mostly ignored the huge benefits of a new public plan for their districts. ... Right now, large swaths of farmers, ranchers and self-employed workers can barely afford a policy ... or are uninsured. They will benefit greatly from the premium assistance in the House legislation..., from additional subsidies for small businesses to cover their workers, and from a new national purchasing pool, or "exchange," giving those employers access to low-cost group health insurance that's now out of reach.

And given that Blue Dogs are worried about the ... cost of reform, they should applaud the House bill's requirement that all but the smallest of employers make a meaningful contribution to the cost of coverage. This will not just raise much-needed revenue..., it will also reduce the incentive for employers to drop coverage and let their workers go into the pool, increasing the size of the exchange and the public plan.

Blue Dogs have the future of health-care reform in their hands. If they hold firm to their principles of fiscal responsibility and effective relief for workers and employers in their districts, what's good for Blue Dogs will also be good for America.

Maybe their most important constituents aren't the voters in their districts?

Paul Krugman: An Incoherent Truth

Paul Krugman rubs Blue Dog noses in the pile of incoherence they left in the House:

An Incoherent Truth, by Paul Krugman, Commentary, NY Times: Right now the fate of health care reform seems to rest in the hands of relatively conservative Democrats — mainly members of the Blue Dog Coalition, created in 1995. And you might be tempted to say that President Obama needs to give those Democrats what they want. But he can’t — because the Blue Dogs aren’t making sense. ...

Reform, if it happens, will rest on four main pillars: regulation, mandates, subsidies and competition. ... The subsidy portion of health reform would cost around a trillion dollars over the next decade..., this expense would be offset with a combination of cost savings elsewhere and additional taxes, so that there would be no overall effect on the federal deficit.

So what are the objections of the Blue Dogs? Well, they talk a lot about fiscal responsibility, which basically boils down to worrying about the cost of those subsidies. And it’s tempting to stop right there, and cry foul. After all, where were those concerns about fiscal responsibility back in 2001, when most conservative Democrats voted enthusiastically for that year’s big Bush tax cut — a tax cut that added $1.35 trillion to the deficit?

But it’s actually much worse than that — because even as they complain about the plan’s cost, the Blue Dogs are making demands that would greatly increase that cost.

There has been a lot of publicity about Blue Dog opposition to the public option, and rightly so: a plan without a public option ... would cost taxpayers more...

But Blue Dogs have also been complaining about the employer mandate, which is even more at odds with their supposed concern about spending. The Congressional Budget Office has already weighed in on this issue: without an employer mandate, health care reform would be undermined as many companies dropped their existing insurance plans, forcing workers to seek federal aid — and causing the cost of subsidies to balloon. It makes no sense at all to complain about the cost of subsidies and at the same time oppose an employer mandate.

So what do the Blue Dogs want?

Maybe they’re just being complete hypocrites. It’s worth remembering the history of one of the Blue Dog Coalition’s founders: former Representative Billy Tauzin of Louisiana. Mr. Tauzin switched to the Republicans soon after the group’s creation; eight years later he pushed through the 2003 Medicare Modernization Act, a deeply irresponsible bill that included huge giveaways to drug and insurance companies. And then he left Congress to become, yes, the lavishly paid president of PhRMA, the pharmaceutical industry lobby.

One interpretation, then, is that the Blue Dogs are basically following in Mr. Tauzin’s footsteps: if their position is incoherent, it’s because they’re nothing but corporate tools, defending special interests. And as the Center for Responsive Politics pointed out in a recent report, drug and insurance companies have lately been pouring money into Blue Dog coffers.

But I guess I’m not quite that cynical. After all, today’s Blue Dogs are politicians who didn’t ... switch parties even when the G.O.P. seemed to hold all the cards and pundits were declaring the Republican majority permanent. So these are Democrats who, despite their relative conservatism, have shown some commitment to their party and its values.

Now, however, they face their moment of truth. For they can’t extract major concessions on the shape of health care reform without dooming the whole project: knock away any of the four main pillars of reform, and the whole thing will collapse — and probably take the Obama presidency down with it.

Is that what the Blue Dogs really want to see happen? We’ll soon find out.

One Dog, Two Dog, Red Dog, Blue Dog

Robert Waldmann explains Basic Football Terminology:

To Red Dog (alternative phrase for to blitz):

Linebacker crosses line of scrimmage attempting to sack opposing quarterback.

Often works, sometimes risky. Shows that player (and/or defensive coordinator) has guts.

To Blue Dog (alternative phrase for To Benedict Arnold):

Linebacker crosses own goal line and spikes own helmet.

Shows that player forgot which team he is on.

"The Fed is Lending to 'Foreigners' instead of Americans!"

All of the people praising Alan Grayson for his gotcha questioning of Ben Bernanke might want to reconsider. Some deserved Economics of Contempt:

Dear God, Alan Grayson is a Tool, Economics of Contempt:  I just saw this video, which shows Rep. Alan Grayson questioning Ben Bernanke during his Humphrey-Hawkins testimony, and was being promoted by Zero Hedge and others a couple days ago. It's embarrassing....for Grayson.

He asks Bernanke about the currency swap lines that the Fed established with other central banks during the financial crisis, which he clearly doesn't understand (although he obviously thinks he does). He harps on the fact that Bernanke doesn't know which foreign financial institutions "got the money." Of course Bernanke doesn't know that. The Fed entered into currency swaps with foreign central banks, like the ECB and the BoE. Who those central banks then lent the dollars to is irrelevant—the Fed doesn't bear the credit risk of loans made by other central banks. The Fed only bears the credit risk of the central banks it established swap lines with, which, obviously, is vanishingly small.

Grayson then focuses on the Fed's swap line with New Zealand's central bank, which is where the wheels really come off the wagon. He apparently thinks a swap is the same thing as a loan, and that the Fed extended $9bn of credit to New Zealanders, which he considers an outrage (the Fed is lending to "foreigners" instead of Americans!). Of course, he doesn't even get his facts right (which is what happens when you hire people with no experience on Capitol Hill as Senior Policy Advisors). The Fed's swap facility with New Zealand central bank is $15bn, not $9bn, and more importantly, NZ's central bank never even drew on its swap line, which has $0 outstanding (pdf):

Grayson arrogantly laughs when Bernanke denies that the expansion of the swap lines on September 18th caused the dollar to rise 20%, which is amusing because the swap lines relieved the extraordinarily high demand for dollars from foreign financial institutions.

The best part of the video is when Barney Frank (easily my favorite Congressman) cuts Grayson off, which draws another of his arrogant laughs. Maybe Grayson should go back to losing millions in Ponzi schemes.

"The Power Elite"

Are the boards of major corporations, and the elite and powerful more generally, too interconnected to fail?:

Power elites after fifty years, by Daniel Little: When C. Wright Mills wrote The Power Elite in 1956, we lived in a simpler time. And yet, with a few important exceptions, the concentration of power that he described continues to seem familiar by today's standards. The central idea is that the United States democracy -- in spite of the reality of political parties, separation of powers, contested elections, and elected representation -- actually embodied a hidden system of power and influence that negated many of these democratic ideals. The first words of the book are evocative:

The powers of ordinary men are circumscribed by the everyday worlds in which they live, yet even in these rounds of job, family, and neighborhood they often seem driven by forces they can neither understand nor govern. 'Great changes' are beyond their control, but affect their conduct and outlook none the less. The very framework of modern society confines them to projects not their own, but from every side, such changes now press upon the men and women of the mass society, who accordingly feel that they are without purpose in an epoch in which they are without power.

And a page or two later, here is how he describes the "power elite":

The power elite is composed of men whose positions enable them to transcend the ordinary environments of ordinary men and women; they are in positions to make decisions having major consequences. Whether they do or do not make such decisions is less important than the fact that they do occupy such pivotal positions: their failure to act, their failure to make decisions, is itself an act that is often of greater consequence than the decisions they do make. For they are in command of the major hierarchies and organizations of modern society. They rule the big corporations. They run the machinery of the state and claim its prerogatives. They direct the military establishment. They occupy the strategic command posts of the social structure, in which are now centered the effective means of the power and the wealth and the celebrity which they enjoy.

Mills offers a sort of middle-level sociology of power in America. He believes that power in the America of the 1950s centers in the economic, political, and military domains -- corporations, the state, and the military are all organized around networks of influence at the top of which stands a relatively small number of extremely powerful people. (It seems that Mills's description of the military is less apt today; perhaps not surprising, given that Mills was writing in the middle of the Cold War.) Power is defined as the ability to achieve what one wants over the opposition of others; and the levers of power are the great institutions in society -- corporations, political institutions, and the military. And the thesis is that a relatively compact group of people exercise hegemony in each of these areas. Moreover, power leads often to wealth, in that power permits firms and individuals to gain access to society's wealth. So a power elite is often also an economic elite.

The central thrust of the book stands in sharp opposition to the fundamental assumption of then-current democratic theory: the idea that American democracy is a pluralist system of interest groups in which no single group is able to dominate all the others (Robert Dahl (1959), A Preface to Democratic Theory). Against this pluralistic view, Mills postulates that members of mass society are dominated, more or less visibly, by a small group of powerful people in the elite. (See an earlier posting on power as influence for discussion of how power works.)

So what is Mills's theory, exactly? It is that there is a small subset of the American population that (1) possess a number of social characteristics in common (for example, elite university educations, membership in certain civic organizations); (2) are socially interconnected with each other through marriage, friendship, and business relationship; (3) occupy social positions that give them a durable ability to make a large number of the most momentous decisions for American society; (4) are largely insulated from effective oversight from democratic institutions (press, regulatory system, political constraint). They are an elite; they are a socially interconnected group; they possess durable power; and they are little constrained by open and democratic processes.

And, of course, there needs to be a theory about recruitment and the social mechanisms of steering given individuals into the elite group. Is it family background? Is it the accident of attendance at Yale? Is it a meritocracy through which talented young people eventually grasp the sinews of power through their own achievement in the organizations of power? We need to have an account of the social means of reproduction through which a set of power relations is preserved and reproduced throughout generational change.