Is Obama the Modern Day FDR?

With Obama catching flak from both the left and the right these days, Edward Harrison has a very interesting post on Naked Capitalism that challenges the prevailing wisdom that Obama has the opportunity to be FDR. Harrison disagrees:

I have said before that Barack Obama is in a political and economic position more akin to Herbert Hoover than Franklin Roosevelt. Hoover dealt with a sick economy that was still falling. Roosevelt entered the White House after a large percentage of the economic damage had been done. I believe the economic situation for Obama is certainly less severe than it was for Hoover, but still precarious. I do not mean to say that Obama is the ‘black Herbert Hoover’ as my friend Yves keeps pointing out. I do mean to say that he needs to be thinking of himself as Hoover and not Roosevelt to have the right mental predisposition of what’s at stake.

So, from a purely Machiavellian perspective, Obama needs to jettison the professorial above-the-fray coolness and get down in the trenches and fight for what he believes in. And that means he is going to have to run roughshod over his enemies.

And Harrison has a very clear idea as to how Obama needs to behave.

Put bluntly, Obama needs to be an asshole. Right now it looks like he is willing to compromise on any and every issue. Yes, compromise is an integral part of leadership and governance. But, there is a time for compromise and a time to fight.

Maybe it's time for Barack to showcase his inner Rahm.

Bipartisanship in the Modern Age

Brad DeLong challenges the basic concept of bipartisanship in the modern political era by looking back to a joint appearance by Paul Krugman and Alice Rivlin, former head of the CBO and the OMB. The discussion turned to the role that independent policy advocates could have on crafting policy and their impact on Congressional deliberations leading to bipartisan legislation. Krugman quite effectively punctures that optimistic bubble in the second paragraph.

A couple of years ago there was a debate I was sorry I did not see, between Alice Rivlin and Paul Krugman. Alice Rivlin thought that organizations like the Brookings Institution at which she worked had a role: you could design and argue for good policies, convince senators and influential House members of their value for the public interest, and then build a bipartisan coalition from the center out--either to the left or to the right, depending on which ideological extreme's price for coming on board to support sensible policies that worked was least obnoxious.

Paul Krugman said no: that that strategy worked only as long as the ideological lines of party cleavage were blurred, which would be the case only as long as there were (a) a larger number of relatively liberal northerners who voted Republican because Lincoln freed the slaves, and (b) a large number of relatively conservative southerners who voted Democratic because Lincoln freed the slaves. Once the parties realigned, zero-sum partisan loyalties would dominate: Republicans like Hatch would think hard whether it was more important to vote for a bill because it was good for America or vote against it because then you could paint the Democratic president as a failure and pick up seats in the next election, and make their decision. You had, Paul said (I think: I wasn't there) to pick your party and then work hard to make its policies the best policies possible because "bipartisanship" was no longer a viable legislative strategy.

We saw this in 1993, when Clinton's centrist bipartisan deficit-reducing budget--half tax increases, have spending cuts--attracted not a single Republican vote. We saw this in February, when Obama's centrist stimulus package--2/3 spending increases, 1/3 tax cuts (Clinton was Mr. 43%, Obama is Mr. 54%), and 2/3 the size that would have been appropriate--attracted zero Republican votes in the House and only three in the Senate. We are seeing this on cap-and-trade, where the number of Republicans willing to sign on to do something about global warming if they can then shape the bill in the direction of economic efficiency is close to zero, and now on health care too.

Nothing New Under the Sun

We are in the era of birthers, who challenge where Obama was born, and deathers, who imagine government-run death panels killing Grandma. But as Rick Perlstein notes in an op-ed in the Washington Post (h/t Josh and LSK), wingnut lunacy is nothing new.

In the early 1950s, Republicans referred to the presidencies of Franklin Roosevelt and Harry Truman as "20 years of treason" and accused the men who led the fight against fascism of deliberately surrendering the free world to communism. Mainline Protestants published a new translation of the Bible in the 1950s that properly rendered the Greek as connoting a more ambiguous theological status for the Virgin Mary; right-wingers attributed that to, yes, the hand of Soviet agents. And Vice President Richard Nixon claimed that the new Republicans arriving in the White House "found in the files a blueprint for socializing America."

When John F. Kennedy entered the White House, his proposals to anchor America's nuclear defense in intercontinental ballistic missiles -- instead of long-range bombers -- and form closer ties with Eastern Bloc outliers such as Yugoslavia were taken as evidence that the young president was secretly disarming the United States. Thousands of delegates from 90 cities packed a National Indignation Convention in Dallas, a 1961 version of today's tea parties; a keynote speaker turned to the master of ceremonies after his introduction and remarked as the audience roared: "Tom Anderson here has turned moderate! All he wants to do is impeach [Supreme Court Chief Justice Earl] Warren. I'm for hanging him!"

Before the "black helicopters" of the 1990s, there were right-wingers claiming access to secret documents from the 1920s proving that the entire concept of a "civil rights movement" had been hatched in the Soviet Union; when the landmark 1964 Civil Rights Act was introduced, one frequently read in the South that it would "enslave" whites. And back before there were Bolsheviks to blame, paranoids didn't lack for subversives -- anti-Catholic conspiracy theorists even had their own powerful political party in the 1840s and '50s.

Seniors and the Health Care Debate

As the orchestrated health care reform mayhem of the town halls continues into its third week, one notable aspect is that the preponderance of protesters come from the over-65 demographic, which is of course, the very same group that already benefits from a national, socialized health care system....Medicare. James Kwak at Baseline Scenario comments further:

What are the underlying reasons why seniors are more likely to oppose “reform?” The first – leaving aside the self-contradicting notion that health care reform will mean a government takeover of Medicare – is probably fear that Medicare will be negatively affected. Now, there is a grain of a partial truth to this fear. Several of the proposals on the table include paying for health care reform (meaning, paying for the subsidies that poor people will need if we’re going to mandate universal coverage) in part by reducing growth in Medicare spending. One proposal is the Independent Medicare Advisory Committee, which would look for ways to increase efficiency in Medicare, which could include lower reimbursements for procedures that were deemed to be not providing benefits commensurate with their costs.

Kwak then touches on one of the fundamental conundrums that fiscally conservative Medicare recipients have to grapple with, namely that

concern about health care costs rises with age. Now this makes sense; even with Medicare, seniors’ out-of-pocket medical expenses are considerably higher than those of younger people, for the simple reason that on average they consume more medical care. But there’s no good way to reduce seniors’ out-of-pocket spending without at the same time reducing Medicare spending because, broadly speaking, those two types of spending are buying the same thing – health care. You can’t have a system where Medicare spends more and more yet seniors spend less and less out of pocket (short of simply reducing seniors’ relative contribution to their health care costs, which would only make the fiscal problem worse).

It’s simply contradictory to oppose reductions in the growth rate of Medicare spending while favoring reductions in your out-of-pocket spending.

No answers here, but another aspect to an interesting problem with the healt care debate, namely that support is lowest among the group that already benefits from and has the greatest need for a national plan. At the same time, they worry about cost control, just so long as it doesn't affect them!

The Essence of Health Insurance Reform

Direct from the White House website, Eight principles for health insurance consumer protection:

• No Discrimination for Pre-Existing Conditions - Insurance companies will be prohibited from refusing you coverage because of your medical history.

• No Exorbitant Out-of-Pocket Expenses, Deductibles or Co-Pays - Insurance companies will have to abide by yearly caps on how much they can charge for out-of-pocket expenses.

• No Cost-Sharing for Preventive Care - Insurance companies must fully cover, without charge, regular checkups and tests that help you prevent illness, such as mammograms or eye and foot exams for diabetics.

• No Dropping of Coverage for Seriously Ill - Insurance companies will be prohibited from dropping or watering down insurance coverage for those who become seriously ill.

• No Gender Discrimination - Insurance companies will be prohibited from charging you more because of your gender.

• No Annual or Lifetime Caps on Coverage - Insurance companies will be prevented from placing annual or lifetime caps on the coverage you receive.

• Extended Coverage for Young Adults - Children would continue to be eligible for family coverage through the age of 26.

• Guaranteed Insurance Renewal - Insurance companies will be required to renew any policy as long as the policyholder pays their premium in full. Insurance companies won't be allowed to refuse renewal because someone became sick.

While there is no doubt that health care reform requires that cost inflation be addressed or the country will face bankruptcy, the eight points listed above would go a long way toward addressing the inequities of the current system. And if the final legislation is built around these principles, we will have achieved a great victory for the health and welfare of all Americans!

Ezra Klein has an interesting item on the current state of relations between the business community and the GOP on health reform.  First, he notes the conundrum:

We're seeing something very interesting right now. A Republican Party unmoored from its traditional supporters in the business community. A conservative base that wants something that the health care industry doesn't want. For those whose mental model of the Republican Party is that it's essentially a vessel for corporate interests, that model is about to receive a dramatic test.

Then the comparison between 1994 and today:

One difference between 1994 and 2009 is that the health-care industry and the business community range from neutral to supportive of the White House. The Chamber of Commerce, in fact, is running ads against Republicans who are opposing health-care reform. AHIP wants a deal. So does Pharma. They may not want the deal that liberals want. The deal they want may, in fact, be bad. But their preferred outcome is a lot closer to the White House's vision of success than it is to Mitch McConnell's vision of success.

Republicans, however, are no more supportive of health-care reform than they were in 1994. Conservatives are exactly as angry. The town halls are, if anything, louder and more brutal. Talk radio is up in arms. The controversy and chaos are scaring the broader public. No one wants a health care bill that might contain a euthanasia provision.

We're about to see a very interesting test case: Can the business community and the health care industry deliver Republican votes? Will their presence on the side of reform -- even if only nominally so -- change the outcome? Or has the opposition of industry been an excuse for past failures, and it's in fact the minority party's incentive to kill reform that's foiled each and every attempt?

Goldman Sachs & the AIG Bailout

Questions remain as to the role that Bush Treasury Secretary Hank Paulson permitted Goldman Sachs to play at crucial points during the September economic near-meltdown. As the former head of Goldman, Paulson had pledged to follow strict ethics guidelines. But as Matt Taibbi notes on his blog, the conflict of interest was immense, and Goldman had unprecedented access at the most critical points in the crisis.

Aside from the Fed, the Treasury, and the New York State Department of Insurance, the main players involved in the AIG bailout that weekend were AIG (obviously), JP Morgan, Morgan Stanley, and Goldman Sachs. There were swarms of bankers from the latter three banks there that weekend, poring over AIG’s books, trying to figure out if AIG could be rescued without government help.

Now, we know why AIG was there, obviously. Morgan Stanley was there representing the Treasury (it had been hired to advise the Treasury on the bailouts by Paulson during the Fannie/Freddie mess, with the rumor being that it was the only bank willing to give up market positions that would have left it too conflicted to do the work). JP Morgan we know was there because AIG had hired them weeks before to come in and try to clean up its messes. Only Goldman Sachs did not have an official role at these proceedings.

So why was Goldman there? And why was Paulson calling Goldman two dozen times that week? This is one of the other problems with Gasparino’s account (”of course” Blankfein was there that weekend, he says, not telling us why this is so obvious). I’m not sure I’ve ever seen an official explanation for why Goldman was there that weekend; the ostensible explanation that most people seem to accept is that Goldman naturally was there because it was such a large counterparty to AIG.

But I suspect we’re going to find that Paulson was not on the phone two dozen times with executives from Deutsche Bank or Societe Generale or Barclays or Calyon, all of whom were significant counterparties to AIG as well. Goldman was not even AIG’s largest counterparty in the sec-lending wing of its business (Deutsche Bank was, and would eventually receive $7 billion via the bailout as a result), and yet as far as I know there were no Deutsche reps there that weekend at all. So what made Goldman special?

Is it Really Health Insurance?

James Kwak of Baseline Scenario shines the spotlight on a rarely discussed aspect of employer-provided health insurance, namely is it really insurance? Normal insurance is a contract between the insurer and the customer to protect against specified risks. However, Kwak zeroes in on the problem:

If, like most people, your health coverage is through your employer or your spouse’s employer, that is not what you have. At some point in the future, you will get sick and need expensive health care. What are some of the things that could happen between now and then?

• Your company could drop its health plan. According to the U.S. Census Bureau (see Table HIA-1), the percentage of the population covered by employer-based health insurance has fallen every year since 2000, from 64.2% to 59.3%.*
• You could lose your job. I don’t think I need to tell anyone what the unemployment rate is these days.**
• You could voluntarily leave your job, for example because you have to move to take care of an elderly relative.
• You could get divorced from the spouse you depend on for health coverage.

For all of these reasons, you can’t count on your health insurer being there when you need it. That’s not insurance; that’s employer-subsidized health care for the duration of your employment.

Once you lose your employer-based coverage, for whatever reason, you’re in the individual market, where, you may be surprised to find, you have no right to affordable health insurance. An insurer can refuse to insure you or can charge you a premium you can’t afford because of your medical history. That’s the way a free market works: an insurer would be crazy to charge you less than the expected cost of your medical care (unless they can make it up on their healthy customers, which they can’t in the individual market).

And needless to say, all of these disqualifying events are far more likely to occur if you or your spouse get sick. Kwak goes on to point out that these problems do not exist for the over-65 Medicare-eligible population (which may explain the lower level of support for reform in that age group), who do have guaranteed coverage. But for the rest of Americans, the current system is a bad bet, with a limited payoff.

Rescission or Russian Roulette??

A truly fascinating analysis of the impact of health insurance rescission by Taunter Media (h/t Naked Capitalism), a topic that came up in June during House hearings on insurance company practices. The CEO of Assurant (a California insurer) stated in his prepared testimony, that rescission (the practice of canceling coverage after claims have been filed on the basis of errors or omissions in the application process) is a rare practice that affects less than 0.5% of their policies. However, the true meaning of this statistic is made clear in this excerpt....read it and understand what is at stake in the health care debate.

Half of the insured population uses virtually no health care at all. The 80th percentile uses only $3,000 (2002 dollars, adjust a bit up for today). You have to hit the 95th percentile to get anywhere interesting, and even there you have only $11,487 in costs. It’s the 99th percentile, the people with over $35,000 of medical costs, who represent fully 22% of the entire nation’s medical costs. These people have chronic, expensive conditions. They are, to use a technical term, sick.

An individual adult insurance plan is roughly $7,000 (varies dramatically by age and somewhat by sex and location).

It should be fairly clear that the people who do not file insurance claims do not face rescission. The insurance companies will happily deposit their checks. Indeed, even for someone in the 95th percentile, it doesn’t make a lot of sense for the insurance company to take the nuclear option of blowing up the policy. $11,487 in claims is less than two years’ premium; less than one if the individual has family coverage in the $12,000 price range. But that top one percent, the folks responsible for more than $35,000 of costs – sometimes far, far more – well there, ladies and gentlemen, is where the money comes in. Once an insurance company knows that Sally has breast cancer, it has already seen the goat; it knows it wants nothing to do with Sally.

If the top 5% is the absolute largest population for whom rescission would make sense, the probability of having your policy cancelled given that you have filed a claim is fully 10% (0.5% rescission/5.0% of the population). If you take the LA Times estimate that $300 million was saved by abrogating 20,000 policies in California ($15,000/policy), you are somewhere in the 15% zone, depending on the convexity of the top section of population. If, as I suspect, rescission is targeted toward the truly bankrupting cases – the top 1%, the folks with over $35,000 of annual claims who could never be profitable for the carrier – then the probability of having your policy torn up given a massively expensive condition is pushing 50%. One in two. You have three times better odds playing Russian Roulette.

The Joys of Health Insurance

Jonathan Alter writes in Newsweek on the the current health insurance system:

I had cancer a few years ago. I like the fact that if I lose my job, I won't be able to get any insurance because of my illness. It reminds me of my homeowners' insurance, which gets canceled after a break-in. I like the choice I'd face if, God forbid, the cancer recurs—sell my house to pay for the hundreds of thousands of dollars in treatment, or die. That's what you call a "post-existing condition."

I like the absence of catastrophic insurance today. It meant that my health-insurance plan (one of the better ones, by the way) only covered about 75 percent of the cost of my cutting-edge treatment. That's as it should be—face cancer and shell out huge amounts of money at the same time. Nice.

I like the "lifetime limits" that many policies have today. Missed the fine print on that one, did you? It means that after you exceed a certain amount of reimbursement, you don't get anything more from the insurance company. That's fair.

Speaking of fair, it seems fair to me that cost-cutting bureaucrats at the insurance companies—not doctors—decide what's reimbursable. After all, the insurance companies know best.

Yes, the insurance company status quo rocks. I learned recently about something called the "loading fees" of insurance companies. That's how much of every health-care dollar gets spent by insurance companies on things other than the medical care—paperwork, marketing, profits, etc. According to a University of Minnesota study, up to 47 percent of all the money going into the health-insurance system is consumed in "loading fees." Even good insurance companies spend close to 30 percent on nonmedical stuff. Sweet.