“Far-Reaching Reforms Can Wait” According to Robert J. Samuelson

1 12 2008

In a December 1st article, Newsweek business and economics writer Robert J. Samuelson (background info) addressess the issue of whether or not the Administration of President-elect Barack Obama should aggressvely pursue various major reforms immediately in early 2009, or wait until the U.S. economy recovers. 

 Robert Samuelson’s weekly column explores political, economic and social issues. He began his journalism career in 1969 and has held positions at The Washington Post, The National Journal, and Newsweek. Samuelson has won numerous awards, including The Gerald Loeb Award for Best Commentary in 1993, 1986 and 1983 (Source for picture and description, Investor’s Business Daily Editorialshere)

Samuelson’s opinion on the preferable public policy / economic policy course for the Obama Administration to take is consistent with the title of the December 1st article, i.e., “Far-Reaching Reforms Can Wait”  The full article can be found at the following web address: http://www.realclearpolitics.com/articles/2008/12/obamas_hard_choice.html

Following are some key exerpts from the article, with underlines and bold text on areas that I personally think are most important to consider ….


Far-Reaching Reforms Can Wait

By Robert Samuelson, Newsweek, 12/1/2008

WASHINGTON — As he assembles his economic team, Barack Obama faces a central strategic decision that only he can make. Starting with his “economic stimulus” plan, will he focus mainly on reviving the economy and relieving the financial crisis? Or will he use the economic crisis as a vehicle to advance a more ambitious social and economic agenda? The two approaches are at odds. The first aims at building political consensus and economic confidence; the second would intensify political conflict and economic uncertainty.

The decision ought to be easy. Every new president is assaulted by his own supporters, who want him to put their particular agendas atop his “to do” list. That’s already happening, as Obama allies clamor for speedy action to provide universal health insurance, combat global warming and support trade unions. But Obama — and the nation — would be better served if he concentrated for his first year on stabilizing the economy while patiently laying the groundwork for more far-reaching proposals.

The hallmark of this economic crisis has been its capacity to surprise: the desperate plight of the Big Three U.S. automakers is the latest reminder. We can expect more surprises, because the U.S. and global economies continue to weaken at a worrying pace. Consumer confidence has plunged. In October, U.S. factory orders for durable goods (machinery, autos, appliances) dropped 6.2 percent. Abroad, signs are no better. Worldwide manufacturing production is declining at an 8 percent rate. Germany is in recession; China’s growth has slowed sharply.

Against this backdrop, the parallel pursuit of crisis management and sweeping domestic reform is at best distracting. In practice, it may be politically poisonous. Superficially, the two objectives can be made to seem compatible. Obama can plug “green” investments as a way to restore job growth; he can tout a more efficient health-care system as a way to control health costs. But these rhetorical debating points obscure as much as they reveal.

Any program to refashion the energy and health-care sectors — to take these obvious candidates — would be complicated and contentious. Some producers and consumers would win; others would lose. Proposals would create massive uncertainties for businesses and raise the probability of higher costs. To succeed in curbing greenhouse gas emissions, for example, any “cap and trade” program must involve higher energy prices.

The notion that “green” investments would be large, permanent net creators of jobs is mostly a mirage. Somehow these investments must be paid for. If that happens through higher prices, higher taxes or cuts in other government programs, then “green” jobs will mainly substitute for other types of jobs. As for curbing health-care costs, that’s desirable. The trouble is that the first effect of Obama’s health-care program would probably be the opposite. Expanding insurance coverage would initially raise health spending, as greater demand for medical care met a (relatively) fixed supply of doctors, hospitals and clinics.

Obama won the election, and in normal times, his campaign agenda ought to be front and center. But these are not normal times, and what’s most important now — as he repeatedly emphasizes — is to prevent the recession from feeding on itself. This is a clear danger. Consumer spending (70 percent of the economy) has declined for five consecutive months. Eroding tax revenues may result in state budget deficits between $200 billion and $250 billion through mid-2011, estimates the Center on Budget and Policy Priorities, a liberal advocacy group. Required to balance their budgets, states face increased taxes or large spending cuts.

The compelling case for a big “economic stimulus” package is that it would cushion these and other spending declines. The odds are that any package will include the following: some direct payments to states; a renewed extension of unemployment benefits; tax cuts — reflecting Obama’s campaign pledge — of $500 for most single workers and $1,000 for most two-earner families; spending for infrastructure (roads, bridges, schools and, perhaps, windmills). Obama wants Congress to pass a stimulus package soon after his inauguration. Assuming he gets his wish, it’s then that he must make his crucial choice.

The temptation will be to press ahead with a “bold” legislative agenda — to ape the New Deal. This would be a mistake. The psychology of bruising legislative battles will not bolster confidence. The country does need to face its health and energy problems as well as deficit-ridden federal budgets. But trying to do too much too soon risks doing none of it well. We — and he — are caught up in a web of contradictions. In the long run, we need to discipline our appetite for health care and energy; we need to reconcile our desire for government benefits and our willingness to be taxed. But Obama’s first job is to avert an economic freefall.

Copyright 2008, Washington Post Writers Group

 The Andes of South America (amonty.wordpress.com)


Reforming U.S. Health Care: Critique of Senator Baucus’ Proposal

15 11 2008
The issue of reforming the U.S. Healthcare System was a major topic of discussion in the recent U.S. presidential election, and it promises to be an issue of major debate in next couple of years (2009-2010).  At issue is whether the U.S. Healthcare shifts toward more of a “socialized medicine / universal healthcare system” as practiced in European Countries and Canada, or reemphasizes free market, competitive approaches in solving U.S. health care needs. 
From a free market-oriented economist perspective (such as is mine), the losses in efficiency, choice and quality of health care services that have been associated with “socialized medicine / universal health care” where it has been adopted are reason enough to resist such an approach. That said, since the country is open to discussing the how the current system can be improved, it is time to reexamine what is now being done both well and poorly in our current health care system, and present better policy alternatives than socialized medicine for serious consideration in the upcoming debate.
   The Children’s Hospital, Denver, CO, USA   

Following is the link to an article written by Stuart M. Butler, Ph.D., Vice President for Domestic and Economic Policy Studies at The Heritage Foundation.  (http://www.heritage.org/)  

 Stuart M. Butler, Ph.D., The Heritage Foundation

This article addresses a proposal by U.S. Senator Max Baucus, Democrat from Montana, concerning a health care reform proposal he presented on November 12, 2008 (link here).

 U.S. Senator Max Baucus, D-Montana

Although Senator Baucus is to be commended for parts of his proposal, his recommendation to expand the Medicare and Medicade entitlements, and the design he has put forth for national competitiveness which puts the government plan in direct competition with private plans are problematic.  Following are some specific points from Stuart Butler’s critique of Senator Baucus’ proposal

The Baucus Health Reform Plan: A Starting Point for Serious Discussion (here)

by Stuart M. Butler, Ph.D., Heritage Foundation

Senate Finance Chairman Max Baucus (R-MT) has just unveiled a comprehensive health plan in the form of a white paper, which he sees as framing the upcoming debate on health care reform.  The introduction of Senator Baucus’s plan is a welcome development in that it puts some flesh on the bones of ideas that have been circulating in policy circles.  It also indicates a more open conversation about health reform than occurred durng teh last major effort at reform, which was characterized by the secretive health task force of the Clinton Administration.

Rigging the Rules for “Medicare for All”

Among the key proposals in the Baucus document is a health exchange. While the idea of an exchange generates broad interest and support among a wide range of policymakers, Baucus—like Presidentelect Obama—proposes a national exchange rather than encouraging a variety of state exchanges that would reflect local conditions and stimulate state creativity in designing better access to private health insurance. While it is true that a national system of exchanges can achieve a well-functioning health insurance market across the U.S., it would be wise to let states propose the best ways of realizing those objectives. Within his national exchange, Baucus also proposes letting a new public plan “similar to Medicare” compete with private health plans. This approach is fraught with difficulty and danger, because the federal government would then “own” a plan in the competition while also setting the rules for that competition. Who can doubt that the rules would be rigged in favor of the Medicare-style public plan?

A Level Playing Field

There is a good argument to be made for assuring the existence of some type of reliable plan that Americans with major health problems can afford. Senator John McCain (R–AZ) acknowledged that in the 2008 presidential campaign, and proposed a program of guaranteed access to coverage. But Baucus needs to work with others to achieve two things:
1. Develop an Alternative to a Medicare-style pPlan that can achieve the same objective
In the Federal Employees Health Benefits Program (FEHBP), for instance, the governmenthas arranged for a variety of affordable national plans to be available in conjunction with numerous local plans and does not run a competing public plan.
2. Find a way of structuring competition that guarantees a true level playing field
In the FEHBP, for example, national private health plans, not the taxpayers, bear the insurance risk and compete fairly with local coverage options.
Without a convincing way of doing both of these things, it will be very hard to dispel the idea that Baucus’s combination of a national exchange with a public plan is anything other than a stalking horse for a single-payer “Medicare for All.”

Tax Treatment of Health Care

A very welcome feature of the Baucus document is its discussion of the federal tax treatment of health insurance. Federal tax treatment of health insurance is widely understood as a fundamental element in achieving affordable health care reform. It is arguably the most important factor shaping the health insurance markets and thus a key driver of the incentives that dominate health care financing and delivery.
As the Baucus document notes, “Many economists argue that the unlimited employee tax exclusion leads to increased health spending.” Baucus suggests an incremental approach to reforming the tax treatment of health insurance by proposing a cap on the existing tax exclusion. Thus workers would retain their tax-free health care benefits but there would be a maximum amount that could be excluded from their taxable income. This approach is consistent with other tax-preferred benefits, such as 401(k)s and health savings accounts. Baucus also proposes expanding coverage through targeted tax subsidies. This discussion of the tax treatment by the finance chairman could lead to a very productive bipartisan conversation. Hopefully, President-elect Obama will join in that conversation.

Entitlement Expansion

Distressingly, Baucus would support entitlement expansions, which is hard to defend given the unsustainable nature of existing entitlements. Medicare and Medicaid are already fiscally unsustainable, and expanding these programs now just exacerbates the existing problem. The expansion of these programs would also further crowd-out private coverage options in favor of taxpayer-financed coverage. Baucus also proposes an individual mandate on Americans to buy coverage and on employers to either offer coverage or pay a fine. The senator should reconsider both mandates. There would be no need for an individual mandate if Congress were to enact a combination of positive tax incentives (such as tax credits) and methods to help facilitate take-up in private coverage (such as automatic enrollment). Likewise, the employer mandate is misguided: It would merely hide the real cost of coverage and be passed on to workers in the form of lower cash wages.

More Discussion Needed

The proposal thus has strengths and weaknesses and raises key questions that must be debated fully. Baucus should be commended for putting forward such a thorough document at the beginning of the debate instead of the common practice of trying to push through a chairman’s proposal close to a vote. He now needs to foster a bipartisan conversation on how to build on the white paper’s strengths, such as addressing the inequitable and inefficient tax treatment of health insurance, and how to deal with the paper’s current weaknesses.

Stuart M. Butler, Ph.D., is Vice President for Domestic and Economic Policy Studies at The Heritage Foundation.


 Mount Evans, Colorado, USA