Kabuki Theater – a traditional form of Japanese drama characterized by highly stylized poses and exaggerated gestures accompanied by familiar songs wrapped in a plot rooted in historical tragedy (or comedy). The audience knows the story and knows how it ends. The art is in the quality of the performance and not in the story itself. In the United States, this art form is more easily recognizable as “The Debt Ceiling Crisis.” A few weeks ago, I left a comment on the Outside The Beltway blog, describing the show we were about to witness:

“The only thing that provides political cover for a compromise for both sides is the the dire consequences of missing the deadline. So there will be a compromise. The compromise will include some formula for revenue increases, (probably in the form eliminating deductions while reducing rates), it will include cuts to the military, and it will include deep meaningful and substantial cuts in spending in the overall budget. And the compromise will be agreed on the brink of default to no one’s satisfaction. In the meantime, we have six weeks of Kabuki theater to enjoy while the eventual compromise is hammered out. Both tribes will have ample opportunity to point at the feckless hypocrisy of the other. Enjoy the show.”

I do not see any reason to change that prediction. We know the debt ceiling will be raised because all leadership on both sides of the aisle say it will be raised. There is no politician of consequence in Washington who is saying otherwise. We already know how this story ends. It is all about the performance that takes us to the final act.

This is not to say that the performance is unimportant. The performance will determine public opinion and the final shape of the compromise. Whether looking at the more recent temporary measures proposed by Reid, McConnell and Boehner, or the “Grand Bargain” that was being negotiated between Obama and Boehner – the fact is that the two sides are quite close, as Ezra Klein explains:

“Now, remember that the deal Obama offered Boehner about a week ago now, or maybe a little bit less than that was $1.2 trillion in tax increases for $4 trillion in deficit reduction total. Boehner walked from that. but Boehner did say he would be okay with an $800 billion tax increase if there were $4 trillion in debt reduction total. So in some strange way, the two aren’t as far apart as you would think, but they can’t bridge that final gap. so now Boehner’s arguing for no tax increases at all, but Obama is sort of held to that same deal and is trying to continue to offer it to Boehner.”

The “Grand Bargain” is still on the table. That became clear during the dueling press conference “arias” sung by the two principal actors Monday evening. Despite Harry Reid proposing a plan with no revenue increases earlier in the day, Obama ignored Reid’s plan in his speech and continued to make the case for his version of the “Grand Bargain” with revenue increases. Despite Boehner himself proposing a stopgap measure earlier in the day – he spent more time arguing the case for his version of how the “Grand Bargain” negotiation broke down. Conclusion – they are still negotiating the big deal in earnest.

Boehner is playing his supporting role exceedingly well in the shadow of Obama’s scene stealing dramatics, but the President has the edge, successfully portraying himself to the press and most of the public as the more reasonable party in the negotiation. Last week he attempted to press his advantage to push for full $1.2 trillion in revenue increases. That was when negotiations broke down. He pressed it again on Monday with a call for public support to apply pressure in the House. Boehner played his last best move, exiting stage right, proposing a stop-gap, knowing that Obama really wants the “Grand Bargain”. But Obama knows that Boehner wants it too. The plot thickens.

The simple fact is that $400 billion difference is not all that significant in the context of the complete $4 trillion deficit reduction plan. These last few moves are about how that last $400 billion will be split. So far – advantage Obama – but it’s not a big advantage. My prediction – Boehner will move off of his $800 billion “revenue enhancement” cap, but it will stay under $1 trillion. I can hardly wait to see how it turns out.

The problem – both now and throughout this process – is that the “blink contest” negotiation cannot be settled except on the brink of a looming disaster deadline. Neither side can satisfy their constituency with the inevitable compromise. Our representatives on both sides take considerable political risk if they compromise too early – i.e. before a doomsday deadline. We’ve seen this every time the sides get close. Liberals and Democrats are furious at Obama and Reid. Conservatives and Republicans are furious with Boehner and McConnell.

Since a compromise solution of this scope requires a hard deadline, the only remaining variable is whether we agree the deadline actually exists and when it takes place. This is part of what we heard last Friday, with both sides upping the rhetoric to make the case that the deadline was really this last Monday. Nobody bought it. So we are back to the August 2 deadline, except that may not be a real deadline either. Boehner’s stopgap plan moves the deadline ahead another six months. Nobody wants that. I expect we will get a compromise by Monday.

A suggestion – Instead of assuming that one side or the other are intransigent hypocrites, consider the possibility that both sides are arguing from principle (i.e. sincerely believing they are fighting for a position that their constituency holds dear). If you accept this framing, then it follows that both sides must maintain the posture that they are willing to walk right up to the brink of a debt ceiling default rather than compromise their principles. To do otherwise would undermine their negotiating position and be a betrayal of the people who elected them.

Monday night the President said – “The American people may have voted for divided government, but they didn’t vote for a dysfunctional government.” A good line, but it misses the mark.

We have a divided government because we have a divided country. There is a significant faction of the electorate who would like to see our country more closely emulate a European style social welfare democracy. There is an equally significant faction of the electorate who would like to see our country move back to the more limited government concepts on which it was founded. To a large extent the Democratic and Republican politicians we elected to represent us are doing exactly that – representing our views – just the way we want them to. Our government is not dysfunctional, it is behaving exactly as it was designed to resolve conflicts between large and opposed factions in the populace.

Oddly, I am filled with optimism and almost euphoric watching this performance. It reinforces my conviction that there is no need to put any faith in the motivations of the politicians of either party. It is enough to know that we have a system that was designed to anticipate this kind of political conflict – in fact – to insist on it and institutionalize it. As James Madison said in Federalist #51 when arguing for our Constitutional division of power: “Ambition must be made to counteract ambition.” Out of the conflict inherent in a government run by men and not angels we get a better result than we would in the absence of the checks they put on each other. Madison again in Federalist #10:

“The influence of factious leaders may kindle a flame within their particular States, but will be unable to spread a general conflagration through the other States. A religious sect may degenerate into a political faction in a part of the Confederacy; but the variety of sects dispersed over the entire face of it must secure the national councils against any danger from that source. A rage for paper money, for an abolition of debts, for an equal division of property, or for any other improper or wicked project, will be less apt to pervade the whole body of the Union than a particular member of it; in the same proportion as such a malady is more likely to taint a particular county or district, than an entire State. In the extent and proper structure of the Union, therefore, we behold a republican remedy for the diseases most incident to republican government.”

The time to worry is when the factions are not fighting each other to a standstill. That usually means the system is not working as it should and power is too concentrated. Or it means we are going to war.

My primary rationale for supporting divided government is that it leads to more fiscal responsibility and spending restraint. I am interested in the result, not the histrionics that are necessary to get there – no matter how entertaining. The kind of giant cuts envisioned by the “Grand Bargain” can only happen when we are teetering on the brink and can only happen with a divided government in place. Pay attention to the result – not the performance. At this point it appears that divided government is winning and is winning big. It’s a good thing.

Bravo, gentlemen. Play on.

^{X-posted from “Divided We Stand United We Fall”}

For anyone interested in doing a deep dive into the state of the financial budget crisis facing the United States, you cannot do better than Mary Meeker’s recently released report “USA Inc.” Published under the auspices of venture capitalist Kleiner Perkins, it is detailed and comprehensive, yet clear, understandable and served up in digestible bites. It is well worth the time and effort.

The forward signed by Paul Volcker, George Schultz, Michael Bloomberg, Richard Ravitch and John Doerr sets the tone:

Highly recommended. Every American should take the time to dig into this document. I skimmed it, was blown away and expect to return for deeper insights and as a reference for future posts.

At over 250 pages, with hundreds of graphs, it is impossible to do this work justice in a blog post. I am occasionally accused of expending a thousand words when a picture or a pithy paragraph would suffice. In an attempt to exercise a little pontification discipline, in this post I will simply deal out a 5 card poker hand pulled from the hundreds found in the Meeker presentation deck.

This busted hand should have been folded as soon as it was dealt. No one is buying the bluff now. Time to throw it in, cut the losses, and reshuffle the deck.


Henry Blodgett says this is the only chart you need to understand why we are screwed. We cannot keep spending $5 dollars for every $3 we bring in.

It’s the entitlements stupid. Spending is out of control and by 2025, entitlements plus net interest payments will absorb all of the USA’s revenue. Yes, you read that right. In less than 15 years all taxes will go to pay interest and entitlements. As Mike Shedlock says “If that is not a shocking state of affairs, what is?”

We have to grow, but we cannot just grow our way out of the problem this time, as that presumption requires wildly unrealistic growth assumptions.

Taxing the rich cannot solve the problem. Taxing everyone does not solve the problem.

Unfunded liabilities are a crushing burden. We’ve got to lighten the load.

Net net. Meeker’s solution, unsurprisingly, is all of the above. Spending must be slashed, unfunded entitlement liabilities must be reduced dramatically, and revenue must be raised. Yes, tax rates on the rich must go up, tax loopholes must close, and the tax base must also be broadened.

Make no mistake. There is something for everyone to dislike in her recommendations – right, left and center. I am no exception. Meeker actually advocates increases in Infrastructure, Education and Defense spending while slashing entitlements. I am more of an equal opportunity hatchet man, and think nothing should be spared.

No matter. Deal me in.

Cut the BS and shuffle.

Deal.

Cross-posted from Divided We Stand United We Fall

As previously noted, Taiwanese animations are the future of all mainstream news. Here the folks at NextMedia have distilled US TV news, newspaper commentary, blogs, and twitter feeds on the Wisconsin standoff into an easily digestible two minute animation. I actually think four posts in a row on the same subject is probably two too many, but as this story is winding down anyway, I’ll give NMA the last word.

[I think Jacob said he would put the weekly Open Thread out today, but if not - feel free to use or abuse this one.]

This is what a cheesehead protest looks like in Taiwan:

I wonder why I waste time watching the news. It is easier to just wait for NMA to distill every story down to its essence.

They did miss all the giddy excitement on the left about the embarrassing prank call to Governor Walker from a fake David Koch. Walker did not say anything in the call that is going to change the dynamic in Wisconsin. The problem is not anything he said. The problem is that he took the call. The only likely effect will be to Walker’s presidential ambitions and potential re-election. He’ll be running against that audio recording for the rest of his political life. So it goes. He took the call, now he’ll live with it. I’m good with that.

Taking that call fanned the flames of left wing paranoia about David Koch which is beginning to take on the epic proportions of right wing paranoia about George Soros. But as far as the legislative standoff is concerned, this is a foregone conclusion. Walker will win.

Wisconsin Democrats run for the exits.

Polls do not support the AWOL Wisconsin Senators. The Wisconsin State Assembly passed the Walker Budget Repair Bill after beating back a filibuster and the Senators will have to return sometime or be recalled. The protesters in Madison will have to go back to work or be fired. The Republicans have the votes and Walker has the will. Done deal.

It is all Kabuki Theater in Wisconsin from this point. To quote another blogger who occasionally posts at this site and is currently basking on a Mexico beach “Moving on.”

X-posted from “Divided We Stand United We Fall“

Obama, GOP freshmen win in jet engine budget fight

WASHINGTON (AP) — Determined to reduce deficits, impatient House Republican freshmen made common cause with President Barack Obama on Wednesday, scoring their biggest victory to date in a vote to cancel $450 million for an alternative engine for the Pentagon’s next-generation warplane.

“Right here, right now was a surefire way to reduce spending,” declared Rep. Tom Rooney of Florida, a second-term lawmaker whose summons to cut money from the F-35 fighter jet was answered by 47 Republican newcomers…

Strictly by the numbers, the vote was a bipartisan one, with 110 Republicans and 123 Democrats supporting cancellation of the funds, while 68 Democrats and 130 Republicans wanted to leave them in place. But that breakdown obscured the change wrought by the voters last fall. A similar vote in May ended in defeat for opponents of the alternative engine.”

Let’s review. The alternate engine is a defense pork barrel project that will not die because it is supported by legislators determined to bring home the bacon to their respective district or state. It was opposed by Presidents Bush and Obama, as well as both of the their Secretaries of Defense as unneeded and a waste of taxpayer money. Nevertheless, Congress continued to allocate billions on an engine the military did not want or need.

Last May, with a Democratic President and large Democratic majorities in both the Senate and House, this project continued to be funded, passing in Nancy Pelosi’s House of Representatives by a vote of 231-193.

Last week, in the Republican controlled House of Representatives, with Republican Speaker of the House John Boehner supporting the continued funding of the unneeded engine, it was finally defeated. Credit to President Obama, Defense Secretary Robert Gates for reaching out to Republican legislators and the new crop of Tea Party supported freshmen Republican representatives who stood up to their own leadership.

Of course, this is still not over. The Democratic controlled Senate may yet restore the funding. Having demonstrated my difficulty identifying Senator party affiliation in a previous post, I’ll leave it to the reader to figure out where the problem in the Senate may lie:

Postscript: Some of you may remember Justin, who used to be a regular contributor here. He had some things to say about this very issue shortly after the election.

From his post:

“If Republicans are serious about tightening our belts, cutting the budget deficit and the overall deficit, then programs like this need to be shelved. Tea Partiers, I’m looking at you. Want to prove you’re more than just a marketing gimmick? Take a stand on issues like this.”

From his comments:

“If it is revealed that a wide swath of GOPers don’t agree with his assessment, I will write a post about that. Trust me, I would GLADLY write a post about that.”

I am considering offering him an opportunity to follow up with a guest post.

Anyone familiar with Ravel’s Bolero will instantly recognize the simple musical phrase that is repeated throughout the entire piece. It begins slowly with a snare drum establishing a military march-like rhythm, then joined by a solo woodwind, then a flute, then more instruments are added with every iteration until the entire orchestra is engaged. The piece was written for ballet, is simplistic and highly repetitive, yet as the increasing musical voices repeat the same monotonous refrain, it becomes oddly compelling. The composition was popularized in the movie “10″ when Bo Derek declared it as the perfect musical accompaniment for getting screwed. Which, when you think about it, makes the Bolero a perfect analogy for the political process surrounding the federal budget.

On Monday, as the President’s proposed budget was released, the right and left executed a familiar pas de deux. On Tuesday the President introduced the budget in a Press conference:

The president is absolutely right. Like the family in his example the US has been overspending for a long time. In fact our extended American family is now spending $5 every year for each $3 of revenue we bring in (H/T KK). Anyone with basic arithmetic skills can easily understand this as problematical and unsustainable.

If one was to quibble with the President’s message, it would be with his measured tone and not the words themselves. I’m just not sure that skipping a few dinners out and cutting back on vacations is going to cut it when the family debt is greater than the gross economic output of the entire fracking planet. Just sayin….

The problem is not with what President Obama says. His message is spot on. The problem is with what he does. The problem is that despite what he says, the budget he is proposing does not reduce spending. He says we need to “live within our means”. This budget does not. He says we need to “cut back” on spending. This budget increases spending.

Chris Edwards at Cato:

I am going to cut President Obama some slack here. I assume that this budget is a tactical non-serious opening offer in what the administration expects to be a protracted, knock-down drag-out no-holds-barred steel cage match negotiation with Congress. Given the slings and arrows the President suffered from his left flank attacking his negotiating posture on Obamacare and the lame duck tax compromise, we should expect a different opening gambit now.

The administration knows that whatever they put on the table, the need to compromise with the GOP will force deeper cuts into the final budget. So why not start with a budget that makes no cuts whatsoever? It is a good negotiating posture, but I just can’t believe he has the cajones to describe this budget as if it represents any fiscal belt-tightening at all. Even the press corp had a hard time finding anything resembling fiscal responsibility in the proposed budget.

This glaring credibility gap between what the President says and does is the defining characteristic of his first term. This budget may be the worst example yet. Remember when President Obama said there would be no more budget gimmicks to hide the real cost of programs and the impact on the deficit? Remember when President Obama claimed that Obamacare will lower costs and reduce the deficit? Well, meet the Mother of all Budget Gimmicks, used to disguise the fact that Obamacare is not paid for and does not reduce the deficit. Not even close. This is not a credibility gap, this is a credibility Grand Canyon.

Megan McArdle explains

“Obama’s budget includes a two-year, paid for fix. But how it’s paid for is pretty worrying: as Cannon’s graph shows, the spending is all done in the first two years, but the cuts needed to pay for them take place over 10 years.

• Limit the taxes that states can place on Medicaid providers, which has had the effect of increasing the federal contribution to state Medicaid budgets: $18 billion over 10 years
• Claw back “erroneous payments” to United Healthcare under Medicare Advantage: $6 billion one time
• Limit the ability of brand name pharmaceutical manufacturers to cut side deals with generic manufacturers to end patent challenges: $8.8 billion over 10 years
• Shorten the market exclusivity period for biologic drugs from 12 years to 7: $2.3 billion over 10 years
• Lower Medicaid reimbursements for home medical equipment: $6.45 billion over 10 years

This is a dog’s breakfast. First of all, as I noted yesterday, many of these things are having trouble getting through Congress as it is; and second of all, why on earth would you use this motley grab-bag of long-term pay-fors to cover short term spending? The answer, I suspect, is that the cupboard is bare. They don’t have any better revenue mechanisms left–everything that anyone even thought was plausible went into ObamaCare. And yet, they can’t simply cut doctor’s reimbursements by one fifth. So they scrambled for anything at all–and the only way they could come up with the necessary revenue was to stretch the cuts out over ten years, while covering the spending for only two years.

Obviously this is not a sustainable strategy, any more than I can simply pay for an increase in my annual restaurant budget by cutting back on my movie budget for the next ten years–eventually, you’ve zeroed out the rest of the entertainment budget, and the tab at Komi is still growing. Yet this seems to be the only plan the administration has to pay for the doc fix–a problem that wasn’t addressed during health care reform, as far as I can tell, precisely because it was too expensive.”

The music plays on.

If he wants to get reelected he needs to outflank the Republicans on fiscal responsibility by supporting the bipartisan recommendations of the deficit commission he sponsored. If he puts the full weight of the Presidency behind the Simpson-Bowles Plan and pushes it to a floor debate, the American people would put their electoral weight behind him.

Shall we dance?

X-posted from Divided We Stand United We Fall

Politico - Who really abandoned Dems?

The survey – “Droppers” and “Switchers”: The Fraying Obama Coalition“

66% of switchers say “too much government spending” was a major reason for their decision not to vote Democratic this year. This is the number-one ranked factor switchers gave in our poll.

• 64% of switchers say deficits are a “serious problem that are weakening the economy” (versus 32% who say “deficits are a concern but we have more pressing priorities”).
• 76% don’t think Democrats are “serious about reducing the deficit.”
• 78% don’t think Democrats are “responsible with taxpayer dollars.”

In fact, 68% of switchers say they would be more likely to support President Obama in 2012 if he offered a serious proposal to reduce the deficit.

Apparently President Obama and his political brain trust were diligently taking notes while getting schooled in the midterms. On Monday President Obama announced a federal employee pay freeze for non-military employees. On Tuesday he met with congressional leadership and assured the American people that he heard the voice of the voters:

I have one quibble with the President’s statement. While technically true that the American people may not have voted specifically for gridlock, and while he is also correct they would prefer bipartisan cooperation controlling spending, they did make it clear they’ll happily take gridlock over the kind of crappy and stupidly expensive steamrolled partisan legislation that passed in the last Congress. But, in the bipartisan spirit of taking a bipartisan hatchet to a slashed bipartisan budget, we’ll overlook that nit.

Minutes after the President’s statement, the co-chairs of his National Commission on Fiscal Responsibility and Reform had a press conference to announce that their final report on a deficit cutting plan will be delivered on Wednesday and voted on Friday. Regarding the vote, the Democratic co-chair Erskine Bowles said

“… whatever happens, the commission will have achieved “victory” by starting a national conversation about the federal debt. ‘The era of deficit denial in Washington is over,’ the North Carolinian and former Clinton White House chief of staff drawled.”

I agree.

Wednesday, the President’s bipartisan deficit commission delivered their final report. In three days, the top three stories out of Washington were all about fiscal responsibility, controlling spending and deficits. President Obama and the President’s commission are leading the charge. Real, meaty, substantial proposals are being put on the table. If it were not for wikileaks, this is all we would be talking about, and that is a very good thing.

To be honest, I am irrationally exuberant over these developments and in danger of losing my cynicism. I suspect hope that we going to make real progress on federal spending and the deficit this time. Let me hasten to add that I am not completely delusional. If done correctly, this process will be contentious, noisy, the air will be filled with partisan cries, lamentations and the bellowing of gored oxen. Undoubtedly I will be among those gnashing teeth, tearing hair, and complaining bitterly about whatever makes it out of the sausage grinder. But at least we appear to be starting down a path to some semblance of what passes for fiscal responsibility in Washington D.C.

I have one simple reason for my optimism: The President and his political advisers understand his re-election in 2012 depends on restraining spending and the deficit. Republicans in Congress understand their re-election and majorities in the House and Senate in 2012 depend on restraining spending and the deficit. Even some Democrats in Congress understand their re-election in 2012 depends on restraining spending and the deficit. David Axelrod thinks it important enough to ramp up the Audacity of Astroturf troops mere days after the mid-term.

Even as small a step as the President’s initative on the pay freeze has many on the left up in arms. Obiously still in denial, they found the President’s initiative to be vexing, a capitulation, an ineffectual ploy, bad negotiations, symbolic, doublespeak, blasphemy, stupid, gutless, cretinous, anti-union, pointless, a sellout and a blunder (among other things).

OTOH, those that “get it” understand exactly how damaging this chart was to Obama and the Democratic Party in the midterms. Private sector jobs were lost by the millions, but under this administration public sector jobs (that pay better with greater security than the private sector) were protected. Given the close relationship and massive financial support the Democrats and Obama received from public sector unions like SEIU, it just did not look good. Voters were angry. With the help of letter from a reader, even Ezra Klein gets it now (almost).

Republicans will predictably say that it is weak gruel, and does not go far enough. But, it is a start. Given the depth of the hole our representatives and leaders dug for us over the last ten years, this may be exactly the start we need now.

Thank you Mr. President. If you stay on this path you may even get re-elected, and we can keep our happily divided government.

Cross posted from Divided We Stand United We Fall.

Edited to correct typos.

I am less thankful about what our leaders are doing to our currency. Last year I introduced a new tradition on Thanksgiving – watching the carving of our currency as it is sliced by administration fiscal policy and diced by Fed monetary policy.

Your 2010 Thanksgiving dollar dinner leftovers are served:

For our main course, let us check in with Peter Schiff, who you may recall was right in 2006-07 predicting the impending recession and crash of the real estate bubble. He was right in 2008 about the dollar and early in 2009 when he warned President-elect Obama about the folly of trying to borrow and spend ourselves into prosperity. Monotonously he was right again one year ago when he told us to keep buying gold at $1,084 /oz (up 27% to Wednesday’s close of $1,372/oz) as a hedge against the devaluing dollar.

We cannot expect this remarkable record to continue. Schiff is an economist a financial consultant* – a profession second only to economists with a reputation for being more wrong than right (Paul Krugman being a notable high profile example, having correctly predicted eight of the last one recessions). But, while he is on a hot streak, it behooves us to pay attention to what he has to say.

Serving up the meat and potatoes – Schiff on the insanity of Congress mandating a two headed Fed charter. They are required to manage monetary policy to maintain a stable currency, and also to promote maximum employment by umm.. devaluing the currency:

The Chimera of the Fed’s Schizophrenic Mission - Peter Schiff

For a side dish, Peter Schiff checks in with CNBC and browbeats the usual suspects on Fast Money:

C’mon. A six minute long primitive animation about economics, Fed policy, and quantitative easing – going viral? Three million views? How does that happen?

Finally, for a relaxing after dinner smoke – Enjoy “The Bernanke” as he hits the road to defend the QE2 policy to the world. Good luck with that, Ben.

Cross=posted from “Divided We Stand United We Fall“

There is simply not a tent big enough to encompass the full spectrum of policy positions held by those opposed to our current One Party Democratic Rule, including: fiscal conservatives; social conservatives; Republican partisans; libertarians; independents; and the tea party movement. But there does not need to be a unanimity of policy preferences for the GOP to prevail. All they need in November is a common objective and general agreement that a key issue takes precedence over all others. My take -

• The objective is restoring balance and restraint in our federal government.
• The key issue is restraining the insane growth of spending and curtailing the fiscal irresponsibility exhibited by the Democrats and this administration.

In a nutshell – “It’s the spending, stupid” – (Thank you again James Carville).

The Tea Party movement is a microcosm of the opposition coalition, willfully misunderstood and mis-characterized by Democratic Party partisans. So far, the Tea Party has shown considerable focus, political acumen and seem to understand that social issues must take a back seat to economic issues in this election.

Flipping majorities in the House of Representatives is extraordinarily difficult. Gerrymandered districts, high congressional re-election rates, and the propensity of voters to dislike congress in general but like their specific congressperson in particular – all must all be overcome to flip the House. It can only happen when a pervasive national mood overcomes the Tip O’Neill homily “All politics is local”.

Difficult, but doable. It happened in 1994 when disparate opposition united to reject the overreach, fiscal irresponsibility, and corruption of One Party Democratic Rule. It happened in 2006 when disparate opposition united to reject the overreach, fiscal irresponsibility and corruption of One Party Republican Rule. Voters don’t need a sweeping agenda. They just need to be unified in a desire to sweep out the party in power. The opposition voting coalition may not survive beyond the 2010 mid-terms, but it does not need to.

McManus continues:

The bogeyman of “gridlock” will not dissuade voters. While often messy, political gridlock in Washington D.C. can yield very positive results. The poster child of dysfunctional gridlock is the Clinton/Gingrich budget impasse that shut down the government in 1995. Ugly – to be sure. Yet out of that same dynamic during the six years of divided and “gridlocked” government, we got a lot of good, smart governance: NAFTA, GATT, Welfare Reform, PAYGO, Tax cuts, reduction in the growth of federal spending, deficit reduction, growing economy, Crime Bill, Brady Bill, new national parks, low unemployment and a balanced budget. Ahh, the good ol’ days. I’ll take that kind of gridlock anytime.

I am not the only one nostalgic for the golden age of gridlock. AP is reporting that Newt Gingrich is considering a run for President. The problem for Gingrich – it is not him, but divided government that invokes the nostalgia. if the Republicans do as well as some polls are indicating in November, voters will need to re-elect Barack Obama to keep that good - Democratic President, Republican Congress – gridlock feeling.

^{UPDATE: 15-Jul-10}

Just noticed this WaPo Howard Kurtz column that strikes some similar notes:

The Gridlock Option

…what if Americans like obstructionists? By which I mean, what if the country, having sampled all-Democratic rule in Washington, would much prefer divided government?

It has, of course, happened before. Voters saddled Ronald Reagan with a Democratic Senate in his last two years in office. Bill Clinton seemed to overreach in his first two years and the voters rewarded him with a Republican Congress for the last six. George W. Bush was six years into his term when the voters gave Democrats control of both chambers.

That’s why the Obama rhetoric about giving back the keys may fall flat: A Republican Congress wouldn’t be running things. It would be more in the role of backseat driver. GOP lawmakers could schedule hearings, issue subpoenas, keep bills off the floor — but would have a hard time passing anything over a presidential veto.

That could be a formula for gridlock — but if enough voters are angry at big government, they might prefer a government that doesn’t do much. Or it could force both parties to compromise, as when Clinton and the Gingrich Congress agreed on welfare reform and a balanced budget.”

Smart guy that Kurtz.

^{Cross-posted from “Divided We Stand United We Fall“}

The correlation (or not) of stock markets, political parties, election expectations and investor psychology has been a recurring topic of interest to this blogger (see 2006, 2007, 2008 , 2009).

Along these lines, we are beginning to see articles speculating about the potential impact on markets and investors should voters usher in a new divided government in the fall.

Richard Lehman, writing at Forbes recommends“Sell Into Rallies And Thank Politicians”:,

Joseph Lazzaro at the Daily Finance – “Job Creation: Democrats Have Run Out of Time WithVoters.”:

There is no doubt that should the GOP regain a majority in either house of Congress, we will certainly get episodes of gridlock. But if the legislation is needed, if there is real public demand for gridlocked legislation, the gridlock will eventually end as it always does. Out of that gridlock we will get better, more fiscally responsible legislation than we are seeing now under One Party Democratic rule. And that is a good thing.

The advantage of divided government is that both parties have a seat at the table of power. When both parties have real power, the bickering must be resolved by compromise. In contrast, the impotent bickering of the Republicans during the stimulus and healthcare debates was mostly ignored by the Democrats, resulting in fiscally irresponsible, one party legislative hairballs.

As far as stock market reactions, I am reluctant to link market behavior to any policy or partisan mix in Washington. I’ve not seen any studies that show a believable, statistically significant correlation between long term market direction and Republican, Democratic, or divided governments. That said – in the short term it is less important whether there really is a statistical correlation so much as whether investors believe there is a correlation. My sense is that most investors believe, as does Richard Lehman, that the stock market will benefit from Republicans taking control of either the House or Senate in the fall. With that expectation, a rising market could very well be a self-fulfilling prophecy. If the GOP begins to look like it has a realistic chance of taking control of one house, the opportunities alluded to by Lehman may come along sooner rather than later.

Climbing a wall of worry the markets posted big gains last week, including a dramatic 274 Dow points on Wednesday. This left many analysts scratching their heads after the unrelenting doom and gloom of recent weeks. CNBC broadcast a one hour special analyzing Wednesday’s market action. In this excerpt Ron Insana expresses caution, but finishes by insinuating that changing investor expectations for the mid-terms may have contributed to the rise:

Money quote:

Indeed it might. And like in the 2006 mid-terms – perhaps happy days will be here again (at least as far as the market is concerned).

Postscript:
In case you were wondering why the picture of CNBC financial correspondent Amanda Drury introduces this post, I simply though it would help illustrate the question she asked the panel in the above clip. Nothing more.

^{Cross-posted from “Divided We Stand United We Fall”}

Shikha Dalmia at Forbes goes beyond opinion and actually does the homework:

I wonder – Does Mike Thompson really believe that anyone beside himself would uncritically accept the GM PR, advertising, and administration spin at face value and say “I told you so!” C’mon, Mike. Who would do that?

But I digress. Shika explains how the shell game worked:

I said this was like a carny shell game, but that is not fair – to the shell game. In a shell game a bean is presumed to be placed under one of three cups, and the mark is fooled by quick manipulation of the cups into guessing and betting incorrectly where it might be found.

In GM’s case, the administration just keeps stuffing more and more of our money into the company’s pockets, the company moves some of the money from one pocket to another, gives a little back, and finally both the company and administration publicly misrepresent what is taking place. When all is said and done, GM winds up owing taxpayers more money than before they “repaid” the loan.

But, no worries. We’ll get the money all back. Someday. Over the rainbow. Just as soon as the 72.5% of GM company stock that US and Canadian taxpayers own is worth as much as they are owed and can be safely sold to repay it. The GAO suggests this may happen just as soon as….

… hell freezes over.

Hat tip to McQ at Questions and Observations who sums it up with this depressing observation:

In the meantime, as taxpayers, we can take comfort in the knowledge that our money is being used to prop up a failed competitor and make life harder for the Ford Corporation. Ford is a well run American company that took the hard management decisions necessary to survive in a tough environment and made the right management decisions to earn the respect of all Americans. Ford continues to innovate and build new products out of their own capital and profits, not requiring or requesting any government handouts. And we are all paying to subsidize their competitors.

We can all sleep better knowing that our tax dollars are being used to undermine a great American company that did the right thing by reanimating their zombie competitors.

I guess I’ll just have to be satisfied with the knowledge that since GM and Chrysler took my money against my will, they’ll never get a dollar from me willingly to buy one of their cars. It’s something.

Cross-posted from Divided We Stand United We Fall

Alex Gibney, the filmmaker behind Enron: The Smartest Guys In The Room, is back with his take on the Abramoff scandal and it seems like it’ll be illuminating…and scary.

Check out this featurette…

Basically…Money + Power = Problems. Especially when it comes to the upcoming financial reform legislation. Which is why I’m heartened that the Dems are pushing to get a bill to the floor sooner rather than later and force the Repubs to choose between voter discontent and campaign contributions.

However, Dems don’t get off the hook in Gibney’s doc. In fact, if you watched the vid, you’ll know that Chuck Schumer was called out as asking for concessions for hedge fund managers that are unsavory to say the least. Especially since their income does not fall into the long term capital gains category but is still taxed at 15%.

And this gets to the basic problem of economic fairness. Because folks who make their income off of investments shouldn’t be given preferential treatment above those who work day in and day out to make a hard earned dollar. Why? Well, currently, a guy like Warren Buffet who does nothing but shift money around pays a lot less income tax than his secretary…and even he doesn’t think that’s fair.

By the way, the Obama administration has come out forcefully from the start on closing this loophole and Schumer has recently signaled he may buck his constituents and back the change.

Either way, I can’t wait to see this film. Should be an eye opener.

(PS – By the way…if we raised the income tax on investment income…do we really think these folks would stop investing? Because the big dogs would still make so much money, even with a higher tax rate, that they wouldn’t care about the tax. We’re talking BILLIONS here, not a few thousand dollars that day traders would care about. I’m just saying…)

First, the relevant facts about the budget that’s set to be released on Feb 1…

About $447 billion will be devoted to funding the government — the parts that aren’t mandated by law (the entitlements) or aren’t related to defense, intelligence, veterans or national security issues. Obama will promise to veto any budget that exceeds that threshold, NOT adjusted for inflation, over the next three years. $250 billion would be saved over the baseline.

So now…what does it mean?

Well, it’s not an overall freeze and nobody from the White House ever said it was. But the media has been reporting it is as such, and, well…yeah.

The truth is that some spending will go up, like money for health care, clean energy and education. Other spending will be go down.

More on that from TPM:

The cuts would target “duplicative,” “ineffective” and “inefficient” spending withing government, the official said on a conference call with reporters.

“This is not a blunt, across-the-board freeze,” the official said, adding that some agencies will see spending increases while some will see spending cuts as the total remains constant.

Naturally, the knee jerk blogosphere is crying foul and Krugman is up in arms…

And it’s a betrayal of everything Obama’s supporters thought they were working for. Just like that, Obama has embraced and validated the Republican world-view — and more specifically, he has embraced the policy ideas of the man he defeated in 2008. A correspondent writes, “I feel like an idiot for supporting this guy.”

I’m sorry…where exactly is he embracing the policies of McCain? Because his officials decided to use the word freeze to accurately talk about the spending that won’t go up?

Jeezus…I really hate my party sometimes.

But, to the point of the post…what does mean for you? It’s not complicated. More or your tax dollars will be spent on things that directly effect the economy and less will be spent on things that don’t. So, eventually, some of it might find its way back to your pocket because the economy picks up sooner rather than later.

More as it develops…

Last week President Obama announced the “Volcker Rule” proposing tough constraints on big banks. During the announcement Barney Frank stood behind the president on the podium in visual support of the policy. As noted in my last post, the Chairman of the House Financial Services Committee then proceeded directly to an interview on CNBC, the media outlet that is arguably the most direct conduit to the banking industry affected by that policy. In the interview Barney Frank soft pedaled the impact of the proposed policy, saying it would not go into effect for 3 – 5 years.

Yesterday, in a background briefing, the administration announced a three year spending freeze on portions of the budget. Since departments with the fastest growing government expenditures like Defense, VA, the State Department, and entitlements are excluded from the “freeze”, it will have a negligible effect on the ballooning deficit. NYT:

“The payoff in budget savings would be small relative to the deficit: The estimated $250 billion in savings over 10 years would be less than 3 percent of the roughly $9 trillion in additional deficits the government is expected to accumulate over that time.”

Shortly after the announcement, Jared Bernstein, economist and economic adviser to Vice President Biden, appeared on the Rachel Maddow Show – the media outlet that is arguably the most direct conduit to the progressive community. Mr. Bernstein proceeds to soft pedal even the very modest impact the policy would have on deficits, almost apologizing for it, and practically promising that the administration will really continue to be the big spenders that the progressives know and love. Maddow wasn’t buying what Jared was selling:

I am sure the President will clear all of this up in the State of the Union address tomorrow.

Before considering this new tradition, let us not forget the greatest tradition of this holiday, taking time to count our blessings and give thanks for all that has transpired in the last year. While my blogging activity has been limited recently, I did not want to miss this opportunity to offer this holiday greeting and a wish for a Happy Thanksgiving to the extended Donk family.

I have much to be thankful for…

I am thankful that Justin continues to permit me to be a contributor to Donklephant, so I can annoy many more partisans than I can reach from my little blog.

I am thankful for all the bloggers, columnists, and pundits that helped me to understand and appreciate the significance of Barack Obama’s election one year ago. I learned that with that election we ushered in a new post-partisan, permanent realignment of the American political landscape. I learned that the United States was actually a center-left country. I learned that the Republican Party if not already dead was doomed to succumb to the inevitable demographic shifts in the populace and that ideas like fiscal restraint are so last century and irrelevant.

Having learned all of this from the 2008 election we can only assume that the recent 2009 GOP gubernatorial victories in New Jersey and Virginia are attributable to the last spasms of a dying GOP corpse. In that context I am thankful to Professor Jacobson’s penetrating analysis of the 2009 race:

I am thankful that as we turn our eyes to the 2010 midterms, the prospect for and value of divided government is once again getting its due from the political chattering class, and there is hope for divided government and fiscal sanity to get “more votes” in 2010 and beyond.

Back to the new Thanksgiving tradition of plucking, stuffing, skewering and carving up the value of our currency. For this, we can be thankful to Barack Obama, Tim Geithner, Ben Bernanke and single party Democratic rule. I am personally thankful for CNBC, a network that, while certainly not immune to political bias, offers the depth of coverage to afford some understanding of our government policies and the real consequences for the economy, jobs, the dollar, our standard of living and the future of our country. Case in point – this week on CNBC I learned about the consequences of devaluing our currency by printing money to service unprecedented debt created by fiscally irresponsible spending that started in the Bush administration and has accelerated to unprecedented levels under Obama:

I am also thankful for Peter Schiff, who was right in 2006, was right in 2008 again and again, and who now tells us what to expect in 2010 and beyond. Three for three??

Finally, I am really thankful for this clip from SNL, which is quite possibly the single best bit that they have ever done:

Just get it over with!

Happy Thanksgiving.

]]> http://donklephant.com/2009/11/26/thanksgiving-tradition-precedented-and-un/feed/ 0 http://donklephant.com/2009/08/27/to-dream-the-impossible-health-care-reform-dream/ http://donklephant.com/2009/08/27/to-dream-the-impossible-health-care-reform-dream/#comments Thu, 27 Aug 2009 12:48:22 +0000 mw http://donklephant.com/?p=16640

This is a joint post of Justin Gardner (Donk Quixote) and Mike Wallach (Phanto), wherein they endeavor to tilt at windmills (with many apologies to Miguel de Cervantes):

“And no sooner did Donk Quixote see them that he said to his squire, “Fortune is guiding our affairs better than we ourselves could have wished. Do you see over yonder, friend Phanto, the hulking healthcare insurance giants? I intend to do battle with them and slay them. With their spoils we shall begin to have healthcare for all, for this is a righteous war and the removal of so foul a brood from off the face of the earth is a service God will bless.”

“What giants?” asked Phanto.

“Those you see over there,” replied the blogmaster. “With their long corporate arms. Some of them have arms well nigh two leagues in length.”

“Take care, sir,” cried Phanto. “Those over there are not giants but bureaucrats and political windbags. Those things that seem to be their arms are purses which, when they are filled with contributions, weigh heavily on the laws that control our lives.”

Those familiar with Justin and Mike from reading this blog, know that we are generally at odds, disagreeing more than we agree. Justin is a registered Democrat, and considers himself a liberal with independent leanings. Mike most recently registered as a Republican, but considers himself primarily a fiscal conservative, deficit hawk, and a libertarian leaning independent.

But lo and behold: We found common ground in the Health Care Reform debate.

If we were starting with a blank slate, we would support vastly different and incompatible health care systems. But we are not starting there. We have different objections to the existing system, but agree that the current system is in need of reform. We also agree that the reform most Americans want includes three critical criteria:

1. Universal coverage for all Americans
2. Insurance against financial ruin if struck with an illness.
3. The reform program be fiscally responsible, manageable and have understandable costs.

What currently existing bill hits all three?

Wyden-Bennett.

Yes, we both support (S-391) The Healthy Americans Act and agree it represents a good foundation on which to build rational Health Care reform.

Donk Quixote (JG):

“Wyden-Bennett has my support because it does away with the pre-existing condition clause, reigns in costs and has the potential to cover more Americans than the current legislation being proposed.”

Phanto (mw):

“Wyden-Bennett has my support because it meets the critical criteria for reform, does it better than HR 3200 and does it without increasing the deficit or requiring net new taxes. Wyden-Bennett has my support because it directly and honestly attacks the central problem of employer based health care insurance as the primary delivery vehicle for non-public health care in America. Wyden-Bennett has my support because it is not (yet) saddled with questionable deals for big pharma, big insurance, and payoffs for big union contributors.”

Saying we support Wyden-Bennett does not mean we have no reservations about this bill. Au contraire mon frère…

Donk Quixote:

“Wyden-Bennett feels like it’s the co-op idea only it takes EVERYBODY’s health coverage away who currently has it through their employer and makes them buy it again. Basically, no more tax breaks for health care. I’m in favor of the principle of that, especially if it could cut costs, but I do think that the radical restructuring of the system would be opposed by many more Americans because it’ll be seen as taking something away from them and would require a lot more work on their part. How do you think a plan that starts off with “First, you lose your insurance…” would play with Americans? Because you know that’s how it would be positioned. This could be a non-starter for many. And to that point, do you really think members of the right wing who kept on saying “Obama is going to raise your taxes!” would stay quiet and accept Wyden-Bennett?

Also, getting back to the co-op idea…does anybody really think creating a system that would dump EVERYBODY off of their insurance is more politically palatable than one that simply opens up options and provides subsidies for those w/o health insurance or those working for small businesses? Bipartisan or not, this bill represents a VERY radical reshaping of how we buy and sell health insurance in this country and such a seismic shift doesn’t seem politically feasible to me.

Phanto:

“I describe myself as a “libertarian-leaning independent”. There are elements of Wyden-Bennett that cannot be reconciled or rationalized with anything that resembles libertarian principles. This is where I have my greatest heartburn with this bill. Chief among them, this bill has mandated coverage. The bill does not work financially without mandated coverage. It works very well with it. It could be rationalized that individuals will have a much wider range of choices under Wyden-Bennett. But I won’t call that a libertarian argument, because individuals will not have the option to not participate.

The trade-off for this mandated coverage is that we get a fiscally sound health care system that covers everyone, that puts no one at risk of financial ruin from getting sick, and does it without raising the deficit or requiring net new taxes. I am willing to take that trade-off. This is why I describe myself as libertarian-leaning as opposed to libertarian or Libertarian. Once in a while, I feel compelled to lean another way.”

Are the politics of Wyden-Bennett within the “art of the possible”?
No idea. It feels like it should be. Universal coverage for all, catastrophic illness protection for all, no increase in the deficit and no net new taxes. What’s not to like?

Clearly there is a constituency on the left who will find nothing less than a Single Payer system to be acceptable. They will never accept this bill and are excluded from the pool of potential supporters. Clearly there is a constituency on the right who will find nothing less than a market based system with little or no government participation to be acceptable. They will never accept this bill and are excluded from the pool of potential supporters. But for the rest, for the wide range of liberals, conservatives and independents who would like to find some common ground and believe there is a need to reform our healthcare system – this presentation is for you:

(There is a four slide “Keep It Simple Stupid” version linked here and embedded at “Divided We Stand United We Fall”.)

Does Wyden-Bennett actually have bipartisan support?
Commenter Mike (not mw) kicked off an interesting discussion among the Donklephant commentariat, questioning whether there is sincere bipartisan support for this bill, or whether Republicans were simply using it for political cover. There is one way to find out. Get behind it, and if there is enough popular support, we will see what happens. Our guess, the compelling fiscal calculus – true reform with no net new taxes and no increase in the deficit – permits the inner fiscal conservative of many Republicans (and Blue Dog Dems) to overcome their other concerns.

Outside the halls of Congress, bipartisan support in the new and traditional media is visible, broad and deep:

• “[Wyden-Bennett] is probably a better approach than the consensus Democratic plan, which doesn’t have hard cost controls at all, and so doesn’t really explain how it’ll save enough money to be sustainable over the long haul.”
  - Ezra Klein
• “Now you might think that in these circumstances someone might take a second look at the ideas incorporated in the Wyden-Bennett plan, which already has a good C.B.O. score, bipartisan support and a recipe for fundamental reform”
  - David Brooks
• “The Senate’s smartest health-care wonk, Ron Wyden of Oregon, believes we should move away from job-based insurance. He has introduced a bill that would do this by converting the tax deduction for employer-provided health insurance into a tax credit and requiring individuals to use it to buy insurance. This would achieve universal coverage, apply meaningful cost controls, and—according to the Congressional Budget Office—pay for itself within a few years.”
  - Jacob Weisberg
• “The Wyden-Bennett bill is less expensive, covers just as many people and has actual bipartisan support. So far nine Democrats and five Republicans are sponsors, while no Republicans have backed the president’s plan yet.
  - Salt Lake Tribune
• “Despite being the darling of health policy bloggers and the first bill to be certified by the Congressional Budget Office as covering nearly everyone and fully paying for itself, the measure is being roundly ignored by those actually trying to put together a health overhaul measure on Capitol Hill and in the White House.”
  - NPR
• “A divorce of health care benefits from employment would increase social mobility, provide more individual investment in our health, and the reforms present in the Wyden-Bennett proposal would also ensure that people, regardless of pre-existing conditions or age, could still attain health benefits.”
  - E.D. Kain
• “Under the Wyden-Bennett system, health dollars would be controlled by the individual (a long-time conservative goal) and used within a restructured, heavily regulated, totally universal, insurance marketplace (a longtime liberal goal). Each state would create Health Help Agencies, who would provide easy access to insurance products, along with information, guidance, and advice on how to choose. Insurers would have to meet a minimum standard for comprehensiveness (equivalent to the standard Blue Cross/Blue Shield plan currently offered to members of Congress), and they could not discriminate based on pre-existing conditions, occupation, genetic information, gender or age. Nor could they deny insurance to those who ask for it. In return, every American would have to buy health insurance, and there would be hefty subsidies for those further down the income ladder.”
  - American Prospect
• “The idea has a lot of appeal. It would give most people far greater choice than they have now, and they could take their benefits with them when they change jobs. It also provides generous subsidies for those who cannot afford to purchase health care on their own, and yet the Congressional Budget Office has said the proposal would be “revenue neutral,” which means it wouldn’t add to the deficit. It would include a minimum defined-benefits package, with no exclusions for pre-existing conditions.”
  - TIME

UPDATE: Simon complains in the comments that the right is underrepresented in this sampling. We strive to please and are adding two more quotes:

• “The plans favored by Massachusetts Sen. Ted Kennedy or President Barack Obama rely on a “public option” in which government insurance would supposedly “compete” with private insurers, a move many see as leading to a single-payer system. By contrast, the Wyden-Bennett Healthy Americans Act relies on the private insurance market while imposing a series of regulations to squeeze savings from the private sector… The idea, Mr. Wyden says, is to harness the Democratic desire to get everyone covered to the Republican interest in markets and consumer choice. “Everything I’ve been up to with this coalition is designed to make reconciliation irrelevant,” he explains, referring to a political maneuver whereby Democrats might try to force through health reform on a bare majority of 51 votes rather than the filibuster-proof 60 votes normally required. ‘People can’t be tricked into fixing health care.”
  - WSJ
• “Republicans should embrace universal healthcare by supporting the Wyden-Bennett Healthy Americans Act. There is no another viable way to get rid of the tax-free treatment of employer-provided healthcare benefits that is severely distorting the healthcare market. Once you throw in on top of that greater benefits than those currently offered for families and individuals, consumer choice among competing healthcare plans, portability of health insurance, and (adding in the inevitable under-estimate of total cost) a price tag that costs a trillion dollars less in the next decade than any Democratic plan, you end up with the best bill in either chamber.”
  - Tom Church

It should also be pointed out that, unsurprisingly, there is bi-partisan opposition to this bill. :END UPDATE

In the end, tilting at windmills can be an exercise in futility, but oddly, we still feel pretty good about it.

With that, Donk Quixote and Phanto ride into the sunset.

Cue “Man of La Mancha”

This is my quest, to follow that star …
No matter how hopeless, no matter how far …
To fight for the right, without question or pause …
To be willing to march into Hell, for a Heavenly cause …

And I know if I’ll only be true, to this glorious quest,
That my heart will lie peaceful and calm,
when I’m laid to my rest …
And the world will be better for this:
That one man, scorned and covered with scars,
Still strove, with his last ounce of courage,
To reach … the unreachable star …

Now that the House has left for summer recess, with the Senate leaving in a week, it’s a perfect time to look back and see what may have gone wrong in the Democrats’ plan to pass a major health care reform package before this week had passed. Most people tend to focus on the policy and the intrigue of ‘the fight’, but I think the failure to pass this bill is more a tactical one rather than mistaken policy or lack of potential votes.

Polling on the issue has been fairly  consistent. A majority do want health care reform this year, but while a majority is willing to pay more in taxes for better coverage, they care more about lowering costs than expanding coverage. A large majority support a public option that competes with private insurance, but an even larger majority are actually satisfied with their current coverage. This creates a situation where people are wary that government coverage may lead to rationing and will lose the relatively free choice they currently enjoy in their health care options now.

Much of the debate has circled around how to try and pay for this health care reform, so it doesn’t lead to more debt. I suggested one way to help pay for some of it, but I am not aware of the idea of taxing the consumption of unhealthy things as a source of funding being discussed as an option (although polling shows the public supports the idea). The idea of taxing the wealthy is still popular and will probably be included in the final bill to pay for part of it. A big wrench was tossed in the gears when the CBO announced that the cost savings touted by Democratic leaders really didn’t exist.

Perhaps as much attention has been given to a coalition of conservative and moderate (or centrist if you prefer) democrats who hold the swing votes to push this piece of legislation over the hump into passage. They’ve been leveraging this situation to push for modifications that lowered costs and squeezed more savings from the system itself before adding taxes on the wealthy or taxing more high cost benefits. The latter idea has hit a brick wall, since some labor unions have extremely good benefit packages that they have negotiated for over the years that would fall into the category of taxable benefits in some of the proposals.

The tipping point for this legislation stands here, at the junction between the more liberal Democratic Party leadership, the so called Blue Dog Democrats and the independent and moderate Republican constituents they need to get reelected. If I had to point out one thing that has had the most detrimental effect on the march towards passage, it would be the misplaced attempted strong-arm tactics against these Democratic swing votes.

When confronted with a powerful enemy, do not fight them head on but try to find their weakest spot to initiate their collapse. This is the weak overcoming the strong.

-Sun Tzu, from The Thirty-Six Strategems

An illustrative example of this fell into our lap yesterday, with moderate Democrat Ben Nelson, of Nebraska (where I live), lambasting ads leveled at him by Howard Dean’s Democracy for America (DFA). I was pretty surprised at how poorly executed the ads are, but the same tired attacks are being leveled at Nelson, that are being leveled against other swing votes across the country, are what make the ads so ridiculous.

We begin with the perennial attack you can level at any politician regarding who donates to their campaigns. Pretending that you know that he’s doing what he’s doing because of who his donors are, rather than the distinct possibility that he’s doing it because many of his constituents (including myself) asking him to slow down passage of the bill, look for more cost savings and make sure we don’t rush this, is plain idiocy. Nobody can read his mind, and I’ve yet to see any evidence that the guy is any more corrupt than any other politician. I would be pushing for many of the same modifications if I was in the senate, and I (unfortunately) don’t get millions of dollars given to me each year by anyone.

Then there is the time pressure argument, that we need to pass this legislation now. I can’t disagree with this sentiment more. If anything we should slow down further still, with more and more coming out as to mistaken estimates of cost savings and details of proposals being made more clear. There is no artificial timetable you can set on something like this, it needs to take however long it takes to be reviewed in great detail.

Regardless of what you believe, this sort of push only works when you have a majority of the public with you. It would work if he was in a weak position, but he’s not. This is Sun Tzu 101 stuff here… you don’t mount a full frontal attack on an enemy in a fortified position unless you have vastly superior forces. Like it or not, the Blue Dogs have the high ground right now.

The groups that are pushing for this with these tactics need to look in the mirror to lay blame when they look back and wonder why they weren’t able to get some of the things they wanted when this finally moves to passage. A public plan pegged on Medicare, with that panel slowing the rate of cost growth, would have saved us an amazing amount of money over the years, and I think the Blue Dogs and Moderates would have been convinced to support that with more work on cost savings and less political pressure. The pressure from liberal groups force them to fight back very publicly, so they don’t look like they are towing the liberal line to the independent and moderate republican supporters they need to get reelected.

Sun Tzu would have advised these groups to use the same tactic that PHARMA used once they saw that a health care bill of some kind was going to pass whether they wanted it to or not. The choice was to go in early, get a seat at the table and get a better deal by offering concessions from the start, or fight a losing battle later on and get stuck with a much worse deal. These groups demonizing Blue Dogs and moderates are doing precisely opposite what they should have done. They should have realized the situation early and negotiated a way for them to show their constituents that they fought for cost savings, like the Medicare panel, which instead took months of fighting to accomplish.

Sun Tzu would have told these groups that they should ‘remove the firewood from under the pot’. Instead of fighting the Blue Dogs head on, they could have weakened their resistance by working with them from the start, rather than turning a soft ally into a potential enemy with these tactics.

In my last post I detailed some of the roadblocks that have kept the Democratic leadership in Washington from finding a way to pass a major health care reform bill with a public option. They’ve whittled the cost of the bill down a few hundred billion dollars by negotiating concessions from drug companies and hospitals, as well as settling on a provision that would have employers pay a fee for each employee they do not already cover. The two main proposals to fill the budgetary gap have stalled, and are possibly dead in the water. So what other options are there?

Past the constant calls for saving money by eliminating wasteful spending, which never seem to materialize into actual legislation, we need to find new forms of income to pay for this bill. They seem to be failing at convincing enough senators to support taxing benefits and the more affluent, so what else is left?

For the most part, we pay for our governmental services through income taxes (both individual and corporate), property taxes and consumption taxes. Property taxes are used for other things and rightfully shouldn’t be on the table here. The two proposals that were trotted out for discussion by the Democratic leadership were both taxes on types of income. What remains are consumption taxes.

In a way, consumption taxes are the most fair. For instance it makes perfect sense to tax gasoline and tires to pay for roads, as those driving on those roads need those things to do so. So doesn’t it make sense to tax those behaviors that create high health care costs? The American people seem to think so.

Kaiser Family Foundation poll

A poll by the Kaiser Family Foundation, from back in April, found that reforming health care is one of the public’s highest priorities, that a majority of Democrats and Independents believe that we need reform now and that a majority support taxing unhealthy behaviors as an acceptable way to pay for some of these reforms. When asked it they would support raising taxes on “items that are thought to be unhealthy, such as soda, alcohol, junk food and cigarettes,” 61% approved (39% strongly favoring, with 22% somewhat favoring the idea). I’m a huge fan of proposals that kill two (or more) birds with one stone, and I think this is a textbook example of such.

To fund a health care program, it makes much more sense to tax behaviors that lead to health problems than it does to tax income in general. By doing so we can, in one fell swoop, put more of the costs of the system in the hands of those who are causing the most problems, lower the consumption of these products AND help pay for universal health care. We already have taxes on cigarettes, alcohol and items deemed luxuries like jewelry, hotel stays and amusement parks. So why not extend similar taxes to the most unhealthy ‘food’ items in the market? (I put food in quotes because one could argue that high fat and sugar content items like pop, potato chips and many fast food items can hardly be described as food)

First on the cutting block is alcohol, with 68% of respondents strongly or somewhat favoring raising taxes on it to help pay for health care reform. Smoking is more demonized in our country, but alcohol related health costs actually outweigh those related to smoking. The Marin Institute lists several alcohol related health care costs, among them $175.9 billion on alcohol related problems, also saying that they bring about “$184.6 billion dollars per year in health care, business and criminal justice costs, and cause more than 100,000 deaths.” This being the case, I see it as nothing but reasonable to levy a higher tax on alcohol, possibly in relation to which forms of it result in the worst outcomes, that is equal to the cost to society it incurs.

Still with a few hundred billion dollars to go, we come to tobacco. I was a bit surprised that a higher cigarette tax was supported by fewer than the increased alcohol tax, but this may be because tobacco products are already taxed at a high rate. Florida alone loses $20 billion dollars when you compare the taxes it collects to the money it pays out, amounting to nearly $7,000 per smoker. A study released by the CDC in 2002 showed that “For each of the approximately 22 billion packs sold in the U.S. in 1999, $3.45 was spent on medical care attributable to smoking, and $3.73 in productivity losses were incurred, for a total cost of $7.18 per pack.” These numbers are sure to have risen since then, and with somewhere in the neighborhood of 30 billion packs of cigarettes sold in the US last year, it seems more than fair to tack on at least another few dollars per pack.

Whether or not this fills the gap entirely, we also should look at taxing the most unhealthy food items. A study at University of Victoria (British Colombia) found that all income groups would benefit, although more so near the top of the economic spectrum, from a tax on junk foods that sent money towards health care programs. I would suggest that this disparity would be less pronounced in the US, where many people near the bottom of the economic spectrum have much more to gain from such an arrangement, given that it will help pay for health insurance that many of them currently do not have.

Put all of these together, and you might piece together enough to get over the hump. At the very least we could make it easier to pass one of the income tax ideas by lowering the amounts they’d have to raise through it.

One might argue that this would cause people to consume less of these products, thereby reducing the income from the levies. My response would be that we should then increase the taxes to keep up with the costs. This would hopefully create a cycle where more people would consume less, making the purchase of such products even more expensive, driving more out and lowering costs to treat those people over the long run. Herein lies the killing two birds with one stone situation.

One might also argue that this is a regressive tax. In effect it will be that way, at least at first. It is the lower end of the spectrum that spends a larger amount of their overall income on food. They also tend to eat less healthy foods. However, nobody forces them to choose to purchase these particular food items. Nobody should force them to quit, but if they want to continue to lead an unhealthy lifestyle, the rest of society should not be forced to subsidize it.

If people want to smoke, drink or eat themselves to death, then they can make a down payment on the hundreds of thousands of dollars the government will pay to take care of many of them during the last months of their lives. If we can save some of them from that fate by enacting the proposals mentioned above, thats even better.

Thanks to Justin and company for welcoming me on here as a regular contributor. I will be posting on a number of issues, but one area you can expect that I will regularly be tracking is technology related developments and how they interact with the political world and policy. I also live less than ten miles from the Nebraska/Iowa border, so I’ll try to keep an eye on 2012 developments as the contenders test the waters there as well, on top of other interests like election reform, social issues, polling analysis and any number of things that I come across while skimming the hundreds of tweets and RSS feeds I go through every day. I hope you enjoy it, and now… on with the show!

We’ve been hearing about cellulosic ethanol for several years now, generally with the caveat that were at least a few years, and a few scientific breakthroughs, away from it coming to market and helping wean us from foreign oil. Unlike corn, which breaks down into the sugars necessary to be processed into ethanol relatively easily, cellulose is a hardy material that takes time and energy to break down. Its upside is that there happens to be more cellulose present than any other organic molecule on the planet. This is why millions upon millions of dollars has been poured into cellulosic ethanol research, genetically modifying naturally occurring enzymes to break it down faster and looking for ways to bring the price per gallon down closer to the price of gasoline.

Unlike corn, which takes land out of food production, is inefficient as far as how much energy it takes to produce and is a high maintenance crop, finding raw material for a cellulosic plant is easy. Wood chips from sawmills, the kudzu scourge spreading through the hot and humid Southeast, agricultural waste and even up to 80 percent of what ends up in our landfills could be used to make cellulosic ethanol.  Thankfully, the millions of dollars in research and development have begun to bear fruit.

A gas station near Ottawa is the first in the world to begin selling a cellulosic blend, called CE-10, to the public. Iogen, the company behind the demonstration plant that produced the fuel, plans to build its first full scale cellulosic ethanol plant in Saskatchewan. It has reached an agreement with the local government and Royal Dutch Shell to convert an old Mill site to their purposes, with the government even agreeing to purchase any green energy produced at the site. The running demonstration plant only has the capacity to produce about 3 million liters of ethanol each year, using wheat straw agricultural waste, while the new plant will be able to pump out about 75 million liters. It will make use of a more diverse feed stock, including agricultural waste from other crops, grasses native to nearby areas and even wood chips from area mills.

The march of progress continues, with a number of large companies making big investments into these technologies. Last year GM purchased a large share of Coskata, a big player in the emerging cellulosic ethanol industry, who claims to have developed a process that simplefies the complex and costly process of breaking down cellulose and brings the cost of production down to being competitive with gasoline. There are as many as two dozen companies with plans to build plants similar to Iogen’s, but the economic downturn is effecting their ability to finance these projects. Coskata is hoping to get some stimulus money, in the form of loan guarantees, to help finance its plant, with an estimated production of 50-100 million gallons a year.

As President Obama often says, if we intend to be a leader in the green energy industry of tomorrow, we need to move boldly in that direction today. Now is not the time to let companies who wish to lead us in there falter because of financing problems. Some are talking about a new stimulus bill, which most people reasonably see as a terrible idea, that would focus on these kinds of projects and job creation. The first should have done so, and I have little confidence that a new one would make it through congress without being similarly unfocused and pork laden.

We don’t get too many of these chances, where we can kill three birds with one stone. Job creation, independence from foreign oil and environmental progress can all be had with some smart funding priorities. Lets hope the administration recognizes this in time.

Kevin Hassett (whose American Enterprise Institute affiliation probably tells you all you need to know about his economic opinions) has written a skewering critique of Obamanomics. But what’s interesting is not that he calls the Obama administration the most fiscally irresponsible in history, but that he uses California’s monetary problems as evidence that moderate Democrats are likely to balk at authorizing the kind of spending necessary to pass Obama’s health care reform.

Recently, due to a massive budget shortfall, California has had to release billions in IOUs rather than paying real cash to those who’ve done business with the state. Hassett blames the budget crisis on California’s habit of giving the voters whatever they want without ever making the hard choices necessary to pay for new programs. This is not an unreasonable assessment. And Hassett is right to worry that the federal government is on the verge of turning the national system into a monstrous version of California.

Unless, of course, moderate democrats like Evan Bayh, Mary Landrieu, Ben Nelson, Blanche Lincoln, Tom Carper and others end up opposing the public option in health care reform – an option whose costs are likely to give pause to anyone with even a breath of fiscal conservativism inside of them. But, without the public option, will there really be any reform?

That’s the quandary for moderate Democrats. Do they risk not reforming health care and upsetting voters or do they risk getting the nation into the kind of debt which will sabotage our economic future? Or is there a way to fix health care without huge expenditures?

We’ll see. But I do agree with Hassett that the astronomical costs of a public option for health care is going to make it hard to pass the bill – even with 60 Democratic votes in the Senate.