unhealthy politics

The continuing health care debate in Congress has highlighted some seriously dysfunctional elements in our nation’s politics. The inherently anti-Democratic features of the Senate (where the 500,000 residents of Wyoming have the same voting power as 36 million Californians) have been greatly exacerbated by the now routine invocation of the filibuster, preventing a bill from coming up for a vote. This is a relatively recent development. That would be bad enough if we had two functioning political parties. But the Republican Party has become essentially nihilistic, refusing altogether to engage in the formulation of policy or any other serious efforts at actual governance. When you combine these two developments – the need for 60 votes in the Senate for even the most routine matters along with party-line obstructionism by a caucus consisting of 40 Senators – you have come very close to producing the complete failure of governance that Republicans hope will further their electoral prospects – even if it prevents Congress from addressing the nation’s problems.

Paul Krugman had an excellent column in the New York Times last week (“A Dangerous Dysfunction”) wherein he notes the filibuster problem:

Some people will say that it has always been this way, and that we’ve managed so
far. But it wasn’t always like this. Yes, there were filibusters in the past — most notably by segregationists trying to block civil rights legislation. But the modern system, in which the minority party uses the threat of a filibuster to block every bill it doesn’t like, is a recent creation.

The political scientist Barbara Sinclair has done the math. In the 1960s, she finds,
“extended-debate-related problems” — threatened or actual filibusters — affected
only 8 percent of major legislation. By the 1980s, that had risen to 27 percent.
But after Democrats retook control of Congress in 2006 and Republicans found
themselves in the minority, it soared to 70 percent.

Some conservatives argue that the Senate’s rules didn’t stop former President George W. Bush from getting things done. But this is misleading, on two levels.

First, Bush-era Democrats weren’t nearly as determined to frustrate the majority party, at any cost, as Obama-era Republicans. Certainly, Democrats never did anything like what Republicans did last week: G.O.P. senators held up spending for the Defense Department — which was on the verge of running out of money — in an
attempt to delay action on health care.

More important, however, Mr. Bush was a buy-now-pay-later president. He pushed through big tax cuts, but never tried to pass spending cuts to make up for the revenue loss. He rushed the nation into war, but never asked Congress to pay for it. He added an expensive drug benefit to Medicare, but left it completely unfunded. Yes, he had legislative victories; but he didn’t show that Congress can make hard choices and act responsibly, because he never asked it to.

James Fallows also has a good post on the filibuster (with a lot of good links -- as a prelude to “a gigantic article coming out soon in the Atlantic … which concerns America's ability to address big public problems”):

The significant thing about filibusters through most of U.S. history is that they hardly ever happened. But since roughly the early Clinton years, the threat of filibuster has gone from exception to routine, for legislation and appointments alike, with the result that doing practically anything takes not 51 but 60 votes. So taken for granted is the change that the nation's leading paper can offhandedly say that 60 votes are "needed to pass their bill." In practice that's correct, but the aberrational nature of this change should not be overlooked. …

[A]s the chart below shows, the huge increase in threatened filibusters came from the Republican minority, after the Democrats took back the Senate in 2007. Since the time covered by this chart, the number of threatened (Republican) filibusters has shot up even more dramatically. Still, whoever is in control, this is a more basic and dangerous threat to the ability of any elected American government to address the big issues of its time. …

[You can view a better version of the same data on this chart.]

[Even as Republicans are attempting to blame President Obama for the recent failed attempt to ignite an incendiary device on a US-bound airliner, the Transportation Security Administrator is without a leader because Republicans are holding up his nomination. Senate Majority Leader Reid announced yesterday that he would seek a cloture vote on that nomination – requiring 60 votes – as soon as the Senate reconvenes in January. Meanwhile, Cheney has slithered back out from under his rock to attack President Obama for actually using the criminal justice system established under the US Constitution to try the suspect in that case. You know, exactly like the Bush administration did back in 2001 under virtually identical circumstances with attempted shoe-bomber Richard Reid – now serving a life sentence not at Guantanamo but at the Super Max prison in Florence, Colorado – on US soil! I bet they even read the wannabe shoe-bomber his Miranda rights and gave him a lawyer. But I digress ….]

Making matters worse, there no longer seems to be any distinction being made on a cloture vote (i.e., the vote ending debate and proceeding to a vote on the bill) and the vote on the substance of the underlying bill. In the past, a Senator might vote to allow a matter to come up for an up-or-down vote while voting against the bill itself. Indeed, that was the rule not the exception. For example, back in 2003 when Republicans enacted the Medicare Part D prescription drug benefit (which according to the Medicare trustees created a $9.4 trillion unfunded liability) the cloture vote pass by a 70 to 29 margin while the bill itself passed by a narrower 55 to 44 margin. In the case of both the stimulus bill and the health care bill, however, the cloture vote and the vote on the underlying bill were the same. Despite all their demands for a “up-or-down vote” when they controlled the Senate, Republican Senators it seems are no longer willing to permit an up-or-down vote on legislation they oppose as used to commonly be the case.

This new de facto requirement of 60 votes for anything to pass the Senate would not be so bad if there were actually something approaching 100 votes in play. But if 40 votes are committed to obstruction from the outset, it’s pretty hard for the system to work.

Jonathan Chait has a good article in The New Republic on The Rise of Republican Nihilism. He does a good job analyzing the nature of Republican opposition to each of President Obama’s three areas of policy priority:

Whatever the merits of President Obama’s agenda, it is clearly a response to
objectively large problems facing the country. The administration has selected
three main issues as the focus of its domestic agenda: the economic crisis, climate change, and health care reform. … In all three areas, the Republican Party has adopted a stance of total opposition, not merely because it disagrees with aspects of Obama’s solutions, but because it cannot come to grips with the very nature of the problems of modern American politics.

Take the stimulus. At the peak of the worst economic crisis since the Great Depression, recently inherited from a Republican administration, the stimulus package was able to attract not a single Republican in the House and only three in the Senate (one of whom – Arlen Specter – was subsequently drummed out of the party as a result). In order to attract the bipartisan support it desperately sought, the Obama administration had made the package about half the size that its own Council of Economic Advisors calculated was necessary and tilted much of its composition toward tax cuts (which have little stimulative effect in a liquidity trap when people are likely to save any windfall). The resulting package was almost certainly similar in its general contours to what a President McCain would have proposed. Indeed, one of McCain’s top economic advisors, Mark Zandi (now chief economist of Moody’s Economy.com), recently acknowledged the positive effects of the stimulus:

… “there was a considerable amount of hand-wringing that [the stimulus] was too small, and I sympathized with that argument,” said Mark Zandi, … Even so, “the stimulus is doing what it was supposed to do — it is contributing to ending the recession,” he added, citing the economy’s third-quarter expansion by a 3.5 percent seasonally adjusted annual rate. “In my view, without the stimulus, G.D.P. would still be negative and unemployment would be firmly over 11 percent. And there are a little over 1.1 million more jobs out there as of October than would have been out there without the stimulus.”

But even the worst economic crisis in 70 years thrust into the lap of a new president seeking bipartisanship wasn’t enough to elicit constructive engagement from Republicans in Congress. Their calculation was that a bad economy would be good for them. The American people be damned.

But the area where Republican obstructionism has been most conspicuously on display has been health care reform. To put this in perspective, the basic approach to health care reform that Democrats adopted was one of Republican origin. David Warsh (who publishes the Economic Principals Web site) recounts that history (a MUST READ piece, especially for Republicans):

Consider how a bipartisan approach devised by middle-of-the-road technocrats for an entrepreneurial Republican became a winning issue for the Democrats and provoked a crisis in the Republican Party.... In November 2004, on the op-ed page of The Boston Globe, [Massachusetts governor Mitt] Romney announced "My plan for Massachusetts health insurance reform.” He was, he wrote, adopting a bipartisan approach. His plan would require no employer mandate or “single-payer” government takeover of the system. Nor would any new taxes be required. But by restraining medical expenses, the measure would lower the cost of health insurance for all....

[The plan] took advantage of a considerable head start, relative to all other states: Massachusetts already put aside as much as $1 billion annually for emergency care of the uninsured. …. And Romney persuaded the Bush Administration to preserve $400 million in annual Medicare funding....

Eighteen months later, Romney declared that the problem had been solved. A combination of a series of new no-frills insurance plans and a requirement that even healthy young adults purchase one, plus government subsidies for those unable to afford those basic policies, and increased emphasis on Medicaid for those who qualified under current law would accomplish the goal with no new taxes....

He didn’t like to call it a plan for “universal coverage,” Romney told Time’s Joe Klein;
to him it was a “personal responsibility system;” but the net effect would be the same: all Massachusetts citizens would be covered. … “It’s a goal that Democrats and Republicans share, and it has been achieved by a bipartisan effort, through market reforms,” he wrote [in the Wall Street Journal]…

So a contagious Republican proposal which quickly spread to the Democratic primaries proved to be the proximate cause of landmark legislation... by extending somewhat the principle of federal regulation, it changes the geometry of the medical industrial complex in fundamental ways. As [Jonathan] Chait puts it, the proposed statute “prods the system” in myriad ways. It directs money away from wasteful and ineffective treatment in emergency rooms and towards routine care for the previously uninsured. It launches many experiments, large and small, designed to discover effective ways of doing things – everything from computerizing medical records to penalizing hospitals with high infection rates. … [T]he current bill is not the kind of plan that liberals wish they could design from scratch. “Rather, it is a centrist compromise of the best variety, combining the ideas of the now nearly extinct moderate wing of the Republican Party with the smartest bipartisan technocratic reforms.”

... The Wall Street Journal fulminated [against President Obama’s heath care reform plan]... the editors wrote. “A popular president might have crafted a durable compromise that blended the best ideas from both parties.” That, of course, is exactly what Romney attempted and Obama accomplished. Sufficiently clouded by defeat is the editors’ judgment, however, that they no longer seem to recall that they themselves showcased Romney’s “Healthcare for Everyone? We’ve Found a Way” proposal in 2006...

By most accounts the Massachusetts plan, on which the current Democratic health care reform plan was modeled, has been a big success. The plan has resulted in 97% of Massachusetts residents having health care coverage (vs. something like 83% at the national level). And the real test politically: It is popular. A poll in October showed that 79% of Massachusetts residents want to keep their reform plan; only 11% of voters there support repeal.

So Democrats in Congress forgo the reforms preferred by a strong majority of their base, like a single-payer system, and instead adopt a popular, successful Republican plan as their model for health care reform. It attracts large bipartisan majorities in Congress, right? Just kidding, of course. The only Republican vote for health care reform garnered in either house of Congress was Rep. Joseph Cao of Louisiana, who is not likely to get reelected in his heavily Democratic New Orleans district where President Obama captured 75% of the vote (Cao only narrowly defeated the indicted – subsequently convicted – incumbent, William Jefferson, infamous for the $90,000 in cash found in his freezer).

It would be one thing if Republicans engaged in a serious debate about the actual merits of Congressional proposals. But they have chosen to remain apart from the policy debate altogether, instead spewing lies about things like “death panels” and coverage for illegal immigrants. As Steve Benen noted in the Huffington Post (“The Long Overdue Debate”) the real policy debate has been among Democrats, not between Democrats and Republicans:

The United States was supposed to have had a great debate this year about one of the most important domestic policies of them all. With a once-in-a-generation opportunity to address a dysfunctional health care system, the left and right,
Democrats and Republicans, would bring their A games, and the public would
benefit from the discussion.

We now know, of course, that Americans were denied that debate, not because of the proposals, but because the right didn't have an A game to bring. Intellectual bankruptcy left conservatives with empty rhetorical quivers.

But as it turns out, it wasn't too late for the debate, we were just looking in the wrong place. We expected the fight of the generation to occur between the right and left, when the more relevant dispute was between the left and left.

It's easy to overlook right now, but the quality of the policy debate between competing progressive contingents is infinitely better and more interesting than the policy debate between Democrats and Republicans, which has unfolded in depressing ways over the last eight or nine months. …

[N]otice the quality of the arguments conservatives and Republicans have offered -- and continue to offer -- in this debate. Death panels. Socialism. Hitler. Government takeover. Socialized medicine. Incomprehensible charts. Incessant whining about the number of pages in a proposal.

… [R]egardless what side of the dispute you're on, it's worth appreciating the vibrancy, energy, and seriousness with which progressives are engaging in the debate, as compared to the incoherent, ridiculous, and dull qualities our friends on the right have brought to the table.

Sarah Palin, Rush Limbaugh and Glenn Beck have come to define the acceptable terms of the debate among Republicans. (Even Mitt Romney has disowned his own successful reforms in Massachusetts – just as he had earlier disavowed his support for reproductive freedom and gay rights.)

Recall last spring … and summer … and fall, when the Senate finance committee chairman Max Baucus held up the legislation for months trying to craft a bipartisan compromise that would attract Republican votes. That outreach didn’t prevent so-called Republican moderates like Charles Grassley from going out on the stump during the summer’s Teabagger protests and repeating lies that he knew perfectly well to be untrue. As I wrote in September:

This lie about health reform extending subsidized coverage to illegal immigrants is official Republican party-line doctrine, being repeated even by supposed "moderates” like Chuck Grassley, who is part of the “Gang of Six” on the Senate Finance Committee that has kept legislation bottled up for months. Grassley said, “The bill passed by the House committees is so poorly cobbled together that it will have all kinds of unintended consequences, including making taxpayers fund health care subsidies for illegal immigrants.” (The “moderate” Grassley also piled on to the “Obama is going to kill granny” lie, saying, “You have every right to fear. You shouldn't have counseling at the end of life, you should have done that 20 years before. You should not have a government run plan to decide when to pull the plug on grandma.” But … Grassley previously voted to extend Medicare funding to “counseling … with respect to end-of-life issues and care options, and … advanced care planning.” In other words, Grassley was “for Death Panels before he was against them.”)

Despite abandoning the public option, the employer mandate and just about anything else that might offend a Republican, Baucus was able to attract only a single Republican vote in committee – that of Maine Senator Olympia Snowe. But despite the fact that the bill did not change in any respect of concern to Snowe as it proceeded to the full Senate, she subsequently voted against the final bill. She was able to offer no substantive policy reason for her change of heart, saying only that the bill was being “rushed” – despite the fact that it had been held up for months to secure the changes she demanded. The pressure from her party to toe the obstructionist line was just too much for her to resist.

The debate in the Senate was the second longest debate in that body’s history. Republicans even filibustered the filibuster vote, forcing the 92-year old wheelchair-bound Senator Byrd to vote at one in the morning … not once but twice. It was the first time in over 110 years that the Senate voted on Christmas Eve. At the end of all that, the bill that started as a centrist Republican plan did not garner a single Republican vote. This is a bill that managed the unprecedented feat of securing the endorsements of both the AMA (historically opposed to all health care reform) and the AARP (representing all those “grannies” that President Obama is allegedly intent upon finishing off) – hardly a radical coalition. But not a single Republican.

If I could recommend only one article on the health care bill as it stands now it would be “And The Rest Is Just Noise” by Jonathan Chait in The New Republic. There is too much to excerpt, especially in its description of the best features of the bill and its refutation of some of the most common attacks on it, so just READ IT. But especially for disappointed progressives, I would note these parts:

American liberals have a habit of withdrawing into cynicism and ennui at the most inopportune moments. The 2000 presidential election, and subsequent recount, was one such moment. The most die-hard reaches of the left, deeming the Democratic Party hopelessly corrupt, rallied to Ralph Nader’s fulsome populist denunciation of Al Gore’s subservience to the corporate agenda. …

At some level, it is possible to understand the roots of liberal frustration. The
machinery of Congress has ground away at the health care bill, as it does to almost any bill. … What has emerged from that machinery is not merely “better than nothing” or “a good start.” It is the most significant American legislative triumph in at least four decades. …

…If we want to understand why a bill that embodies the best of moderate Republican ideas has attracted zero support from the Republican Party, it is because moderation has disappeared from the party. The takeover of ideological conservatives, implacably opposed to the expansion of government, has rendered impossible any bipartisan solution.

But what about the left? Why has the rhetoric from progressives increasingly come to mirror the uninformed ranting of the right? … The defeat of the public plan, largely at the behest of insurance companies that don’t want competition, does weaken the reform plan. Yet liberals have responded out of all proportion to the scale of the setback. Left-of-center economists and policy wonks—including Yale political scientist Jacob Hacker, who created the public option—have endorsed the Senate bill. …

…The bizarre convergence of left-wing and right-wing paranoia echoes the forces that brought down the moderate consensus of the postwar era. The GOP retreat into Palinism represents one half of this collapse. The left’s revolt against health care reform represents the other. What has re-emerged in recent weeks is the spirit of the New Left--distrustful of evolutionary change, compromise between business and
labor, and the practical tools of progressive reform. It is the spirit that rejected Hubert Humphrey in 1968 and Al Gore in 2000.

The New Left rejection of “corporate liberalism” came at what we now regard as the historical apex of American liberalism. At the moment of another historical triumph,
liberals are retreating from politics into languor, rage, and other incarnations of anti-politics. One day they may look back upon this time with longing.

For disappointed progressives, I also recommend these two pieces: Rich Poor by TIME’s Joe Klein; and this excellent blog post (“Simulating Single Payer”) by Paul Krugman explaining the economics of the individual mandate. For Democrats or Republicans, I recommend this response to a Wall Street Journal editorial by OMB director Peter Orzag (“No Illusions”)

Meanwhile, count me among those progressives who whole-heartedly support the current health care plan.

Only three years ago Republicans still controlled both houses of Congress and Bush/Cheney were running the executive branch. If you had described this legislation then and the progress it has made through Congress, I think progressives would have been overwhelmed with delight. The filibuster, which used to be reserved for extraordinary things like denying civil rights to black people, now has to be overcome to enact any business in the Senate. You combine that with 40 Republicans (Snowe has now apparently fallen in line with the rest of her caucus in their blind obstructionism) who will vote against any Democratic initiative no matter what, and President Obama and Leader Reid have to hold together 100% of their caucus. (And that is giving Lieberman credit for being a Democrat.) Given the egos and independence of Senators that is extraordinarily tough to achieve – even if Democrats didn’t have an ideologically diverse caucus (in any other era, Ben Nelson would be considered a conservative Republican). I don’t understand where progressives who are complaining about the loss of the public option think they would have gotten their 59th or 60th votes – or will get them if this version of reform dies. Do any of them really in their hearts believe that Lieberman would have voted against all the insurance interests in Hartford to which he is beholden? It was never going to happen no matter how much the Democratic leadership threatened him. It wouldn’t take much for him to pull a Jeffords or Specter and bolt to the other side – in which case we would lose him on even fairly routine votes. As much as I dislike Lieberman, he still votes with the majority 85% to 90% of the time, which is a lot better than Snowe. In other words, the WORST member of the Democratic caucus is still much better than the BEST member of the Republican caucus.

In that light, the fact that President Obama and Leader Reid have managed to corral 100% of their caucus behind the most progressive piece of major legislation in a generation is extraordinary. Bear in mind, the public option was not even a topic of debate during the election. It arose as the cause célèbre of progressives only after the election. This bill is almost everything that President Obama and Hillary Clinton advocated during the primaries. And to achieve it in an environment requiring 100% support of a 60 vote caucus that Democrats didn’t even have a year ago (and only obtained when Specter was driven out of the Republican Party) is extraordinarily impressive.

At the end of the day, Democrats still needed the votes of Lieberman and Nelson. While it is always possible to fault tactical decisions along the way, I don’t think the result would have been better. (I think ultimately Baucus did more harm than Lieberman or Nelson by keeping legislation bottled up for months over the summer while the opposition mobilized and drove the poll numbers for reform down.) In fact, had Republicans actually participated constructively in the process I think Democrats would have given major concessions (as they did with the stimulus bill) in order to bring in even a few Republicans, resulting in a much weaker bill. As it turns out, Republican obstructionism probably helped unite the Democratic caucus and resulted in a stronger bill than anyone would have expected even a year ago.

I’m hopeful that the Senate bill will be improved modestly in conference and will eventually be signed into law. That will be a remarkable achievement. But this process has revealed serious dysfunction in our political process. It is not realistic to expect 100% support of a 60-member caucus to address any of our country’s problems. And if that 60-vote super-majority is lost in the next election, the result is likely to be political paralysis. The Senate is already undemocratic enough by its very nature. Ultimately, it must be possible for a majority in the Senate to govern and be held accountable for the results. It would be nice if we actually had two political parties serious about governance. But for the time being that just isn’t the case. So in the meantime, let the majority govern.

health care costs

As we seem to be approaching the end game for the current effort at health care reform in Congress, it is worth reviewing what the debate is all about. As I outlined in a blog post back in August (“common ground on health care”) the basic objectives of reform are two-fold: 1/ expand coverage to more of the 45 million or so Americans who currently lack health care coverage and 2/ control costs in the system (if you can call our current mess a “system”). I quoted Paul Krugman’s good short summary of the basic elements of the approach being taken in Congress (“Health reform made simple”):

The essence is really quite simple: regulation of insurers, so that they can’t cherry-pick only the healthy, and subsidies, so that all Americans can afford insurance.

Everything else is about making that core work. Individual mandates are a way to prevent gaming of the system by people who don’t sign up until they’re sick; employer mandates a way to hold down the on-budget costs by preventing a rush by employers to drop insurance; the public option a way to create effective competition and hold costs down further.

But what it means for the individual will be that insurers can’t reject you, and if your income is relatively low, the government will help pay your premiums.

That’s it. Any commentator who whines that he just doesn’t understand it is basically saying that he doesn’t want to understand it.

Now that it appears that the public option is out, the focus as we move into conference between the House and Senate will be on other measures in the bill, particularly those that might help control costs. For those following this debate, I thought I would provide links to some of the better pieces on medical cost control that I’ve read over the past few months. If you read these I think you will have a pretty good sense of some of the problems and some possible solutions. They are non-partisan and non-ideological.

I would start with the excellent piece by Atul Gawande in The New Yorker (“The Cost Conundrum: What a Texas town can teach us about health care”). It has received a great deal of attention, in part because President Obama insisted early in this health care reform process that all the members of his administration working on these issues read it. It looks at health care delivery in McAllen, Texas which is second only to Miami in having the highest health care costs in the country, with Medicare spending per enrollee almost twice the national average. Its abnormal costs cannot be explained by demographics or the habits of its inhabitants. Rather the article attributes its soaring costs to the mercenary culture that has developed in the health care delivery system in McAllen. The author contrasts that with the Mayo Clinic which has evolved one of the highest-quality, lowest-cost health care systems in the country.

Another good piece on medical costs is How American Health Care Killed My Father by David Goldhill in The Atlantic. The story starts with his personal experience with the system (referring to a different New Yorker piece than the one I cite above):

…My dad became a statistic—merely one of the roughly 100,000 Americans whose deaths are caused or influenced by infections picked up in hospitals. One hundred thousand deaths: more than double the number of people killed in car crashes, five times the number killed in homicides, 20 times the total number of our armed forces killed in Iraq and Afghanistan. Another victim in a building American tragedy.

About a week after my father’s death, The New Yorker ran an article by Atul Gawande profiling the efforts of Dr. Peter Pronovost to reduce the incidence of fatal hospital-borne infections. Pronovost’s solution? A simple checklist of ICU protocols governing physician hand-washing and other basic sterilization procedures. Hospitals implementing Pronovost’s checklist had enjoyed almost instantaneous success, reducing hospital-infection rates by two-thirds within the first three months of its adoption. But many physicians rejected the checklist as an unnecessary and belittling bureaucratic intrusion, and many hospital executives were reluctant to push it on them. The story chronicled Pronovost’s travels around the country as he struggled to persuade hospitals to embrace his reform.

It was a heroic story, but to me, it was also deeply unsettling. How was it possible that Pronovost needed to beg hospitals to adopt an essentially cost-free idea that saved so many lives? Here’s an industry that loudly protests the high cost of liability insurance and the injustice of our tort system and yet needs extensive lobbying to embrace a simple technique to save up to 100,000 people.

He goes on the recount his own investigations into the problems with our health care system:

I’m a businessman, and in no sense a health-care expert. But the persistence of bad industry practices—from long lines at the doctor’s office to ever-rising prices to astonishing numbers of preventable deaths—seems beyond all normal logic, and must have an underlying cause. There needs to be a business reason why an industry, year in and year out, would be able to get away with poor customer service, unaffordable prices, and uneven results—a reason my father and so many others are unnecessarily killed.

Goldhill does a good job describing the intractability of cost control in our current fee-for-service system which encourages treatment rather than results and where consumers directly see few of the costs they incur because of employer and government provided insurance.

That is probably a good segue into the excellent short piece by David Leonhardt (one of the New York Times’ best business writers) briefly summarizing some of what we know about efforts to control medical malpractice liability costs (if this is a subject that really interests you, Leonhardt’s links are useful):

Here, then, is the brief version of the facts:

The direct costs of malpractice lawsuits — jury awards, settlements and the like — are such a minuscule part of health spending that they barely merit discussion,
economists say. But that doesn’t mean the malpractice system is working.

The fear of lawsuits among doctors does seem to lead to a noticeable amount of wasteful treatment. Amitabh Chandra — a Harvard economist whose research is cited by both the American Medical Association and the trial lawyers’ association —
says $60 billion a year, or about 3 percent of overall medical spending, is a
reasonable upper-end estimate. If a new policy could eliminate close to that much waste without causing other problems, it would be a no-brainer.

At the same time, though, the current system appears to treat actual malpractice too lightly. Trials may get a lot of attention, but they are the exception. Far more common are errors that never lead to any action.

After reviewing thousands of patient records, medical researchers have estimated that only 2 to 3 percent of cases of medical negligence lead to a malpractice claim. For
every notorious error … there are dozens more. You never hear about these other
cases.

So we have a malpractice system that, while not as bad as some critics suggest, is expensive in all the wrong ways.

The malpractice problem is as not as straightforward as the polarized views on the subject might suggest. For example, liability caps don’t seem to have as much effect as their advocates claim and hurt those most deserving of compensation. But it malpractice reform is an important part of the problem from the standpoint of providers and needs to be addressed. (And $60 billion a year is still a lot of money.) I’m certainly not an expert on this subject, and don’t want to make this a post about malpractice reform. But there are a few approaches I think might be worth pursuing. The first is a more general problem with tort liability in this country. I would go to the “British Rule” where the prevailing party gets attorneys fees. That tends to discourage frivolous lawsuits while encouraging those with strong merit. In malpractice cases I think we might take advantage of comparative effectiveness research (which would be encouraged by the legislation working its way through Congress) to create some “safe harbors” for providers who conform to “best practices.” It might also be helpful to have some experts who are appointed by the court rather than the parties to cut down on some of the sham “science” in those cases. More fundamentally, we might consider instituting some form of “no fault” compensation for those injured by medical errors as an alternative to litigation (which might also encourage more transparency with regard to those errors and their causes).

Getting back to Congressional legislation, and again to Atul Gawande, he makes a good case in yet another New Yorker piece (“Testing, Testing: The health-care bill has no master plan for controlling costs. Is that a bad thing?”), that the Senate bill is a good start on cost control. Gawande uses the history of government efforts to improve agricultural efficiency as a model for improving health care delivery.

There are, in human affairs, two kinds of problems: those which are amenable to a technical solution and those which are not. Universal health-care coverage belongs to the first category: you can pick one of several possible solutions, pass a bill, and (allowing for some tinkering around the edges) it will happen. Problems of the second kind, by contrast, are never solved, exactly; they are managed. Reforming the agricultural system so that it serves the country’s needs has been a process, involving millions of farmers pursuing their individual interests. This could not happen by fiat. There was no one-time fix. The same goes for reforming the health-care system so that it serves the country’s needs. No nation has escaped the cost problem: the expenditure curves have outpaced inflation around the world. Nobody has found a master switch that you can flip to make the problem go away. If we want to start solving it, we first need to recognize that there is no technical solution.

Much like farming, medicine involves hundreds of thousands of local entities across the country—hospitals, clinics, pharmacies, home-health agencies, drug and device suppliers. They provide complex services for the thousands of diseases, conditions, and injuries that afflict us. They want to provide good care, but they also measure their success by the amount of revenue they take in, and, as each pursues its individual interests, the net result has been disastrous. Our fee-for-service system, doling out separate payments for everything and everyone involved in a patient’s care, has all the wrong incentives: it rewards doing more over doing right, it increases paperwork and the duplication of efforts, and it discourages clinicians from working together for the best possible results. Knowledge diffuses too slowly. Our information systems are primitive. The malpractice system is wasteful and counterproductive.
And the best way to fix all this is—well, plenty of people have plenty of ideas.
It’s just that nobody knows for sure. …

Pick up the Senate health-care bill—yes, all 2,074 pages—and leaf through it. Almost half of it is devoted to programs that would test various ways to curb costs and increase quality. The bill is a hodgepodge. And it should be.

The bill tests, for instance, a number of ways that federal insurers could pay for care. Medicare and Medicaid currently pay clinicians the same amount regardless of results. But there is a pilot program to increase payments for doctors who deliver high-quality care at lower cost, while reducing payments for those who deliver low-quality care at higher cost. There’s a program that would pay bonuses to hospitals that improve patient results after heart failure, pneumonia, and surgery. There’s a program that would impose financial penalties on institutions with high rates of infections transmitted by health-care workers. Still another would test a system of penalties and rewards scaled to the quality of home health and rehabilitation care.

Other experiments try moving medicine away from fee-for-service payment altogether. A bundled-payment provision would pay medical teams just one thirty-day fee for all the outpatient and inpatient services related to, say, an operation. This would give clinicians an incentive to work together to smooth care and reduce complications. One pilot would go even further, encouraging clinicians to band together into “Accountable Care Organizations” that take responsibility for all their patients’ needs, including prevention—so that fewer patients need operations in the first place. These groups would be permitted to keep part of the savings they generate, as long as they meet quality and service thresholds.

The bill has ideas for changes in other parts of the system, too. Some provisions attempt to improve efficiency through administrative reforms, by, for example, requiring insurance companies to create a single standardized form for insurance reimbursement, to alleviate the clerical burden on clinicians. There are tests of various kinds of community wellness programs. The legislation also continues a stimulus-package program that funds comparative-effectiveness research—testing existing treatments for a condition against one another—because fewer treatment failures should mean lower costs.

There are hundreds of pages of these programs, almost all of which appear in the House bill as well. But the Senate reform package goes a few U.S.D.A.-like steps further. It creates a center to generate innovations in paying for and organizing care. It creates an independent Medicare advisory commission, which would sort through all the pilot results and make recommendations that would automatically take effect unless Congress blocks them. It also takes a decisive step in changing how insurance companies deal with the costs of health care. In the nineteen-eighties, H.M.O.s tried to control costs by directly overruling doctors’ recommendations (through requiring pre-authorization and denying payment); the backlash taught them that it was far easier to avoid sicker patients and pass along cost increases to employers. Both the House and the Senate bills prevent insurance companies from excluding patients. But the Senate plan also imposes an excise tax on the most expensive, “Cadillac” insurance plans. This pushes private insurers to make the same efforts that public
insurers will make to test incentives and programs that encourage clinicians to keep costs down.

Which of these programs will work? We can’t know. That’s why the Congressional Budget Office doesn’t credit any of them with substantial savings. … But there can’t be a master plan. That’s a crucial lesson of our agricultural experience. And there’s another: with problems that don’t have technical solutions, the struggle never ends.

I think this is an important piece and strongly recommend it.

Finally, for those of you distressed at the apparent loss of the public option, Timothy Noah makes the case in Slate (“Mr. Level Playing Field”) that the public option, at least the watered-down “level-playing-field” option limited to individuals participating in the insurance exchanges, wouldn’t have had much of an effect on cost control after all. Actually, I’m not sure I entirely buy that. I have not lost all faith in the markets and they may be telling us that the insurance companies dodged a bullet. Since everyone’s favorite senator, Joe Lieberman, said on October 27th that he would filibuster a health reform bill if it included a public option of any kind, look what has happened to the shares of health insurance companies (through last Friday’s market close):

[click to enlarge]

By comparison, the Dow was up only 2.3% during that time and the NASDAQ only 1.4%. That suggests that the markets believe the public option would have had a non-trivial impact on the profitability of the health insurance companies. There is an alternative explanation, however: With the resolution of the public option issue (regardless of which way it was resolved), the path was cleared for adoption of health care reform legislation which will deliver millions of additional customers to the insurance companies. Even if a public option had been included, the shares of the insurance companies might have gone up with the prospect of passage enhanced. I suspect the truth is a combination of the two: The insurance companies would benefit from the legislation even if the public option was included but without it they will benefit more.

Overall, I think the iconic status of the public option among progressives probably exaggerates its actual importance. I certainly understand the reluctance to hand more money over to the insurance companies. As someone who purchases insurance in the individual market, I would have been very receptive to a public option. But according to the Congressional Budget Office (not necessarily definitive but nonetheless informative) the public option would have saved the federal government only $25 billion over 10 years. That’s a lot of money, but only a drop in the bucket when compared with US health care spending of $2.5 trillion this year alone. And according to the CBO it would have had virtually no effect on the number of people buying insurance through the government-run insurance exchanges. So if progressives were strong supporters of this legislation when it included the public option, they should still be strong supporters today.

We can still hope that some stronger cost control measures come out of the conference committee. The three ways in which I would particularly like to see the Senate bill strengthened would be to: 1/ have the mandatory insurance payout ratio raised up from the 80% in the Senate bill (less than the industry’s current average 81% payout ratio) to the 85% in the House bill or even higher (90% sounds good), 2/ give Medicare the ability to negotiate the price of drugs (how absurd is it that the federal government, as a large buyer of a product, is prohibited by law from negotiating the price?) or at the very least to allow consumers to import drugs from other approved countries (where governments do have the ability to negotiate lower prices – ultimately a poor substitute for getting it right in this country) and, 3/ eliminate the current antitrust immunity for the insurance industry (which is already in the House bill but not the Senate bill). (This may not be related to cost control, but I also hope the conference finds ways to accelerate implementation of some of the key elements of the legislation like establishment of the insurance exchanges which now is pushed off until 2013 – after not only the 2010 election cycle but also the 2012 election cycle.)

These articles are not definitive but they are a good introduction to the issues involved with health care cost control. If we don’t control the growth of health care costs it is going to bankrupt not only the federal and state governments but American businesses and consumers. Now that the public option appears to be dead there is really no excuse for Republican obstructionism in Congress. Even if some members of Congress might have preferred a different approach, the basic structure of the legislation would have been fairly non-controversial in the absence of that lock-step Republican partisanship. The legislation pretty much follows the model signed into law in Massachusetts by then-governor Mitt Romney – hardly some kind of radical socialist. Any member of Congress who isn’t serious about controlling health care costs is not serious about governance (and certainly not serious about the long-term federal budget deficit). Unfortunately that is probably a good summary of today’s Republican Party.

dithering

[another excellent Tom Tomorrow cartoon]

Last month, the Vice President from those missing years, Dick Cheney, interjected himself into President Obama’s deliberations over Afghanistan, accusing him of “dithering.” Emerging from his undisclosed lair, the Dark One sneered:

"The White House must stop dithering while America's armed forces are in danger."

(He went on to attack President Obama for scrutiny of the Dark One’s torture practices.)

The usual practice in presidential transitions is that the outgoing administration gets out of town immediately after the inauguration and allows the new administration to enact its own policies without gratuitous hectoring from the previous regime. Cheney, who was uncommunicative to an extraordinary degree while in office (going so far as to appeal to the Supreme Court to avoid having to reveal the names of the industry task force he put together to determine energy policy), all of a sudden can’t keep his mouth shut now that someone else has to deal with the catastrophe his team left behind.

Let’s review: The worst economic crisis since the Great Depression, trillion dollar deficits, and two wars going badly.

The proper response would have been to slither back under a rock somewhere. But if Cheney were to insist upon saying something the proper response would have been along the lines of: “I’m sorry. Really. I’m very, very sorry for the state of the country. If there is anything – ANYTHING – I can do to help, please let me know. Not that there is any reason you SHOULD seek my assistance. But if you do, I will just be here under this rock.”

As an example of how it should be done: Vice president Gore – part of the team that produced unprecedented economic growth including the creation of over 22 million jobs in eight years, that left behind record budget surpluses, reduced federal civilian employment by over 400,000, led a NATO force that deposed a brutal dictator in Serbia without the loss of a single American life, and … (well, you get the idea) – gracefully left DC and stayed quiet for a respectable period of time despite having garnered over 500,000 more votes than George W. Bush in the 2000 presidential election. And, it is worth pointing out, neither Gore nor Clinton nor any other member of their administration made any attempt to turn the Bush administration’s massive intelligence failure resulting in the 9/11 attacks into a partisan issue. (You might recall from distant history that in May of 2001, Bush named a terrorism task force headed by none other than Dick Cheney. According to the 9-11 Commission, the Cheney Task Force, “was just getting underway when the 9/11 attack occurred.” Which is another way of saying that they never met. They were “dithering,” as some might say.)

[Rather than following the example of Cheney between Bush administrations, retiring to a CEO gig at a company at the center of the military/industrial complex – like, say, Haliburton – Gore headed to Silicon Valley and joined the Google team long before their IPO and joined the Apple board when its share price was $7.47 – it closed today a few cents under $200. That is the kind of mojo that produced record budget surpluses.]

The war in Afghanistan (at least the latest iteration of the war that has been going on for over 30 years), which began over eight years ago (98 months), is now the third longest war in US history after Vietnam (116 months) and the Revolutionary War (100 months). And in both of those other wars the insurgents won – not a good omen. World War II, by contrast, only took 45 months. But, wait. I thought we WON the war in Afghanistan back in … 2002? I know because in September of 2002, George W. Bush assured us that, “The Taliban’s ability to brutalize the Afghan people and to harbor and support terrorists has been virtually eliminated.” He took it even further in September of 2004, boasting that the “Taliban no longer is in existence”. No longer in existence. Pretty definitive. No wonder, then, that when Gen. David D. McKiernan, then the top U.S. commander in Kabul, asked for another 30,000 troops, the Bush administration denied them. They chose to … dither. For eight years. While pursuing a trillion dollar war of choice in Iraq.

The Senate Foreign Relations Committee released a report today that said what we already knew: Osama bin Laden was "within the grasp" of US forces in Afghanistan in late 2001 but escaped because the military’s call for reinforcements was denied by the Bush administration:

"The failure to finish the job represents a lost opportunity that forever altered the course of the conflict in Afghanistan and the future of international terrorism, leaving the American people more vulnerable to terrorism, laying the foundation for today's protracted Afghan insurgency and inflaming the internal strife now endangering Pakistan."

Not that Cheney needs anything of real substance to launch a partisan attack on President Obama. He even took it upon himself to attack President Obama for showing too much deference to the Emperor of Japan, calling the president’s bow to the 75-year old man, “a sign of weakness” and “fundamentally harmful” to the US. Does that mean Japan now goes on Cheney’s list of further wars after Iran? Because everyone knows that the proper response of a US president to a Japanese leader is to throw up on him.

(Joe Klein had a good comment in TIME: “Was his deep bow indicative of anything other than his physical fitness? (My midsection, sadly, prevents the appearance of obsequiousness in such circumstances.)”)

Contrast President Obama’s diplomatic gesture with the sobriety and dignity Cheney showed when seated among heads of state and other dignitaries, including French President Jacques Chirac and Russian President Vladimir Putin, at the 60th anniversary of the liberation of Auschwitz.


So now President Obama is left to deal with the tragic mess in Afghanistan – on top of the worst economy in 70 years and that other war that Cheney was so eager to start. There are no good options in Afghanistan. For better or worse (worse, I fear), President Obama has already more than doubled the number of US troops in that country. He is to be commended for taking his time to challenge the options he was being given and to determine a strategy going forward before further escalating the US commitment in that country. I don’t like what I have been reading about what he will be announcing tomorrow evening. I would prefer we get out as soon as practical (more on that in due course). I REALLY don’t like the idea of further escalation in that graveyard of empires. But I will hear out President Obama with an open mind tomorrow evening knowing that he has been struggling with the difficult hand he has been dealt and that he has given genuine thought to the challenges we face there.

Rather than just cringe before the macho swagger of Republican critics like Dick Cheney who don’t have the basic decency to support their successors who are left to struggle with the unprecedented combination of catastrophes they left behind.

deficits vs. unemployment

Let’s take a little test here to see if you have what it takes to be a political pundit. Look at the following two charts, each of which puts a recent economic metric into historical perspective, and tell me which one appears to indicate an alarming crisis.

The first chart is the yield on the 30-year Treasury bond:



[Note: The 30-year Treasury bond was discontinued for 4½ years – from 10/01 to 2/06 – due to the record budget surpluses bequeathed by the Clinton administration and the Bush administration’s subsequent desire to avoid dealing with the long-term consequences of its return to record budget deficits. Here is the corresponding chart for the yield on the 10-year Treasury.]

As you can see from this chart, the yield on the 30-year Treasury bond dropped steadily from the early/mid-‘80’s until the early part of this decade and has held pretty steady since (with the exception of a big dip during last year’s financial crisis as money sought a safe haven in Treasuries). As I write this, the yield is 4.24% (3.28% for the 10-year Treasury), close to the lowest it has been in 50 years with the exception of that dip last year. (By contrast, it was 8.9% when Ronald Reagan left office.) Basically, the US government is enjoying just about the easiest time it has had financing its debt in generations.

Now for the second chart: The rate of job loss during the current Great Recession compared with the rate of loss in all previous post-WWII recessions:


The unemployment rate, at 10.2%, is the highest it has been since the Great Depression. By the broader measure that includes the underemployed and those who have dropped out of the labor force, it is 17.5%. And we continue to shed jobs. (Check out this fascinating time-lapse map showing the increase in unemployment by county by month since the Great Recession began two years ago.)

There you have it, aspiring pundits. Can you guess which is the alarming crisis: a/ the ability of the US government to finance its debt, or, b/ unemployment?

If you guessed, “a/ the ability of the US government to finance its debt,” congratulations! You, too, could be a political pundit for the New York Times, Wall Street Journal or any number of other publications or networks.

You would expect an op-ed in the Wall Street Journal from the chief economist for John McCain’s presidential campaign, Douglas Holtz-Eakin, to hype the deficit threat. But earlier this week, the New York Times published a front-page piece by Ed Andrews (probably that paper’s worst business writer), on the subject (“Wave of Debt Payments Facing U.S. Government”). It quotes legendary Pimco bond fund manager, Bill Gross, but fails to note that Gross has increased his fund’s holdings of US government-related debt from 48% last September to 63% now – the highest portion he has held in US government debt in five years and not exactly the position the world’s greatest bond fund manager would be taking if he expected interest rates on that debt to explode (which would cause the value of his holdings to plummet).

Currently, the US government’s net interest expense as a percentage of GDP is the lowest it has been in 30 years. But Andrews notes that it is projected to increase dramatically over the next ten years – to roughly the level it was when Bill Clinton took office in 1992. That’s certainly undesirable. But as front-page crises go, it doesn’t compare to the immediate problem of unemployment.

And it doesn’t remotely suggest anything like the looming prospect of a US government default on its obligations or a return to hyper-inflation as some of the more alarmist commentary suggests could happen. Take, for instance, a recent op-ed by Robert Samuelson in the Washington Post (“Could America Go Broke? ”), which included bits like this:

“Deprived of international or domestic credit, defaulting countries in the past have suffered deep economic downturns, hyperinflation, or both. The odds may be against a wealthy society tempting that fate, but even the remote possibility underlines the precariousness and the novelty of the present situation. The arguments over whether we need more ’stimulus’ (and debt) obscure the larger reality that past debt increasingly constricts governments’ economic maneuvering room.”

Samuelson cites Japan as an example of government debt out of control, which actually disproves his alarmist rhetoric – Japan’s government debt has increased to over 200% of its GDP (about three times the US level) while the interest rate on its 10 year bonds has actually decreased from over 7% in 1990 to 2.1% now.

Let’s compare the prospect of continuing high unemployment with the risk of a big increase in inflation. Paul Krugman points to the Philadelphia Fed survey of professional economic forecasters. Inflation is forecast to remain comfortably below the Fed’s 2% target while unemployment persists at stubbornly high rates – over 8% well into 2012. The current spread between 10-year Treasuries and the 10-year TIPS (Treasury inflation-protected securities) indicate that the market is forecasting 10-year inflation averaging 1.5%.

That's why it is troubling to read reports like this:

The Obama administration, mindful of public anxiety over the government's mushrooming debt, is shifting emphasis from big-spending policies to deficit reduction. Domestic agencies have been told to brace for a spending freeze or cuts of up to 5 percent as part of a midterm election-year push to rein in record budget shortfalls.

With unemployment still rising and nascent economic growth anemic, premature focus on near-term deficit reduction risks a repetition of FDR’s spending cuts and tax increases in 1937 that plunged the economy back into a steep decline before the country had fully recovered from the Great Depression.

While unemployment should be the priority in the short term, deficit reduction should be a long-term priority. Toward that end, it is worth revisiting how we got into our current mess and what that suggests for how we get out of it.

As I have pointed out before, the real explosion in the federal debt began under Ronald Reagan who cut taxes while increasing government spending to levels previously exceeded only during the four years of World War II. (After six years with spending over 22% of GDP and two years over 23%, Reagan left office with federal spending running at over 21%. By contrast, President Clinton left office with spending at 18.5% of GDP.) The result was that the national debt increased more than 400% from less than a trillion when Reagan took office to over $4 trillion when President Clinton and a Democratic Congress finally increased taxes again in 1993. The deficits during those years are even more dramatic when you state them in current dollars. In 2009 dollars (using the OMB year-end debt figures and the St. Louis Fed GDP deflator), Reagan and the first Bush ran up cumulative deficits of roughly $5 trillion. (This despite favorable demographics that resulted in entitlement spending to decline temporarily from 11.9% of GDP in 1983 to 10.1% in 1988. Last year, by contrast, the figure was 12.5%.)

The turning point in this deficit story was the 1993 Budget Act, about which I have written before, which was designed to eliminate the record budget deficits inherited by President Clinton. It included a large overall increase in taxes and extended the pay-as-you-go budget rules. It passed without a single Republican vote in Congress by the closest possible margin – by one vote in the House and with Vice President Gore breaking a 50-50 tie in the Senate. Republicans predicted that the economy would collapse as a result. Instead, it produced record budget surpluses and the strongest economy in a generation. But the Democrats paid a price, as they were crushed in the 1994 elections and lost control of Congress. Unfortunately, the lesson that was learned in Congress was that fiscal responsibility doesn’t pay politically.

George W. Bush inherited record budget surpluses but quickly turned that around. Together with a Republican Congress, he enacted over $2 trillion in tax cuts, increased the military budget even before counting the trillion dollar cost of two wars, and passed the largest increase in entitlement spending (Medicare Part D) since the creation of Medicare in the 1960’s with a ten-year cost of almost a trillion dollars. At least when LBJ created Medicare he also enacted taxes to pay for it. Bush and Congressional Republicans never even discussed any means of paying for their budget-busting initiatives. To pull that off, they had to let the pay-as-you-go budget rules lapse. That left them free to increase spending and cut taxes at will – which they did. The result, predictably, was an increase of over $5 trillion in the federal debt, almost doubling it in just eight years. Together with the quadrupling of debt under Reagan and Bush’s father, that accounted for almost 80% of all debt that had been accumulated in the history of the US government up to that point.

But the trajectory was even worse. Economists have a concept known as “fiscal space.” For example, if you are running a $500 billion surplus during an unsustainable bubble, when the crash comes the budget can take a $1 trillion hit (as a result of a decline in tax revenue and an increase in spending on "automatic stabilizers" like unemployment insurance) and still have a manageable deficit of $500 billion. You have some "fiscal space." But if you are already running a $500 billion deficit during boom times (as Bush did), then when the crash comes, you have a $1.5 trillion deficit. NOT a good thing. That is basically what happened during the fiscal year that ended last September.

As former Reagan official and Wall Street Journal op-ed writer Bruce Bartlett noted recently:

According to the Congressional Budget Office's January 2009 estimate for fiscal year 2009, outlays were projected to be $3,543 billion and revenues were projected to be $2,357 billion, leaving a deficit of $1,186 billion. Keep in mind that these estimates were made before Obama took office, based on existing law and policy, and did not take into account any actions that Obama might implement.

Therefore … a deficit of $1.2 trillion was baked in the cake the day Obama took office. …

Now let's fast forward to the end of fiscal year 2009, which ended on September 30. According to CBO, it ended with spending at $3,515 billion and revenues of $2,106 billion for a deficit of $1,409 billion.

To recap, the deficit came in $223 billion higher than projected, but spending was
$28 billion and revenues were $251 billion less than expected. Thus we can conclude that more than 100 percent of the increase in the deficit since January is accounted for by lower revenues. Not one penny is due to higher spending.

It should be further noted that revenues are lower to a large extent because of tax cuts included in the February stimulus. According to the Joint Committee on axation, these tax cuts reduced revenues in FY2009 by $98 billion over what would otherwise have been the case. This is important because the Republican position has
consistently been that tax cuts and only tax cuts are an appropriate response to
the economic crisis.

According to the Council of Economic Advisers, as of August the actual budgetary effect of the February stimulus was to reduce revenues by $62.6 billion and raise spending by $88.8 billion. Of the spending, the vast bulk went to transfers such as extended unemployment benefits and aid to state and local governments, which may have prevented cuts in spending that would otherwise have occurred but probably didn't do anything to increase spending. Only $16.5 billion in stimulus funds went to investment outlays for things such as public works. This is a trivial amount of money in a $14 trillion economy.

[I highly recommend these other two pieces that Bartlett wrote in Forbes on budget matters. Also, last June, David Leonhardt -- one of the New York Times' best writers on economic subjects -- had a good in-depth piece on how Clinton's record budget surpluses turned into our current trillion dollar deficits. Very little of it was the result of spending increases after President Obama took office.]

Last March, the Obama administration forecast a $1.8 trillion deficit for the fiscal year that began almost four months before they took office. The actual figure came in at $1.4 trillion, largely because the financial sector recovered faster than expected which reduced the taxpayer cost of last fall’s bailout.

As a result of the Bush tax cuts and the Great Recession, by fiscal 2009, federal revenue as a percentage of GDP had fallen to 14.9%. That is a staggering figure. That is the lowest it has been since 1951 – 58 years ago. By contrast, it was over 20% when President Clinton left office. The simple fact is that we will never get anywhere close to a balanced budget with today’s tax structure. We barely did it with the much higher tax structure President Clinton left behind (and with 2000 spending at 18.4% of GDP – it’s lowest level since 1961).

Which brings us to the subject of how to reduce the deficit.

Getting back to the earlier discussion, short term the deficit should be larger. We have, as Paul Krugman phrased it, “Fifty Little Hoovers” as tax revenue has fallen off a cliff and state (and local) governments are drastically slashing budgets and raising taxes. Raising taxes and cutting spending during the worst economic downturn since the Great Depression is a REALLY bad idea. For no other reason, 70% of our economy is consumer spending and it isn't going to revive as long as incomes are plummeting and unemployment is increasing. But states have no choice -- their constitutions required balanced budgets. Only the federal government can make up that gap without making the problem worse.

As this graph shows, state governments face almost $500 billion in budget shortfalls over the next three years. Local governments are expected to add another $100 billion or so to that total. That is nearly $600 billion of "anti-stimulus" in the pipeline. So at least to this extent, federal stimulus just offsets the contractionary actions of the “Fifty Little Hoovers.”

But when it does come time to close the federal budget gap again, there are really only three big targets:

1/ Taxes,
2/ Health care spending; and
3/ Military spending.

Everything else is noise. TOTAL non-military discretionary spending -- everything from the entire judicial branch, the entire legislative branch, the Department of Homeland Security, immigration and naturalization, our nationals parks, education, public health, highways, air traffic control, the FBI, water projects, prisons, NASA, state aid, etc. -- is running at around $600 billion a year, less than half the federal deficit and less than military spending alone (which should top $700 billion this year -- even before any escalation in Afghanistan). Realistically, you can’t cut domestic discretionary spending enough to make a serious dent in the deficit.


Taxes: Let's start with taxes because that was the source of thegreatest erosion in the federal budget under both Reagan and Bush and it was the primary means by which the budget was subsequently brought into balance under President Clinton. Almost every Republican member of Congress (172 of 177 Republicans in the House and 33 of 40 Republican Senators) has signed Grover Norquist’s pledge to never raise taxes by ANY amount at ANY time for ANY reason. So right there you can count out any Republican role in any serious deficit-reduction effort. But it gets worse. Not only will no Republican vote to raise taxes, they continue to urge further tax CUTS in the face of trillion dollar deficts and revenue at its lowest level since 1951. Earlier this year, for example, 35 Republican Senators voted for an alternative to the stimulus plan that would permanently cut taxes at a ten-year cost of $3 trillion. This was not a temporary stimulus measure, but a further permanent reduction in revenue that would add $3 trillion to the deficit over the next 10 years. .

This leaves Democrats with the choice of doing nothing on taxes or doing what they did in 1993 -- raise taxes with no Republican support and get crushed in the next election. President Obama, as he does on most issues, has attempted to strike a middle ground, pledging no tax increases on those earning less than $250,000. Unfortunately, that may end up being the worst of both worlds -- an inadquate response to the long-term deficit while still giving Republicans the "tax increase" cudgel.

Health Care Spending: Long-term, health care spending is the biggest problem in the federal budget. Medicare, Medicaid and the State Childrens Health Insurance Program account for about 20% of the federal budget. That doesn't count other federal health care spending on veterans, Indians, military personnel and the health insurance of other federal employees and retirees. Nor does it count the revenue lost from the deductibility of employer-provided health insurance and health savings accounts. Add it all up and it dwarfs any other element of the budget. And the growth in health care costs greatly outstrips inflation. This isn't a government spending problem per se. It is a health care cost problem that affects our entire economy. It is bankrupting businesses and individuals and making our economy less competitive in world markets.

President Obama and Congressional Democrats, to their credit, have taken on this challenge as their top legislative priority after the stimulus. But, as with taxes, they have to do it with no Republican help. Even when the Senate Finance Committee stripped out a public health insurance option and an employer mandate -- the elements that Republicans most object to (and which would actually reduce the cost to taxpayers) -- they were able to secure only one lone Republican vote.

Ron Brownstein had a good piece at The Atlantic site this week where he details the cost-saving measures in the Senate health care bill. It is worth reading the whole thing. He notes:

[Jonathan] Gruber is a leading health economist at the Massachusetts Institute of Technology who is consulted by politicians in both parties. He was one of almost two dozen top economists who sent President Obama a letter earlier this month insisting that reform won't succeed unless it "bends the curve" in the long-term growth of health care costs. And, on that front, Gruber likes what he sees in the Reid proposal. Actually he likes it a lot.

"I'm sort of a known skeptic on this stuff," Gruber told me. "My summary is it's really hard to figure out how to bend the cost curve, but I can't think of a thing to try that they didn't try. They really make the best effort anyone has ever made. Everything is in here....I can't think of anything I'd do that they are not doing in the bill. You couldn't have done better than they are doing."

Gruber may be especially effusive. But the Senate blueprint ... also is winning praise from other leading health reformers like Mark McClellan, the former director of the Center for Medicare and Medicaid Services under George W. Bush and Len Nichols, health policy director at the centrist New America Foundation.

The Republican response to these efforts has been to manufacture lies about "death panels" that will "kill granny". Apparently they were so pleased with the traction they got scaring seniors that they have now made their opposition to efforts to control the long-term growth of Medicare spending the official party position. In August, Republican National Committee chairman, Michael Steele wrote a Washington Post op-ed where he proposed a "Seniors' Health Care Bill of Right":

The Republican Party's contract with seniors includes tenets that Americans, regardless of political party, should support. First, we need to protect Medicare and not cut it in the name of "health-insurance reform."

It was reported a couple of days ago that Republican leaders are circulating a list of ten policy positions that any Republican candidate would need to commit to in order to secure the support of the party (a so-called "purity pledge"). Among the required positions is "opposing health care rationing".

So now the Republican Party has become the defender of unconstrained growth in Medicare spending.

Military Spending: Even though we now spend more on the military than the rest of the world combined -- over $700 billion in the current year -- for Republicans, it is never enough. The ten-year cost of the Democratic health care bill, which among other things would extend health insurance coverage to 30 million Americans who currently lack it, is not much more than what we spend on the military in just one year. Defense Secretary Gates and President Obama have begun efforts to trim the most blatantly wasteful military spending -- but, for the most part, without Republican help. For example, earlier this year, when Congress voted on cutting off further funding for the $65 billion F-22 fighter program, a majority of Republicans voted against those cuts despite the fact that the Secretary of Defense (originally appointed by President Bush) and the Joint Chiefs of Staff want to terminate the program after 187 aircraft (the aircraft has never been used in either Iraq or Afghanistan). Republicans are also urging President Obama to send another 40,000 troops to Afghanistan (on top of the 30,000 additional troops he has sent since taking office). That would add $40 billion a year to what we are already spending on that war. Republicans believe in "supporting the troops" -- as long as the cost can be added to our national debt. Forget any tax increase to pay for it.

Where does that leave us? After leaving behind trillion dollar deficits, the worst economy since the Great Depression, and two wars going badly, Republicans are now complaining about the deficit. But they don't want to raise taxes. Or cut the growth in Medicare spending. Or cut military spending. In other words, they don't really want to do anything about the deficit except use it as a partisan weapon.

As Dick Cheney famously said as the Bush administration was squandering our budget surpluses: “Reagan proved deficits don’t matter”. IOKIRDI (“It’s OK if Reagan did it”).

Should the Democrats tackle deficit reduction even without Republican support? As the only party serious about governance, they don't have much choice. But to shift the focus to deficit reduction now, while unemployment is still rising, would be economically unwise and politically suicidal. As it is, Democrats have reinstated the pay-as-you-go budget rules that Republicans abandoned and are working to ensure that new initiatives, like health care reform, don't add to the deficit. And much of the deficit will turn around as the economy eventually recovers. But unemployment is likely to still be over 10% on election day next year. If Democrats don't do a lot more to try to bring that figure down, the economy will still be in horrible shape and voters won't care how much progress Democrats have made on long-term deficit reduction. Earning the praise of political pundits who see deficits as the bigger problem will be of little solace to Democratic members of Congress when they have joined the ranks of the unemployed.