The Sovereign Mind

Free thought on politics and real life

Posts Tagged ‘government spending

How to Fix the Health Care Fix

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Now that health care reform is passed and signed into law, Republicans say they will try to repeal the law when they are back in power. Repealing isn’t going to happen, since it would take a super-majority that the Republicans won’t have for a long time. By that time the law will have become settled along side Medicare and Social Security. But, it might be feasible to adjust the reform, since even some moderate Democrats might come on board for that.

So, how would I fix the health care fix?

The way I see it, the main problem with the reform is its cost. If we could provide good insurance to all Americans without breaking the bank, I’d be all for it. The CBO scored the bill as a deficit reducer, but it also raised a number of questions about how the funds are raised, and whether the proposed savings could be realized. I won’t go into the details of that discussion since the argument has been laid out elsewhere.

We should keep the measures that seek to eliminate waste in Medicare. However, considering that Medicare is underfunded, the money saved from those measures should be used to extend Medicare’s solvency, not fund a new entitlement program. That blows a huge hole in the funding mechanism used to pay for this reform, so we’d have to scale back the bill’s spending. The bulk of the spending in the bill is for subsidies for people to buy insurance. Instead of subsidizing comprehensive health care insurance, we could pay only for catastrophic plans. For the poor who don’t qualify for Medicaid, the government would pay 100% of a catastrophic plan, which would include coverage for people with chronic illnesses. The subsidy would be on a sliding scale, with those making 400% of the poverty line not getting any subsidy. Of course, if we are only subsidizing catastrophic plans, we cannot mandate that everyone buy a comprehensive plan, so the mandate to buy insurance would have to be scaled back as well. Individuals would only be required to purchase a catastrophic plan.

Of course there are some objections that can be raised to my plan, but before I get to those, let’s look at some of the supporting points:

First, this plan maintains several of the positive aspects of the current reform, but with a lower price tag. Having everyone covered with a catastrophic plan would ensure that those who get diagnosed with serious illnesses do not get forced into bankruptcy due to their health status. We would not be paying for people to show up in the emergency room to get uncompensated care. People with chronic illnesses would not be denied supplemental insurance since care related to their condition would already be covered by their catastrophic plan.

Second, giving people the choice to buy supplemental insurance, or pay for preventive care themselves, will make them more cost conscious, thus reducing the cost of health care and reducing the demand for unproven treatment and technology, which the CBO says is a major driver of health care costs. To enhance this effect, I’d also support ending the tax exempt status of employer-based health benefits, but that can be a separate discussion.

Lastly, some people choose not to go to doctors except for in emergencies. Your or I might not agree with that lifestyle, but why should those people be forced to buy something that they will choose never to use?

Now, on to the obvious objection: subsidizing and mandating only catastrophic plans will leave some people without coverage for routine, preventive care. However, more prevention (at least the kind that you pay for) doesn’t actually lead to lower health care costs. Sure, treating someone with a serious illness is expensive, but so is testing millions of people who won’t ever get the illness. Of course, cost aside, most of us want to do what we can to avoid serious illness, but shouldn’t we be free to make that cost-benefit analysis for ourselves? However, it is true that there will be some lower-income Americans who want supplemental insurance to cover routine care, but can’t afford it. I’d love to be able to give them that coverage, but we simply can’t afford it. We support the poor in many ways through many welfare programs. In fact, we help the poor so much that the effective marginal tax rate can actually exceed 100%. We can’t afford yet another welfare program.

I doubt I’ve convinced everyone, but I hope I’ve at least helped the discussion get started. Many on the left will object to stripping out the generous subsidies, and many on the right will object to any proposition that doesn’t have the word “repeal” in it. So, it would be a tough sell, but hopefully most of us can agree that any “fix” to this health care fix has to be focussed on making it more fiscally sustainable.

Written by Mike

March 28, 2010 at 9:56 pm

Cash For Clunkers: Simply Unsupportable

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For those who don’t know, the government will give you $4,500 to trade in your old clunker and buy a brand new car. Sounds like a good deal, but as far as public policy is concerned, the program is simply unsupportable.

There are two reasons that proponents give to support the program:

1) The program supposedly helps the environment by getting gas guzzlers off the road and replacing them with newer, more efficient cars. It is debatable whether the program has any positive impact on the environment at all. And even if it does, the minimal impact begs the question: what else could we have spent that money on that would have helped the environment much more? It’s a little like going out to an expensive restaurant, and then justifying the expense by saying, “Well, we had to eat, right?”

2) The program is supposed to help stimulate the economy by getting people to buy new cars. Even those who see through the environmental argument often agree that it has succeeded in that purpose. And I don’t disagree, but let’s look at the issue more closely.

First, let’s start with the basics: Every dollar that the government spends is a dollar out of the pockets of a tax-payer. That should be obvious, but it seems that we sometimes forget this basic fact, maybe because we don’t see our tax bill increase at the passage of these sorts of programs. But it is true, whether the money comes from tax-dollars directly, or is borrowed (and therefore will be paid by future generations of tax-payers), or is printed (which we pay for because of the inherent devaluation of existing currency). There is no escaping the fact that there is no such thing as free money.

With this is mind, can this program be considered as anything more than taking money away from people who don’t want to buy a new car, and giving it to someone who does? The government is essentially telling you, “If you aren’t going to buy a new car, we’ll take your money and give it to someone who will.” By doing this, the government subverts the dichotomy that, during a recession, it is in each individual’s best interest to save money, but it is in the economy’s interest that we spend. I don’t blame the government for attempting to find ways to stimulate the economy during a recession, but giving people the choice of spending money or losing it is beyond over-reach.

So we must ask ourself this question: is it more important to (slightly and artificially) stimulate a sector of the economy for a very short period of time, or is it more important to respect our freedom to save or spend our money as we please? Maybe some in congress may disagree, but it seems to me that the answer to that question is obvious.

Written by Mike

August 9, 2009 at 9:04 pm

What’s Wrong with the Recovery and Reinvestment Act?

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One word: “and”

To understand my point, imagine that you wake up one morning to the sound of rushing water. You find that your basement is quickly filling with water, coming from somewhere that you can’t identify. In a panic you call the number for the first plumber you can find in the phone book, and he agrees to come immediately.

After the plumber inspects the situation, he said, “Well, this is serious, but I think we can fix it and find someone to clean everything up.”

“How much is that going to cost me?” you ask nervously.

“Well, I’d say around 900 billion dollars,” he responds.

“What?! For a flooded basement?”

“Yes, and a few other things that need to be taken care of.”

You watch as a roofer truck drives up, followed by a delivery truck for the local appliance store, followed by a few other trucks, and lastly comes a sodding company.

“What are they doing here?” You ask.

“Well, I noticed that your shingles are looking pretty old. I wouldn’t be surprised if you have some leaks up there, so we’ll have to redo the whole thing. And your furnace is not Energy Star compliant, so we’ll be replacing that. And you must be loosing a lot of heat out of those old windows. The new ones you’ll be getting will save you a lot of money on your utility bill, along with the new lighting we’ll be putting in. And, your lawn could use some help. It’s very unsightly. The sodding company will take care of that.”

“But I don’t want any of that!” You respond angrily, “I just want the water to stop and my basement cleaned up!”

“Sorry pal, this is a package deal. Do you want your basement fixed or not? We don’t have much time.”

I probably don’t have to explain what I mean by that analogy, but I will just to belabor the point. As the title of the stimulus bill states, there are two purposes to the bill:

  1. Stimulate the economy to help us recover from the recession we are in
  2. Make other investments designed to help us in the long term

Stimulus must be fast. We have to inject enough money to create jobs and jump start the economy. The main measure of success is how many jobs are created, and how quickly.

On the other hand, investment implies a long term outlook. Just as you would with any of your personal investment, smart investors will take the time to do their homework. They want to be sure the investment will pay off in the long term, and that they will be getting the most bang for the buck. Most of the time, the short term gain from investing is small, so there is usually not a sense of urgency.

So how can you do these two things at the same time? They are counteracting. The result is a bill that is too watered down to stimulate, and too hasty to be a good investment for the long term.

The logical conclusion is to separate the two. Let’s pass the Recovery/Stimulus portion of the bill now, and then hash out the Reinvestment portion when we have time to debate and consider our options more carefully.

So what should we put off until later? I’ve analyzed the information from the Congressional Budget Office, a non-partisan office intended to give law-makers feedback on the budget consequences of bills. Their analysis is that only 65% of the money in the bill will be spent in the next two years. Even with that broad definition of stimulus, there is a lot in the bill that is not stimulus, but is being pushed into this bill as an attempt to get it passed quickly, without much debate. Some of these measures might be worthwhile, just as the new roof might be worthwhile for the poor guy with a leaky basement. But we should make sure these investments are the best they can be, and that means a separate bill that does not have the urgency attached.

So what can we get rid of from this bill? I looked at the CBO report, and specifically targeted any portion of the bill which does not cause at least 30% of so to be spent in the next two years. After removing those parts, we can decrease the cost of the bill by 112 billion dollars, but only decrease the amount of spending in the next two years by 20 billion. That would significantly increase the percentage of the bill that is actually stimulus. Here are the pieces I’ve identified:

Spending Item Total Amount (in millions) Amount spent in next 2 years
Distance Learning, Telemedicine, and Broadband Program 2825 467
Wireless and Broadband Deployment Grants 2,825 250
Energy Efficiency and Renewable Energy 18,500 2,635
Other Energy Programs 17,350 3,388
Federal Buildings Fund 7,500 1,300
Health Information Technology 20,231 521
Innovative Technology Loan Guarantee Program 8,000 1,680
Clean Water and Drinking Water 8,116 2,333
Other Transportation 16,100 4,300
Housing Assistance 11,129 3,217
Total 112,576 20,091

Some might argue that in a bill this size, why make such a fuss over a mere 112 billion? If your sympathetic to that argument, please read the question again a little slower. However, my number is only obtained by assuming we can either leave in or remove entire sections as they exist now. We could save even more by looking at each section individually and seeing what sub-parts we could leave for later, and which parts are truly stimulus. Lastly, we can look at what parts of this bill will be spent soon, but not on creating jobs. Considering that as the bill exists currently, each job will cost us over $200,000 to create each job, there ought to be some of that in there as well. That number has been attacked as “Limbaugh math”, but I have yet to hear the argument for why we should be OK with spending so much money on each job.

David Axelrod, advisor to Obama, responded to that number like this on This Week with George Stephanopoulos:

He’s missing the fundamental point. We’re not just spending money to create jobs; we’re investing money to strengthen this economy. We’re investing in areas like energy independence. We’re investing in creating the classrooms of the 21st century for our kids to give us the kind of education system we need. We’re investing in computerizing the health-care records of this country so that we can reduce costs and improve care. These things will pay long-term dividends to this country, and we’ve been very careful about that.”

Agreed, but if we want to be careful about that long-term investment, why try to push it through on the back of short-term stimulus?

Answer: because they know that if they don’t milk the current crisis for all that it’s worth, they might have a tough time getting these programs through later, when everyone’s thinking more clearly.

But there’s still hope. The bill has to get passed the Senate, and I hope is will be passed… without the “and”.

Written by Mike

February 2, 2009 at 7:00 am

Obama’s First Broken Promise?

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President-elect Barack Obama talked said today that fixing the economy is our highest priority. Jared Bernstein, Obama’s economic adviser, describes how he would use government spending to do it:

“Government is the most reliable source of short-term growth, the only part of GDP pulling out its wallet these days. There is a time for budget austerity – this ain’t it.”

I didn’t hear much from Obama or Bernstein today about what programs would be cut to pay for this spending, or how much taxes would need to be raised. I can only assume that they are talking about increasing deficit spending here. There are valid arguments to be made for increasing spending during an economic crisis, even it if means I higher deficit. So I’m not so much against this way of thinking.

However, we read this from Obama’s campaign website:

Obama and Biden believe that a critical step in restoring fiscal discipline is enforcing pay-as-you-go (PAYGO) budgeting rules which require new spending commitments or tax changes to be paid for by cuts to other programs or new revenue.

I can hear the spin now: “This is an unusual circumstance that calls for bending the rules” or “Obama was stating his guideline, but not making a firm promise.”

But the bottom line is that Obama said he would restore fiscal responsibility, and in fact railed against the Bush administration for increasing the national debt, and now it appears Obama might do the same. Obama could argue his deficit spending is justifiable, but then so could Bush, considering what he had to deal with.

However, since this was just a statement by Obama’s economic adviser, and not by Obama himself, I’m prepared to withhold my judgment for now. But it appears as though he is preparing to break one of the campaign promises I was actually hoping he would keep, and before the inauguration at that.

H/T to Donklephant.

Written by Mike

November 7, 2008 at 11:32 pm