Conn Carroll's blog

First let me say I'm a huge Nate Silver fan ... athough more for his baseball writings than for his work at 538.com. He's got a sharp mind that is well applied at picking apart polls, but his partisan blinders fail him when it comes to public policy. His latest on health care is a perfect case in point, including his jumping off point which is a complete misreading of George Will's recent column on the public plan. Silver quotes Will:

Assurances that the government plan would play by the rules that private insurers play by are implausible. Government is incapable of behaving like market-disciplined private insurers. Competition from the public option must be unfair because government does not need to make a profit and has enormous pricing and negotiating powers. Besides, unless the point of a government plan is to be cheaper, it is pointless: If the public option conforms to the imperatives that regulations and competition impose on private insurers, there is no reason for it.

Silver then translates: "Will's argument is apparently this: The government does not need to make a profit and will have greater leverage with providers; therefore it will deliver the same service for less money. That's unfair!"

Um, no. Here is a better translation: Since a public plan will have access to a bottomless pit of government bailouts, the prices the public plan charges consumers and the rates it reimburses health care providers at will be completely unmoored from market realities. It will cost public plan participants less, but taxpayers will end up paying a much higher tab.

Nate goes on: "I'm a big believer in the profit motive in 99 percent of all cases. If the government decided to open a non-profit hamburger stand, I doubt that it would compete successfully against Five Guys." And he later concludes: "If you've been reading me for a while, you'll know that, as compared with most self-described liberals, I'm unusually sympathetic toward the notion of the profit motive and private industry; I've defended Wall Street bankers and the AIG bonuses at various points during the financial crisis, among other things." And he has. Good for him. Like I said, I'm a fan. Nate then continues:

I think the profit motive is generally well worth it in terms of the incentives it creates to cut costs, develop new products, improve customer service, and so forth. But health insurance is not like those things.

OK. Why not? Nate explains:

Now, what's supposed to happen in the free market is that another company will come in and offer Frederick a better deal: they'll offer him the same coverage for $350 a month, accepting a smaller profit, and Frederick will happily take the deal. There are at least a couple of reasons, however, why this may not be happening in the insurance industry. The first is that Frederick might not realize he's paying $400 every month for insurance. That's because if he's like the majority of Americans, he's getting his insurance through his work, and except when the HR lady gave him a shiny brochure on his first day at the office, he's probably never thought very much about what this insurance is costing him in terms of foregone salary. This is particularly so because health insurance benefits, unlike other types of income, aren't taxed, and so Fredrick is less cognizant of them if show up on his paycheck at all. Not only, then, is the free market maxim of perfect information violated, but it's violated in such a way that creates artificial profits for the insurance industry: the government is effectively subsidizing every dollar that Frederick's company is willing to spend on his insurance benefit.

The profits the insurance industry is making, of course -- profits artificially boosted by an enormous backdoor tax subsidy -- don't seem to be buying the customer much of anything in terms of improved service or cost savings. On the contrary, health care costs are rising by as much as 9-10 percent per year, without any concomitant increase in the level of service. If JetBlue were raising the cost of its fares by 10 percent per year, they'd be out of business.

So let me get this straight: the health insurance market is failing because a huge government created back door tax subsidy is distorting the market and raising costs. I agree 100%!!! And so do most conservatives. So does Nate then advocate getting rid of this costly market distorting government subsidy? Not even close. See, Barack Obama campaigned hard against exactly that policy proposal. So Nate doesn't even consider changing it. Instead we get this:

CIGNA and Aetna have a lot of money pooled together and they've been around for awhile -- but they don't have as much money, nor have they been around as long, as the federal government. It's possible, certainly, that the profit motive in the insurance industry has driven more innovation than we're giving it credit for. But that isn't my bet, and it isn't George Will's: There's no obvious reason that the government couldn't provide more for less. And if we are wrong, we would find out soon enough: if the public option can't deliver more bang for the buck than private insurers, it wouldn't gain much market share from them, and Will will have nothing to worry about.

A couple of responses:

First, nowhere in this article does Nate explain why health insurance companies are any more greedy or incompetent than car, home, or life insurance companies. If the government is such a natural player in insurance markets, why isn't Nate advocating public plans for these insurance sectors?

Second, we have a track record for government run health plan. Its called Medicare. Its huge. Way bigger than CIGNA and Aetna combined. If low administrative costs and better leverage with providers were gonna lead to lower health care costs we would have seen them in Medicare. Instead we've seen the exact opposite: Medicare’s costs have risen far more than the costs of privately purchased care.

Finally, if passed a public plan would get tons of market share regardless of whatever "bang for the buck" it delivered. If health care providers were reimbursed at Medicare rates, U.S. employers would dump 119 million Americans off their current private health plan and into the government "option".

One doesn't have to be a crazy ideologue to look at AIG, Citibank, Freddie Mac, Fannie Mae, General Motors, and Chrysler and then question the federal governemnt's ability to administer a public plan without funding it by constantly printing money. One does have to be a blind partisan to look at Barack Obama's long held commitment to single payer health care and not believe that the public plan is just the next step to get there.

Reacting to David Leonhardt's NYT article on the current deficit, The Atlantic's Megan McArdle writes:

Meanwhile, Republican scientists who presumably spent the last eight years locked in a vault in the basement of Heritage run out into the metaphorical street screaming that they have just made a shocking, horrible, and totally unexpected new discovery: budget deficits will make the economy melt down into a pool of manufacturing-depleted sludge, and also, cause rabies.

First of all, I think Megan would like our basement. It has a smoking lounge and everything. More substantively though, let's move on to Megan's bottom line:

The problem with the budget deficit is that, unlike the deficits George Bush ran, the deficits projected under Obama (and beyond) are actually large enough to potentially precipitate a fiscal crisis. If our interest rates suddenly spiked up, perhaps because lenders were worried about the size of our budget deficits, we'd find ourselves in the kind of nasty fiscal jam that regularly plagues third-world countries.

Megan might be surprised to learn that this is exactly what our basement scientists have been saying both before and after Bush left office. On February 25, 2008 Heritage's JD Foster wrote:

At the end of 2007, the debt-to-GDP ratio stood at 36.8 percent. The latest OMB fore­casts show budget deficits through 2013, but they are sufficiently small relative to the size of the economy that the debt-to-GDP ratio falls to 33.4 per­cent by 2013. Similarly, the CBO forecasts a 33.2 percent debt-to-GDP ratio in 2013. The average of the two forecasts for 2013 is 31.6 percent, or 4.3 per­centage points below the 2007 level. The Laubach study suggests, therefore, that the expected progress on reducing the debt-to-GDP ratio over the next few years is putting downward pressure on long-term interest rates equivalent to 15 to 20 basis points. Together, the Engin and Hubbard study and the Laubach study suggest a tentative, developing consensus about the general magnitude of the effects of deficit financing on real interest rates. The studies appear to suggest that, for deficits and debt levels in the ranges seen in recent years and projected in the medium term, the effects on real interest rates are in the expected direction, consis­tent across episodes and across estimating meth­odologies, and very slight--measured in terms of a handful of basis points.

Now fast forward to January 30, 2009:

At the end of 2008, the ratio of federal debt to GDP was about 44.9 percent. Under the assumptions here about new issuance and using the CBO forecasts for nominal GDP, debt at the end of 2009 will be about 57.9 percent, an increase of 13 percentage points in just a single year. By the end of 2010, the debt-to-GDP ratio will have reached 67.9 percent for a two-year increase of 23 percentage points.…

Using just the consensus estimates, the projected increase in the debt-to-GDP ratio for 2009 alone will raise interest rates by between 0.39 and 0.65 percentage points. In today's terms, the average mortgage rate at the end of January was about 5.33 percent on a conforming loan mortgage. At the end of 2009, if nothing else occurs, this rate would be between 5.75 and 6 percent. Using the consensus estimates, by the end of 2010 interest rates will be up another 0.3 to 0.5 percentage points, for a total increase due to the government debt bubble of 0.7 and 1.1 percentage points. That would mean that today's mortgage rate of 5.33 percent would be between 6 percent and 6.4 percent. Such increases in interest rates would significantly weaken the economy further and delay for many months any hope of significant recovery.

In other words, debt-to-GDP ratio's in the 30s: no big deal. But debt-to-GDP ratio's in the 60s: big problem. As Jonah Goldberg has said, just because I drive 65 mph in a 55 mph zone doesn't mean I can't want to see a guy going 130 mph throw in jail.

The Wall Street Journal reports:

Desperate to prevent medical costs from engulfing the federal budget, the [Medicare]'s central planners decided last week to deny payment for a new version of one of life's most unpleasant routine procedures, the colonoscopy. This is a preview of how health care will be rationed when Democrats get their way.

At issue are "virtual colonoscopies," or CT scans of the abdomen. Colon cancer is the second leading cause of U.S. cancer death but one of the most preventable. Found early, the cure rate is 93%, but only 8% at later stages. Virtual colonoscopies are likely to boost screenings because they are quicker, more comfortable and significantly cheaper than the standard "optical" procedure, which involves anesthesia and threading an endoscope through the lower intestine.

Virtual colonoscopies are endorsed by the American Cancer Society and covered by a growing number of private insurers including Cigna and UnitedHealthcare. The problem for Medicare is that if cancerous lesions are found using a scan, then patients must follow up with a traditional colonoscopy anyway. Costs would be lower if everyone simply took the invasive route, where doctors can remove polyps on the spot. As Medicare noted in its ruling, "If there is a relatively high referral rate [for traditional colonoscopy], the utility of an intermediate test such as CT colonography is limited." In other words, duplication would be too pricey.

This is precisely the sort of complexity that the Democrats would prefer to ignore as they try to restructure health care. Led by budget chief Peter Orszag, the White House believes that comparative effectiveness research, which examines clinical evidence to determine what "works best," will let them cut wasteful or ineffective treatments and thus contain health spending.

If you read this blog you already know that Sen. Arlen Specter has announced he will be finally switching parties to become a Democrat. Good riddance. Specter voted for every ounce of terrible new spending under Bush and he has been an equally worthless speed bump to Obama's spend-a-thon.

The contrast between the geriatric Washington big government/big business/big labor Specter and Pat Toomey couldn't be greater. This is great news for the GOP's 2010 chances.

The White House, the DNC, and Americans United for Change are all apparently about to double down on their "Republicans equal Limbaugh" strategy. My thoughts on this are summed up by a comment on Ann Althouse's blog highlight by Instapundit: "Does anyone really think Team Obama's focus on Limbaugh reflects their success so far in office."

This should be the only talking point when conservative surrogates are brought on TV to talk about this compleltely fake controversy: The only reason the Obama White House is attacking Rush Limbaugh is because Obama already has been a complete failure in office. Since his election in November the market has lost 25% of its value and every single one of his policy announcements has only been followed by hundreds of thousands of more lost jobs.

Obama, the Democrats, and the left desperately want to change the subject from Obama's performance. That is why they are investing time, resources, and hundreds of thousands of dollars in demonizing Rush. How does any of this help the American people?

Speaker Hastert's long term spokesman John Feehery has a piece in the Politico suggesting "an after action review should be done by congressional Republicans to see what they could have done better" during the stimulus debate. Feehery prefaces:

I don’t think the GOP should cheer too long or too hard about the end results. After all, really bad policy is about to be signed into law by the president. The government will expand dramatically because of this stimulus package. And at some point, the government will have to raise taxes to pay for this spending spree.

I agree with all of this so far. It is always valuable to look back and take an objective look as possible at what worked and didn't work after any legislative battle. So I was eager to see what Feehery's punch line would be:

Some sort of stimulus was going to pass this Congress. It was only a matter of time. But had the Republicans maximized their leverage, coordinated their message better and unfitted their party, they might have forced even more changes to the ultimate package, changes that might have spared the country the pain of stupid spending and the inevitable tax increases that come along with it.

Feehery is dead wrong here. The Democrats control the House, Senate, and White House. They wanted revenge for the Iraq war and they had a decades worth of spending plans that they were dying to see enacted into law. As soon as it was clear that Obama was going to let Obey take the lead writing the bill, it was written in stone that this stimulus bill was going to be a leftist, wet-dream, deficit spending clusterf**k. There was no way Pelosi and co were going to let House GOPers change the essential nature of the bill.

Pretending that there were some minor changes to the bill that House GOPers could have unified and made a stand on, that would have made the bill better, is just pure fantasy. Obama communicated this fact to the GOP when he met with both caucuses. Does Feehery remember Obama's "I won" rhetoric? Obama said there would be no changes to his temporary, class war tax cuts which any true conservative would never sign on to.

The GOP brand is in the toilet now. After eight years of runaway domestic spending under Bush, the GOP has no credibility in sounding the fiscal responsibility alarm. The way to fix this is not more capitulation to massive increases in federal spending.

The GOP needs to learn the lesson of the Medicare Part D expansion. Feehery's bosses thought they could enact the largest expansion of Medicare in the program's history, but make it better by including some free-market elements around the edges like Medicare Advantage and competitive bidding for medical equipment. Well, you know what happened? The competitive bidding was scrapped by Congress before it could ever take effect and Medicare Advantage was gutted this past summer too.

The lesson: Big government is never market friendly. When you expand the size of government, the socialists will always prevail in the end.

The solution here is to take the long view. The GOP should be taking principled policy stands that offer maximum contrast with the Democrats. This stimulus bill is just the beginning of the left's overreach. After this bill Obama will tackle: housing, omnibus appropriations, alternative energy, and health care. All of these will be insanely expensive. And don't think this is the last stimulus bill either. The economy is going to suck for at least another year, and the left can use this as an excuse to pass another stimulus free for all at anytime.

At some point the American public will grow tired of an economy that only stagnates and falls while the deficit spending explosion in Washington continues with no end in sight. I still think 2010 is too early for the GOP to capitalize on the imminent failure of theBush/Obama bailout parade, but if the GOP marks a clear break with Bush's profligate spending, and the Democrats continue to demonstrate that their economic plan is just Bushonomics on steroids, then we have a real shot of making Obama a one-term president.

Minority Leader John Boehner (R-OH) did a fine job this Sunday on Meet the Press. His "wasteful Washington spending" that does "nothing to help create jobs" message was widely picked up in the papers today. I only have one bone to pick: he didn't make the point that none of the new spending in Obama's trillion dollar spending plan is temporary.

By National Economic Council director Lawrence Summers' own criteria, only a stimulus bill that is "timely, targeted, and temporary'' can have any hope of succeeding and there is nothing temporary about the spending in Obama's plan.

When the left was still in the wilderness, Peter Daou outlined a messaging "triangle" writing:

Forming a triangle of blogs, media, and the political establishment is an essential step ... Simply put, without the participation of the media and the political establishment, the netroots alone cannot generate the critical mass necessary to alter or create conventional wisdom.

Right now both the blogs and the media are hitting the "Nothing Temporary About This Stimulus Spending" message. David Brooks is on board. George Will is on board. Heck even The Washington Post is on message.

Now we need the GOP leadership to get on the same page.

Blogging on Obama's stimulus strategy, Jon writes:

Republicans are in a difficult situation here.

• If they oppose the bill and it fails, they will be blamed (fairly or not) for any economic problems.

• If they support the bill and it passes, they will share the blame for the enormous costs it will entail.

• If they oppose the bill and it passes, the lack of policy leverage would leave the bill much worse than if they had forced potentially valuable compromises (e.g., sunset provisions and exit strategies).

I agree that Republican's face a "difficult situation here" but we should not pretend for a second that there any "potentially valuable compromises (e.g., sunset provisions and exit strategies)" on stimulus spending. As TARP shows us, once money is authorized, it will be spent and probably on items that never would have been approved of in the first place (like the nationalization of the US auto industry).

Furthermore, any "sunset provisions" or "exit strategies" can also be easily ignored or revisited down the road. Take Medicare. When conservatives caved in to George Bush and Tom DeLay on the prescription drug benefit, some votes were secured by promises that regulations would be passed that would introduce competitive bidding into Medicare's current price fixing system for buying medical supplies.

So what happened when the regulations were about to become law? The medical suppliers went crying to Democrats and big government Republicans asking them to kill the competitive bidding rule. The result? No competitive bidding in Medicare procurement and we're still stuck with the massive new prescription drug benefit.

The same fate will befall any type of fiscal responsibility measures inserted into Obama's trillion dollar stimulus. When the time comes for the measure to actually reduce spending, the left will change the law to allow the taxpayer spigot to keep flowing.

The politics and policy on the stimulus are the exact same: Republicans who hope to be future leaders in the party must say no to any stimulus that includes hundreds of billions in dollars in new spending.

Politico has a story up now titled "Nepotism Nation: Dems embrace dynasty politics." It details just how familiar the names being put forward to fill the Senate seats being  vacated by the Obama brain drain are. Go ahead and read the article for all the gory details, but MSNBC's Chuck Todd made the point first and more succinctly:

Could the four Democrats seeking Senate seats in the four Obama-presidential related vacancies all be relatives of famous politicos in their home states: John Salazar in Colorado, brother of Ken? Beau Biden in Delaware (in 2010, once he gets back from Iraq), son of Joe? Lisa Madigan in Illinois, daughter of Assembly Speaker Michael? And Caroline Kennedy in New York, well, you know who she is, right?

Why does this matter? Well the GOP is going to need every bullet we can get are hands on if we hope to make up ground in the Senate in 2010. Reinforcing an already existing 'Dynasty Dems' meme in the media will be a great theme to build on. Obama's operating coalition is ripe for an attack along these lines. In his first post-election analysis Michael Barone observed:

The top and bottom coalition. Obama led among those with incomes under $50,000 (big) and those above $200,000 (narrowly). Among the 56 percent with incomes in the middle, it was pretty much even. Similarly, Obama won 63 percent among those with no high school education and 58 percent among those with postgraduate degrees but led only very narrowly among those in between. That's reflected in the finding that McCain did better with noncollege whites (58 percent-40 percent) than college whites (51 percent-47 percent). At the moment, this top-and-bottom coalition outnumbers the broad middle. But if the political balance tips, it could be the other way around.

The first politician that I've observed assemble a top-and-bottom coalition was Mayor John Lindsay of New York. He started off as a Republican, a very liberal one, and won the mayoralty in 1965 and 1969 with coalitions of affluent Manhattan whites on the one hand and blacks and Latinos on the other. In both elections, he won with a plurality of the vote and was behind in the four outer boroughs taken together. Lindsay championed soft policies (in the sense of the word in my book Hard America, Soft America) on crime and welfare that produced disaster in New York and in other cities where such policies were followed. Those policies answered the demands of both sides of his top-and-bottom coalition: The top wanted generous policies toward the poor that made them feel good about themselves, the bottom wanted short-term money transfers and leniency toward criminals in their midst. The top paid a small price for the results of these policies; the bottom paid a very large one.

A similar outcome is entirely possible under Obama. Obama's rich supporters on the coasts want to pass global warming legislation that will make them feel better about themselves as they jet back and forth over the rest of the country struggling to survive under huge new energy taxes. The fact that many of the Senators passing this legislation are part of wealthy Dem Dynasties can only help our candidates.

In typical scream-first-think-later style, Media Matters has gone all out with at least two very lengthy posts claiming to debunk the 'falsehood' that General Motors recently paid more than $70 per hour in labor costs. No matter how Media Matters may try and twist the truth, that $70 figure is an accurate representation of the burdens GM faced under their union contract. More imporantly, under their new union contract, GM will continue to face higher labor costs than their non-uninon competitors.

The disagreement in figures boils down to this: in their 1996 SEC filing, GM claimed they faced labor costs of $73.26 per active hour worked. The total was made of two main components: cash compensation ($39.68) and benefit/government required programs ($33.58).

The UAW disputed those numbers at the time and wrote:

In 2006 a typical UAW-represented assembler at GM earned $27.81 per hour of straight-time labor. A typical UAW-represented skilled-trades worker at GM earned $32.32 per hour of straight-time labor. ... In addition to regular hourly pay, the labor cost figures cited by the companies include other expenses associated with having a person on payroll. This includes overtime, shift premiums and the costs of negotiated benefits such as holidays, vacations, health care, pensions and education and training. It also includes statutory costs, which employers are required to pay by law, such as federal contributions for Social Security and Medicare, and state payments to workers’ compensation and unemployment insurance funds. The highest figures sometimes cited also include the benefit costs of retirees who are no longer on the payroll.

So basically the UAW/Media Matters argument is that the $70 per hour figure is misleading because that is not what the average UAW member takes home in cash. But GM's labor costs, thanks to bloated union contracts and other government taxes and mandates, include a whole lot more than just wages.

As the UAW details, some of those costs include "overtime" "shift premiums" "vacations" "health care" "federal contributions for Social Security and Medicare" and "state payments to workers' compensation and unemployment insurance funds." Just because an auto worker doesn't take these benefits home in every pay check, doesn't mean their free. All of these benefits cost money and that money does not come from magical fairies. These labor costs come out of GM's bottom line.

So yes, the UAW did recently sign a labor contract with GM that will lower GM's average labor costs to $62 per hour by 2010. But that would still be $9 higher than the $53 Toyato currently pays, and Toyota claims total labor costs at its older U.S. plants are around $48.

So the fact still remains that Barack Obama and the Democratic Congress are about to nationalize three auto companies that, unless significant changes are made to current labor agreements, will face a significant comparative disadvantage on labor costs. Those are the facts.