As the debate rumbles on in Washington over the economy, health care reform and the military strategy in Afghanistan, a controversy of a different kind is brewing "across the pond". Who will become the first "President of Europe"? A leading contender, though of course he claims not to be actively seeking the office, is former British Prime Minister Tony Blair. In addition to the British Government, his principal backer appears to be his old friend and ally, the scandal-plagued lothario Silvio Berlusconi. They say that you can tell a lot about a man by the company he keeps. If that's true, then the support of the right wing and increasingly erratic Italian Prime Minister should be grounds enough to rule Blair out of contention. Bu there are other more serious reasons why Blair is the wrong man for the job.
First of all, some context. The post, technically "President of the European Council" is an new one, created by the Lisbon Treaty, which now awaits only the ratification of Czechoslovakia if it is to enter into effect as planned on January 1, 2010. The President would be appointed by the Council of Member States (i.e., in effect, by their heads of government) for a term of 30 month. This would replace the existing system under which the Presidency of the Council rotates among Member States for periods of 6 months at a time. There is no requirement that the appointment be approved by the European Parliament, and a President could be removed only by the Council of Ministers. Officially, the role of the President is largely administrative: to chair meetings of the Council and report on those proceedings to the European Parliament. In addition, however, together with the High Representative for Foreign Affairs and Security Policy (a position also created by the Lisbon Treaty), the President would represent Europe on the international stage. And it is in the area of foreign policy that the role of President will largely be shaped.
So why is Blair a bad choice? Lord Owen, who served as Foreign Secretary under Jim Callaghan's Labour government, summed it up perfectly. Quoted recently in the Guardian newspaper, he had this to say:
"Lord Butler on 22 February 2007 [in his report into the origins of war in Iraq] made devastatingly clear why Tony Blair is not a fit and proper person to preside over Council meetings of European heads of government. Butler used the word 'disingenuous' to describe how Blair was told by the UK intelligence community 'we know little about Iraq's chemical and biological weapons work since late 1988' and yet told parliament just over a month later that the picture painted by our intelligence services was 'extensive, detailed and authoritative'. Like contempt of court, contempt of parliament should always be a disqualification for holding high office."
I differ from David Own only in my view that Blair's contempt of parliament - or, perhaps better put, contempt for parliament - was not limited to the events leading up to the Iraq War, but was a pervasive characteristic of his term in office. The greatest British Prime Ministers, from William Pitt to Winston Churchill, were first and foremost parliamentarians. (Persons of the Conservative persuasion may include Baroness Thatcher in the "greatest" list; I would disagree with that, but would concur as to her stature as a parliamentarian.) They understood and respected the fact that under the British system Parliament is the supreme authority in the land. They understood and respected the principle of cabinet government and the role of the Prime Minister as "primus inter pares" - first among equals. They understood and respected the fact that the Prime Minister's foremost responsibility is to account fully and truthfully to Parliament for his or her government's actions. Above all, they understood and respected the fact that the powers of the Prime Minister are circumscribed not so much by statute as by the respect that the holder of the office has for the British constitution and traditions of government.
Blair, by contrast, neither understood nor respected any of this.
Professor George Jones, Emeritus Professor of Government at the London School of Economics, has commented that Blair "had been used to working with a small number of like-minded cronies" and "almost seemed to despise collective decision making". From the start, Blair adopted not just a Presidential style, but a Presidential style of the worst possible order. He surrounded himself with a coterie of PR consultants and "spin doctors". Policy announcements were leaked to favored journalists, rather than unveiled in Westminster. His use of patronage to appoint political friends and party contributors to public offices led to the coining of the term "Tony's Cronies" and to a major "Cash for Honors" scandal involving "New Labour" fundraiser Lord Levy or, as he was better known among the party faithful, "Lord Cashpoint". Blair tinkered needlessly with British constitution, reducing the independence of the Judiciary, and pushed through controversial legislation banning political demonstrations within one kilometre of Westminster Square - an unprecedented restriction on freedom of speech and peaceful dissent directed primarily at anti-war protesters. In place of traditional Cabinet government, where decisions are reached through consensus, Blair opted for what came to be known as "sofa government", in which key Cabinet members were "persuaded" to Blair's way of thinking over tea and biscuits in his den, before decisions were rubber-stamped by the Cabinet. The enquiry into the Iraq War headed by Lord Butler, to which Lord Owen was referring in the remarks quoted above, criticized the "informality" of Blair's syle, noting that ministers were frequently not even provided with key documents in advance of meetings at which they were expected to take decisions for which they were expected to assume collective responsibility. And in a country with an established church but a decidedly secular tradition of government, Blair too often let his personal religious views intrude into public life, causing the satirical magazine Private Eye to nickname him "the Vicar".
There is every reason why the post should not go to a British candidate, whether Blair or anyone else for that matter. Britain has never fully embraced the concept of a united Europe. It has periodically (albeit not without some justification) found itself at odds with its European partners over key domestic policy issues such as the Common Agricultural Policy and the U.K.'s contribution to the community budget. It opted out of certain key provisions of the Maastricht and Lisbon Treaties and it is not a member of the European Monetary Union. Gordon Brown's decision to deny British voters a referendum on the Lisbon Treaty was perceived by many as reflecting a concern that the Treaty would go down to defeat. David Cameron, who looks set to replace Gordon Brown as Prime Minister at some point within the next eight months, has acknowledged urging Czech President Vaclav Klaus to delay ratification of the Treaty until his Conservative party takes office, in order that a referendum can be held in Britain. (If that strategy works, and Britons have a opportunity to vote, the possibility of the broadly unpopular Blair assuming the Presidency of the European Council would inevitably become a lightning rod for anti-European sentiment - a potentially disastrous result for Britain.)
If Blair does get the job, it will likely be by default. True, there are other possible candidates. Luxembourg Prime Minister Jean-Claude Junker has announced his interest. His Dutch counterpart Jan Peter Balkenende has also been mentioned as a possible contender, as has former Spanish Prime Minister Felipe Gonzalez. However, Blair will be doubtless be touted as the man who can give Europe the greatest clout on the international scene - even though his close association with the disastrous foreign policy of George W. Bush would almost certainly prove an impediment to European diplomacy, especially in the Arab world. However, European leaders would do well to heed Lord Owen's warning and consider long and hard the record of arrogance and personal ambition evident in Blair's approach to governance, as they assess his suitability for a position with such ill-defined powers and so little accountability.
Wednesday, October 28, 2009
Saturday, October 24, 2009
Obama's Finger on the "Trigger"
I have repeatedly expressed my skepticism about Barack Obama's commitment to "real" health care reform - and by "real" I mean reform that includes a strong public option, such as "Medicare for all". Further reason for skepticism emerged on Friday afternoon. Amid encouraging reports that the vacillating Senate Majority Leader Harry Reid is now leaning in favor of including some form of public option in the bill that will go to the Senate floor, came news from Talking Points Memo that Barack Obama is weighing in against it. He is reportedly pushing Republican Senator Olympia Snowe's half-baked "trigger" proposal, under which a public option would be deferred for five years and implemented only if the private health insurance companies fail to bring down insurance premium costs themsleves. Some pundits expressed shock; I was about as shocked as Inspector Renault when confronted with evidence of gambling in Rick's Cafe.
The trigger is objectionable for several reasons. First, for every year that the status quo continues, up to 45,000 Americans may die because they lack adequate health insurance. Delay is no longer a morally acceptable solution. Second, the political reality is that the trigger is essentially a delaying tactic intended to stymie the public option indefinitely. Republicans are well aware that if Democrats are successful in passing a strong public option - Medicare for all, for example - it will quickly become as popular as the original Medicare program. Even should Republicans regain control of Congress in the near future, tampering with Medicare for all would be political suicide. But a trigger is readily amenable to tampering; cost containment targets can be adjusted, compliance periods extended. However, the best argument against a trigger was provided by the health insurance industry itself. Shortly prior to the Senate Finance Committee vote, health insurers released a report, commissioned from PriceWaterhouse Coopers, purporting to prove that premiums would rise significantly should the Finance Committee bill (which does not contain a public option) become law. The integrity of that report leaves something to be desired - to say the least - and was apparently a crude attempt to pressure the Finance Committee to increase the penalties that would be imposed on individuals who fail to purchase private health insurance. But the report conclusively refutes any expectation that may previously have existed that the health insurance industry will be able or willing to contain premium costs absent a strong (and immediate) public option.
Support for a strong public option remains as strong as ever among voters and most Congressional Democrats now seem to be getting on board - thanks to the persistence of Nancy Pelosi, Anthony Weiner, Bernie Sanders, Chuck Schumer and others, but no thanks at all to President Obama. Having watched from the sidelines for months, why is he now throwing his diminishing political weight behind the "trigger" proposal and against a strong public option? Apparently because he is obsessed with obtaining a "bipartisan" solution, even if "bipartisan" translates to a single Republican vote and fails to deliver the real health care reform he promised on the campaign trail. This may be bad news for the Democratic party and for the nation as a whole. But it should come as a relief to anyone still genuinely concerned that Obama is pursuing some secret socialist agenda that will destroy the country as we know it. We're not likely to see any of that - unless, of course, he can persuade Olympia Snowe to get on board.
Addendum: Notes from the Garden State.
I was surprised recently to see a slick TV campaign commercial touting the health care record of New Jersey Democratic Senator Robert Menendez. The ad exhorts viewers to call the Senator's office to say "thanks for standing up for seniors and fighting for their Medicare". I was surprised for several reasons. First, notwithstanding right wing rhetoric, Medicare benefits have never been under serious threat in the current health care debate. Second, although New Jersey is currently embroiled in a depressingly uninspiring gubernatorial campaign, Mr. Menendez does not have to defend his Senate seat until 2012. And third, while Senator Menendez, to his credit, voted in favor of a public option amendment on the Senate Finance Committee, his more visible contribution during the Committee stage was to vote with the Republicans against a Democratic amendment that would have lowered the amount the Federal government pays for medication for dual-eligible Medicare and Medicaid patients. The proposal, by Senator Nelson, would have eliminated the current "sweetheart" arrangement that prohibits the Federal government from purchasing these drugs in bulk. (Obama also let it be known that he opposed the amendment, having earlier cut a backroom deal with the pharmaceutical lobby pledging to preserve the current arrangement.) In addition, despite the overarching requirement that the Senate Finance Committee bill should not increase the deficit, Menendez successfully sponsored an amendment to provide generous tax credits for biotechnology firms.
So who is paying for the TV ads praising the Senator's efforts on behalf of health care "reform"? An organization called the HealthCare Institute of New Jersey, which describes itself as " a trade association for the research-based pharmaceutical and medical technology industry in New Jersey." In other words, the same crowd that will benefit directly from Menendez' votes on the Senate Finance Committee, and that also contributes generously to his campaign kitty.
The Wall Street Journal recently reported on the efforts of some senior Democratic proponents of health care reform to skew the legislation to support special interests and enhance their own chances of re-election. The extent to which these provisions survive in the bill that goes to the Senate floor will be the true test of Harry Reid's leadership.
The trigger is objectionable for several reasons. First, for every year that the status quo continues, up to 45,000 Americans may die because they lack adequate health insurance. Delay is no longer a morally acceptable solution. Second, the political reality is that the trigger is essentially a delaying tactic intended to stymie the public option indefinitely. Republicans are well aware that if Democrats are successful in passing a strong public option - Medicare for all, for example - it will quickly become as popular as the original Medicare program. Even should Republicans regain control of Congress in the near future, tampering with Medicare for all would be political suicide. But a trigger is readily amenable to tampering; cost containment targets can be adjusted, compliance periods extended. However, the best argument against a trigger was provided by the health insurance industry itself. Shortly prior to the Senate Finance Committee vote, health insurers released a report, commissioned from PriceWaterhouse Coopers, purporting to prove that premiums would rise significantly should the Finance Committee bill (which does not contain a public option) become law. The integrity of that report leaves something to be desired - to say the least - and was apparently a crude attempt to pressure the Finance Committee to increase the penalties that would be imposed on individuals who fail to purchase private health insurance. But the report conclusively refutes any expectation that may previously have existed that the health insurance industry will be able or willing to contain premium costs absent a strong (and immediate) public option.
Support for a strong public option remains as strong as ever among voters and most Congressional Democrats now seem to be getting on board - thanks to the persistence of Nancy Pelosi, Anthony Weiner, Bernie Sanders, Chuck Schumer and others, but no thanks at all to President Obama. Having watched from the sidelines for months, why is he now throwing his diminishing political weight behind the "trigger" proposal and against a strong public option? Apparently because he is obsessed with obtaining a "bipartisan" solution, even if "bipartisan" translates to a single Republican vote and fails to deliver the real health care reform he promised on the campaign trail. This may be bad news for the Democratic party and for the nation as a whole. But it should come as a relief to anyone still genuinely concerned that Obama is pursuing some secret socialist agenda that will destroy the country as we know it. We're not likely to see any of that - unless, of course, he can persuade Olympia Snowe to get on board.
Addendum: Notes from the Garden State.
I was surprised recently to see a slick TV campaign commercial touting the health care record of New Jersey Democratic Senator Robert Menendez. The ad exhorts viewers to call the Senator's office to say "thanks for standing up for seniors and fighting for their Medicare". I was surprised for several reasons. First, notwithstanding right wing rhetoric, Medicare benefits have never been under serious threat in the current health care debate. Second, although New Jersey is currently embroiled in a depressingly uninspiring gubernatorial campaign, Mr. Menendez does not have to defend his Senate seat until 2012. And third, while Senator Menendez, to his credit, voted in favor of a public option amendment on the Senate Finance Committee, his more visible contribution during the Committee stage was to vote with the Republicans against a Democratic amendment that would have lowered the amount the Federal government pays for medication for dual-eligible Medicare and Medicaid patients. The proposal, by Senator Nelson, would have eliminated the current "sweetheart" arrangement that prohibits the Federal government from purchasing these drugs in bulk. (Obama also let it be known that he opposed the amendment, having earlier cut a backroom deal with the pharmaceutical lobby pledging to preserve the current arrangement.) In addition, despite the overarching requirement that the Senate Finance Committee bill should not increase the deficit, Menendez successfully sponsored an amendment to provide generous tax credits for biotechnology firms.
So who is paying for the TV ads praising the Senator's efforts on behalf of health care "reform"? An organization called the HealthCare Institute of New Jersey, which describes itself as " a trade association for the research-based pharmaceutical and medical technology industry in New Jersey." In other words, the same crowd that will benefit directly from Menendez' votes on the Senate Finance Committee, and that also contributes generously to his campaign kitty.
The Wall Street Journal recently reported on the efforts of some senior Democratic proponents of health care reform to skew the legislation to support special interests and enhance their own chances of re-election. The extent to which these provisions survive in the bill that goes to the Senate floor will be the true test of Harry Reid's leadership.
Monday, October 19, 2009
Stimulus Revisited
In the latter part of last week the government delivered a triple dose of discouraging economic news.
On Thursday, the Offices of the Inspectors General published data detailing how the Obama Administration’s $787 billion stimulus package (the American Recovery and Reinvestment Act of 2009) is being implemented. The figures show that Federal contracts awarded under the stimulus plan have so far saved or created a meager 30,383 jobs, at an apparent costs of $528,000 each. The same day, the General Accounting Office published its Fall 2009 Update of the Federal Government’s Long-Term Fiscal Outlook. The report projects that within ten years the U.S. public debt, measured as a percentage of GDP, will have exceeded the record high level of 109% reached in 1946, and will continue to climb steadily thereafter to 200 percent and beyond. The GAO concludes that the “long-term fiscal outlook remains unsustainable”. The following day brought confirmation from the Department of the Treasury and the Office of Management and Budget that the Federal deficit for the 2009 fiscal year, which ended on September 30, 2009, was a record $1.417 trillion. This news came on the heels of reports that the Administration and Congressional Democrats are considering further tax cuts and additional spending to jump-start the economy and, in particular, reverse the continuing rise in unemployment. Before even thinking about additional spending or tax cuts that would add to record deficits, the Administration needs to take a very critical look at what its original measures have accomplished.
First, though, a quick economic retrospective. In their statement announcing the deficit for FY 2009, Treasury Secretary Tim Geithner and OMB Director Peter Orswag were predictably quick to blame George Bush, asserting that the deficit for FY 2009 “was largely the product of the spending and tax policies inherited from the previous Administration, exacerbated by a severe recession and financial crisis that were underway as the current Administration took office.” Given his prior position as Chairman of the Federal Reserve Bank of New York, Geither is not in the best position to point fingers, but he is right nonetheless. There can be no question that the prior Administration’s reckless (or perhaps simply clueless) economic and fiscal policies were major drivers of the current crisis.
The final four budgets of the Clinton Presidency (including “off budget” receipts and outlays) were in surplus, with Bush inheriting a budget surplus of $128 billion for FY 2001 and a national debt, as of the end of the fiscal year, of $5.8 trillion - 57.4 % of gross domestic product. By the time Obama took office, the debt had ballooned to $10.6 trillion, or roughly 90% of GDP, a higher percentage than any year since the aftermath of World War Two. Part of the increase is attributable to fiscal policy; Bush resorted to discredited “trickle-down” theories to justify irresponsible tax cuts that benefited primarily the wealthiest Americans. Citizens for Tax Justice, a non-partisan tax research group, recently estimated that the Bush tax cuts will have added more than 2.48 trillion to the deficit by the time they expire in 2010, with over one quarter of that amount flowing into the pockets of the 1 percent wealthiest taxpayers. The estimated cost for 2009-10 alone, is $640 million.
In the waning months of his Presidency, Bush and Treasury Secretary Henry Paulson presided over the ill-conceived Troubled Assets Relief Plan (TARP) a panic-driven over-response to a crisis resulting in large measure from the Bush Administration's own lax and complacent approach toward regulating Wall Street. Total commitments under TARP now exceed $450 billion - nobody seems to know for certain what the final tab will be. The trade balance also deteriorated sharply under Bush, as the domestic manufacturing sector declined; the balance of payments deficit, which stood at 380 billion in 2000, had grown to 696 billion by 2008.
Bush’s fiscal and economic policies also widened the gap between rich and poor. Seasonally adjusted unemployment rates rose from 4.2 percent in January 2001, when he assumed office, to 7.6 percent in January 2009, when he left. During the Clinton Presidency, annual average civilian unemployment rates fell each year; under Bush, the rate rose or remained flat during 5 out of eight years. Under Clinton, the percentage of the "working poor" (the proportion of people in the workforce for at least 27 weeks during the year who live below the poverty line) declined steadily; under George W. Bush, the rate rose again. A 2008 OECD report found that the United States had the highest poverty rate and highest income inequality rate of any OECD nation save Mexico and Turkey. The earnings gap in the U.S. widened by 20 percent during the latter part of the decade and social mobility remains less than in other developed nations. These are shameful statistics that demonstrate why, for the vast majority of poorer Americans, the “American Dream” will remain just that. If there is any economic or socio-economic metric under which George W. Bush does not rank as the worst President in living memory, I have yet to see it.
Republicans Congressional lawmakers who presided over this descent into economic chaos have now reinvented themselves as “deficit hawks”. The voted en masse against Obama’s initial $787 billion stimulus and are lining up to oppose Round Two, should there be one. But that is the question; should there be one? My answer is no – not because I don’t believe in the virtues of fiscal stimulus, but rather because I don’t trust the current Administration or Congress to get it right. They certainly didn't first time around.
The first stimulus package was sold to the American public as a plan that would put people back to work quickly. We heard a lot about “shovel-ready” projects that could be implemented within weeks of funds being allocated. Proponents invoked memories of Franklin Roosevelt’s great public works projects that helped lift the nation out of recession in the 1930s. And so it could have been in 2009, had the funds been carefully targeted and promptly deployed. The stimulus package provided a rare opportunity not only to create much needed jobs, but also rebuild roads, bridges, public buildings and public housing that are crumbling from years of neglect, the result in part of states deferring non-essential maintenance in order to balance budgets. In the short-term, infrastructure projects create well-paying jobs in the construction sector and boost demand for steel, cement, asphalt, lumber, heavy equipment and the like. They also serve obvious broad societal benefits that endure for years - we all get to drive on better roads, travel on new and faster trains, enjoy better public facilities or have a better place to live. We were also told that stimulus funding would be targeted toward “green” industries, spurring the creation of cutting-edge environmental technologies that would provide long-term economic and social benefits to the economy in the long term, as well as much-needed jobs in the short term. That also sounded pretty exciting. So what actually happened?
The first problem is that, as eventually enacted, the Obama stimulus plan owed as much to Ronald Reagan as to John Maynard Keynes. The $787 billion is made up of tax cuts ($288 billion), government grants, loans and contracts ($275 billion) and entitlements ($224 billion). I don't believe that tax cuts are an effective stimulus, at least in the short term. At the individual level, reducing someone’s taxes by a few dollars a week provides an immediate benefit only to those that already have jobs; reductions in personal income tax create new jobs only if the recipients of the tax cuts spend that additional money on goods or services that originate in the U.S. In times of economic uncertainty, recipients are more likely to use the additional cash to bring their mortgage up to date, pay down their credit card balances or simply save the money, rather than recycle it back into the domestic economy. Even if some do increase spending – on a new TV or cell phone, for example - the likely beneficiaries will be in China, Taiwan or Mexico, where the goods are likely to have been manufactured. The most effective measure Congress could take in terms of tax policy is to repeal the Bush tax cut - or at least stand firm against attempts to extend the cuts after their scheduled expiration date in 2010. But many Congressional Democrats, like their Republican counterparts, can’t seem to resist the temptation to try to buy votes with tax cuts. With the mid-term elections approaching, it is almost inevitable that if Congress gets its hands on another stimulus plan, the result will be more tax cuts that will increase the deficit without providing an offsetting economic stimulus.
The second problem with the initial stimulus plan is that it is unfocused; the $787 billion is spread around 28 Federal agencies and organizations, some of which by their very nature can do little if anything to stimulate the economy. Moreover, much of the funding is not allocated to specific purposes and disbursement is left to broad agency discretion. For example, the Department of Health and Human Services (which is the biggest conduit for stimulus funds, with $122 billion at its disposal) has announced that it will spend up to $650 million for chronic disease prevention - a worthwhile goal no doubt, but the agency’s press release announcing the program doesn’t even attempt to explain how this will provide economic stimulus. Or how about the Department of Education, which was given $100 billion to spend on education funding, college grants and tuition tax credits? $40 million of this is to be doled out to states as “stabilization funds” to help avert education cuts and to promote education reform (whatever that means). Don’t get me wrong – I’m all in favor of increasing funding for education, but the fact is that these expenditures will create virtually no new jobs. The Department of Agriculture plans to allocate most of its $52 billion (which includes various loan guarantee programs) to nutrition assistance ($21 billion) and rural community development ($27 billion). The list goes on and on, with little indication of how these programs will spur employment. In fact, the biggest job creation may be on K Street, as would-be beneficiaries of “stimulus” funding call their lobbyists and lawyers to find out how they can cash in.
Perhaps unsurprisingly, it seems that most agencies are struggling to come up with ways to spend the huge amounts of tax dollars that have been shoveled into their coffers. As of October 8, only 22 percent of the initial $787 billion stimulus had been paid out, and only 17 percent of the portion allocated to grants, loans and contracts had actually been disbursed. The Department of Transportation, charged with overseeing grants to fund major infrastructure projects, has paid out less than 10% of the $45 billion allotted to it. But of perhaps greater concern is the fact that, according to the most recent government data, the $16 billion so far allocated to Federal contracts has created or saved only 30,383 jobs; this translates to an average cost of $528,000 per job. Further data showing the job creation effects of grants and loan guarantees are due at the end of this month, but what we have seen so far does not provide grounds for encouragement.
I had a certain sense of deja vu when I read recently that the Administration may be weighing a second round of spending targeted specifically at transportation and infrastructure. Isn't that what the original plan was supposed to have done? The Administration seems to believe that the sluggish response to the first stimulus package justifies more of the same. I suggest the contrary is true, and that before considering spending an additional penny, Congress and the Administration need to provide voters with a better accounting of how the existing funds are being used to create jobs, freeze further disbursements on wasteful programs that will not stimulate the economy and re-allocate those funds to more productive use. $787 billion is more than enough stimulus, if it is used properly.
On Thursday, the Offices of the Inspectors General published data detailing how the Obama Administration’s $787 billion stimulus package (the American Recovery and Reinvestment Act of 2009) is being implemented. The figures show that Federal contracts awarded under the stimulus plan have so far saved or created a meager 30,383 jobs, at an apparent costs of $528,000 each. The same day, the General Accounting Office published its Fall 2009 Update of the Federal Government’s Long-Term Fiscal Outlook. The report projects that within ten years the U.S. public debt, measured as a percentage of GDP, will have exceeded the record high level of 109% reached in 1946, and will continue to climb steadily thereafter to 200 percent and beyond. The GAO concludes that the “long-term fiscal outlook remains unsustainable”. The following day brought confirmation from the Department of the Treasury and the Office of Management and Budget that the Federal deficit for the 2009 fiscal year, which ended on September 30, 2009, was a record $1.417 trillion. This news came on the heels of reports that the Administration and Congressional Democrats are considering further tax cuts and additional spending to jump-start the economy and, in particular, reverse the continuing rise in unemployment. Before even thinking about additional spending or tax cuts that would add to record deficits, the Administration needs to take a very critical look at what its original measures have accomplished.
First, though, a quick economic retrospective. In their statement announcing the deficit for FY 2009, Treasury Secretary Tim Geithner and OMB Director Peter Orswag were predictably quick to blame George Bush, asserting that the deficit for FY 2009 “was largely the product of the spending and tax policies inherited from the previous Administration, exacerbated by a severe recession and financial crisis that were underway as the current Administration took office.” Given his prior position as Chairman of the Federal Reserve Bank of New York, Geither is not in the best position to point fingers, but he is right nonetheless. There can be no question that the prior Administration’s reckless (or perhaps simply clueless) economic and fiscal policies were major drivers of the current crisis.
The final four budgets of the Clinton Presidency (including “off budget” receipts and outlays) were in surplus, with Bush inheriting a budget surplus of $128 billion for FY 2001 and a national debt, as of the end of the fiscal year, of $5.8 trillion - 57.4 % of gross domestic product. By the time Obama took office, the debt had ballooned to $10.6 trillion, or roughly 90% of GDP, a higher percentage than any year since the aftermath of World War Two. Part of the increase is attributable to fiscal policy; Bush resorted to discredited “trickle-down” theories to justify irresponsible tax cuts that benefited primarily the wealthiest Americans. Citizens for Tax Justice, a non-partisan tax research group, recently estimated that the Bush tax cuts will have added more than 2.48 trillion to the deficit by the time they expire in 2010, with over one quarter of that amount flowing into the pockets of the 1 percent wealthiest taxpayers. The estimated cost for 2009-10 alone, is $640 million.
In the waning months of his Presidency, Bush and Treasury Secretary Henry Paulson presided over the ill-conceived Troubled Assets Relief Plan (TARP) a panic-driven over-response to a crisis resulting in large measure from the Bush Administration's own lax and complacent approach toward regulating Wall Street. Total commitments under TARP now exceed $450 billion - nobody seems to know for certain what the final tab will be. The trade balance also deteriorated sharply under Bush, as the domestic manufacturing sector declined; the balance of payments deficit, which stood at 380 billion in 2000, had grown to 696 billion by 2008.
Bush’s fiscal and economic policies also widened the gap between rich and poor. Seasonally adjusted unemployment rates rose from 4.2 percent in January 2001, when he assumed office, to 7.6 percent in January 2009, when he left. During the Clinton Presidency, annual average civilian unemployment rates fell each year; under Bush, the rate rose or remained flat during 5 out of eight years. Under Clinton, the percentage of the "working poor" (the proportion of people in the workforce for at least 27 weeks during the year who live below the poverty line) declined steadily; under George W. Bush, the rate rose again. A 2008 OECD report found that the United States had the highest poverty rate and highest income inequality rate of any OECD nation save Mexico and Turkey. The earnings gap in the U.S. widened by 20 percent during the latter part of the decade and social mobility remains less than in other developed nations. These are shameful statistics that demonstrate why, for the vast majority of poorer Americans, the “American Dream” will remain just that. If there is any economic or socio-economic metric under which George W. Bush does not rank as the worst President in living memory, I have yet to see it.
Republicans Congressional lawmakers who presided over this descent into economic chaos have now reinvented themselves as “deficit hawks”. The voted en masse against Obama’s initial $787 billion stimulus and are lining up to oppose Round Two, should there be one. But that is the question; should there be one? My answer is no – not because I don’t believe in the virtues of fiscal stimulus, but rather because I don’t trust the current Administration or Congress to get it right. They certainly didn't first time around.
The first stimulus package was sold to the American public as a plan that would put people back to work quickly. We heard a lot about “shovel-ready” projects that could be implemented within weeks of funds being allocated. Proponents invoked memories of Franklin Roosevelt’s great public works projects that helped lift the nation out of recession in the 1930s. And so it could have been in 2009, had the funds been carefully targeted and promptly deployed. The stimulus package provided a rare opportunity not only to create much needed jobs, but also rebuild roads, bridges, public buildings and public housing that are crumbling from years of neglect, the result in part of states deferring non-essential maintenance in order to balance budgets. In the short-term, infrastructure projects create well-paying jobs in the construction sector and boost demand for steel, cement, asphalt, lumber, heavy equipment and the like. They also serve obvious broad societal benefits that endure for years - we all get to drive on better roads, travel on new and faster trains, enjoy better public facilities or have a better place to live. We were also told that stimulus funding would be targeted toward “green” industries, spurring the creation of cutting-edge environmental technologies that would provide long-term economic and social benefits to the economy in the long term, as well as much-needed jobs in the short term. That also sounded pretty exciting. So what actually happened?
The first problem is that, as eventually enacted, the Obama stimulus plan owed as much to Ronald Reagan as to John Maynard Keynes. The $787 billion is made up of tax cuts ($288 billion), government grants, loans and contracts ($275 billion) and entitlements ($224 billion). I don't believe that tax cuts are an effective stimulus, at least in the short term. At the individual level, reducing someone’s taxes by a few dollars a week provides an immediate benefit only to those that already have jobs; reductions in personal income tax create new jobs only if the recipients of the tax cuts spend that additional money on goods or services that originate in the U.S. In times of economic uncertainty, recipients are more likely to use the additional cash to bring their mortgage up to date, pay down their credit card balances or simply save the money, rather than recycle it back into the domestic economy. Even if some do increase spending – on a new TV or cell phone, for example - the likely beneficiaries will be in China, Taiwan or Mexico, where the goods are likely to have been manufactured. The most effective measure Congress could take in terms of tax policy is to repeal the Bush tax cut - or at least stand firm against attempts to extend the cuts after their scheduled expiration date in 2010. But many Congressional Democrats, like their Republican counterparts, can’t seem to resist the temptation to try to buy votes with tax cuts. With the mid-term elections approaching, it is almost inevitable that if Congress gets its hands on another stimulus plan, the result will be more tax cuts that will increase the deficit without providing an offsetting economic stimulus.
The second problem with the initial stimulus plan is that it is unfocused; the $787 billion is spread around 28 Federal agencies and organizations, some of which by their very nature can do little if anything to stimulate the economy. Moreover, much of the funding is not allocated to specific purposes and disbursement is left to broad agency discretion. For example, the Department of Health and Human Services (which is the biggest conduit for stimulus funds, with $122 billion at its disposal) has announced that it will spend up to $650 million for chronic disease prevention - a worthwhile goal no doubt, but the agency’s press release announcing the program doesn’t even attempt to explain how this will provide economic stimulus. Or how about the Department of Education, which was given $100 billion to spend on education funding, college grants and tuition tax credits? $40 million of this is to be doled out to states as “stabilization funds” to help avert education cuts and to promote education reform (whatever that means). Don’t get me wrong – I’m all in favor of increasing funding for education, but the fact is that these expenditures will create virtually no new jobs. The Department of Agriculture plans to allocate most of its $52 billion (which includes various loan guarantee programs) to nutrition assistance ($21 billion) and rural community development ($27 billion). The list goes on and on, with little indication of how these programs will spur employment. In fact, the biggest job creation may be on K Street, as would-be beneficiaries of “stimulus” funding call their lobbyists and lawyers to find out how they can cash in.
Perhaps unsurprisingly, it seems that most agencies are struggling to come up with ways to spend the huge amounts of tax dollars that have been shoveled into their coffers. As of October 8, only 22 percent of the initial $787 billion stimulus had been paid out, and only 17 percent of the portion allocated to grants, loans and contracts had actually been disbursed. The Department of Transportation, charged with overseeing grants to fund major infrastructure projects, has paid out less than 10% of the $45 billion allotted to it. But of perhaps greater concern is the fact that, according to the most recent government data, the $16 billion so far allocated to Federal contracts has created or saved only 30,383 jobs; this translates to an average cost of $528,000 per job. Further data showing the job creation effects of grants and loan guarantees are due at the end of this month, but what we have seen so far does not provide grounds for encouragement.
I had a certain sense of deja vu when I read recently that the Administration may be weighing a second round of spending targeted specifically at transportation and infrastructure. Isn't that what the original plan was supposed to have done? The Administration seems to believe that the sluggish response to the first stimulus package justifies more of the same. I suggest the contrary is true, and that before considering spending an additional penny, Congress and the Administration need to provide voters with a better accounting of how the existing funds are being used to create jobs, freeze further disbursements on wasteful programs that will not stimulate the economy and re-allocate those funds to more productive use. $787 billion is more than enough stimulus, if it is used properly.
Wednesday, October 14, 2009
Obama's Health Care Snowe Job
“Now is not the time to pat ourselves on the back”, the President proclaimed. "Now is not the time to offer ourselves congratulations." How right he was. If only he really meant it.
He was reacting, of course, to the so-called “bipartisan” health care bill that had passed the Senate Finance Committee a few hours earlier. It is astonishing that he could tout this bill, which bears little resemblance to the principles he outlined in his address to a joint session of Congress a few short weeks ago, as “a critical milestone” that brings us “closer than ever before to passing health reform.” Equally astonishing that in Obama’s mind the support of a single Republican Senator – Olympia Snowe – apparently qualifies the bill as “bipartisan”.
It becomes more apparent with every passing day that Obama lacks an ideological commitment to serious health care reform. I don't buy the alternative argument that he simply lacks the political savvy to translate campaign promises into legislation, even with the benefit of substantial majorities in both Houses of Congress. If that is the case, then he has been out-maneuvered at every turn by the proponents of the status quo. Polls show that a majority of Americans favor either a single payer system or a strong public option. Had Obama shared that view, the obvious negotiating strategy, and one that would have had broad public support, would have been to push for a single payer system and “settle” for a public option. But Obama and Max Baucus, the Senate Finance Committee Chairman, effectively took not only the single payer solution but also the public option off the table even before sitting down to negotiate.
When Obama returned from vacation on September 1 he had to confront a growing groundswell of criticism from progressive Democrats dissatisfied by his failure to press for the public option they view as an essential element of health care reform. Obama's carefully crafted response was to re-affirm that he “favored” the public option as one possible means of cost containment. Not "demanded", "favored". Most seemed to overlook the choice of words, but the signal to Baucus, Grassley et al was clear.
Obama has tried to justify abandoning the public option by stressing the value of “bipartisanship”, as if bipartisanship was a goal in itself. What we are witnessing is not even bipartisanship; it is the triumph of special interests over the interests of the American people – in other words, business as usual. But to take the analysis a stage further, why should bipartisanship be a goal in the first place? Why should Obama care whether or not the Republicans support health care reform? Instead of attempting to schmooze the special interests, Obama should have played hardball with the Democrats and made clear to the so-called "bluedogs", many of whom rode into Congress on Obama's coattails, that they should get behind the party's platform or fend for themselves in the 2010 elections. The legislative process is partisan to its core, and that’s a good thing. Our democracy is founded on the principle that the electorate can chose between parties of differing philosophies and the prevailing party then has a mandate to implement the policies on which it ran. Perhaps Obama genuinely believes that a majority supports bipartisanship as an end, or even as a means to an end. But if so, he is missing a very fundamental distinction between bipartisanship and civility. People are not disenchanted when their elected representatives fight to promote the policies on which they were elected. That’s what they expect them to do. It is the terms of engagement that voters don’t like; the shrillness of the debate; the rhetoric intended to scare or confuse, rather than to inform; the personal attacks; above all, the pervasive and corrupting influence of money.
There is a saying in Washington that “elections have consequences”. Many people expected that this over-used cliche might actually gain some currency following the election of a candidate ostensibly dedicated to “change”. But that is not what we have seen, at least in the case of the health care debate, where special interests have demonstrated that their grip on the legislative process remains as firm as ever, especially in the case of the Senate Finance Committee. The Committee Chairman, Max Baucus, is the leading Congressional beneficiary of health industry largesse. Between 2003 and 2008 he reportedly pocketed an astonishing $3 million in campaign contributions, with half of that total coming in the last two years after he assumed the Committee Chairmanship. Baucus delegated preparation of the initial draft of the bill, the “Chairman’s mark”, to the so-called “Gang of Six”; three Democrats (Baucus-MT, Conrad-ND and Bingaman-NM and) and three Republicans (Grassley-IA, Snowe-ME and Enzi-WY). This neutralized the Democratic majority on the Committee as a whole, and effectively assured an industry-friendly bill. In a travesty of the democratic process, Baucus excluded Senators from the most populous states – like Chuck Schumer of New York. The Gang of Six between them represent less than 3 percent of the nation’s population.
However, the special interests received their usual attentions and favors. Candidate Obama had criticized the influence of the drug companies on Capitol Hill, but President Obama secretly negotiated a deal with Big Pharma to block Congressional action to allow the Government to negotiate drug prices, undercutting the efforts of Congressional Democrats to rein in prescription drug costs. (Two Democrats, Menendez of New Jersey and Carper of Delaware, subsequently put their mouths where their money comes from and joined Baucus in voting against an amendment that would have generated savings in drug prices. Menendez, a self-proclaimed advocate of health care reform, has reportedly taken $1.2 million in campaign contributions from the health care sector.) To say that the health insurance lobby was closely involved in the drafting would be an understatement. Much of the bill was reportedly drafted by one Liz Fowler, Baucus' senior adviser on healthcare matters. Prior to working for Baucus, Fowler was the Vice President of Public Policy for Wellpoint; she recently traded jobs with Baucus’ former adviser. And union and business lobbies teamed up to defeat the Wyden Free Choice amendment, which would have allowed employees dissatisfied with their company health insurance plan to shop around; Baucus ensured that the amendment was thrown out on spurious technical grounds. About the only special interest not represented was the American people, including the 45,000 who, according to Harvard University researchers, will die this year because they don’t have adequate health insurance.
Which brings me back to Olympia Snowe. Obama's plaudits were apparently insufficient gratitude for her meaningless vote in favor of the bill she herself helped write (a vote, she stressed, she may in any event reverse when the bill comes to the Senate floor.) The Finance Committee bill must now be merged with the Health Committee bill, which includes a public option. This critical process will be led by a committee comprised of Harry Reid, the Majority Leader, Max Baucus and Chris Dodd, the two Committee Chairmen, and – you guessed it, Olympia Snowe. That is the reward she extracted in return for her vote. Press reports suggest that she is expected to play a significant role in the process and that Harry Reid will go to substantial lengths to keep her happy. Am I alone in thinking that Snowe’s hard won and grudging “support” for the bill was in fact a carefully orchestrated strategem to plant a Republican Trojan horse at the center of the merger process? Whatever the answer, Snowe’s inclusion means that at least two of the four principals involved in merging the legislation – Max Baucus and Olympia Snowe – are on the record as opposing the public option. Don’t hold your breath over how this one will turn out.
“Now is the time to work even harder to get this done.” Inspiring words from the President, and you can be sure he at least will be doing his bit and working harder than ever. Working harder than ever to ensure that no Democrat will have the temerity to offend Olympia Snowe by pressing for a public option and working harder to persuade the electorate that whatever watered-down proposals emerge from this appalling and unseemly process somehow resemble the genuine health care reform candidate Obama promised us. The latter goal may exceed even Obama’s much vaunted powers of persuasion.
He was reacting, of course, to the so-called “bipartisan” health care bill that had passed the Senate Finance Committee a few hours earlier. It is astonishing that he could tout this bill, which bears little resemblance to the principles he outlined in his address to a joint session of Congress a few short weeks ago, as “a critical milestone” that brings us “closer than ever before to passing health reform.” Equally astonishing that in Obama’s mind the support of a single Republican Senator – Olympia Snowe – apparently qualifies the bill as “bipartisan”.
It becomes more apparent with every passing day that Obama lacks an ideological commitment to serious health care reform. I don't buy the alternative argument that he simply lacks the political savvy to translate campaign promises into legislation, even with the benefit of substantial majorities in both Houses of Congress. If that is the case, then he has been out-maneuvered at every turn by the proponents of the status quo. Polls show that a majority of Americans favor either a single payer system or a strong public option. Had Obama shared that view, the obvious negotiating strategy, and one that would have had broad public support, would have been to push for a single payer system and “settle” for a public option. But Obama and Max Baucus, the Senate Finance Committee Chairman, effectively took not only the single payer solution but also the public option off the table even before sitting down to negotiate.
When Obama returned from vacation on September 1 he had to confront a growing groundswell of criticism from progressive Democrats dissatisfied by his failure to press for the public option they view as an essential element of health care reform. Obama's carefully crafted response was to re-affirm that he “favored” the public option as one possible means of cost containment. Not "demanded", "favored". Most seemed to overlook the choice of words, but the signal to Baucus, Grassley et al was clear.
Obama has tried to justify abandoning the public option by stressing the value of “bipartisanship”, as if bipartisanship was a goal in itself. What we are witnessing is not even bipartisanship; it is the triumph of special interests over the interests of the American people – in other words, business as usual. But to take the analysis a stage further, why should bipartisanship be a goal in the first place? Why should Obama care whether or not the Republicans support health care reform? Instead of attempting to schmooze the special interests, Obama should have played hardball with the Democrats and made clear to the so-called "bluedogs", many of whom rode into Congress on Obama's coattails, that they should get behind the party's platform or fend for themselves in the 2010 elections. The legislative process is partisan to its core, and that’s a good thing. Our democracy is founded on the principle that the electorate can chose between parties of differing philosophies and the prevailing party then has a mandate to implement the policies on which it ran. Perhaps Obama genuinely believes that a majority supports bipartisanship as an end, or even as a means to an end. But if so, he is missing a very fundamental distinction between bipartisanship and civility. People are not disenchanted when their elected representatives fight to promote the policies on which they were elected. That’s what they expect them to do. It is the terms of engagement that voters don’t like; the shrillness of the debate; the rhetoric intended to scare or confuse, rather than to inform; the personal attacks; above all, the pervasive and corrupting influence of money.
There is a saying in Washington that “elections have consequences”. Many people expected that this over-used cliche might actually gain some currency following the election of a candidate ostensibly dedicated to “change”. But that is not what we have seen, at least in the case of the health care debate, where special interests have demonstrated that their grip on the legislative process remains as firm as ever, especially in the case of the Senate Finance Committee. The Committee Chairman, Max Baucus, is the leading Congressional beneficiary of health industry largesse. Between 2003 and 2008 he reportedly pocketed an astonishing $3 million in campaign contributions, with half of that total coming in the last two years after he assumed the Committee Chairmanship. Baucus delegated preparation of the initial draft of the bill, the “Chairman’s mark”, to the so-called “Gang of Six”; three Democrats (Baucus-MT, Conrad-ND and Bingaman-NM and) and three Republicans (Grassley-IA, Snowe-ME and Enzi-WY). This neutralized the Democratic majority on the Committee as a whole, and effectively assured an industry-friendly bill. In a travesty of the democratic process, Baucus excluded Senators from the most populous states – like Chuck Schumer of New York. The Gang of Six between them represent less than 3 percent of the nation’s population.
However, the special interests received their usual attentions and favors. Candidate Obama had criticized the influence of the drug companies on Capitol Hill, but President Obama secretly negotiated a deal with Big Pharma to block Congressional action to allow the Government to negotiate drug prices, undercutting the efforts of Congressional Democrats to rein in prescription drug costs. (Two Democrats, Menendez of New Jersey and Carper of Delaware, subsequently put their mouths where their money comes from and joined Baucus in voting against an amendment that would have generated savings in drug prices. Menendez, a self-proclaimed advocate of health care reform, has reportedly taken $1.2 million in campaign contributions from the health care sector.) To say that the health insurance lobby was closely involved in the drafting would be an understatement. Much of the bill was reportedly drafted by one Liz Fowler, Baucus' senior adviser on healthcare matters. Prior to working for Baucus, Fowler was the Vice President of Public Policy for Wellpoint; she recently traded jobs with Baucus’ former adviser. And union and business lobbies teamed up to defeat the Wyden Free Choice amendment, which would have allowed employees dissatisfied with their company health insurance plan to shop around; Baucus ensured that the amendment was thrown out on spurious technical grounds. About the only special interest not represented was the American people, including the 45,000 who, according to Harvard University researchers, will die this year because they don’t have adequate health insurance.
Which brings me back to Olympia Snowe. Obama's plaudits were apparently insufficient gratitude for her meaningless vote in favor of the bill she herself helped write (a vote, she stressed, she may in any event reverse when the bill comes to the Senate floor.) The Finance Committee bill must now be merged with the Health Committee bill, which includes a public option. This critical process will be led by a committee comprised of Harry Reid, the Majority Leader, Max Baucus and Chris Dodd, the two Committee Chairmen, and – you guessed it, Olympia Snowe. That is the reward she extracted in return for her vote. Press reports suggest that she is expected to play a significant role in the process and that Harry Reid will go to substantial lengths to keep her happy. Am I alone in thinking that Snowe’s hard won and grudging “support” for the bill was in fact a carefully orchestrated strategem to plant a Republican Trojan horse at the center of the merger process? Whatever the answer, Snowe’s inclusion means that at least two of the four principals involved in merging the legislation – Max Baucus and Olympia Snowe – are on the record as opposing the public option. Don’t hold your breath over how this one will turn out.
“Now is the time to work even harder to get this done.” Inspiring words from the President, and you can be sure he at least will be doing his bit and working harder than ever. Working harder than ever to ensure that no Democrat will have the temerity to offend Olympia Snowe by pressing for a public option and working harder to persuade the electorate that whatever watered-down proposals emerge from this appalling and unseemly process somehow resemble the genuine health care reform candidate Obama promised us. The latter goal may exceed even Obama’s much vaunted powers of persuasion.
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