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The Wrongologist

Geopolitics, Power and Political Economy

It’s the Economy Stupid. Or Is It?

The Daily Escape:

On Tuesday, Trump was in the Rose Garden for a “virtual town hall” on Fox News. The Boston Globe reported that he wants the country “open and raring to go” by Easter, which is less than three weeks away. “I think it’s possible, why not?” he said with a shrug.

Watching Trump do a press conference is like watching the kid who didn’t read the book give his book report.

The top health professionals have called ending social distancing by Easter far too quick. But, Trump compared the potential for Coronavirus fatalities to our annual flu casualties and, to automobile accidents. That led Charlie Pierce to say:

“I can speak with some authority on this. On December 9, I got hit by a car. It has been three months now. Nobody I came into contact with in the aftermath has been hit by a car.”

It’s important to remember that Trump is saying this while we still have no idea how many Americans have, or have had, the virus. It seems safe to say the number is vastly higher than the number of people who have tested positive (nearly 50,000). Here’s a terrifying tweet:

(James Gallagher is the BBC’s Health and science correspondent)

Trump’s “let’s get America back to work” plea comes at a time when we have no idea about the extent of the virus’s impact, or how large the tsunami of cases will be. Trump is sounding a bit like General Buck Turgidson in 1964’s “Dr. Strangelove“:

“I’m not saying we wouldn’t get our hair mussed. But I do say no more than ten to twenty million killed, tops.”

There are operational issues involved in conducting a safe economic restart while the virus remains rampant in the country: It would require testing all who enter the workplace, every time they come to work. Where do those test kits come from when we can’t get enough for America’s hospitals? Who will read the tests and get the data back to the individual and the business? Can social distancing really be practiced at work? In offices?

Obviously there are conflicting opinions about how long to use severe Coronavirus mitigation and suppression measures when the economic consequences of that mitigation could be disastrous. The medical experts can tell us what the consequences of various courses of action are most likely to be in terms of illness and fatalities.

But the willingness to endure the likely costs of a particular course of action is a political, and possibly an ethical question. Last week, Wrongo asked:

“Is restoring our economy, and putting Americans back to work worth a million lives lost? Is it worth 300,000?”

Trump is right both to wrestle with this question, and to be concerned that Coronavirus could end his presidency. Here’s a chart that shows how long prior stock market crashes took to return to the pre-crash level:

This compares three prior crashes and the time it took to recover. Only the 1987 crash was a sharp “V” recovery, and that recovery took nearly two years. Both of the others took four years.

This most likely means Trump can’t run as a peace and prosperity president. He’ll simply be running as another Republican who ran up the debt with the crucial difference that Americans died on the home front on his watch, after trying to go back to work prematurely.

A few words about the attempted bailout. As Wrongo writes this, it’s likely that there may be a “deal” sometime late on Tuesday . The stock market has already closed up more than 2,000 points, or 11% on the hope of a deal.

The bailout deal should absolutely be as big as possible, but Mitch, Trump and the GOP have it wrong. We should be pointing our water hoses where the immediate fire is: Low – moderate income households and small businesses that have a week or two of cash reserves, and little access to credit markets.

While this is an emergency, it’s no excuse for another GOP round of opportunistic, potentially wasteful spending with little oversight. We have more important things to do than setting up a $500 billion Republican slush fund in an election year.

Trump will no doubt make an announcement that “America is again open for business”. But, that’s not really within his power. The economy is not usually like a faucet you can turn off and on.

It also means that Trump’s replacement will have a major job starting in 2021 trying to restore the stock market and the employment level to where they were pre-Coronavirus.

It is the highest duty of the US President to keep the country safe, and protect its people. Trump’s downplaying of what his science and security advisers have told him is doing exactly the opposite.

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Call It the Great Virus Crash of 2020

The Daily Escape:

Desert bloom on Siphon Draw Trail, AZ – photo by ericatect

That was the term used on Wednesday by Ed Yardeni, president of Yardeni Research:

“It’s all at once a health crisis, financial crisis and economic crisis. We need to fix the health part of it before we have it solved, but we can take financial and fiscal steps to blunt its effects.”

JPMorgan Chase said it forecasts a 14% decline in gross domestic product in the second quarter. That’s enough to scare anyone. In a partial response, the Trump administration suspended evictions, authorized the Defense Production Act, and is eyeing a stimulus package worth about $1 trillion.

The headline is that Trump wants to give Americans direct cash assistance. He wants to send two $1,000 checks to many Americans. Beginning April 6th, $250 billion would be issued, and another $250 billion would be issued beginning May 18th. Payments would be tiered based on income level and family size.

The Treasury Department is circulating a two-page sheet of priorities that it wants to see in the final deal:

  • Part of it is a $50 billion “airline industry secured lending facility” that would allow it to make direct loans to “U.S. passenger and cargo air carriers”.
  • The Treasury would also earmark $300 billion to help small businesses avoid mass layoffs.
    • Eligible borrowers would be companies with less than 500 employees.
    • Loan amounts would be limited to 100% of 6 weeks of payroll, capped at $1540 per week per employee.
  • The Treasury also wants Congress to allow it to temporarily guarantee money market mutual funds. Some are worried that an investor panic could lead to a run on these funds. This was done before during the Great Recession.
  • Finally, there would be a $150 billion fund to prop up other sectors, including hotels.

And Wednesday was another day when Trump appeared in front of the press, attempting to look as if he’s a war president. The bad news was that they again halted trading on the stock markets during his press conference.

At Wednesday’s close, the Dow was down another 1,338 points. We’ve now lost almost all of the gains accrued during the Trump administration. Nearly every asset class – stocks, bonds, gold, and oil – fell as investors fled to the safety of cash.

Mr. Market has decided that cash is king. The smart money can’t decide whether Trump’s offering too much stimulus. If so, things must be really bad. And if he’s not offering enough, then there’s no leadership.

Here’s one way to look at the Dow’s performance:

  • First 1153 days of Obama’s presidency +67%
  • First 1153 days of Trump’s presidency  +0%

The WH needs to shut him up. Each time he speaks, things get worse for the rest of us.

Inside this crisis is perhaps the biggest political challenge for Democrats: They have to agree to help an incompetent president and his Party avoid killing their constituents.

That’s a bitter pill, particularly in an election year.

It isn’t a stretch to see how Democrats would be painted as obstructionists if they fail to support what Trump wants at a time when millions of people need a cash bridge to help them across economic difficulties.

Wrongo thinks helping people is a good idea, and a total of $2,000 is better than nothing, but what will it really do? The average US mortgage payment is over $1,000, while the median rent for a 1-bedroom apartment is $1,234. So for a couple, in most cases, one month’s housing costs will eat up about 25% of the total cash from the government. The rest will go to car expenses, the cell phone, perhaps student debt payments. Maybe, if people can stretch, it will last two months.

It’s helpful, but far from enough if employers remain closed for two months or more.

And loans to small businesses? Will small businesses willingly take on more debt when they can’t be sure when their income will return, or if the business will survive?

Any loans to large corporations is a huge mistake. The big four US airlines – Delta, United, American, and Southwest – whose stocks are getting crushed because they will run out of cash in a few months, would be the primary recipients of that $50 billion bailout. But together, they incinerated $43.7 billion in cash on share buybacks since 2012. Now they are looking to get that back from the taxpayers. Those buybacks enriched the very shareholders that Trump now wants to bail out.

Perhaps Trump said it best, although it was a while ago: “We’re seeing a stock market like no one has ever seen before.”

Trump spent the first three years of his presidency trying to erase Obama’s legacy.  Now, The Great Virus Crash in Trump’s last year will erase his.

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We’re In Uncharted Territory

The Daily Escape:

Sunset, Factory Butte, UT – photo by goat_chop56

Blog reader David K. emailed:

“Now, what do we common folk do?  Start our “victory gardens” and shelter in place?  Volunteer to help our local farmers raise food? Hoard?  Wish I had a great idea, because I agree that our leaders don’t have a clue how to respond.”

That gave Wrongo pause. What do those of us who aren’t part of the “smart money” crowd supposed to do, particularly if what we’re facing is a worldwide depression? John Pavlovitz frames the existential issues quite clearly:

What happens if the stores run out of essentials for good?
What if you run out of money to stockpile them?
What if your neighbors stop sharing with you?
What if the government won’t help you?
What might you do then?

Politicians say we’re at war, but as Kunstler says: “At least in wartime, the bars stay open. That’s how you know this is a different thing altogether from whatever else you’ve seen in your lifetime.”

We’re attacked by a novel virus that’s created a completely novel social and economic situation. By definition, we aren’t prepared for an abrupt crash of both our social fabric, and our economic well-being.

Our politicians have no answers, despite most of them having been around for the 2007-2008 Great Recession. The Fed hasn’t done us any favors since then, either.

Last Saturday, Wrongo said that we’re crossing a threshold between what we know and an unseen future. Our traditional systems are no longer capable of keeping society and the economy on an even keel. Nobody really knows how deep and how harsh this will get, but the situation presents two questions:

  • How much disorder will we have to endure?
  • What does the world look like when this thing is over?

All this is happening in an election year, when the entire government and the political parties’ power structures are vulnerable, and could change. We are facing a new reality, for which no one has any answers.

Politics being what it is, the White House and the Congress are trying to work together to come up with solutions. On Monday, Trump gave another press conference on COVID-19. During his talk, the stock market dropped nearly 3,000 points. It was the market’s worst day since Black Monday in 1987.

The smart money was behind Trump in order to get its corporate tax cuts, but now, they’ve voted with their money. And Trump’s starting to look a little bit like Herbert Hoover.

Sen. Mitt Romney (R-UT) floated Democrat Andrew Yang’s idea of giving every American $1,000. He was joined in principle by Sen. Tom Cotton (R-AK). We’ll see if this is just more Republican grandstanding, or if they actually back a real plan of support for working people.

With Trump, you can expect to see bailouts for several industries, including banks, airlines, casinos and cruise lines. Imagine: Casinos are asking for help from the guy who only knows how to bankrupt casinos.

Reuters reports that the US airline industry said that it needs $50 billion in grants and loans to survive the dramatic falloff in travel demand from the COVID-19 outbreak. This is just more socialism for America’s corporations.

Two thoughts: First, $50 billion is higher than the book value of all the airlines combined. Why should they have any of our money? Either Republicans are for free market capitalism, or they should just shut up. Most of these airlines have implemented stock buyback programs when they should have been building contingency funds instead.

Second, this $50 billion should be added to whatever Congress spends on small businesses that are forced to close due to quarantine, or on parents forced to stay home to take care of kids who aren’t going to school anymore. They’re the ones who are really hurting.

We’ve lived through a time of unprecedented affluence. We’ve told ourselves we deserved it all, that we were entitled to all that our country has provided.

But that’s most likely over, and it might not return in Wrongo’s lifetime.

We have to think about what must change if we are to have a functioning society and economy in the decades to come.

The list of all the things that we need to change is far too long to enumerate here. At a minimum, we need to reform capitalism, make health insurance universal and strengthen worker’s rights.

We have to do a better job of sharing the wealth. It we don’t do that voluntarily, our children’s children’s generation will come and fight us for what we have.

To protect our families and their future, we need to become even more active politically in order to make these and other changes happen.

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Can the Economy Endure a Two-Month Shutdown?

The Daily Escape:

Cannon Beach, OR – 2020 photo by franks28

The short answer to the question above is no, not without outright financial support for individuals by the government. That support if it comes, is likely to be too little, too late.

But the Fed tried something. On Sunday, it announced that it slashed its federal funds rate by a full percentage point, to a target range between 0% and 0.25%. In addition, they launched a new Quantitative Easing program for another $700 billion.

Investors threw up all over the Fed’s Sunday moves, because we’re looking at a “demand shock”, the state-enforced loss of consumer sales,something that can’t be stimulated away. The S&P futures immediately plunged 5% to hit its downside limit. That made for an interesting Monday, with the Dow ending down nearly 3,000 points, or another 13%. In the past month, the market has lost nearly a third of its value.

All these efforts to provide stability actually showed the market that our leaders have no idea what they’re doing. It’s the exact opposite of inspiring confidence.

Did the Fed panic? Fed Chair Jay Powell lowered rates right after Trump said he had the authority to remove Powell. That makes it seem, true or not, like the Fed is now in Trump’s pocket. No confidence-builder there.

Looking through a wider lens, Mr. Market has decided that the Fed is pushing on a string. Rates were already so low that there was little gain from the interest rate reduction, and little else that the Fed could do. Mostly, the Fed signaled that it is very frightened about the prospect of a global recession.

In addition, the market understood that the stimulus bill working its way through the House and Senate is inadequate to the task ahead. For one thing, Pelosi’s bill promises paid sick leave, but as written it only covers about 20% of all workers.

Again through that wide-angle lens, the growing COVID-19 business lockdown strategy will have an economic impact similar to a natural disaster, like a hurricane, but played out over a longer time frame. FEMA has found that 40% of businesses close in a natural disaster. And of the businesses that reopen, only 29% survive the after the following two years.

Since our economy is 70% services, many industries facing the lockdown, like tourism, casinos, restaurants, and hotels, will soon be in meltdown mode. The Fed has no answer to a massive drop in consumer spending, only the president and Congress can solve that.

We know that 40% of Americans don’t have enough cash on hand or room on a credit card to handle a $400 emergency. Many service industry workers will be hit with either cutbacks in their hours, or outright job losses. Without financial assistance, we’ll quickly see defaults on rent or mortgages, and delinquencies on credit cards and car payments.

So the Fed creates some more money. But just like in 2008, rather than distributing it to every citizen, they’re giving it to the banks. Somehow, all that money is going to people who already have plenty, while those who need it get nada.

Why is the answer always to give more to the supposed “job creators” when we get basically nothing in return? Why not just send a check to the actual people who need it?

Finally, what will this interest rate cut do for the economy?

  • Are restaurants going to start hiring workers that can’t actually come to work just because loans are cheap?
  • Are workers not collecting a paycheck going to go out and buy a new car/TV/house because interest rates dropped a bit?
  • Are banks going to lend cheap money to airlines, restaurants, and cruise lines when we have no idea how long this will last?

Every company on the planet has simultaneously realized that it is in an existential cash-flow crisis due to COVID-19. The big and smart companies already have drawn down their unused loan facilities to ride through the slowdown.

The slower and the smaller firms are staring at an economic nuclear-winter scenario where their revenue plunges for months, and they can’t pay their staff, or make their fixed payments.

The speed and comprehensiveness of the lockdowns, and their drastic impact make what’s going to happen very clear. Our leaders are in a fog of denial. They don’t see that much of what was the traditional mode of operating our system is crumbling.

During the 2008 financial crisis, we learned that events can move too quickly for anyone to intervene and limit the damage. Our business environment’s drive for highly efficient systems, from just-in-time inventory sourcing to reducing the number of hospital beds per capita, have created fragile systems that are now being stress-tested.

We may be learning, to our collective detriment, that all of these systems along with our leaders, have failed us.

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More About The Virtue of Exciting Candidates

The Daily Escape:

Mt. Assiniboine, Provincial Park, BC, CN – 2019 photo by Talhanazeer. Assiniboine is the pyramid-shaped mountain on the left.

When Wrongo thinks about the Democratic primary candidates, he feels a bit like when he was a breeder of Havanese dogs: “Don’t get too attached to any one of them–we’re only keeping one.”

At the end of the day, we’ll only have one candidate. The question is which is the keeper?

Yesterday we asked: which candidate excited you? Judging by crowd sizes in Iowa, Sanders, Warren and Buttigieg have generated excitement, while Biden has not:

“Mr. Biden has a lot to prove here. I’ve attended some of his town halls and rallies, and they’ve been lackluster, his speeches dull and meandering, and his crowds comparatively small. I’ve been to memorial services that are more exciting. I certainly hope mine is.”

That quote is from Robert Leonard, the news director for the Iowa radio stations KNIA and KRLS. More from Leonard:

“Who is going to get an enthusiastic turnout caucus night? Bernie Sanders will. His support is strong. We’ll see if he can increase it….

Elizabeth Warren has fallen in the polls, but she will have a big turnout caucus night. Her on-the-ground organizing is terrific and her supporters unwavering…..

Pete Buttigieg will also have a big turnout. Watching his several-blocks-long parade of supporters file into the Liberty and Justice Dinner last fall in Des Moines gave me goose bumps…..”

Leonard finishes with this:

“On caucus night, given the soft support I see, if the weather is bad Mr. Biden’s supporters might not come out. It might also depend on what’s on TV….For the other candidates, if their supporters walked outside, slipped on the ice and broke a leg, they still would crawl through snow and ice to caucus.”

He’s alluding to the x-factor, the charisma, the excitement that a candidate creates in voters, and claims that in Iowa at least, Sanders, Warren, and Mayor Pete are showing some of that.

The first thing that most of us want is relief from the Trump assault. In the general election, that starts with telling people the damage assessment, and a plan of repair. The nominee has to say that our government and democracy are in tatters and need to be stitched back together. Constitutional checks and balances have been nearly destroyed by the Republicans.

Maybe we need Medicare for all, free college tuition, and the rest of the progressive agenda, but first, we need to triage our democracy.

To win the presidency, we need to take back Pennsylvania, Michigan and Wisconsin. Are the voters in those three critical swing states ready to sign on to rebuild our social safety net, reform health insurance, and raise taxes on the rich and corporations? Hell yes.

Trump’s 2020 plan is to pump up the Dow while keeping unemployment at historic lows. He’s done that with a $1.5 trillion tax cut without any plan to pay for it. He’ll tout his new “trade deal” with China. He’ll mock and belittle the Democrats and their nominee. Meanwhile, Trump has no health plan at all!

Mitch McConnell’s plan is to make sure Trump is acquitted at all costs, to continue packing the courts, and blocking any meaningful legislation coming out of the House.

What’s the Democratic Party’s 2020 plan? The proposals by the progressive Democratic candidates have merit. Their goals are the right ones for the country and the planet. But, those plans will take several administrations to fully implement. Few voters fully understand the details of how to pay for Medicare for all. Moreover, they absolutely are worried about having their private health insurance taken away. That’s what most Americans have, so that has to be a big concern for Democrats in 2020.

Which of the current flock of Democratic candidates have what it takes to unite and lead the Party to a 2020 victory? Which nominee will have coattails to swing the Senate, hold the House and add to the Party’s roster of statehouses?

The 2020 election will turn on whether individual voters see the Democratic Party’s nominee as a heroic savior of the country, or less of a leader than the execrable Trump.

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Which Democrat Nominee Excites You?

The Daily Escape:

Keyhole Arch, Pfeiffer Beach, Big Sur, CA – 2020 photo by jtmess. For a few weeks every winter, starting with the Winter Solstice, sunset lines up with the hole in Keyhole Arch.

Someone told Adlai Stevenson when he was running for president in 1952 (or ‘56): “Every thinking person in America will be voting for you.” Stevenson replied, “I’m afraid that won’t do—I need a majority.” (Via)

It’s time that Americans recognize that the most important global event in 2020 will be the US presidential election. The reason is blindingly obvious. It’s questionable if the world can be brought back from four more years of Donald Trump. That’s doubly true for the US. That means historic voter turn-out is required.

And if that’s the case, it’s important that the best person challenge Trump in November. Last night’s debate didn’t move us any closer to knowing who that should be. This, from Deborah Long is a useful take:

Three Democratic candidates for president walk into a bar.

The first one says, “I’m going to beat Donald Trump by re-starting the Bolshevik Revolution”.

The second one says, “I’m going to beat Donald Trump by breaking up the big banks and sticking it to the man.”

The third one says, “I’ll be in my trailer. Call me on the horn when they’re ready for my cameo in ‘The Way We Were’.

Her underlying point is that the current Democratic candidates show no unifying message. That partly explains why the top four are polling at close to the same numbers. Democrats need to answer the question: Who can deliver a knockout punch to Donald Trump, and repudiate what the Republican Party currently stands for?

Wrongo posted about Economic Dignity last spring. It’s from an article by Gene Sperling, Obama’s Director of the National Economic Council. His take is that the Fed and Congress should implement a full employment monetary and fiscal policy that enables tight labor markets.

Sperling says that implementing the idea of economic dignity would lead to higher wages, and give employers greater incentive to provide advanced training to their employees. And, high demand for labor would give more workers more of the “take this job and shove it” leverage that’s lacking today.

We’ll need more: America needs a return to what Paul Collier calls the “cornerstones of belonging”— family, workplace, and nation, all of which are threatened by today’s market-driven capitalism.

That’s a unifying message for Dems. Hidden behind that message is the idea that America has to return to the ethics of the New Deal. Joseph Stiglitz, Nobel laureate in economics, says: (parenthesis and emphasis by Wrongo)

“Over the past half-century, Chicago School economists, (including Milton Friedman) acting on the assumption that markets are generally competitive, narrowed the focus of competition policy solely to economic efficiency, rather than broader concerns about power and inequality. The irony is that this assumption became dominant in policymaking circles just when economists were beginning to reveal its flaws.”

Stiglitz says we’ll need new policies to better manage capitalism. That means:

  • Dealing with the inequities in health care
  • Paying workers more
  • Rebuilding public assets like roads
  • Passing higher taxes on corporate profits and the incomes of the wealthy

The unifying message is that Democrats will provide Americans with a legal and political framework that allows people to provide better opportunity for their families.

Better opportunity is something all of America wants to believe in.

So, if the Democrats want to win big enough to silence the GOP, the 2020 Democratic Party nominee for president must excite Americans by showing them a path to a better future for their families. Emphasis on the “excite”.

We’re not going to get there by marching with pitchforks. We’re not going to get there with Biden’s nostalgia. We’re going to get there by speaking directly to the needs of America’s families, workplaces and nation.

Not by continuing the tiresome, wonkish recitation of “my policy is slightly better than yours”.

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Warren’s Mistake on Single Payer

The Daily Escape:

Mount Shasta, CA – November 2019 photo by pkeller001

Wrongo wonders if Elizabeth Warren has made a big mistake in her policy for Medicare for All. She started out running to reform capitalism, but through the debate process, she’s evolved towards single payer health insurance as a main policy. Months ago, she was an increasingly skilled campaigner whose laundry list of policy proposals made her stand out from the pack. Now she’s for nationalizing health insurance, which doesn’t seem to be on brand.

Two of her main rivals, Biden and Buttigieg, essentially want to extend Obamacare while leaving the 170 million Americans covered by private insurance with their current plans. While on her left, her other main opponent, Bernie Sanders, also wants to nationalize health insurance.

The latest New York Times/Siena College poll of Iowa Democrats shows Warren, Sanders, Buttigieg, and Biden bunched within a 5-point range. And while Warren leads, the poll found more sentiment among primary voters for improving the private health insurance system than for scrapping it in favor of single-payer.

Worse for Warren, she and Sanders are both sufficiently well-funded and popular that neither can easily emerge from Iowa or beyond as the candidate on the left. It’s similar on the moderate side: Neither Biden nor Buttigieg are going away after Iowa either.

Buttigieg is a gifted politician. He’s correctly discerned that the path to marginalizing Biden lies not in attacking him, but in confronting Warren on single payer, which he did in the last debate. He would rather that Sanders was the front-running lefty heading into Super Tuesday, than have to confront Warren.

A few more debates, and Mayor Pete may be the last standing moderate alternative to Warren and Sanders, assuming Bloomberg doesn’t get traction along the way.

Sanders is a much better candidate than he was in 2016. He’s making inroads among African-Americans and Hispanics. AOC, a very popular symbol of youth and progressivism, supports him. Sanders is doing well enough with young progressives to keep Warren from now moving closer to the center on single payer.

She went from cautious on single payer to all-in. First, she allowed that there were multiple paths to universal coverage. In an attempt to simplify during one of the debates, she said: “I’m with Bernie”, without having a firm plan.

When pressed by Biden and Buttigieg to specify how she would pay for her vague plan without raising taxes on the middle class, she dodged the question, saying that overall health insurance costs to the middle class would go down. She finally produced a white paper that described a 10-year $20.5 trillion plan to fund Medicare for All without raising taxes on the middle class.

Her opponents are using her proposal to define Warren to their own advantage: Biden and Buttigieg say it’s too radical and too expensive; Sanders says it’s inferior to his plan. While single-payer is popular among Democratic primary voters, several polls of swing state voters suggest that the majority favor a more moderate health insurance plan.

That would seem to be an invitation to embrace positions most Democrats actually prefer.

Warren’s problem is that she seems married to a health insurance program which leaks votes and positions her in a fight for the left of the primary electorate. However, we’re in a time when a coalition of minorities, suburban swing voters, and persuadable blue-collar whites are what’s needed to win states like Pennsylvania, Michigan, and Wisconsin.

Warren should return to her roots of tax and capitalism reform. These are popular policies with Democrats, even with those who are against mandatory single payer health insurance. The continuing rise in inequality requires us to do something to narrow it.

And Warren’s wealth tax could do just that, and finance more robust social programs and spending on infrastructure. The US mostly taxes individuals on the income earned from their jobs and investments, while a wealth tax would levy taxes on assets like stocks, yachts, artworks and vacation homes.

Both Sanders and Warren have an asset tax plan. In Warren’s plan, all net worth under $50 million is exempted, compared to $32 million for the Sanders plan. Business Insider says the Sanders plan would bring in $4 trillion in government tax dollars over a decade. And, Warren’s version would total $500 billion less in the same period.

During this primary season, moderates and progressives will have to understand clearly why they are Democrats, and how they will bridge their differences by November 2020 and deliver massive turnout.

Both wings need to remember that it isn’t enough to win the White House. Legislative gridlock must end.

It wouldn’t hurt if Warren did some thinking about her single payer plan, too.

 

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Is Warren’s Medicare For All Plan Realistic?

The Daily Escape:

Gros Morne National Park, Newfoundland, CA

Let’s talk about Sen. Elizabeth Warren’s recently announced Medicare for All (M4A) plan. She, along with other 2020 presidential candidates have endorsed some form of M4A. Bernie has a plan. Yang has a plan. Mayor Pete has a plan, called “M4A for those who want it”. Biden is against M4A, pushing an extension of Obamacare instead.

The multiple Medicare for All proposals are unclear to most of us.  Presently, Medicare is primarily a government program for older people that pays a portion of their medical expenses. Participants pay premiums. Medicare Part B pays about 80% of medical expenses. The participant either pays the remainder or, has a supplemental secondary insurance.

Medicare for All is a single payer, government-pays-all concept.

One part of Warren’s (and Bernie’s) plan is forcing people who have private insurance to move to the M4A coverage. According to the US Census Bureau, 66.1% of the population had private health insurance in 2018. Of that number, 217.8 million are covered by private plans, of which 178.4 million are insured through their employers, so that means 218 million Americans would have to move from their current plan to a plan that doesn’t yet exist

In rough terms, the US spends about $4 trillion a year on health care, split almost evenly between government programs and the private sector. The $2 trillion in private-sector costs are also split roughly in half, with about $1 trillion each spent by households (premiums, and out-of-pocket money) and by employers (their share of premiums).

To pay for her plan, Warren needs to raise $2 trillion in government revenue to replace the spending of the private sector. She starts with the $1 trillion that employers are spending and requires them to redirect this money to Medicare via a per-worker fee.

Finding the other $1 trillion is trickier. Warren raises taxes on corporations and the wealthy, whose taxes have declined significantly in the past 30 years. Even after all of the increases she has proposed, tax rates on the rich would still be lower than during the Eisenhower administration.

In addition, by the time M4A had taken the place of private insurance companies, Warren thinks that 2 million jobs would be lost in the health insurance business, and other health-connected services. The principle purpose of a health insurance company is to pay for people’s health care needs. Its goal isn’t employment of workers. Most who would lose their jobs can always transfer those skills to another sector.

As long as the total number of patients doesn’t decrease, we won’t be seeing laid-off doctors or nurses.

Warren’s plan is a detailed policy road map. It’s not draft legislation, but there’s enough detail to write the bill, making it the first time a presidential candidate has gone beyond the arm-waving we usually see around single-payer. Whether you like her plan or not, her focus clarifies the debate.

The best feature is the plan’s aggressive approach to cost control. We can question whether the plan’s too optimistic: it may be unrealistic to get all of the cuts to health care administration, drug costs, and bend the overall growth curve of health care costs by as much as she’s assuming.

The NYT’s David Leonhardt makes the point about the least popular aspect of M4A: the fact that it replaces private coverage. Warren isn’t letting people opt into Medicare, she would force them to join:

“The biggest weakness of Warren’s approach is that it tries to bulldoze through the sizable public anxiety about radical changes to the health care system. Warren would not let people opt into Medicare, a wildly popular idea. She would force them to join.”

Warren makes the point that not all who have private coverage love their health insurer. It’s clear that Americans are far less happy than citizens of peer countries that have universal coverage. But even if not really popular, doing away with private health care will be disruptive.

Also, we’re not as healthy as those in countries with universal coverage. In particular, life expectancy is much lower (the US ranks 37th world wide), and we’re paying far more per capita for health care than anyone else.

“Free enterprise” health insurance simply isn’t working for Americans, and the dissatisfaction is real.

Can we do better? Is Elizabeth Warren’s plan the right amount of aggressive change, or would a more incremental approach be more palatable to voters in 2020?

Wrongo likes Elizabeth Warren and many of her positions. Her goal of fixing a broken health insurance system is right on, including her drive to cut health care costs aggressively. But her plan to eliminate all private health insurance is divisive, and may not bring about the desired goal of universal coverage.

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Last Night’s Debate and Medicare For All

The Daily Escape:

Dix Pond from the Dix Mountain trail, Adirondacks, NY – July 2019 photo by Shelley VK

A few thoughts about last night’s Democratic debate. Tom Sullivan captured Wrongo’s thinking:

“Watching Part One of the second Democratic debate was an endurance contest. CNN’s 30-second response format was a disaster, barely giving candidates time to formulate a sentence before being cut off. Questions from CNN moderators seemed designed not to probe policy issues, but to get candidates to snipe at each other.”

And snipe they did. The fringe and vanity candidates tried very hard to tell us which policies wouldn’t work. They were enabled by CNN’s question-askers, who mostly asked gotcha questions designed to provide sound bites for Republican attack ads down the road.

Elizabeth Warren won the night by responding to a poor-mouthed critique from Republican-lite John Delaney about health care:

“I genuinely do not understand why anyone would go to all the trouble of running for president just to get up on this stage and talk about what’s not possible. #DemDebate pic.twitter.com/cOCz5TS3AF”

— Elizabeth Warren (@ewarren) July 31, 2019

But, let’s take a moment to talk about the topic that took about most of the first hour of the debate: Medicare for All (M4A). Wrongo wants to remind everyone about an Upshot article on Monday in the NYT by Austin Frakt and Elsa Pearson. It asks, “What Would Medicare for All Cover? From the article:

You can divide current Medicare coverage into two layers.

The first is relatively transparent. Traditional Medicare does not cover certain classes of care, including eyeglasses, hearing aids, dental or long-term care. When the classes of things it covers changes, or is under debate, there’s a big, bruising fight with a lot of public comment. The most recent battle added prescription drug coverage through legislation that passed in 2003.

So the authors say that a Medicare for all program that excluded all private insurance coverage, and that resembled today’s traditional Medicare would leave Americans with significant coverage gaps. And therefore, we should have a debate about what M4A would cover.

The writers go on:

…there is a second layer of coverage that receives less attention. Which specific treatments does Medicare pay for within its classes of coverage? For instance, Medicare covers hospital and doctor visits associated with cancer care — but which specific cancer treatments?

The devil is always in the details.

Although Medicare is a national program, most coverage determinations are local. Private contractors that are authorized to process Medicare claims decide what treatments to reimburse in each of 16 regions of the country:

What people are covered for in, say, Miami can be different from what people are covered for in Seattle. Many treatments and services are covered automatically because they already have standard billing codes that Medicare recognizes and accepts. For treatments lacking such codes, Medicare makes coverage determinations in one of two ways: nationally or locally…..There are more than 2,000 local coverage determinations….National coverage decisions, which apply to the entire country, are rarer, with only about 300 on the books.

Wrongo wasn’t aware of these differences in coverage, and that is something to talk about if/when M4A is seriously discussed in Congress.

It seems that what should be covered by any health insurance program is an evolving target, informed by changes in treatments and their reported efficacy.  The issue isn’t unique to Medicare. Wrongo prefers the decision to include or exclude a treatment not be made by an insurance company that can make more profit based on what forms of healthcare are offered.

For example, in many private plans, cataract surgery isn’t covered, while Medicare does provide coverage for a basic lens replacement.

And we shouldn’t allow the perfect to be the enemy of the good. In this country, tens of millions of people have no coverage, and tens of millions more are either under-insured, or face very high deductible plans. By contrast, throughout all other developed countries, every person is covered for all medical needs.

A few things to think about between here and the 2020 election.

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Reform of Capitalism Isn’t Socialism

The Daily Escape:

Graffiti in Greece by Lotek

The NYT reported that Rep. Tom Emmer (R-MN), chairman of the National Republican Congressional Committee, said: (brackets by Wrongo)

“Socialism is the greatest vulnerability by far that the House Democrats have…He added that he had also instructed his team to spotlight “all the [Dems] extreme wild ideas on a daily basis, on an hourly basis if it’s available.”

As we said yesterday, most Democrats are not socialists. They are for reform of capitalism. The problem is that our economic system is broken; it does not meet the needs of the vast majority of our people.

Capitalism has metastasized into a financialized cancer. Its growth-at-any-cost, profit-over-purpose ideology has wreaked havoc with the lives of millions of people. From Forbes:

“One example: For more than 400 years, 12.5 million Africans were kidnapped, enslaved and sold to build wealth and power largely for white men in the US, Europe and South America. The first enslaved Africans were shipped directly to the Americas in 1518, one year after Martin Luther nailed his 95 Theses to the door of Castle Church. The centrality and largely unconstrained profit motive in capitalism has been with us since the beginning.”

Today, corporations track our every movement. Algorithms manipulate us to buy things, or to vote certain ways. We’ve put outsized power into the hands of corporations. We have to ask: What do we need from capitalism in the 21st Century? Is it more of the same, or something different?

Capitalist Reform is about re-imagining the purpose of business and redefining its success. The doctrine of shareholder primacy must be the first to go. It needs to be recognized as a form of oppression of human nature since it doesn’t value our humanity.

According to a 2019 Politico/Morning Consult survey, 76% of registered voters want the wealthiest Americans to pay more. Politico also notes that a recent poll from Fox News shows that 70% of Americans supporting increased taxes for those earning more than $10 million, and 54% of Republicans also supported it. People are contemplating not just piecemeal tax increases, but a wholesale reversal of the Reagan-era shift in tax policy. The Economist reported that in 2016, more than half of young Americans no longer support capitalism.

There is an urgent need to push back against the widening economic inequality in the US. Taxing the rich is an easy answer, because so few of us are rich.

But, step one should be increasing corporate income taxes. Corporations’ share of total taxes paid has decreased to about 9% of total US tax revenue in 2017, from about 33% in 1952. How many stories like Amazon’s failure to pay anything in taxes on $11 billion in profits should it take to begin the task of closing corporate tax loopholes and increasing corporate income taxes?

Step two is to break up corporate concentrations. Wrongo addressed this here. The primary issue with corporate concentration is that it drives up prices. The fewer sellers, the fewer choices consumers have for goods and services, and thus, there is little pressure for big competitors to hold prices down.

Step three is to help workers. The share of profits that goes to workers must increase. This shouldn’t punish capitalists. Higher wages for workers means more business for American companies.

We were founded on republicanism as a public virtue: The Constitution implies that a citizen is duty-bound to abandon self-interest when it conflicted with the General Welfare. Capitalism has usurped republicanism by insisting that abrogation of self-interest violates the doctrine of “survival of the fittest,” and it’s also an attack on individual liberty.

We need to revive the understanding of public virtue. So, some form of “mixed economy” is in our future. It’s obvious to all except right wing ideologues that socialized medical insurance is in our future. But it is doubtful that a majority want to socialize production and distribution of America’s products and companies.

The task for Congress and the next president is to figure out what activities and/or economic sectors are best guided by tax and economic policy, and which are best left to “market forces”.

We’re a country where vast wealth is rewarded with tax cuts, loopholes, and endless ways to ensure that corporate dollars earn even more dollars. While average people are bankrupted because of a health crisis, and we value semi-skilled labor at $7.25 an hour.

Today’s capitalism is anti-democratic. General welfare and public virtue derive from a desire to improve the human condition. That needs to be the goal of political action to reform capitalism, and it needs to be hammered home again and again.

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