Holding the Debt Ceiling Hostage

John Boehner
Speaker Boehner plans to hold the ceiling hostage for something "really really big"

With the fight over a spending bill settled (for now), another fight is brewing in Washington over raising the debt ceiling. President Obama, who is advocating to raise the level at which the U.S. government is legally permitted to borrow, so as not to cause a default on payments, has said he wants to see a “clean” bill on the matter—one without attachments.

On Saturday night House Speaker John Boehner declared, “The president says, ‘I want you to send me a clean bill.’ Guess what, Mr. President. Not a chance you’re going to get a clean bill.”  Boehner argued that “there’s no plan to deal with the debt we’re facing,” and that Republicans would not vote to increase the limit unless Democrats conceded something “really, really big.”

What makes this so infuriating is the debt ceiling is not a partisan issue.  If the GOP had wrangled their $100 billion in spending cuts last week, or even if Paul Ryan’s budget had been put in place last year, we’d still be on a course to exceed the debt ceiling.  It’s not like the GOP had a plan to avoid it, but the Democrats forced us on a reckless course instead.

There is no remotely feasible “really really big” concession that would cause us to not hit the debt ceiling. None. Further, both sides agree that defaulting on our debt would have catastrophic long-term economic consequences.  There will likely be a non-trivial downside to even flirting with letting us crash into the ceiling.

That this is even an issue is wholly irresponsible.  That Boehner will use his “but I can’t control my crazy-ass Tea Party folks and they’re just nuts enough to pull the trigger” strategy on this to gain likely concessions on lowering regulations, restricting abortion, and lowering taxes is outright extortion.

On the one hand, it’s tempting to hope that this time the Democrats stand firm and call their bluff.  However, there’s a real danger they aren’t bluffing.  Something many voters should consider the next time they opt to send some whacko hack to Washington just to shake things up.   You may get more than you bargained for.


It’s the Revenue, Stupid

As we rapidly approach another potential government shutdown due to the Congressional budget impasse, it’s a good time to examine to root of the fiscal situation in which we find ourselves.  Republicans did well at the polls in 2010 by framing the problem as one of out of control government spending.  Democrats have basically conceded that point, and the current debate rages over exactly how many billions of dollars should be cut and from where.

Looking for ways to contain spending is always smart, whether you’re a government, a corporation, a small business, or just a household.  Left unscrutinized, expenses tend to accumulate over time, and the larger the organization, the larger the accumulation of programs and services that no longer provide a valuable service, or do so inefficiently.

Spending as a % of GDPHowever, the current debate overlooks the larger, and frankly glaring, reality that we are not in the midst of a period of out of control spending.  We are in a period of unprecedented loss of income.

The chart at the right shows spending relative to GDP. Looking at these numbers relative to GDP is the only sensible approach as it takes into account the dollars relative to the size and strength of the country’s economy.  What’s clear from the chart is that we are on the line that extends back for a century.  The two big blips are the World Wars, but otherwise, spending growth is relatively constant.  It’s also interesting to note that one of the only extended declines in spending was during the Clinton administration in the 1990s.  We’ve since squandered that, which does lend credence to the claim that spending has increased dramatically in recent years.  But it would still be difficult to characterize this as run away spending.  Especially considering we are already seeing a downturn in spending because of the expiration of most of the stimulus programs.

Still, it’s also important to recognize the slope of this spending line is ultimately unsustainable.  Eventually, this line will cross 100% and keep on going.  And realistically, we need to flatten it out long before then.  So yes, make some tough priority choices, strive for efficiency, and reduce waste because ultimately we do need to flatten this line out.

Revenue as a % of GDPOn the other side of the equation though, look at the revenue graph.  There has been a precipitous drop in revenue over the last decade.  As a percent of GDP, revenues have not been this low in 50 years.

In part, this loss of income is attributable to the economic downturn, but it is attributable in larger part to the many tax cuts passed.  So while we may argue that some of our deficits are caused by economic realities, a non-trivial chunk are caused by our choices.  We are choosing to be broke, or at least choosing to be as broke as we are.

Think of this in the framework of a typical 2-income household.  As a couple, you decide you need to get your spending under control as its year-on-year growth is not sustainable, but you just can’t bring yourselves to contain your spendthrift habits.  So you decide to have your spouse quit their job.   For a while you continue to spend at your old rate anyway because your credit cards have not maxed out.  And it is only when they do that you force yourselves to cut back.  Yet now you have to cut back to one-income levels, and you are also saddled with interest payments on all the debt your racked up.

Mission accomplished?  In what reality?  We need to get spending under control.  We have a revenue problem.

Of Marshmallows and the Economy

Two MarshmallowsThere are two kinds of people, those who eat one marshmallow, and those who eat two. So says Scott Sumner, a libertarian economist, who relates the results of Walter Mischel’s psychological experiment on 4-year olds and chewy goodness to current attitudes on government entitlement programs.

Forty years ago Mischel, an American psychologist, conducted a famous experiment. He left a series of four-year-olds alone in a room with a marshmallow on the table. He told them that they could eat the marshmallow at once, or wait until he came back and get two marshmallows. Some eat the marshmallow immediately. Others try all kinds of strategies to leave the tempting treat alone.

Nothing surprising there. The astonishing part was the way that the four-year-olds’ ability to defer gratification was reflected over time in their lives. Those who waited longest scored higher in academic tests at school, were much less likely to drop out of university and earned substantially higher incomes than those who gobbled up the sweet straight away. Those who could not wait at all were far more likely, in later life, to have problems with drugs or alcohol.

Sumner goes on to explain that what bothers him is when he sees attempts to redistribute wealth from the two marshmallow eaters to the one marshmallow eaters. Being a two marshmallow guy myself, it’s certainly easy to relate to the frustration of needing to support those who lived in the moment without planning for their futures.  Sumner’s point is that it’s not fair to the two marshmallow crowd to cut their Social Security benefits because they don’t need the income.

Social Security is a good thing in that it forces the one-marshmallowers to prepare for a future they wouldn’t otherwise consider until it was too late.  It puts the burden on them, rather than having them be indigent burdens on society in their twilight years. But the two-marshmallowers who have accumulated some wealth over the decades are equally entitled to enjoy the fruits of their contributions to Social Security.  The program’s current method of allocating benefits based on lifetime earnings preserves equity between the one-marshmallowers and the two-marshmallowers. But noises are being made in Congress for changes such that accumulated wealth at retirement would decide your level of benefits, and this would unfairly punish the plan-ahead crowd.

Sumner then goes on to say, “I don’t trust the Dems—I see them as the party of one marshmallow eaters.”  It is here that I think he runs off the rails a bit.

Democrats certainly have the reputation for backing entitlements and social safety nets that keep the one-marshmallowers from economically melting in the campfire of life. But the Republicans are prone to their own brand of short-sightedness.  If the country were a chess game, the GOP would never play more than one move ahead. From issues as diverse as deregulation, pollution, education, taxes, infrastructure investment, and foreign policy the Republicans are pocketing short term gains with little to no regard for the longer term implications.

While the marshmallow analogy is instructive, it’s not at all clear there is a clean party line to draw between the two groups. If anything, the politicians of both parties are thinking far too much like one-marshmallowers.  Two-marshmallow types are capable of sacrificing now in the interest of a better future.  There are scant few policies proposed that meet that definition—fewer that are not dead-on-arrival once the news media starts spinning them to the public.  As a country, deferred gratification is not our strong suit.

It’s the health care costs, stupid

Health care costs are the elephant in the room (Photo by Lauren Nelson on Flickr)

As Democrats and Republicans continue their budget dance over non-military discretionary spending, the elephant in the room remains the rising cost of health care.  The Congressional Budget Office estimates that over the next 25 years, the percent of GDP spent on Medicare and Medicaid will double.  And these cost increases will not be limited to government programs.  Private and employer based costs will rise at the same rate—costs that will be reflected in higher prices and lower wages. Simply put, if you’re serious about the economy, then you are serious about long term containment of medical costs. Clearly, Congress is not serious about the economy.

According to Kaiser Health News, Republicans mocked proposals to improve the use of Medicare and Medicaid funds. They declared spending money on prevention was just a “slush fund,” and research on innovation was “an oxymoron.”  Further, there was no cause to pay for “so-called effectiveness research.”

Meanwhile, two House Democrats have signed onto a Republican bill to repeal a health reform provision for the Medicare payment board, which fast-tracks cuts to Medicare payments when spending reaches a pre-determined target. The CBO estimated the board would save $28 billion through 2019.

GOP 2012 hopeful Mike Huckabee attacked the Obama stimulus because it included funds for comparative effectiveness research saying, “The stimulus didn’t just waste your money; it planted the seeds from which the poisonous tree of death panels will grow.”

The proposals opposing efforts to reign in escalating health care costs may be partly political opportunism run amok, but likely also reflect a broad ignorance about the state of medicine as currently practiced. A panel of experts convened in 2007 by the prestigious Institute of Medicine estimated that “well below half” of the procedures doctors perform and the decisions they make about surgeries, drugs, and tests have been adequately investigated and shown to be effective. The rest are based on a combination of guesswork, theory, and tradition, with a strong dose of marketing by drug and device companies. (reference—subscription required)

In fact, the reliance of doctors on companies marketing treatments is downright frightening. In many cases, physicians perform surgeries, prescribe drugs, and give patients tests that are not backed by sound evidence because most doctors are not trained to analyze scientific data, says Michael Wilkes, vice dean of education at U.C. Davis. “Most medical students don’t learn how to think critically.”  The reality is that doctors are human. They trust what they are told, especially by their peers. Yet, a 2002 study in the Journal of the American Medical Association (JAMA) found that 87 percent of guideline authors received industry funding and 59 percent were paid by the manufacturer of a drug affected by the guidelines they wrote. Their peers, it seems, are largely bought and paid for by companies trying to sell something.

The holes in medical knowledge can have life-threatening implications, according to an Agency for Healthcare Research and Quality report published in 2001: More than 770,000 Americans are injured or die each year from drug complications, including unexpected side effects, some of which might have been avoided if somebody had conducted the proper research. Meaningless or inaccurate tests can lead to medical interventions that are unnecessary or harmful. And risky surgical techniques can be performed for years before studies are launched to test whether the surgery is actually effective.

Getting health care costs under control requires government sponsored comparative effectiveness research.  This is research aimed at determining what treatments actually work, and educating doctors.  Doctors and hospitals do not have the resources to self-fund this research.  And private companies are incented to sell drugs, devices, and treatments rather than cure patients.

Doctors are smart people. But they are only as good as the information they have available to them. Comparative effectiveness research will allow doctors to make better choices, reduce costs, and have healthier patients.  That’s money well spent. Money that is an investment in not only our health, but our economic future.

Former Senator Chris Dodd breaks promise not to become a lobbyist

Chris Dodd Bobblehead
Chris Dodd's ethics bobble with the breeze (Photo by DonkeyHotey on Flickr)

Recently retired Senator from Connecticut Christopher Dodd said upon leaving office he would not seek to become a corporate lobbyist.   But that was two months ago, and times change.  The former five-term Democratic senator announced yesterday he accepted a job as head of the Motion Picture Association of America.

Technically, Dodd is legally barred from becoming a lobbyist for two years after leaving the Senate. However, like so many retired legislators before him, he skirts that rule by not officially being hired as a lobbyist.  Still, as the head of one of the most high profile lobbying groups in the country, it’s a distinction without a difference.

Interim MPAA CEO and president Bob Pisano told Hillicon Valley last month that his organization’s unwavering focus was on increasing the federal government’s efforts to stop online film piracy. Pisano also talks up the importance of COICA and how happy he is that Homeland Security has been seizing domains in violation of the First Amendment and basic due process, even taking down tens of thousands of perfectly innocent sites.

It remains to be seen how or if Dodd’s new million dollar job will change his previously professed positions on related issues. He was on record as a big supporter of Net Neutrality. However, the MPAA has come out against net neutrality, claiming it would hamper its efforts to “fight piracy.” He was also against ISP data retention, which the MPAA has supported (again as a way to fight piracy). On copyright he was somewhat non-committal, but did talk about how fair use rights are important. A position likely to disappear once he takes the role formerly filled by Jack Valenti—the man who once declared that fair use doesn’t exist.

Dodd co-authored the Wall Street Reform and Consumer Protection Act. This legislation was targeted at improving the accountability and ethics of the banking system.  Too bad Dodd’s own ethics now seem to be bobbling in the breeze.