Robert Reich

Health Care 2010 and 1994, and the Political Lessons of History

Mon, 15 Mar 2010 15:37:00 -0400

Health care reform is necessary, and House Democrats should vote for it because it’s best for the nation.

They should also remember the political lessons of history. To paraphrase Mark Twain, history doesn’t repeat itself but it does rhyme. As the White House and the House Democratic leadership try to line up 216 votes to pass health care reform — and as Republicans, aided by the National Association of Manufacturers and abetted by fierce partisans like Newt Gingrich, try to kill it – I can’t help thinking back to 1994 when the lineup was much the same.

I was serving in the Clinton administration at the time. In the first months of 1993 it looked as if Clinton’s health care proposal would sail through Congress. But the process dragged on and by 1994 it bogged down. We knew health care was imperiled but none of us knew that failure to pass health care would doom much of the rest of Clinton’s agenda and wrest control of Congress out of the hands of the Democrats. In retrospect, it’s clear Republicans did know.

On February 5, 1994, the National Association of Manufacturers passed a resolution declaring its opposition to the Clinton plan. Not long after that, Michigan Democrat John Dingell, who was managing the health care bill for the House, approached the senior House Republican on the bill to seek a compromise. According to Dingell, the response was: “There’s no way you’re going to get a single vote on this [Republican] side of the aisle. You will not only not get a vote here, but we’ve been instructed that if we participate in that undertaking at all, those of us who do will lose our seniority and will not be ranking minority members within the Republican Party.”

In early March, 1994, Senate Republicans invited Newt Gingrich, then House minority leader, to caucus with them about health care. Gingrich warned against compromise, a view echoed by Senator Phil Gramm. A few months later, at a Republican meeting in Boston, Bob Dole, then Senate minority leader, promised to “filibuster and kill” any health care bill with an employer mandate.

By then Gingrich had united House Republicans against passage of health reform and told the New York Times he wanted “to use the issue as a springboard to win Republican control of the House.” Gingrich predicted Republicans would pick up thirty-four House seats in the November elections and half a dozen disaffected Democrats would switch parties to give Republicans control.

By August, it was over. It didn’t matter that Democrats outnumbered Republicans in the Senate by 56 to 44 and in the House by 257 to 176. Health care was a lost cause. Republican Senator Bob Packwood boasted to his colleagues “We’ve killed health care reform.”

In early September, William Kristol of the Project for the Republican Future spelled out the next stage of the Republican battle plan: “I think we can continue to wrap the Clinton plan around the necks of Democratic candidates.” And that’s exactly what they did. On November 8 voters repudiated President Clinton. They brought Republicans to power at every level of government. Democrats went from a controlling majority of 257 seats in the House of Representatives to a minority of 204, and lost the Senate.

I remember how shocked we were the morning after the votes were counted. I asked one of Clinton’s political advisors what had happened. “It was health care,” he said, simply. (That advisor, by the way, is now in the Obama White House.)

Today’s Republican battle plan is exactly the same as it was sixteen years ago. In fact, it’s been the same since President Obama assumed office. They never were serious about compromise. They were serious only about regaining power. From the start, Republicans have remembered the lesson of 1994. Now, as they prepare to vote, House Dems should remember the lesson as well.

The Sham Recovery

Fri, 12 Mar 2010 14:51:00 -0500

Are we finally in a recovery? Who’s “we,” kemosabe? Big global companies, Wall Street, and high-income Americans who hold their savings in financial instruments are clearly doing better. As to the rest of us – small businesses along Main Streets, and middle and lower-income Americans – forget it.

Business cheerleaders naturally want to emphasize the positive. They assume the economy runs on optimism and that if average consumers think the economy is getting better, they’ll empty their wallets more readily and – presto! – the economy will get better. The cheerleaders fail to understand that regardless of how people feel, they won’t spend if they don’t have the money.

The US economy grew at a 5.9 percent annual rate in the fourth quarter of 2009. That sounds good until you realize GDP figures are badly distorted by structural changes in the economy. For example, part of the increase is due to rising health care costs. When WellPoint ratchets up premiums, that enlarges the GDP. But you’d have to be out of your mind to consider this evidence of a recovery.

Part of the perceived growth in GDP is due to rising government expenditures. But this is smoke and mirrors. The stimulus is reaching its peak and will be smaller in months to come. And a bigger federal debt eventually has to be repaid.

So when you hear some economists say the current recovery is following the traditional path, don’t believe a word. The path itself is being used to construct the GDP data.

Look more closely and the only ones doing better are the people and private-sector institutions at the top. Many of America’s biggest companies are sitting on huge amounts of cash right now, but that says nothing about the health of the U.S. economy. Companies in the Standard&Poor 500 stock index had sales of $2.18 trillion in the fourth quarter, up from $2.02 trillion last year, and their earnings tripled. Why? Mainly because they’re global, and selling into fast-growing markets in places like India, China, and Brazil.

America’s biggest companies are also showing fat profits and productivity gains because they continue to slash payrolls and cut expenditures. Alcoa, for example, had $1.5 billion in cash at the end of last year, double what it had on hand at the end of 2008. Sounds terrific until you realize how it did it. By cutting 28,000 jobs – 32 percent of workforce – and slashed capital expenditures 43 percent.

Firms in S&P 500 are now holding a whopping $932 billion in cash and short-term investments. And they can borrow money cheaply. Corporate bond sales are brisk. So far in 2010, big U.S. corporations have issued $195.2 billion of debt, excluding government-guaranteed bonds. Does this spell a recovery? It all depends on what the big companies are doing with all this cash. In fact, they’re doing two things that don’t help at all.

First, they’re buying other companies. (Walgreen last month spent $618 million for New York drugstore chain Duane Reade; Bank of New York Mellon, $2.3 billion for PNC Financial Services; Monster, $225 million for jobs.com; Diamond Foods, $615 million for Kettle Foods.) This buying doesn’t create new jobs. One of the first things companies do when they buy other companies is fire lots of people who are considered “redundant.” That’s where the so-called merger efficiencies and synergies come from, after all.

The second thing big companies are doing with all their cash is buying back their own stock, in order to boost their share prices. There were 62 such share buy-backs in February, valued at $40.1 billion. We’re witnessing the biggest share buyback spree since Sept 2008. The major beneficiaries are current shareholders, including top executives, whose pay is linked to share prices. The buy-backs do absolutely nothing for most Americans.

(None of this, by the way, is stopping supply-side fanatics from arguing government needs to cut taxes on big corporations in order to spur the recovery. Their argument is absurd on its face. Big companies don’t know what to do with all their cash they have as it is. They aren’t investing it in new plant and equipment and new jobs. So why should the government cut their taxes and enlarge their cash hoards even more?)

The picture on Main Street is quite the opposite. Small businesses aren’t selling much because they have to rely on American – rather than foreign – consumers, and Americans still aren’t buying much.

Small businesses are also finding it difficult to get credit. In the credit survey conducted in February by the National Federation of Independent Businesses, only 34 percent of small businesses reported normal and adequate access to credit. Not incidentally, the NFIB’s “Small Business Optimism Index” fell 1.3 points last month, just about where it’s been since April.

That’s a problem for most Americans. Small businesses are where the jobs are. In fact, small businesses are responsible for almost all job growth in a typical recovery. So if small businesses are hurting, we’re not going to see much job growth any time soon.

The Federal Reserve reported Thursday that American consumers are shedding their debts like mad. Total US household debt, including mortgages and credit card balances, fell 1.7 percent last year – the first drop since the government began recording consumer debt in 1945. Much of the debt-shedding has been through default – consumers simply not repaying and walking away from homes and big-ticket purchases.

This is hardly good news. But here’s the Wall Street Journal’s take on it: “the defaults are leaving many people with more cash to spend and save, jump-starting the financial rehabilitiation” of the economy.

Baloney. As of end of 2009, debt averaged $43, 874 per American, or about 122 percent of annual disposable income. Most economic analysts think a sustainable debt load is around 100 percent of disposable income – assuming a normal level of employment and normal access to credit. But unemployment is still sky-high and it’s becoming harder for most people to get new mortgages and credit cards. And with housing prices still in the doldrums, they can’t refinane their homes or take out new loans on them. The days of homes as ATMs are over.

Some cheerleaders say rising stock prices make consumers feel wealthier and therefore readier to spend. But to the extent most Americans have any assets at all their net worth is mostly in their homes, and those homes are still worth less than they were in 2007. The “wealth effect” is relevant mainly to the richest 10 percent of Americans, most of whose net worth is in stocks and bonds. The top 10 percent accounted for about half of total national income in 2007. But they were only about 40 percent of total spending, and a sustainable recovery can’t be based on the top ten percent.

Add to all this the joblessness or fear of it that continues to haunt a large portion of the American population. Add in the trauma of what most of us have been through over the past year and a half. Consider also the extra need to save as tens of millions of boomers see retirement on the horizon. Bottom line: Thrifty consumers are doing the right and sensible thing by holding back from the malls. They saved a little over 4 percent of their disposable income in fourth quarter of 2009. In the months or years ahead they may save more.

Right and sensible for each household but a disaster for the economy as a whole. American consumers accounted for 70 percent of the total demand for goods and services in the American economy before the Great Recession, and a sizable chunk of world demand.

So what happens when the stimulus is over and the Fed begins to tighten again? Where will demand come from to get Main Street back, create jobs, raise middle class wages? Not from big businesses. Certainly not from Wall Street. Not from exports. Not from government.

So, where? That question is the big unknown hanging over the U.S. economy. Until there’s an answer, an economic “recovery” for anyone other than big corporations, Wall Street, and the wealthy is a mirage.

Bail Out Our Schools

Mon, 08 Mar 2010 14:41:00 -0500

Any day now, the Obama administration will announce $4.35 billion in extra federal funds for under-performing public schools. That’s fine, but relative to the financial squeeze all the nation’s public schools now face it’s a cruel joke.

The recession has ravaged state and local budgets, most of which aren’t allowed to run deficits. That’s meant major cuts in public schools and universities, and a giant future deficit in the education of our people.

Across America, schools are laying off thousands of teachers. Classrooms that had contained 20 to 25 students are now crammed with 30 or more. School years have been shortened. Some school districts are moving to four-day school weeks. After-school programs have been cancelled; music and art classes, terminated. Even history is being chucked.

Pre-K programs have been shut down. Community colleges are reducing their course offerings and admitting fewer students. Public universities, like the one I teach at, have raised tuitions and fees. That means many qualified students won’t be attending.

Last year the nation committed $700 billion to bail out Wall Street banks, the engines of America’s financial capital, because we were told we’d face economic Armegeddon if we didn’t.

We’ve got our priorities backwards. Our schools are the engines of our human capital, and if we don’t bail out public education we face a bigger economic Armegeddon years from now.

Financial capital moves instantly around the globe to wherever it can earn the best return. Human capital – the skills and insights of our people – is the one resource that’s uniquely American, on which our future living standards uniquely depend.

Starting immediately, the federal government should give states and local governments interest-free loans to make up for all school and university budget shortfalls. The loans can be repaid when the recession is over and local and state tax revenues revive.

Over the longer term we must shift incentives away from financial capital toward human capital. A tiny one half of one percent tax on all financial transactions would generate about $200 billion a year, according to the Economic Policy Institute. That might put a crimp on Wall Street bonuses but it’s enough to fund early childhood education, smaller K-12 classes, and lower tuitons and fees for public higher education.

The Street’s financial capital is important to the American economy, but over the long term the classroom’s human capital is absolutely crucial.

Why the Continuing Bad Job Numbers Make it Harder (But Even More Important) To Pass Health Care Reform

Fri, 05 Mar 2010 10:45:00 -0500

The loss of 36,000 jobs in February is better than expected but it’s still miserable. 26,000 were lost in January, according to the government’s revised figures. And the “underemployment” rate — including jobless workers who have given up looking for work and part-time workers who want full time jobs — rose from 16.5% in January to 16.8% in February, offsetting some of January’s gains.

(And don’t blame it mostly on the weather. Although the surveys on which the report is based were done in mid-February during winter snowstorms in the east, the major impact of bad weather was on hours worked, not the numbers of jobs. If you had a job in February but were snowed in, the Bureau of Labor Statistics reported you as having a job.)

This complicates the President’s final push for health care reform. With employers still shedding jobs and consumer confidence down, Americans are worried first and foremost about paying their bills. Because most people aren’t aware how much of their paychecks are being eaten up by rising health care costs but can easily be persuaded they’ll be paying more to cover those who don’t have health insurance under any new health plan, the continuing bad news on the jobs front makes it harder for the President to make his health-care sale.

The bad news on jobs also allows economic illiterates (and scoundrels who know better) to continue to claim the stimulus is failing and what’s needed is less government rather than more, including not only a smaller “jobs bill” but less or no health care reform.

In politics as in economics and love, timing is everything. Obama can’t wait much longer if he wants to convince waivering and worried conservative Dems to join him in a last ditch 51-vote reconciliation measure to get health care through the Senate. We’re already in the gravititational pull of November’s mid-term elections. But the economy is taking a longer time to turn around than anyone expected, and telling Americans the jobs numbers are getting worse more slowly isn’t exactly reassuring.

One small political consolation is the worst job numbers continue to be on the coasts and the old rust belt where Dems are relatively safer, and the best numbers in the midwest and mountain states and south where Dems are weakest. So at least blue-dog Dems who are under the most pressure from their conservative constituents on health care aren’t grappling with the biggest job losses.

Another is that all across the nation, the people being hit worst by this continuing jobs recession/depression are poor and the lower-middle class who Republicans are trying to court. They’re in greatest danger of losing health care coverage if they haven’t lost it already, and in greatest need for subsidies to allow them and their families to afford it. Waivering and worried congressional Dems should be reaching out to them.

Americans desperately need health care reform. They also desperately need jobs. Even if it’s difficult for many to make the connection, it’s still possible for the nation to try to do two important things at the same time. We need a big jobs bill — including especially extended unemployment insurance, aid to hard-hit states and cities — and we need health care reform. The sooner we do the former and get the economy moving into positive job numbers again, the more quickly and easily we can afford the latter. The big question is whether the President can make the case.

2010 Economic Forecast, Commonwealth Club, San Francisco, CA,...

Tue, 02 Mar 2010 12:07:30 -0500

2010 Economic Forecast, Commonwealth Club, San Francisco, CA, January 22, 2010

The Enthusiasm Gap

Sun, 28 Feb 2010 14:27:00 -0500

I had dinner the other night with a Democratic pollster who told me Dems are heading toward next fall’s mid-term elections with a serious enthusiasm gap: The Republican base is fired up. The Dem base is packing up.

The Dem base is lethargic because congressional Democrats continue to compromise on everything the Dem base cares about. For a year now it’s been nothing but compromises, watered-down ideas, weakened provisions, wider loopholes, softened regulations.

Health care went from what the Dem base wanted — single payer — to a public option, to no public option, to a bunch of ideas that the President tried to explain last week, and it now hangs by a string as Nancy Pelosi and Harry Reid try to round up conservative Dems and a 51-vote reconciliation package in the Senate.

The jobs bill went from what the base wanted — a second stimulus — to $165 billion of extended unemployment benefits and aid to states and locales, then to $15 billion of tax breaks for businesses that make new hires.

Financial regulation went from tough new capital requirements, sharp constraints on derivate trading, a consumer protection agency, and a resurrection of the Glass-Steagall Act – all popular with the Dem base — to some limits on derivatives and a consumer-protection agency inside the Treasury Department and a rearrangement of oversight boxes, and it’s now looking like even less.

The environment went from the base’s desire for a carbon tax to a cap-and-trade carbon auction then to a cap-and-trade with all sorts of exemptions and offsets for the biggest polluters, and now Senate Dems are talking about trying to do it industry-by-industry.

These waffles and wiggle rooms have drained the Democratic base of all passion. “Why should I care?” are words I hear over and over again from stalwart Democrats who worked their hearts out in the last election.

The Republican base, meanwhile, is on a rampage. It’s more and more energized by its mad-as-hell populists. Tea partiers, libertarians, Birchers, birthers, and Dick Armey astro-turfers are channeling the economic anxieties of millions of Americans against “big government.”

Technically, the Dems have the majority in Congress and could still make major reforms. But conservative, “blue-dog” Dems won’t go along. They say the public has grown wary of government. But they must know the public hasn’t grown even more wary of big business and Wall Street, on which effective government is the only constraint.

Anyone with an ounce of sanity understands government is the only effective countervailing force against the forces that got us into this mess: Against Goldman Sachs and the rest of the big banks that plunged the economy into crisis, got our bailout money, and are now back at their old games, dispensing huge bonuses to themselves. Against WellPoint and the rest of the giant health insurers who are at this moment robbing us of the care we need by raising their rates by double digits. Against giant corporations that are showing big profits by continuing to lay off millions of Americans and cutting the wages of millions of more, by shifting jobs abroad and substituting software. Against big oil and big utilities that are raising prices and rates, and continue to ravage the atmosphere.

If there was ever a time to connect the dots and make the case for government as the singular means of protecting the public from these forces it is now. Yet the White House and the congressional Dem’s ongoing refusal to blame big business and Wall Street has created the biggest irony in modern political history. A growing portion of the public, fed by the right, blames our problems on “big government.”

Much of the reason for the Democrats’ astonishing reluctance to place blame where it belongs rests with big business’s and Wall Street’s generous flows of campaign donations to Dems, coupled with their implicit promise of high-paying jobs once Democratic officials retire from government. This is the rot at the center of the system. And unless or until it’s remedied, it will be difficult for the President to achieve any “change you can believe in.”

To his credit, Obama himself has not scaled back his health-care ambitions all that much, and he appears, intermittently, to want to push conservative blue-dog Dems to join him on a bigger jobs bill, tougher financial reform, and a more effective approach to global warming. (His overtures to Republicans seem ever more transparently designed to give blue-dog Dems cover to vote with him.)

But our President is not comfortable wielding blame. He will not give the public the larger narrative of private-sector greed, its nefarious effect on the American public at this dangerous juncture, and the private sector’s corruption of the democratic process. He has so far eschewed any major plan to get corporate and Wall Street money out of politics. He can be indignant– as when he lashed out at the “fat cats” on Wall Street – but his indignation is fleeting, and it is no match for the faux indignation of the right that blames government for all that ails us.

Bust Up the Health Insurance Trusts

Wed, 24 Feb 2010 10:52:47 -0500

Years ago I worked at an agency in Washington called the Federal Trade Commission. The FTC predates the New Deal. It was set up in 1914 during the administration of Woodrow Wilson, at a time when many of America’s industries had combined into giant trusts that had enormous market and political power. The FTC was designed to root out such unfair practices. It ought to take on the health insurance trusts.

A few weeks back I mentioned that my health insurer here in California is Anthem Blue Cross. So far, my group policy hasn’t been affected by Anthem’s planned rate increase of as much as 39 percent for its customers with individual policies — but the trend worries me, as it should everyone. Rates are soaring all over the country. Insurers have been seeking to raise premiums 24 percent in Connecticut, 23 percent in Maine, 20 percent in Oregon and a wallet-popping 56 percent in Michigan. How can insurers raise prices as much as they want without fear of losing customers?

Astonishingly, the health insurance industry is exempt from federal antitrust laws, which is why a handful of insurers have become so dominant in their markets that their customers simply have nowhere else to go. But that protection might soon end: President Obama on Tuesday announced his support of a House bill that would repeal health insurers’ antitrust exemption, and Speaker Nancy Pelosi signaled that she would put it toward an immediate vote.

This is promising news. Forcing insurers to compete for our business would do at least as much good as the president’s new proposal to give the federal government, working with the states, the power to deny or roll back excessive premiums. The fact is that half of the states already have the power to approve rates and they don’t seem to be holding insurers back much.

Big health insurers say they have no choice because younger and healthier people are dropping their coverage. But this can’t be the whole story because insurers are making boatloads of money. America’s five largest health insurers made a total profit of $12.2 billion last year; that was 56 percent higher than in 2008, according to a report from Health Care for America Now.

It’s not as if health insurers have been inventing jazzy software or making jet airplanes. Basically, they just collect money from employers and individuals and give the money to providers. In most markets, consumers wouldn’t pay this much for so little. We’d find a competitor that charged less and delivered more. What’s stopping us? Not enough choice.

More than 90 percent of insurance markets in more than 300 metropolitan areas are “highly concentrated,” as defined by the Federal Trade Commission, according to the American Medical Association. A 2008 survey by the Government Accountability Office found the five largest providers of small group insurance controlled 75 percent or more of the market in 34 states, and 90 percent or more in 23 of those states, a significant increase in concentration since the G.A.O.’s 2002 survey.

Anthem’s parent is WellPoint, one of the largest publicly traded health insurers in America, which runs Blue Cross and Blue Shield plans in 14 states and Unicare plans in several others. WellPoint, through Anthem, is the largest for-profit health insurer here in California, as it is in Maine, where it controls 78 percent of the market. In Missouri, WellPoint owns 68 percent of the market; in its home state, Indiana, 60 percent. With 35 million customers, WellPoint counts one out of every nine Americans as a member of one of its plans.

Antitrust laws are supposed to prevent this kind of market power. So why are giant health insurers like WellPoint exempt? Chalk it up to an anomaly that began seven decades ago in the quaint old world of regional, nonprofit Blues. They were created in part by hospitals to spread the costs of expensive new equipment and facilities over many policy holders. Collaboration was the point, not competition. The 1945 McCarran-Ferguson Act made it official, exempting insurers from antitrust scrutiny and giving states the power to regulate them, although not necessarily any power to regulate rates.

The system worked fairly well until about two decades ago when insurers began morphing into publicly held, for-profit cash machines. A new breed of medical entrepreneur saw opportunities to profit from a rapidly aging population eager to get every new drug and technology that might extend their lives, and a government committed to doling out hundreds of billions of dollars in Medicare and Medicaid.

With size has come not only market power but political clout. Big for-profit insurers deploy enough campaign money and lobbyists to get their way with state legislators and insurance commissioners. A proposal last year to allow California’s Department of Insurance to regulate rates, for example, died in committee. These companies have even been known to press states to limit how many other health insurers they license.

And when they can’t get their way, insurers go to court. In Maine — one state that aggressively regulates rates — WellPoint’s Anthem subsidiary has sued the insurance superintendent for reducing its requested rate increase.

Political clout can be especially advantageous at the federal level, as the big Wall Street banks have so brazenly demonstrated. Over the past two and a half years, WellPoint’s employees and associates have contributed more than $922,000 to federal political campaigns, and the company has spent $7.8 million lobbying Washington policymakers, according to the Center for Responsive Politics. It should not be surprising that WellPoint was one of the leading opponents of the public insurance option, which would have subjected it to competition even where it had sewn up the market.

Antitrust is no substitute for broader health care reform, but it’s an important prerequisite. If a handful of giant health insurers are allowed to dominate the industry, many of the other aspects of reform (establishing insurance exchanges, requiring people to have insurance, even allowing consumers to buy insurance across state lines) won’t bring down the price of insurance.

Regardless of what happens at the White House’s health care meeting today, we’ve got to make sure health insurers compete for every one of our dollars. The Federal Trade Commission should launch an investigation immediately, and end the health care trusts.

(Adapted from an oped I wrote for the New York Times today)

It's Time To Enact Health Care With 51 Senate Votes

Sun, 21 Feb 2010 11:39:30 -0500

This week the President is hosting a bipartisan gab-fest at the White House to try to tease out some Republican votes for health care. It’s a total waste of time. If Obama thinks he’s going to get a single Republican vote at this stage of the game, he’s fooling himself (or the American people). Many months ago, you may recall, the White House and Dem leaders in the Senate threatened to pass health care with 51 votes – using a process called “reconciliation” that allows tax and spending bills to be enacted without filibuster – unless Republicans came on board. It’s time to pull the trigger.

Why haven’t the President and Senate Dems pulled the reconciliation trigger before now? I haven’t spoken directly with the President or with Harry Reid but I’ve spent the last several weeks sounding out contacts on the Hill and in the White House to find an answer. Here are the theories. None of them justifies waiting any longer.

1.    Reconciliation is too extreme a measure to use on a piece of legislation so important. I hear this a lot but it’s bunk. George W. Bush used reconciliation to enact his giant tax cut bill in 2003 (he garnered only 50 votes for it in the Senate, forcing Vice President Cheney to cast the deciding vote). Six years before that, Bill Clinton rounded up 51 votes to enact the Children’s Health Insurance Program (CHIP), the largest expansion of taxpayer-funded health insurance coverage for children in the U.S. since Medicaid began in the 1960s. Through reconciliation, we also got Medicare Advantage. Also through reconciliation came the COBRA act, which gives Americans a bit of healthcare protection after they lose a job (“reconciliaton is the “R” in the COBRA acronym.) These were all big, important pieces of legislation, and all were enacted by 51 votes in the Senate.

2.    Use of reconciliation would infuriate Senate Republicans. It may. So what? They haven’t given Obama a single vote on any major issue since he first began wining and dining them at the White House. In fact, Senate Minority Leader Mitch McConnell and company have been doing everything in their power to undermine the President. They’re using the same playbook Republicans used in the first two years of the Clinton administration, hoping to discredit the President and score large victories in the midterm elections by burying his biggest legislative initiative. Indeed, Obama could credibly argue that Senate Republicans have altered the rules of the Senate by demanding 60 votes on almost every initiative – a far more extensive use of the filibuster than at any time in modern history – so it’s only right that he, the President, now resort to reconciliation.

3.    Obama needs Republican votes on military policy so he doesn’t dare antagonize them on health care. I hear this from some quarters but I don’t buy it. While it’s true that Dems are skeptical of Obama’s escalation of the war in Afghanistan and that Republicans are his major backers, it seems doubtful R’s would withdraw their support if the President forced their hand on health care. Foreign policy is the one area where Republicans have offered a halfway consistent (and always bellicose) voice, and Dick Cheney et al would excoriate them if they failed to back a strong military presence in the Middle East. This is truer now than ever.

4.    Reid fears he can’t even get 51 votes in the Senate now, after Scott Brown’s win. Reid counts noses better than I do, but if Senate Dems can’t come up with even 51 votes for the healthcare reforms they enacted weeks ago they give new definition to the term “spineless.” Besides, if this is the case, Obama ought to be banging Senate heads together. A president has huge bargaining leverage because he presides over an almost infinite list of future deals. Lyndon Johnson wasn’t afraid to use his power to the fullest to get Medicare enacted. If Obama can’t get 51 Senate votes out of 58 or 59 Dems and Independents, he definitely won’t be able to get 51 Senate votes after November. Inevitably, the Senate will lose some Democrats. Now’s his last opportunity.

5.    House and Senate Dems are telling Obama they don’t want to take another vote on health care or even enact it before November’s midterms because they’re afraid it will jeopardize their chances of being reelected and may threaten their control over the House and Senate. I hear this repeatedly but if it’s true Republicans have done a far better job scaring Americans about healthcare reform than any pollster has been able to uncover. Most polls still show a majority of Americans still in favor of the basic tenets of reform – expanded coverage, regulations barring insurers from refusing coverage because of someone’s preexisting conditions and preventing insurers from kicking someone off the rolls because they get sick, requirements that employers provide coverage or pay into a common pool, and so on. And now that many private insurers are hiking up premiums, co-pays, and deductibles, the public is even readier to embrace reform.

So what’s been stopping Obama from using reconciliation? Even if some of the arguments held water before now, none does any longer.

My free advice to the President: If you want to get healthcare enacted you must use reconciliation and quickly. Host your bipartisan gab fest at the White House on Thursday. Tell Republicans you’ve been eagerly awaiting their ideas for over a year, but the American public can’t wait any longer. Explain to them how our current economic mess is directly related to the health care mess — we’re paying 16 percent of our GDP for health care while health insurers are hiking rates and Americans are losing their health insurance every day. Then tell the House and Senate to get to work on putting their bills together (or tell the House Dems to enact the Senate bill and then save their disagreements for reconciliation), and tell Harry Reid you want the Senate bill on a fast track of reconciliation.

Explain to the American people you understand their impatience. The Constitution does not require 60 votes in the Senate to pass legislation. A majority will do. That’s called democracy.

A Thought on Evan Bayh and Partisan America

Tue, 16 Feb 2010 13:09:00 -0500

Not long ago I was debating someone on television. I thought the discussion was going well until the commercial break when a producer said into my earpiece “be angrier.”

“Why should I be angrier?” I asked him, irritated that he hadn’t appreciated the thoughtfulness of debate.

“That’s how we get channel surfers to stop and watch the program,” the producer explained. “Eyeballs are attracted to anger.”

At this point I lost my temper.

The incident came back to me when I heard about Evan Bayh’s decision to leave Congress because he felt it was becoming too partisan. The real problem isn’t partisanship. Bold views and strong positions are fine. Democratic debate and deliberation can be enhanced by them.

The problem is the intransigence and belligerence that has taken over Congress and much of the rest of the public — a profound distrust of people “on the other side,” an unwillingness to compromise, a bitterness and anger disproportionate to issues being discussed.

Anger makes good television, but it’s fake and it teaches Americans the wrong lessons. Anger also can win elections (Senate Republicans haven’t given Obama any votes because they’ve been eyeing the 2010 midterms since he took office, hoping for a rerun of 1994), but partisan anger is just as fake, and it undermines the capacity of our democracy to do the public’s business.

By the way, I was on CNBC this morning, and the subject of discussion was Bayh’s decision. No producer prodded me to be angrier but Larry Kudlow introduced the segment by saying that I’d be “duking it out” with Steve Moore, who writes editorials for the Wall Street Journal. And when it came for us to discuss the gridlock in Congress, Larry continuously interrupted, saying the reason for the gridlock was Obama’s lefti-leaning agenda.

When this is almost all the public sees and hears about public issues, it’s no wonder Americans begin to think everything is an angry shouting match. Americans stop listening to each other. We retreat into small ideological bubbles and talk only with people who agree with us. We forget how much we have in common, and how important it is to get on with the task of making the nation better.

One Free Market System for Wall Street, Another Free Market System for Main Street

Thu, 11 Feb 2010 10:23:00 -0500

Washington is paralyzed by snow and partisanship. Nothing is getting done – even as the Great Recession pulls more Americans into its maw. In the midst of this paralysis, the President was asked about the giant pay packages of Jamie Dimon, CEO of JP Morgan Chase & Co. ($17 million for 2009) and Lloyd Blankfein, CEO of Goldman Sachs ($9 million). “First of all, I know both those guys,” Obama said. “They’re very savvy businessmen. And I, like most of the American people, don’t begrudge people success or wealth. That’s part of the free market system.” Free market system? As I remember it, American taxpayers forked out hundreds of billions to keep JPMorgan, Goldman, and other big Wall Street banks afloat through most of 2009. Had we not done so, Dimon, Blankfein, and most other top executives on Wall Street would not have earned a dime last year. In fact, some would be out on the street, reather than sitting pretty on the Street. The free market system has been unleashed instead on average Americans. According to real-estate data firm First American CoreLogic, about one-fourth of American households with a mortgage are under water – owing more on their homes than their homes are worth. Mortgage-bond trader Amherst Securities estimates that 7.1 million of the 7.9 households now behind on their mortgage payments will lose their homes to foreclosure if nothing is done to modify their loans. Already cities and towns are littered with foreclosure sales, pulling down the values of all homes in the area. Jamie Dimon, Lloyd Blankfein, and most of the rest of Wall Street don’t worry about what’s happening to homes on Main Street because their savings are invested in stocks and bonds. But most middle-class Americans do worry because most (if not all) of their savings are in their homes. As home values continue to slip, average Americans’ one big asset is shrinking. The best way to help reverse this downward slide would be to let bankruptcy judges restructure shaky home mortgages, reducing what borrowers owe. The problem is, the big banks hate this. If mortgages could be restructured this way, the banks would take big hits. They’d be forced to cut the amounts owed by borrowers. They figure they do better by squeezing as much as they can out of distressed homeowners, then collecting as much as they can on foreclosed properties. So, not surprisingly, the big banks have been mounting a major lobbying campaign to block legislation that would allow homeowners to use bankruptcy. Bankruptcy has been part of the “free market system” for hundreds of years, but its details are determined through politics – the same politics that arranged the $700 billion bailout of Wall Street. In fact, you might say that during 2009, Wall Street went through its own kind of bankruptcy restructuring, with the generous aid of American taxpayers. JP Morgan Chase, Goldman Sachs, Morgan Stanley, Bank of America, Citigroup and Wells Fargo, along with their top executives, traders, and major investors, have benefited handsomely. Now, a quarter of American homeowners need help restructuring their loans, but Wall Street is blocking the way. Rather than defending the outsized paychecks of Dimon, Blankfein, and the rest of Wall Street as part of the free market system, the President needs to demand that Wall Street help homeowners on Main Street. The Obama White House should have made this a condition of getting the giant bailouts in the first place. The least it can do now is to is to make the free market system work for everyone.

The National Anthem -- And Why We Need Health Care Reform So Desperately

Tue, 09 Feb 2010 18:55:00 -0500

My health insurer here in California is Anthem Blue Cross. When I first opted for it, it was just called Blue Cross. Then, a year or so back, I was notified that an entity called “Anthem” would now be running my insurance policy. I didn’t think much about it at the time. I’ve had the usual problems most people have with their health insurers – confusing bills, co-payments and deductibles that never seem to add up, a bureaucracy that gives every impression of being more interested in fighting me than helping me — but nothing more.

Now, Anthem Blue Cross is going a step further. It’s raising rates for individual policyholders by as much as 39 percent. That’s fifteen times faster than inflation. So far, my group policy hasn’t been affected but I’m expecting the worst.

Anthem says it has no choice. It says the recession has forced many policyholders to drop coverage because they can’t afford it. So Anthem has to spread its costs over a much smaller pool, which ratchets up the cost of each. In addition, says Anthem, too many of those remaining policyholders have greater medical needs than the average. So Anthem is just doing what it has to do to survive.

This argument sounds logical until you look more closely. First, Anthem and its corporate parent, WellPoint, are enormously profitable. WellPoint’s profits rose to $2.7 billion last quarter. Even if you subtract one-time-only financial maneuvers, WellPoint is still fat and happy, which makes Anthem fat and happy. Everyone is fat and happy except Anthem’s policy holders, who are being skewered.

Anthem’s argument is even more questionable when you consider that Anthem has been among the most aggressive opponents of the health-care bills passed by the House and Senate. If Anthem were sincere about why it’s raising its rates, it would be embracing the legislation. The Senate and House bills would add tens of millions of Americans to insurance pools – thereby spreading the costs over more people and avoiding the very problem Anthem says is now forcing it to raise its rates so much.

Even more troubling is the fact that Anthem obviously believes it can raise its rates by as much as 39 percent without losing every one of its remaining customers with average or even somewhat above-average medical needs. The only way it could possibly raise its rates so high and expect to keep its customers would be if Anthem’s customers have no other choice. In other words, Anthem’s strategy makes sense only if Anthem faces little or no competition from other health insurers.

I wouldn’t be surprised if this were the case. Insurers, remember, are exempt from the federal antitrust laws. And WellPoint, Anthem’s parent, is the largest insurer in America.

Anthem is a microcosm of what ails our private for-profit health insurance system – the most expensive in the world, whose costs are rising faster than anywhere in the world; a system rapidly becoming unaffordable to more and more Americans, in which insurers are rapidly consolidating into behemoths that have almost no competitors. And a system in which the biggest health insurers are lobbying like mad against reform because they like things just the way they are. They can squeeze the public and the public has no alternative but to pay up.

All this makes Anthem one of he best arguments for reform — which is probably why the President mentioned Anthem today when he emerged from what was billed as a “bipartisan” meeting to talk about health care and jobs.

Obama says he’s open to any new ideas from Republicans for how to control health care costs and expand coverage. The problem is Republicans don’t want to play this game. They don’t care about controlling costs or expanding coverage. They care only about taking back the House and/or the Senate next November. And they believe a means toward attaining this goal is to prevent Obama from achieving a victory on health care. The sooner the President accepts that undeniable fact — and gets the House to pass the Senate’s bill, and then uses the reconciliation process (that requires only 51 votes in the Senate) to deal with any remaining irreconcilable differences between the House and Senate — the better.

In the meantime, next chance I get I’m switching to another insurer — if that makes any difference at all in what I pay or the service I get, which seems increasingly doubtful. I’m also joining any Tea Party of mad-as-hellers fed up with how Big Insurance, Big Pharma, Wall Street, and much of the rest of corporate America have taken over our democracy.

Obamanomics One Year Out

Tue, 09 Feb 2010 00:24:00 -0500

Obamanomics suffers from a misunderstanding of what the President is trying to achieve and what he’s up against. Into the breach come Republicans, Tea Partiers, nay-sayers, deficit vultures, and Raging-Dog Democrats, all viewing Obamanomics as more taxes and more spending. That’s nonsense. To see the big picture, keep your eye on three big things.

1. Government spending needed to offset the continued reluctance of consumers and businesses to spend. You don’t have to be an orthodox Keynesian to understand that as long as the private sector is deleveraging, the public sector has to borrow and spend in order to keep the economy moving forward.

The current stimulus will peak in a few months. Add in unemployment insurance payments and outlays for the jobs bill, and the stimulus will be about $90 billion larger. But this sum is not likely to be enough to make up for the shortfall in private spending. Consider also that state and local governments are also slashing jobs and services – and raising taxes about $350 billion over this year and next – and Obama needs to spend more.

Just look at projected unemployment. Since the start of the recession in December 2007, the labor market has shed 8.4 million payroll jobs. Add to these the number of new jobs needed to keep up with population growth and we’re about 11 million jobs behind the pre-recession unemployment rate. To fill the 11 million jobs gap, employment would have to increase by over 400,000 jobs every month for the next three years, starting now.

The Council of Economic Advisors foresees 10 percent unemployment through the rest of 2010, falling only to 9.2 percent in 2011. The result is a giant drag on the economy, not to mention pain for millions of American families. High unemployment also allows firms to keep wages low. That’s good for corporate profits but not for their customers, who are someone else’s employees. America can’t have a vigorous recovery when consumers are this anxious about their jobs and wages.

The federal budget deficit is a huge problem, to be sure. But you need to distinguish between deficits occurring this year and next when the economy is still trying to climb out of a hole, and deficits five to ten years from now. If government doesn’t spend enough in the short term to get jobs back, those out-year deficits will be even larger because tax revenues will be lower than otherwise and we’ll be spending more on unemployment benefits. The public doesn’t quite get this distinction, which is probably why the President thought it necessary to freeze discretionary nonmilitary spending.

2. The boomers now speeding toward retirement. Neither party wants to deal with the inevitable consequences for Medicare and Social Security. The President’s idea for a bi-partisan congressional commission on the deficit was too large and amorphous to gain the support it needed. He’d do better to try for a bi-partisan commission that focused just on these two giant entitlement programs. Social Security is an easier fix than Medicare, but the growth of both have to be tamed. In the 1980s, Alan Greenspan chaired a commission to deal with Social Security’s pending problems that came up with fixes Congress implemented.

Don’t get confused by the size of the numbers at stake. Pay attention to the ratio of cumulative debt to the size of the national economy. That will tell you how easily we can manage the debt. The debt-to-GDP ratio right now is close to 53 percent – still in the manageable zone. But after the boomers hit retirement, it will soar. One of the most telling figures in the President’s budget document is the Congressional Budget Office’s projection that by 2020 the debt-to-GDP ratio will be 77 percent, assuming no entitlement reforms. That’s bad news. The ratio is moving in the wrong direction. At some point, the dollar could tank and interest rates explode.

3. Mad-as hell politics. The economic stresses of continued high unemployment and low wages are contributing to the growth of the “I’m Mad As Hell” Party – a rag-tag collection of Tea Partiers furious at establishment Republicans, left-wing Democrats angry at what they consider lily-livered Democrats in Washington, and Independents disgusted with everybody inside the Beltway.

Mad-as-hellers on the right hate government; mad-as-hellers on the left hate big business. Both share a growing sense that the economic game is rigged against them. The two are also united by how much they detest Wall Street and its bailout, and their contempt for any cozy relationship between big business and government. They distrust the Fed, and have no particular fondness for international trade, either. Mad-as-hellers are likely to be a formidable force in the upcoming midterms and beyond.

Obama is responding. That’s one way to view his newly-proposed crackdown on Wall Street – limiting the size and potential risks big banks can take on, and imposing new fees on the biggest banks designed to repay outlays for the bailout. It also explains why the President is making another attempt to increase taxes on the overseas earnings of multinational corporations, and reduce tax breaks for hedge-fund managers and oil and gas companies. And why he feels it’s a good time to let the Bush tax cuts expire on higher-income individuals (whose propensity to spend is limited even absent higher taxes), although not on the middle class.

The mad-as-hellers’ influence could also be seen in the Senate’s initial resistance to confirm Ben Bernanke for another term as Fed Chair, and in continued congressional threats to the independence of the Fed. Trade agreements have also suffered. The President’s single trade request during his first year of office – duty-free status on exports from Afghanistan and Pakistan, in order to boost employment in these troubled areas and thereby counter terrorist groups – was shot down by Congress. Pending trade agreements with South Korea and Columbia have been put on hold.

In sum: If you want to understand Obamanomics one year out, look at the demand-side hole we’re still in, the gargantuan boomer deficit we’re heading for, and the mad-as-hell party these bad times have spawned. How Obama deals with all three will be the real economic test of his presidency.

Who's Killing Financial Reform?

Thu, 04 Feb 2010 16:53:24 -0500

Senator Chris Dodd, the chairman of the Senate Banking Committee, scolded Wall Street representatives at a hearing Thursday for sending “an army of lobbyists whose only mission is to kill the common-sense financial reforms” needed by the public. “The fact is,” Dodd said, “I am frustrated, and so are the American people.” He charged that Wall Street’s intransigence was the reason for Congress’s failure to pass any bill to regulate the Street. “The refusal of large financial firms to work constructively with Congress on this effort borders on insulting to the American people who have lost so much in this crisis.”

In other words, it isn’t Congress’s fault. It isn’t the Senate Banking Committee’s fault. It certainly isn’t Dodd’s fault. The reason more than a year has passed since the biggest bailout in the history of the world and nothing has been done to prevent a repeat performance — even as the biggest banks are doling out more than $30 billion of bonuses, even as Goldman Sachs is awarding its big traders $16 billion in bonuses (more than the $13 billion Goldman collected from taxpayers via the bailout of AIG), even as AIG itself is handing out bonuses — the reason is … what, exactly, Senator? Because the Street has sent an army of lobbyists to Capitol Hill?

Call me old fashioned, but I thought Congress was in charge of passing legislation, not Wall Street.

Dodd left out the most telling detail, of course. Wall Street is where the campaign money is. Dodd of all people knows that. He’s been on the receiving end of lots of it over the years.

Wall Street firms and their executives have been uniquely generous to both political parties, emerging recently as one of the largest benefactors of the Democratic Party. Between November 2008 and November 2009, Wall Street firms and executives handed out $42 million to lawmakers, mostly to members of the House and Senate banking committees and House and Senate leaders. During the 2008 elections, Wall Street showered Democratic candidates with well over $88 million and Republicans with over $67 million, putting the Street right up there with the insurance industry as among the nation’s largest equal-opportunity donors.

Some Democrats are quietly grumbling that all the tough talk emanating from the White House in recent weeks — the President calling the Street’s denizens “fat cats” and threatening them with limits on their size and the risks they can take, even waiving a watered-down version of Glass-Steagall in their faces — is making it harder to collect money from the Street this mid-term election year. And the Street is quietly threatening that it may well give Republicans more, if the saber-rattling doesn’t stop.

Congress isn’t doing a thing about Wall Street because it’s in the pocket of Wall Street. Dodd’s outburst at the Street is like the alcoholic who screams at a bartender “how dare you give me another drink when all I’ve done is pleaded with you for one!”

Dodd is right about one thing. The American people are frustrated, and the failure of Congress to pass real financial reform is insulting. But in trying to place responsibility for this appalling failure on Wall Street, Dodd insults us even more.

Our Incredible Shrinking Democracy

Tue, 02 Feb 2010 10:39:00 -0500

I wish conservatives would stop complaining about big government and start worrying about the real problem – small democracy. I wish we’d all worry more about our incredible shrinking democracy.

It seems as if more and more decisions that should be made democratically are being shunted off somewhere to a few people who make them in back rooms. Which programs should be cut, which entitlements pared back, and what taxes raised in order to reduce the long-term budget deficit? Hmmm. Let’s convene a commission and have them decide.

Commissions are a default mechanism when politicians want to hand off difficult issues to “experts.” But reducing the long-term budget deficit has almost nothing to do with expertise. It’s about our nations’ values and priorities. Nothing could be more central to the democratic process.

Democracy requires at least three things: (1) Important decisions are made in the open. (2) The public and its representatives have an opportunity to debate them, so the decisions can be revised in light of what the public discovers and wants. And (3) those who make the big decisions are accountable to voters.

But these principles are in retreat, and I say this not just because of the proposed deficit commission.

The notorious Troubled Assets Relief Program (TARP) began with a virtual blank check from Congress. Treasury officials then secretly decided which companies were to receive hundreds of billions of dollars. Why these particular entities were chosen and not others remains a mystery. For months, the Treasury didn’t even disclose the identities of the major banks that giant insurer AIG repaid with its bailout money – 100 cents on each dollar AIG owed them.

The Federal Reserve, meanwhile, has gone far beyond its traditional role of setting short-term interest rates. It has bought up massive amounts of debt – mortgage debt, Treasury bills, and debt instruments emanating several public agencies, many of them supporting a wide range of private entities. No one outside the Fed knows the ultimate beneficiaries of all this government backing, the criteria used by the Fed for making these commitments, or even how much debt the Fed is buying.

Even if the economic emergency justified such secrecy – and it’s hard to see exactly why it would – the emergency is over, and yet closed-door decision making continues. Will Treasury use what’s left of TARP to help stimulate more jobs and, if so, how? Will the Fed stop buying mortgage-backed securities? No one knows.

The same pattern is evident on other issues. Congress can’t decide whether or how to limit the pay of financial executives. So where does the issue end up? The Securities and Exchange Commission and the Fed both say they’re going to look at whether pay levels are appropriate. The House and Senate can’t agree on what to do about climate change. Who decides? The Environmental Protection Agency concludes it has authority to regulate carbon emissions under the Clean Air Act.

The debate over health-care reform looked like democratic deliberation until you realize the key negotiations that framed the deal occurred behind closed doors, between the White House and Big Pharma and Big Insurance. The Administration promised these industries some thirty million new paying customers. In return, they agreed not to oppose the plan. Big Pharma even placed a firm limit on how much it would cut its costs over the next ten years – $80 billion, and not a penny more. How do I know this? Not because this crucial deal was made in public, but because it was leaked to the press.

Personally, I want the government to limit the pay of financial executives, regulate greenhouse gases, and reform health care. And no one wanted a financial meltdown. But I’m appalled by the process that’s been used to reach these objectives.

A big piece of the problem is this: Washington is now so overrun by lobbyists representing moneyed interests that it’s become almost impossible to make policy in the open. If the Treasury and Fed tried to decide publicly which industries and firms should get hundreds of billions, they’d be inundated. Wall Street lobbyists are blocking real financial reform. The energy industry has filled the House’s cap-and-trade bill with special subsidies and exemptions. Big Pharma and Big Insurance would have killed off the health-care reform if they hadn’t been bought off. When it comes to the long-term deficit, Congress is incapable of acting because so many special interests have their hands out.

But the answer isn’t to give up on democracy. Back-room policy making can succumb to private interests just as easily as lobby-infested legislatures (much of the public suspects the Treasury of being too cozy with Wall Street as it is).

The real answer is to recommit ourselves to cleaning up democracy. Yes, I know: The Supreme Court’s recent grotesque Citizens United vs. Federal Election Commission, which decided corporations are people entitled to First Amendment protection, complicates this. But the goal is still possible to achieve with more public money for congressional and presidential candidates who refuse private funding, more constraints on lobbyists, tighter rules for who must register as a lobbyist, fuller disclosure, and tougher rules on the revolving door between public service and private gain. Yale’s Bruce Ackerman recently came up with another good idea: A $50 tax credit per person, which they can send to the candidate of their choosing.

Yet nobody seems to be talking about these sorts of reforms. They don’t appear on Obama’s agenda. True, they don’t generate lots of public excitement or appreciation, and they’re murderously difficult to enact. But without them our democracy doesn’t stand a chance.

(I wrote a version of this for the current issue of “The American Prospect.”

Obama Needs To Teach The Public How to Get Out Of The Mess We're In, But He's Not

Thu, 28 Jan 2010 20:33:00 -0500

The President wants businesses that hire new employees this year to get $5,000 per hire, in the form of a tax credit. That will come to about $33 billion. It’s good step. He’s also supporting a cut in the capital gains tax for small businesses. That makes sense; after all, small businesses generate most jobs.

But here’s the problem. Both of these measures, and many of the other tax cuts he’s proposing, give ammunition to supply-siders who think the way out of this awful economy is simply to cut taxes on businesses. If a new jobs tax credit is a good idea, why not a cut corporate in income taxes? If it’s useful to reduce capital gains taxes for small businesses, why isn’t it useful to reduce them for all businesses?

The answer, of course, is that across-the-board supply-side tax cuts for businesses don’t increase the demand for the things businesses produce. They’re useful only to the extent businesses are confident consumers are out there, able and willing to buy. Carefully targeted — as are the cuts the President is proposing — they can give businesses an extra nudge to hire. But without adequate demand, they’re useless.

So what’s the President’s new proposal for boosting overall demand? Hmmm. Turns out, he’s not really proposing anything new on that score. (Some who watched his State of the Union the other night thought they heard him call for a second stimulus. Actually, he didn’t, and as far as I can tell he doesn’t plan to.) His political advisors are telling him to emphasize deficit reduction instead. And that’s what he did Wednesday night when he talked about a “freeze” on discretionary spending, and a “commission” to look for ways to cut the deficit.

I can understand why Obama’s political advisors are pushing him in this direction. Many Americans borrowed too much during the boom years before the Great Depression, and now they’re paying the price. So they naturally analogize their own plight to that of the federal government and the economy as a whole. The government is too deep in debt, they reason. Logically, that means the only way out of the nation’s economic doldrums is for the government to mend its ways. The government has to reduce its budget deficit just like American families have to reduce theirs.

This analogy is faulty, of course. If John Maynard Keyenes taught us anything, it’s that a federal budget is not at all like a family budget. In fact, it’s precisely because families have to pull in their belts that the federal government has to let its belt out. When consumers and businesses aren’t buying much of anything, the government has to fill the gap. That’s the only way to get jobs and get the economy moving again. Once the economy is percolating, the government can pull back. By then, tax revenues will soar, and the long-term deficit will shrink. (And yes, entitlement reform is probably necessary in the long term. But here again, it’s vitally important to separate the long term from the now.)

But if the public learns the wrong set of lessons — that tax cuts for businesses are good, and deficit reduction starting now is good — there’s no hope for getting wise policies out of Congress. The debate is framed all wrong.

The President — any president — is the nation’s educator in chief. Everything he proposes contains an implicit lesson. The economic lesson President Obama ought to be teaching is that targeted tax cuts, mostly for small business, are good to the extent they give businesses a nudge toward creating more jobs. But businesses won’t begin to create lots of jobs until they have lots of customers. And that won’t happen until lots more Americans have work. The only way to get them work when businesses aren’t hiring is for government to prime the pump.

One final lesson I wish he’d teach: The best and fastest way for government to prime the pump is to help states and locales, which are now doing the opposite. They’re laying off teachers, police officers, social workers, health-care workers, and many more who provide vital public services. And they’re increasing taxes and fees. They have no choice. State constititions require them to balance their budgets. But the result is to negate much of what the federal government has tried to do with its stimulus to date.

We need a second stimulus directed at states and locales. I wish our educator-in-chief would say that loud and clear, explain why, and then do it.

On financial reform, Dec, 2009 (Produced by Jacob Kornbluth and...

Thu, 28 Jan 2010 16:43:58 -0500

On financial reform, Dec, 2009 (Produced by Jacob Kornbluth and Raub Shapiro)

On the fight for a public option, Oct 20, 2009 (Produced by...

Thu, 28 Jan 2010 16:39:00 -0500

On the fight for a public option, Oct 20, 2009 (Produced by Jacob Kornbluth and Raub Shapiro)

Conan O’Brien and Robert Reich

Thu, 28 Jan 2010 15:41:00 -0500

Conan O’Brien and Robert Reich

Obama's Tiny Jobs Ideas for Main Street, A Big Spending Freeze for Wall Street

Mon, 25 Jan 2010 20:00:00 -0500

President Obama today offered a set of proposals for helping America’s troubled middle class. All are sensible and worthwhile. But none will bring jobs back. And Americans could be forgiven for wondering how the President plans to enact any of these ideas anyway, when he can no longer muster 60 votes in the Senate.

The bigger news is Obama is planning a three-year budget freeze on a big chunk of discretionary spending. Wall Street is delighted. But it means Main Street is in worse trouble than ever.

A pending freeze will make it even harder to get jobs back because government is the last spender around. Consumers have pulled back, investors won’t do much until they know consumers are out there, and exports are miniscule.

In December 1994, Bill Clinton proposed a so-called “middle class bill of rights” including more tax credits for families with children, expanded retirement accounts, and tax-deductible college tuition. Clinton had lost his battle for health care reform. Even worse, by that time the Dems had lost the House and Senate. Washington was riding a huge anti-incumbent wave. Right-wing populists were the ascendancy, with Newt Gingrich leading the charge. (In an earlier posting I included Fox News but that gave them too much credit; their fulminations started a few years later.) Bill Clinton thought it desperately important to assure Americans he was on their side.

Two months later, Clinton summoned Dick Morris to the White House to figure out how Clinton could move to the right and better position himself for reelection. The answer: Balance the budget.

But in 1994, Clinton’s inconsistencies didn’t much matter. The U.S. economy was coming out of a recession. It was of no consequence that Clinton’s jobs proposals were small or that he moved to the right and whacked the budget, because within a year the great American jobs machine was blasting away and the middle class felt a lot better. Dick Morris was not responsible for Clinton’s reelection. Nor was Clinton’s move to the right. What reelected Bill Clinton in 1996 was a vigorous jobs recovery that was on the way to happening anyway.

Today, though, there’s no sign on the horizon of a vigorous recovery. Jobs may be coming back a bit in the next months but the country has lost so many (not to mention all those who have entered the workforce over the last two years and still can’t land a job) that it will be many years before the middle class can relax. Furthermore, this recession isn’t like other recessions in recent memory. It has more to do with problems deep in the structure of the American economy than with the ups and downs of the business cycle.

Like Clinton’s, Obama’s package of middle class benefits is small potatoes. They’re worthwhile but they pale relative to the size and scale of the challenge America’s middle class is now facing. Obama can no longer afford to come up with lists of nice things to do. At the least, he’s got to do two very big and important things: (1) Enact a second stimulus. It should mainly focus on bailing out state and local governments that are now cutting services and raising taxes, and squeezing the middle class. This would be the best way to reinvigorate the economy quickly. (2) Help distressed homeowners by allowing them to include their mortgage debt in personal bankruptcy — which will give them far more bargaining leverage with morgage lenders. (Wall Street hates this.)

Yet instead of moving in this direction, Obama is moving in the opposite one. His three-year freeze on a large portion of discretionary spending will make it impossible for him to do much of anything for the middle class that’s important. Chalk up another win for Wall Street, another loss for Main.

What the "I'm Mad-As-Hell" Party Could Do

Sun, 24 Jan 2010 02:37:00 -0500

A third political party is emerging in America. Call it the I’m-Mad-As-Hell party.

It’s a mistake to see the Mad-As-Hell party as just a right-wing phenomenon – the so-called Tea Partiers now storming the gates of the Republican Party. There are plenty of mad-as-hellers on the left as well – furious at Wall Street, health insurers, pharmaceutical manufacturers, and establishment Democrats.

Mad-as-hellers don’t trust big government. But they don’t trust big business and Wall Street, either. They especially hate it when big government gets together with big business and Wall Street – while at the same time Main Street is in shambles and millions of people are losing their jobs and homes.

First it was TARP, the giant bank bailout that seems to have made Wall Street flush again — so flush the Street is now distributing giant bonuses as if the crash it brought on never happened.

Then came the stimulus package, replete with earmarked goodies for every corporation big enough to hire a team of Washington lobbyists.

And then it was health care, which to some people looked like a sweetheart deal between government and Big Pharma and big health insurers.

To the Mad-As-Hell party, the biggest event last week wasn’t Scott Brown’s upset victory in Massachusetts. It was the Supreme Court’s decision in Citizen’s United vs. the Federal Election Commission, allowing corporations to spend however much they want on political campaigns. True mad-as-hellers see this as inviting even more collusion between big business, Wall Street, and big government – and against the rest of us.

With the mid-term elections months away, both Republicans and Democrats are scrambling to embrace the Mad-As-Hell Party as their own. Republicans are hoping the mad-as-hellers forget the gushing corporate welfare of the Bush administration and the last Republican congress. And Democrats have become born-again economic populists, blaming the nation’s problems on the same “fat cat” bankers and corporate lobbyists they’ve been cozying up to for years.

If the Mad-as-hell Party helps get money out of politics it will do a world of good. I might even join up. But if it just fulminates against the establishment, forget it. Wrecking balls are easy to wield. Rescuing our democracy is hard work.