Sunday, September 29, 2013

Last Note for Tonight: This is What I was Afraid of

I have been obsessed for some time with how democracies fail.  So far as I can tell, it happens when they become so polarized that rival factions lose respect for democratic norms and only want to prevail, through fair means or foul.  I became obsessed with this subject because I did not like the direction of our democracy and feared for its future.  For some time, I asked myself what I feared.  Traditionally, democracies fall one of four ways -- fascist subversion by elective leaders, military coup, civil war, or conquest by a foreign power made easier by internal division.  None of these seemed in the cards for us, so I kept asking myself what did I fear.

My conclusion was that I feared us becoming like California, with a government so dysfunctional as to be non-functional.  During the 2011 debt ceiling crisis, I believed we had finally hit it.  But now -- well, let us just say I no longer wonder what it is I fear.  It has happened.

Possible Scenarios

No news on the shutdown front today, but some analysis.  Negotiations have completely broken down, so the House and the Senate are playing volleyball.  Since only the House can originate revenue bills, it always serves.  So far, it has served a continuing resolution to keep government funded for two more months and repeals Obamacare, and the Democrats stripped it of the repeal (and for some reason shortened it by a month) and bounced it back.  Now, Republicans have served a similar resolution that delays Obamacare for a year.  Democrats are expected to spike it, and government shuts down.  No one knows what will follow.

Apparently Republicans expect Democrats in the Senate to agree to a one-year delay of Obamacare in return for continuing funding of the government for another two months.  Democrats say they will not accept any changes whatever.  Two Democrats in the House defected on the delay, and Joe Manchin of West Virginia is expected to defect in the Senate.  But it will not pass.  Republicans are vague on what they will do next, but hint at "fundamental reforms."  What they have in mind remains to be seen.  Presumably more Democrats will defect, but not enough to pass the bill in the Senate.  As I have said before, I certainly think they should reject anything that shuts down the exchanges or does not allow subsidies to buy insurance.  But I see no reason to reject minor changes like ending the medical implants tax, refusing subsidies to members of Congress, or even a conscience exception to the contraceptive mandate.  On the other hand, I don't think a two-month continuing resolution is sufficient in exchange.  If Democrats agree to a two month funding, the whole thing will just start over again, except the Boehner will presumably have been deposed as Speaker and replaced with someone truly crazy. If I were the Democratic leader and were offered relatively  minor changes in return for a two-month extension, I would reject it, but instead of fuming about never accepting changes, I would fume about only postponing things by two months and use whatever back channels I had to let it be known that I would pass it, in exchange for a longer extension.  How long?  Well, if humanly possible, for the fiscal year.  If not, at least well into next year, so that during the next showdown, Republicans will be pushing to strip people of their insurance instead of merely blocking it.

Then there is the matter of the debt ceiling.  That is truly scary.  As I have discussed, I really think it has to be resolved  before government reopens.  And it is dangerous.  The House has 435 members, so a 218 majority is required to pass legislation.  Republicans have a 234-201 majority.  But apparently 10-15 Republicans refuse to lift the debt ceiling under any circumstances, so the republicans only have a 224 to 219 majority.  Furthermore, apparently at least some Republicans will only agree to a debt ceiling with conditions attached so extreme as to be utterly unacceptable to either the Democrats or (probably) most Americans.  Boehner apparently intends to offer this as an opening gambit, recognizing that Democrats will bargain him down to less.  Accept that "less" will not garner a majority in the House.  After his first serve is spiked, Boehner will not be able to get the ball over the net.  And in the debt ceiling, both sides can serve.  Democrats in the Senate are preparing a clean debt ceiling increase to serve to the House.  Big money interests are getting nervous.  They will, I trust, give John Boehner a good talking to and convince him, in the end, that, for the good of his country, he has not choice but to bring a clean debt ceiling bill to the floor and pass it with mostly Democratic votes.  He will then be deposed as Speaker and replaced with a crazy.

So, assuming we find a way to continue the government for another two months while modifying but not ending Obamacare and make a clean debt ceiling increase, in two months we will be right back where we started, with two exceptions.  First, there will no longer be a risk of default, which will be good.  Second, the House will be led an someone truly crazy, ready to shut down government as long as it takes to get his way.  I can only hope that when Boehner decides to perform the sacrificial act, he agrees with me that such an outcome will not do either his country or his party any good and decides that he might as well be hanged for two sheep as for one.  And that he extends the continuing resolution for the remainder of the fiscal year, subject to whatever conditions probing has revealed  the Democrats will take.  If he manages that, then the lunatics can run the asylum without doing much harm until a year from now.

Saturday, September 28, 2013

Why a Shutdown Might be the Least Bad Option

Yesterday, I saw an article which I can no longer find saying that the Republicans are falling behind Boehner and agreeing to pass a mostly-clean funding bill (until November 15) and save their ammunition for the debt ceiling.  More ominously still, plenty of Senate Republicans who were obviously annoyed at Ted Cruz for pushing for a shutdown seemed to favor making the debt ceiling the point of confrontation.

Today the news is relatively reassuring.  And by relatively reassuring, of course, I mean disastrously bad, but with the possibility of things working out.  They now plan to take the clean continuing resolution bill the Senate sent them, extend it till December 15, and add a one-year delay of Obamacare and the repeal of the medical devices tax that helps to fund it.  It will go to the Senate on Monday, the day before the government shuts down, and the same routine will play out as last time.  The Senate will strip out both provisions and send it back.  Ted Cruz and Mike Lee will drag the process out for several days.  It will get back to the House around Thursday or Friday, but by then the government will have shut down.  The House know it, but think they will be able to blame the Democrats in the Senate for the shutdown.  The Senate also hopes to have a clean debt ceiling increase by Friday, but Lee and Cruz will no doubt find ways to delay it for a few days as well.  Meanwhile, about when the Senate clean CR reaches the House, the House will be introducing its debt ceiling bill.  Of course, by then the government will have been shut down for several days, to remain shut down until the sides reach some sort of agreement.

Why do I consider this (relatively) good news?  For several reasons.

First of all, an actual shutdown will ramp up pressure on Congress to find some way to end it.

Second, it ramps down the danger of a default.  Consider, we only have tax revenues to fund about two-thirds of all spending and are borrowing the rest.  A debt ceiling will cut off the funding and force an overnight cut in federal spending by one-third.  Well, a shutdown cuts government spending by a third anyhow, and so will put off the day of reckoning until funding returns.  This will buy time for the negotiations. Of course, once we start funding the government again, there will be an immediate spurt of spending that will bring back the day of reckoning.  In fact, if the shutdown continues until October 17, then resuming funding will mean default.

Which leads to the third conclusion, that the longer the shutdown continues, the more necessary it will be to include raising the debt ceiling as part of any funding deal.  Otherwise, Congress will pass some sort of a funding bill and we will promptly breach the debt ceiling and default will be upon us.  Tea Party members will no doubt be delighted that (1) government spending is being cut and (2) the public asked for government to resume and I bet they're sorry now.  This is unlikely to be acceptable to anyone else, including a significant portion of the Republican House.

And fourth and finally, if debt ceiling discussions start during a shutdown, whether they are linked to funding discussions or not, they are almost certain to be conflated in the public eye.  Republicans have apparently decided to make their biggest fight over the debt ceiling, rather than funding, because the polls show the public clearly opposed to a shutdown, but generally supports the idea the raising the debt ceiling should be linked to cutting spending.  Well, if the government shuts down and the Republicans start issuing a bunch of ransom demands, especially if those demands include something really unpopular like cutting Medicare or Social Security, they are going to look a lot like demands for reopening the government.  I do not think it will do Republicans any good to explain that, no, these aren't conditions for reopening government, only for raising the debt ceiling.  No one will care about the distinction, they will just want government opened again. Worse still, from a Republican perspective, their majority is narrow enough that if all Democrats vote against their ransom demand, it will take only 16 defectors to sink the bill and some Republicans, estimated at 10-15, have vowed to vote against any bill raising the debt ceiling, no matter what.

I do not see any other way out. I have long believed that sooner or later, John Boehner would have to take the kamikaze option and bring some sort of continuing resolution and/or debt ceiling increase to the floor and allow it to pass with mostly Democratic votes and a few Republican defectors, and then be deposed as Speaker and replaced with some Tea Party crazy.  The logic of a shutdown with a debt ceiling looming will more or less force them to be done together.  We will see.

PS:  Bad news in the follow up.  The Republicans' continuing resolution with a one-year delay passed 231-192.  That means Democratic unity is fraying, while Republicans are holding.  Joe Manchin has already said he will defect in the Senate.  I have no objection to tinkering around the edges, like repealing the medical devices tax or denying subsidies to federal employees.  I would even grit my teeth and settle for a conscience exemption from the contraceptive mandate if Republicans will stop trying to kill the program.  But a one year delay will simply lead to another one year delay and mean killing the program without admitting it.

More on the Republican Ransom Note

Obviously we won't know all the details of Republican demands on the debt ceiling until the bill is formally introduced.  That is expected to happen around Friday.  But I don't see how they can come up with one that does all they want, let alone entitlement reform, in one week or less.

The initial ransom note seems to acknowledge as much, at least on tax reform, where it simply says "Tax reform instructions" (emphasis mine) and says that it should be similar to the Ryan Plan and give fast track authority.  So presumably it will mandate setting up some sort of committee to come up with a plan and giving the plan fast track, i.e., it must be voted up or down without changes.  Of course, if it gets voted down, the whole thing achieves nothing.  Some parts of the list no doubt can be achieved simply by a single sentence saying that a certain section of the U.S. Code is repealed.  And some liked "included pretty much every jobs bill we have passed this year and last Congress" can be done quickly, simply by appending the text of the bill.  But what about others?  "Regulatory reform."  "Regulatory process reform."  "Consent decree reform."  "Tort reform."  Can a whole bill doing all these things in any meaningful way, let alone an entitlement reform bill, be drawn up in less than a week?  Or are these also just symbolic statements in favor of these provisions, calls for a committee to come up with a plan to send to the House floor?  And if so, why couldn't the house just draw up these things and send them to the floor on its own?  No doubt because drawing them up would take a lot of time and work, and they would quite likely fail, if not in the House, then in the Senate.  But how would passing a vague resolution in favor of these things change any of those problems?  And as for entitlement reform, the thought that you could draw up such a bill by Friday, or even by October 17 is sheer madness.  And if by some miracle a meaningful proposal does come to the floor, suddenly any Representative who votes for it will have less to fear from a Tea Party primary challenge from the right than a Democratic general election challenge from the left.

One thing I will say, though, is that these proposals make a mockery of any procedural objections Republicans once raised to Obamacare.  That major changes should not be pressed by slender majorities? Well, this is not just one major change, but many, and it is pressed, not by a party with not-so-slender majorities in both houses and the President, but by a one with a slender and shrunken majority in one house, a minority in the other, and a President it hates with a passion.  That it was drawn up in secret?  It was a whole lot more open that the process to draw up the present bill that no one has seen.  That it was passed too hastily?  Try one year, versus a couple of weeks.  That it was hundreds of pages.  I have no idea what length the debt ceiling bill will be, but any of its proposed "reforms" should take up plenty of paper and ink. That it was forced over?  Don't even get me started.

I guess we will learn more details in the near future.

Department of Huh??? Republican Edition

Republicans have presented their list of demands for raising the debt ceiling only to be greeted by complaints from hard liners that it doesn't go far enough.  They want entitlement reform attached as well. Their basic justification for tying their demands to the debt ceiling instead of government funding is that, while the public clearly opposes shutting down the government, it generally agrees that raising the debt ceiling should be tied to cuts in "spending."

There are a couple of problems here.  One is that many of the Republican demands are not about spending at all.  Another is that, although the public hates "government spending," it generally opposes specific cuts. So what would entitlement reform mean?  Well, I suppose to the extent that it means purely spending cuts on the poor, the public might get behind that.  If, on the contrary, it means cuts to Social Security or Medicare -- well, I suppose we should applaud the Tea Party crowd for its principled support for unpopular measures, but the Republican leadership must realize that the measures will be extremely unpopular.

I think I probably misread what happened on the last debt ceiling showdown.  No, not the one in the summer of 2011 that everyone remembers.  The one at the beginning of this year that most people have forgotten because the Republicans caved without a big showdown.  They explained that they had used up a lot of showdown energy over the "fiscal cliff" tax increases and wanted to save it for the sequester fight.  But the main reason they backed down was that the public clearly supported Obama (and also that they were to some extent in the post-electoral honeymoon).  At the time, I thought that they had backed down in large part because after the last debt ceiling showdown, the people had come to understand just how dangerous a breach was and recognized that the Republicans were threatening to blow up the economy.  I begin to think now that the real problem was simply that the Republican demands were extremely unpopular.

This time around, the Republican leadership has tried to get around that problem by presenting an outrageous list of demands, but leaving out the most unpopular stuff.  Yes, the list is outrageous, and basically a demand to implement the Republican platform that the voters rejected a year ago, but what is there in it that Obama could truly hold up to stoke public outrage?  Means testing for Medicare, maybe?  But is the Tea Party crowd insist on adding cuts to Medicare, let alone Social Security, Democrats in general and Obama in particular can simply hold it up as an extortionist demand Republicans are making for not blowing up the economy, and public opinion will turn against Republicans, fast.

Department of Huh??? Democratic Edition

Let me get this straight.  The Democrats in the Senate stripped the defund Obamacare language out of the bill to keep the government open until December 15, and then shortened the time to November 15??  Why on earth would they do that?  Are they not allowed to increase the funds appropriated, so they had to shorten the time to continue funding for Obamacare?  Was it a concession to get the Republicans to vote to end debate (which a majority of the Republican caucus did)?  The article doesn't say.  What on earth is going on?

It is obvious that as soon as the continuing resolution runs out, we will just have to go through the whole routine again, except that the current leadership would quite probably be replaced by the lunatic fringe.  Wouldn't the Democrats want to postpone that date as long as possible. After all, December 15 will be a mere 17 days before people actually start getting insurance on the exchanges.  A shutdown over killing Obamacare on December 15 will last only 17 days before a demand to kill Obamacare become a demand to strip people of their health insurance, which will be most awkward to sustain.  A shutdown to kill Obamacare starting on November 15 will drag on a month longer before it actually means stripping people of their insurance.

Why did the Democrats do it?

Sunday, September 22, 2013

Why is Our Elite so Stupid?

James E. Loewen's 1995 book, Lies My Teacher Taught Me addresses public opinion on the Vietnam War on pages 303-305.  By 1971, public opinion had overwhelmingly turned against the war, with 73% of the population favoring withdrawal.  Writing from a perspective over 20 years later, when the general consensus was that the war was a mistake, Loewen asked his audiences to breakdown support for withdrawal by education levels.  The great majority of audiences assume that higher education correlated with opposition to the war.  But in fact, the correlation was the other way.  Higher education correlated with support for the war.  Lower education correlated with opposition.  Loewen reports that his audiences were invariably surprised, that even many professional political scientists are often surprised.

Somehow, though, I doubt that people would be so surprised these days.  My guess is, a lot of people would look at our elite's pig-headedness about the Iraq War and guess that they were equally dense about Vietnam.

Speaking for myself, I am not old enough to remember the Vietnam War in any meaningful sense.  But I do remember the Vietnam Syndrome that followed the war.  Public opinion became deeply skeptical about intervening overseas.  Every time an intervention was proposed, people would debate whether it would be "another Vietnam."  News columnists argued back and forth, some saying we should learn the lessons of Vietnam, and others saying we had to get over the Vietnam syndrome.  I myself,  not being old enough to remember the war, or to understand what a live and active memory it was for other people, thought the whole thing was getting tiresome.  Over time, military interventions, all low cost to us, became increasingly common, and each time commentators would ask whether this one had finally cured the Vietnam Syndrome.

Well, we have finally found the cure for the Vietnam Syndrome.  You just replace it with the Iraq Syndrome, and no one talks about Vietnam anymore.  Instead of reassurances that our latest intervention will not be "another Vietnam," we are assured it will not be "another Iraq."  And this time, remembering the war, I understand.

Elite opinion and public opinion both made a mistake in supporting the Iraq War (although to what extent public opinion was driven by elite opinion is a different matter).  Both eventually recognized their mistake, although elite opinion was remarkably tardy at it.  But here is the difference.  The general public has actually learned something from our experience.  Elite opinion stubbornly resists.  Just because we are 0 for 3 in transforming the Middle East by armed force is no reason not to keep doing the same thing and expect a different result.  Mind you, I am not so naive as to expect this transformation to be permanent.  The public unlearned the lessons of Vietnam; eventually it will unlearn the lessons of Iraq as well.

In trying to understand why people with less education were more likely to oppose the Vietnam War, Loewen rejects the most obvious explanation -- that they bore the costs of serving.  He then goes on to elaborate psychological explanations of why the more educated supported the war and never mentions that the most obvious one is the reverse -- because they bore no costs of the war, they were free to treat it as an abstract game rather than something played out in flesh and blood.  Can there be any doubt our elite is doing just that in its current attitudes toward starting yet another war?

Our elite's reaction to the whole episode reminds me of nothing so much as an episode from Calvin and Hobbes.  Calvin makes a snow goon, then more and more until the yard is being overrun with them.  In desperation, not knowing what do do, he goes out at night and starts spraying them with a garden hose, cause slippery ice to form all over the porch.  At this point, his father intervenes and shuts the whole thing down.  Looking back on it, Calvin and Hobbes have this exchange:

Calvin:    "Well, Hobbes, I guess there's a moral to all this."
Hobbes: "What's that?"
Calvin:    "Snow goons are bad news."
Hobbes: "That lesson certainly ought to be inapplicable elsewhere in life."
Calvin:    "I like maxims that don't encourage behavior modification."

Yeah, basically.

Thanks to Ezra Klein

Allow me to salute Ezra Klein for correcting a mistake I made about government shutdown.  I assumed that a shutdown would mean everything stops and no government spending takes place at all.  I was wrong.  In fact, a government shutdown only shuts down the discretionary portions of the government.  Mandatory spending on autopilot.  Autopilot is not a very satisfactory substitute for a live pilot, since someone has to send out the Social Security checks that are automatically issued, and so forth, and personnel are part of discretionary spending.  Most of Obamacare is mandatory and therefore will continue, even if the federal government shuts down.

Klein does not follow up on what this would mean if shutdown and debt ceiling breach occur at the same time.  I really could use some guidance on the subject because looking up the federal budget, I got this:

It may not be easy to follow in all things, but add up Medicare and Medicaid (mandatory) as 23%, Social Security (mandatory) as 22%, other mandatory as 13% and interest on the national debt (not stopped during shutdown) as 6%, it comes to 64%.  By contrast, defense at 19% and other discretionary at 17% come to a total of 36%.  If we are borrowing about a third of the total budget (down from 40% during the last crisis), then it sounds as though so long as government remains shut down, we will not have to borrow to fund it, and the debt ceiling will not be breached.  Of course, once the federal government reopens, there will be a sudden spurt in spending that will cause a breach, which means that any deal to keep the government going will presumably have to deal with the debt ceiling.  But I would think it would also mean that as long as the discretionary portion of the government is shut down, raising the debt ceiling will lose its urgency.

This one puts discretionary spending at 31% of the budget, or enough to require just a little borrowing, so that during a shutdown, we will continue to creep up on the debt ceiling, but much more slowly.  Either way, though, so far as I can tell, effectively so long as there is a shutdown, there will be no breach, but any deal to end a shutdown will have to raise the debt ceiling to avoid a breach.

But then, my logic on a shutdown was mistaken, perhaps my logic on this one is flawed as well.  Anyone?


As a PS to my last post, I should add that conservative wonks have long hated our system of employer-based insurance and wanted to get rid of it, and that any Republican "alternative" to Obamacare will almost certainly work to undermine it.  The employer-based system of health insurance has long been crumbling. Obamacare, by offering an alternative, is accelerating the process.  This will be resented, but not reversed.  The question remains what will take its place.

Reflections on Obamacare

Well, we will see the Republicans are able to seize the government and/or debt ceiling hostage and stop Obamacare.  And if they fail, we will see if the desperate hostility they have managed to whip up survives that actual thing.  Speaking for me, I am confident that if it survives these next few months, Obamacare will be neither as good as is advocates hope nor as bad as its opponents fear.

One thing I do thing, though, is that our side is mistaken in mocking Republicans for thinking simultaneously that the whole thing will be a disaster, and that it will be irreversible once in place.  Those things are not as incompatible as some people think.  Let us consider some things that may (and probably will) realistically go wrong and why they need not lead to pressure for repeal.

Despite Subsidies, Insurance is a Serious Burden for Many People.
Looking, for instance, at Kentucky's kynect, this will probably be a serious problem.  A family of four making $32,500 or less will be eligible for Medicaid, for free.  Great!  But a family of four making $48,000 a year, a mere $16,000 more, will have to pay $252 per month, and a family of four making $80,000 a year will not be eligible for subsidies at all and will have to pay an estimated $634.  Those can be serious burdens! People who cannot afford them and will have to pay a fine for not having insurance will be angry and resentful and no doubt want to system to go away.  They will have to be balanced against the people who are able to afford insurance on the exchanges and will react very badly to having it taken away.  Keep in mind also that people toward the upper end of the spectrum are more likely to have alternatives to the exchanges and, if these other alternative are no better, the exchanges will leave them no worse off.  This may lead to pressure to change the system, either to raise subsidies (not possible in today's political climate) or to end the mandate.  Stay tuned.

People Cannot Afford the Out-of-Pocket Expenses.
Looking that the New Mexico site this time, it gives a maximum annual out-of-pocket of $6,350.  This is essentially the same regardless of the plan one chooses.  Thus a person with a high deductible and copay and one with a low deductible and copay who have a serious medical emergency will be stuck with the same total out-of-pocket.  But people requiring treatment only for minor illnesses and injuries will pay less in deductibles and copays.  Granted, again, one has to ask how this compares with existing insurance plans.  (I don't know).  One also has to compare it with having no insurance at all.  But I suspect that a lot of people who have a serious medical problem might prefer to run up a bill for tens or even hundreds of thousands of dollars that one of $6,350.  A bill that large will not be paid and everyone knows it.  It can be written off in bankruptcy or paid by the county indigent fund.  A bill for $6,350, by contrast, might be realistically payable. Once again, any call for lower out-of-pocket will go nowhere in today's political climate.  But the number of people hitting their annual limit will be a minority in any year.  Many more people will have only routine care and experience the joy of having it covered and having to pay only a manageable amount.  Better still, routine preventive care, X-rays and labs will be free.  Now, that will be popular!

Longer Wait Times; Overload of the Primary Care System.
We know that in Massachusetts, a state with a relatively low rate of uninsured to begin with, there was no serious problem for people with really serious illness, because the system was already set up to pay for them. But the primary care system was overloaded.  That problem will presumably be worse in states with high numbers of uninsured. Indeed, this makes it not altogether irrational for states with high rates of uninsured to be the ones that resist the expansion the most -- they will be the ones with the worse system overload.  It is hard to say what will happen.  At the same time, in the four years since Obamacare passed, there has been some expansion and adaptation of the healthcare system.  Healthcare has been one of the fastest growing source of jobs.  I note again that in New Mexico, the system charges $20 to $30 for visits to a primary care doctor, $50 for a visit to an urgent care, and $250 for a visit to the emergency room.  Clearly, the system is set up to encourage getting a primary care doctor and to discourage treating the ER that way.  Waiting times to see a primary care doctor are already too long to make them a reasonable option for any acute illness. Primary doctors are for routine and preventive care, or for chronic problems that can wait.  Going by the experience of Massachusetts, they will probably be so overwhelmed as to be effectively inaccessible.  On the other hand, if Obamacare brings urgent care facilities within the reach of more people so they can go to urgent cares instead of to the ER, that will be entirely to the good.  (And really, who would choose the ER over urgent care if it were a serious option).  My guess is the Obamacare will accelerate the decline of primary doctors in favor of urgent care and lengthen waiting times at urgent care, while reducing the use of the emergency room.  It will also no doubt lengthen wait times for labs and X-rays.  None of these will be popular.  But whether they are so unpopular as to outweigh people's resistance to having their insurance taken away will be a different matter.

People Find the Exchanges Confusing and Difficult to Navigate.
Conservatives speak of the exchanges with a horror liberals usually reserve for Guantanamo.  To hear them describe exchanges, one would think they were some sort institution behind closed doors where unspeakable acts of abuse occur.  What a disappointment it will be to learn that they are simply websites for buying insurance, and perfectly good insurance at that.  That being said, many people are not tech savvy enough to navigate the sites, and will no doubt find the array of choices baffling and overwhelming.  Nonetheless, there will be site navigators and insurance agents there to help, though how helpful will depend on on whether the state wants the system to work or not.  And I have to believe that what will matter most to most people is their health insurance -- if it provides for their medical needs, it will be worth the hassle.  People unwilling to face the hassle with have to pay the penalty for being uninsured.  But I am guessing they will be more apathetic and defeated types than militant activists.

Employers Drop Coverage.
This is in some ways the biggie.  Republicans have found nothing so effective in stirring up opposition that in warning that all employers will drop their coverage and people will be exposed to the horror and abuse of the exchanges.  Democrats, in turn, said that nothing would change with employer-based coverage.  Neither is proving altogether true.  Many employers are, in fact, moving their employees onto the exchanges, although these remain the minority.  Over time, the trend will probably accelerate.  Republicans are having a field day.  But ultimately what will this mean?  The exchanges will not turn out to be chambers of horrors, but places to buy perfectly good insurance.  The shopping will be a nuisance.  Most employers are giving employees some subsidy, combined with the federal subsidies, to pay for insurance.  How the cost will compare is not clear and will not doubt vary depending on how generous the employer is.  But the administrative costs will be transferred from the employers to the employees.  I have no doubt that employees will be unhappy about this.  Given the choice between comparable insurance and comparable rates with all the administration done by the employer, and hassling with the shopping, choice and monthly payments, I have no doubt that employees will prefer the former.  They will be angry and resentful and complain about Obamacare.

But it does not logically follow that they will want to kill it.  Put yourself in their place.  You will, indeed, prefer to have your employer deal with all the red tape and resent having to deal with it yourself.  But it does not logically follow that you will want to shut down the exchange where you buy insurance and have the subsidy that makes it affordable cut off on the assumption that it will make your employer restore your insurance.  Chances are, your employer will not.

On the other hand, it may be that people who are moved from employer-based coverage to exchanges will resent the change enough to vote against that party that forced the change on you, even if the only alternative is the party that wants to shut down the whole system and deprive you of any insurance whatever!  But I suppose we cannot rule out the possibility of Republicans riding into office on a wave of anger over people being moved onto exchanges from employer based insurance -- and then running into even greater anger when they try to shut down the system altogether.

Saturday, September 14, 2013

Another Possible Lesson from the Roaring 20's

I recall a short time, when Alan Greenspan was chairmen of the Federal Reserve, when there was talk of achieving an inflation rate of zero.  This meant disallowing any wage increases on the grounds that they were inflationary.  Fortunately, this did not get very far.  I think there were two reasons for it.  One was that productivity was growing very fast at the time, an it was becoming apparent that only wage increases in excess of productivity growth are inflationary.  But even granting that real wages should grow with productivity, why should real wage growth take the form of nominal wage growth?  Why not keep nominal wages steady and let real wages grow by falling consumer prices?  The answer, so far as I can tell, is that the Fed eventually came to realize that sooner or later, recession always strikes, and when it does, inflation falls. A little inflation in good times is therefore necessary as a buffer against deflation in the next recession.

And deflation is harmful for several reasons.  For one thing, prices and especially wages are sticky and tend to resist falling, so downward pressure on them introduces distortions into the system.  For another, deflation is an inflation of debt and makes the debt burden more onerous.  Borrowing and investment also become onerous, as real interest rates are necessarily higher than nominal interest rates.  And finally, deflation means that holding onto cash effectively pays interest, so people are more likely to hold onto cash and less likely to invest it.

Which leads me to the 1920's.  I had previously heard the Austrian theory that the Great Depression was the result of the horrendous inflation that occurred during the 1920's boom.  That leaves the slightly awkward question of how there could have been such terrible inflation in the 1920's if the consumer price index was, in fact, falling.  Their usual answer is that although the CPI fell, it did not fall as much as it would have if their favored policies had been implemented.  But that raises other awkward questions, such why did other economic booms (before and since) have higher rates of inflation without being followed by such a severe depression.

Indeed, the 1920's have been described as "the only deflationary expansion of the entire 20th century."  Others see the price decline in the 1920's boom as the beginning of the deflation that would prove so ruinous.

Speaking for myself, I am reluctant to consider the late 1920's as a time of deflation because, although the consumer price index was falling, wages and property values continued to rise.  It might instead be seen as a time of very low (even negative) inflation, in which productivity growth was passed onto into real wage growth as much in the form of falling prices as rising nominal wages.

In other words, is it possible that the 1920's should really be seen as a warning about the dangers of very low inflation during good times?  Was the deflation of the 1930's perhaps so devastating because there was no inflationary cushion whatever to soften the impact of downward pressure?  I have not seen any economist proposing this theory.  But perhaps it needs some investigation.

Reflections on the Future of the Republican Party

To date, my most popular post has been One Reality Republicans May Take Away From This Election. Looking back on it, I would say I was half right, and half dangerously naive.  The half right was the Republicans are beginning to realize they can no longer count on power as their birthright, and that having a Democrat in the White House was going to become a fairly normal event.

Where I was absurdly naive was in thinking that Republicans might accept and learn to deal with this fact.  Just the opposite has happened.  Republicans are increasingly coming to recognize that they can no longer be assured of control of the government, and have therefore become all the more determined to destroy it.  I keep hearing that defeat will finally drive home reality to the Republicans. I also read and liked the following definition of peak wingnut: "Peak Wingnut may be hard to pin down exactly, but I would say it refers to the exact moment that the G.O.P. can no longer field a candidate capable of winning an election because the wingnuts will not allow a rational person to win a primary and cannot turn out enough votes to win an election."  The assumption is that when Republicans become unelectable, they will have no choice but to embrace sanity as a matter of self-preservation.

Unfortunately, I see no evidence that any of this is true.  Thus far, Republicans have responded to each defeat by becoming crazier and crazier.  The main evidence is taken from what has happened to other parties.  The Democrats, after spending most of 1968 through 1988 in the wilderness, moved to the center and won in 1992.  The British Labour Party responded to Margaret Thatcher's victories by getting crazier and crazier, thus marginalizing itself more and more.  But ultimately it pulled itself together, moved center, and was able to exploit Conservative mistakes.  Much the same happened to the Conservative Party during Tony Blair's ascendancy.  But I see no evidence to date that the same rule applies to Republicans.

The strongest evidence to the contrary lies in California.  Republicans were once a strong and rational party in California.  Presidents Nixon and Reagan were both once California governors.  But as power began slipping away from California Republicans, they responded by getting crazier and crazier, and by taking the attitude of, "If I can't govern you, nobody will."  They set out to make California ungovernable and largely succeeded.  California required a 2/3 majority to pass a budget.  The Republican Party was always too small to pass anything, but just large enough to prevent a budget from passing.  And (I am told), since Republicans knew that ultimately a budget would have to pass, eventually one would defect, vote for the budget, and be defeated in the next election.

The Senate, by giving each state two Senators, carries a systematic bias toward rural states and therefore tilts toward the Republicans.*  The House is heavily gerrymandered toward Republicans and therefore expected to stay in Republican hands (barring extraordinarily self-destructive behavior by Republicans, a possibility that cannot be ruled out).  On the other hand, there is some evidence that the Electoral College may be biased toward Democrats, meaning that the White House is likely to be in Democratic hands much of the time.**  This means the sort of standoffs we are experiencing now are likely to be the new normal.  And even if one party manages to hold the White House, Senate, and House, the Senate filibuster rule now makes legislation impossible unless that same party has a 60-seat super majority in the Senate, something unlikely to happen very often.  California, here we come!

The good news is that, in California at least, the power of the Republicans has finally been broken.  They have now shrunken down to holding less than a third of the seats in the legislature and can no longer block legislation.  California may become governable again.  The bad news is threefold:

  1. The California Republican Party shows no signs of regaining its sanity.  It keeps getting crazier, but is now marginalized to where it is limited in the damage it can do.
  2. The thought of coastal California liberals holding unchecked power is not exactly a reassuring one.  But worst of all:
  3. It took a good 20 years from when the California Republican Party went insane until it became too marginalized to do any more damage.  And it manged to do a lot of damage in the interim.
If this pattern holds true for the country as a whole, the madness should run its course around 2030 or so.  Hold onto your hats.

*The fact that Democrats have held onto the majority for the past two elections is largely a matter of luck.  Because only 33 to 34 Senators are up for election at any time, a small number of elections can skew the results.  In the last two elections, Republicans have chosen particularly crazy candidate in key races and blown winnable seats as a result.
**Certainly judging from the last two elections, there appears to be a stable coalition in place.  Furthermore, in the last election, even if the swing states of Ohio, Virginia and Florida had all gone for Romney (they did not), Obama would still have won a razor-thin electoral majority.

Government Shutdowns, Past and Present

Maybe this is just a tendency to idealize the past, or to make light of past crises because we know the outcome, but I see a definite difference between this threat of government shutdown and the ones under the Clinton Administration.

It is not so much that the Republicans were less crazy last time, as that they were less cynical. Last shutdown was not the attempt at blackmail this one is shaping up to be, but more a misreading of the public mood. What happened (so far as I can tell) is this. Republicans in the 1990’s made the horrifying discovery that the existence of government means that it might fall into the hands of a Democrat. They had assumed that such outrages were a thing of the past, yet there it was, happening. Their traditional hostility to government multiplied many-fold. They went on the campaign stump denouncing government as an evil parasite that drained people’s life blood and gave them nothing in return, a monster of oppression, crushing their liberty underfoot. Republicans pledged to attack this beast, not just with a meat ax, but a chainsaw. People applauded and reacted favorably. Republicans were foolish enough to take them at their word and assume that people really meant it. They assumed that if people hated government that much, they would happily accept any sacrifices necessary to curb the monstrosity and would consider late Social Security checks or closed national parks as a small price to pay for freedom. The American people, by contrast, assumed that if the government was a parasite draining their life blood, or a monster crushing their liberty, then shutting it down would not cause any hardship. Once it became clear that shutting down the government caused inconvenience, people lost a lot of their enthusiasm for shrinking it, let alone shutting it down. Republicans ended up caving, one may assume, because they were sincerely shocked to learn that shutting down the government was unpopular.

This time, by contrast, Republicans have no illusions that shutting down the federal government will be popular, or that people will consider late Social Security checks a small price to pay for freedom. They know very well that a shutdown will not be popular. In fact, they are counting on it. They intend shutdown, quite frankly, as blackmail. You want your Social Security check? You want your Medicare reimbursement? You want air traffic to operate? Then kill Obamacare.  They will not cave because they have no illusion that the American people will like what they are doing; their intent is to hurt the American people and count on the Democrats to have less stomach for inflicting pain.

In some ways, this is a remarkable development.  After all, when the Tea Party first arose, it saw itself as the voice of the American people (or at least, the Authentic Real American people) crying outrage across the political spectrum.  Showing a willingness now to hurt the American people to force your opponents to submit sounds very much like an acknowledgement that the people are not with you on this fight.

And what about the debt ceiling?  Conventional liberal wisdom has it that breaching the debt ceiling would be much worse than a government shutdown.  I am beginning to be not so sure.  Shutdown, of course, means that everything shuts down and nothing gets done.  Debt ceiling means that government funding shrinks by a third.  That would be bad, of course, but Republicans may be counting on it not to be as bad.  In fact, it may be that there they are repeating the same mistake as they made in the 1990's.  After all, Republicans really, really want to cut spending and balance the budget.  Refusing to raise the debt ceiling and forcing the government overnight to make do with a third less would achieve those goals.  It may very well be that a lot of Republicans recognize that a total shutdown would be unpopular, but that cutting funding by a third would not be so bad, and would be popular, at least with their base.  I think they are much mistaken.  I am particularly fond of this post, written in the 2011 debt ceiling crisis by Megan McArdle, warning what the consequences would be of a debt ceiling breach forcing government to cut spending by 40% overnight.  Cutting it by a third overnight would not be quite as bad, but it would be bad enough.

McArdle starts with the assumption that we will preserve interest on the national debt, military pay and pensions, Social Security, Medicare and Medicaid untouched.  This will require us to cut everything to zero.  She emphasizes why that would be intensely traumatic.  But in fact, the Obama Administration maintains that it does not have the constitutional authority to prioritize, and may not even be technically capable of it.  It has also ruled out radical options such as declaring the debt ceiling unconstitutional or de facto ending it by minting platinum coins.  This looks very much like a game of chicken, but it leaves the obvious question of what to do if the other side does not swerve.  So far as I can tell, it leaves Obama with one option only -- pay two-thirds of all bills and send an IOU for the rest.  (If at all possible, make an exception for interest on the national debt).  This may seem to Tea Party Republicans a very satisfactory solution to balancing the budget, one they are willing to tolerate indefinitely, even if it doesn't put an end to Obamacare.  And it still gives them a hostage -- you want your full Social Security check?  Then kill Obamacare!  But it is unlikely to be popular with anyone else, including large portions of the Republican base.  When retirees start getting Social Security checks for only two-thirds of the total; when medical providers get only two-thirds reimbursement for Medicare and Medicaid patients; when contractors get paid only two-thirds of what is due; when public employees, including soldiers, police and prison guards, start getting only two-thirds of their paychecks, and when military retirees get only two-thirds of their retirement; then the pressure is going to start rising on Republicans to raise the debt ceiling and end the squeeze.

Maybe a one-third cut can be tolerated for three times as long as a total shutdown, but over time the pressure will build.  Shutdowns under Clinton lasted from November 14 through 19, 1995 (6 days) and again December 16, 1995 through January 6, 1996 (22 days), or a total of 28 (non-consecutive) days.  If total shutdown could be tolerated for a little under a month, then perhaps cuts of a third could be tolerated for three months.  But that would lead all the way into next year, when people start getting actual insurance under Obamacare, and would force Republicans to push, not just to block people from getting health insurance, but to take away they insurance they had.

I like to think under this sort of pressure, enough Republicans will defect to allow a continuing resolution and increase in the debt ceiling to be passed with mostly Democratic votes.  And if it lead to the overthrow of the current House leadership, so be it.  All I would ask of the House leadership is to kick the can as far down the road as possible.