Saturday, August 22, 2009

Health care safety net: ideology of profit vs. a Human Right of civilized society

Realism must overcome seductive ideological formulas:

The most repetitive argument I hear against broad health care coverage is that the government should "get the hell out of the way". I don't know what is the appropriate response to this sort of ideological chauvinism. It reminds me of the bizarre "revolutionary" formulas that were proposed by similarly inflamed radicals, in the opposite end of the political spectrum, back in the 70's, in an analogous historical context of economic despair for a large segment of society. What they have in common is the self righteousness that comes with the impatience with a world that does not want to fit into a neat little formula, which is so obviously at odds with reality if you can step back from the narrow view. Unfortunately that self righteousness is not unlike any other form of closed world view that commonly devolves into plain bigotry.

Clearly someone who thinks "markets do whatever they do and humans better get used to it", have their values twisted by a need to justify a world view that in many ways satisfies their narcissism. It's human nature to think that their privileges are the result of an order that rewards those who are deserving and punishes all others. I don't know that it is possible to bridge the gap and find common ground with someone that is a proponent of this point of view, which is confined to a historical condition they cannot overcome.

Let's look at facts that don't necessarily support the myths we've been living with for 30 years:

The reality is that we live a period of extreme economical distress for half of the population and shrinkage of options for the Middle Class. The health care problem is the tip of the iceberg. It results from an increasing difficult set of realities for the working poor, who find it physically impossible to overcome their condition. While their income has gone nowhere (2.5% increase for half working Americans since Reagan came into office) their share of GDP growth was used to leverage the increasingly predatory growth of the the top 1% whose share of the pie increased from 8% to 22%, leveraging the effect of economic growth (116% since 1981) by a factor of 3. Part of this wealth effect has skewed the cost of health care, education, housing, which have also grown at a higher rate than the GDP pushing 1 in 2 Americans further down into the underclass that has less options today than it ever had since we recovered from the last Depression.

The simple mechanism of extending Medicare to everyone by choice, at cost, would be very easy to implement. But it would be highly threatening of the health insurance industry that failed to provide security in this environment of increasing economic disparity. They're fighting a loosing battle. There is simply no capacity for the underclass to access a service that is tailored by and for people who live a different reality.

The type of fiscal policy that allowed us to overcome a higher relative debt burden after World War II is impossible to defend these days as any gain by the beneficiaries of so called free-market policies is stridently protected with accusations of socialism against any threat to their greed driven machine that aims to counter the increasingly growing disparity. In the current environment, policies that taxed more than 90% of the stratospheric slice of the highest incomes to provide free higher education and sustainable levels of wage disparity, would be considered downright “communistic” by today's self proclaimed defenders of American values and Capitalism. We may have evolved much over the last 30 years, but while we focused on bringing the country together by breaking down social barriers resultant form historical patterns of bigotry, we let ourselves go along with economics of greed by swallowing the palatable concept that the wealthy are the providers of opportunity and the motor of this economy, and free markets are self regulating. This ideology is historically predictable, and those who buy into it are well advised to broaden their views. Every time an elite finds ways to establish dynastic privileges to a life of leisurely opulence it provides itself with an ideological justification to gain acceptance by a larger segment of society, that extends the longevity of the unsustainable status quo. The reality of economic success is coincidental with the growth of an enterprising Middle Class that has access to the consumption of the goods its growing productivity delivers. Any society where the state does not provide mechanisms to equalize access to opportunity tends to digress towards extreme inequality and deliver unsustainable deterioration of living conditions reflected in areas such as access to life sustaining health care, education, and housing. Since the policies that regulated that balance started to be challenged with Reagan there has been a decline of standards of living for half of our population (even for the vast majority of the other half their economic success hasn't kept pace with the GDP growth). Right wing ideologues would have us believe that these are people deserving of their fate, except when they cynically use their systematically promoted ignorance to manipulate them into supporting the policies that keep them from opportunities for success. Not unlike the slaves that paradoxically fought besides their masters in various turning points in History, including the American Civil War.

The current trend towards economic disparity is alarmingly unsustainable, and the deep precipice we reached at the end of the Bush administration is likely to pull us down further if we don't find a way to overcome the deep delusion many have been living under, since Reagan proposed the seductive panacea of tax cuts to overcome economic sluggishness.

The protection of a Human Right is incompatible with profit motive:

Basic health care delivery cannot be a profit motive any more than other safety nets provided by the state in all developed societies. Who would think of for-profit unemployment insurance? Does not mean individuals are not well advised to provide for their own capacity to survive unexpected income fluctuations, and there is wide room for an industry that caters to the aspiration to financial independence beyond that level of protection. Likewise, there is plenty of room for supplementary benefits to be offered by a profit driven health insurance industry.

The question is, what are the basic levels of health that should be protected and what is the cost that we can sustain on a universal access model. There are too many holes currently leading to bankruptcy, premature death, and avoidable disability. It's not for the private insurance system to provide the solution as they proposed in 1994 and have amply demonstrated themselves to be incapable of. The argument I make is that there is in fact no room in the solution for that industry, and any attempt to accommodate it is an oxymoron and doomed to fail.

Monday, August 10, 2009

The cost of Reaganomics

As my previous (1st) posting explains, my analysis of IRS data shows a huge shift of earning capacity from the bottom to the top of the earning scale, between 1981 and 2006 (last year for which data is published). That was a simple number crunching exercise focusing on the results of 25 years of Reaganomics.

Clearly, my interpretation has a point of view: we'd be better off if the fruits of growth were more evenly distributed. That seems to me a balanced point of view, given that 1981 was chosen simply because it was the year when Reagan started the sea change that followed, not because we were coming out of some highly equalized socialistic era of forced redistribution. In fact, we were quite far from Eisenhower policies that today might be considered downright communistic by the conservative talking heads, with a top tax rate of 91%. So much for these talking heads' consistency! While on one hand they clamor against any effort to revert to Clinton era rates (39.5%), where we had record breaking years of uninterrupted growth and job creation, on the other hand they claim JFK as a supply sider (, because he cut rates to 65%. With that impressive intellectual elasticity it must be hard to hold on to a more down to earth following, hence the well known proclivities of the GOP base, which I won't go into here.

Attempting to stay away from technical economics arguments, that have no scientific consensus but seem to embolden many who claim to understand them, I just want to draw attention to the obvious, that the numbers demonstrate: As the economy grew by 116%, the top 1% of taxpayers saw an income growth of 331%, and the bottom 50% saw virtually no progress.
Is this good, bad, or indifferent? Conservatives will have us believe that it is inevitable. If that is so, then there is no recourse against a progression towards social chaos and eventually revolution. Of course, that implication is not so palatable and they prefer to ignore it.
I believe that it is bad; that the state has to interfere to regulate the concentration of wealth that denies the middle class the means to invest, innovate, and be entrepreneurial. Contrary to popular reading of Reaganomics, the wealthiest Americans who benefited from this wealth transfer are not the ones who create the most jobs, the newest innovations, and the dynamism of a democratic capitalist system. Instead it is the middle class that generates creativity driven by the aspiration for a better life (when you are the untouchable what ambition will drive you to abandon your sweet opulence for a life of effort? Such nonsensical view of history can't seriously be argued). Rather than promoting economic growth in the long run the massive wealth transfer that denies the average American the margin to overcome a subsistence mode, reverts us to a feudal model where wealthy people are in a permanent leisure class that has a birth right to opulence and no need for any social contribution, much like the monarchy that the American Revolution overthrew.
It is very hard for someone that makes millions off lending to the Treasury to aspire to an easier life style, not accounting for the thrill of gambling that is likely to consume a fair proportion of those who look for an escape from boredom. But the differences are so huge that there is broad margin to absorb the proverbial black sheep without threatening the continuity of the big fortunes (one million dollars provides more safe income than an average American earns working full time - now multiply that by 100 or 1000 and that is the realm of the leisurely opulent).

My observation, for what it is worth, is that we are well on the road to a feudal model. What I hear from underclass right-wingers (funny concept huh?) is that "if we increase the taxes of the rich who will give us jobs?" Where is the self-reliant streak that defined the American spirit forever? As an answer I don't think we need to look for refuge in any economic ideology; all we have to do is calibrate our political action in function of real economic results. In that sense the visible results of Reaganomics warrant very strong political action. I believe that is what drove the Obama victory and the Democratic majorities in Congress. But the level of frustration with those in power is clearly less visible once they lose the position of formal political control (GOP government). They still control the media, the Supreme Court, and the economy, which gives them much leverage to peel off the outer layers of the historically congealed majority.
So it is important to drive home the simple matter of fact truth: that this is all about economics, not about economic ideology. Almost everybody knows how to balance a checkbook. There is not much more to it, with all due respect to the intellectual debaters.

The formula should be easy to detect. While taxes for the rich were cut, they were raised for the middle class (social security taxes) under the false pretense that it was to secure the future of Social Security; while instead, the bloated deficit has been blamed on entitlements rather than the tax cuts. Compounding the scenario we have skyrocketing executive compensation, financial bailouts to pay millionaire bonuses, health care costs growing 2.5 times faster than GDP, stratospheric education costs in the top schools, everything to indicate that we arrived at a true economic oligarchy, sometimes described as the two Americas: leisure and power for some, and servitude for the rest of us. No more land of the Free here.

Most don't recall the days when socialism was born from a similar class system, but they were not good times for anybody. Are we slipping back to that? Rather than malign socialism, as right-wingers are so inclined to do today, they need to know that the real malignancy is found in the conditions that drive us to seek refuge in socialism. How about learning the lessons of History?

Thursday, August 6, 2009

Where did the 10 Trillion Dollar Debt go (and who has it now)?

I'm not an economist, and I have no interest in ideological debates between different schools of thought. I think the average tax-payer finds no useful purpose for that type of discussion, but is interested in economics and the way economic policies impact their lives. The esoteric discussion of technical views promoted by one school or another tend to obscure the reality that is accessible to the informed person and the discernible trends that show where the country is headed, and to which the government policies are pertinent.
In the political debate about taxes and spending political ideology always seems to be the opinion driver, and facts and figures are easily concocted to support one point of view or another.
I have recently been furnished a table (shown) that plausibly makes the point that top income earners pay most meaningful taxes and therefore it's at the top that tax relief is warranted... until you add another column to figure out the effective tax rates, and find out that at the top of the income range the tax rates drop significantly, from 35% to 24% and 21% (which would defeat the point being made). And in fact, for the richest Americans, the rate was 17%. The analysis is always framed in terms of the tax burden on each income range group, as if that really told the hole story. But is that really a true picture of reality? Heck NO!

The truth is:
1. reality is dynamic, with accellerating changes in last 25 years.
2. in real terms the tax burden is being shifted downwards in the US as income moves massively towards the top earners (America's Tax burden Shifts Downwards
3. since supply side economics was appropriated by conservative politicians there has been a historic wealth transfer effect towards the top fraction of the 100 percentile (fraction of the top 1% earners).

I've seen a variety of articles claiming one thing or another, but my curiosity lead me to the raw data published by the IRS (
In that mountain of data I managed to discern a real trend that explains why the working poor have to work multiple jobs to earn less money today than when the the GDP, even in per capita terms, was less than half what it is now. All that growth was floated up towards the top.
Reagan came to office in 1981 and introduced the notion that by cutting taxes the economy would grow. Without debating the merits of that aspect, the actual policy resulted differently depending on your income bracket. There was no growth for the bottom half and a huge expansion of wealth towards the top. When I say top I'm talking about a fraction of 1% but most IRS data does not discriminate beyond that 1%.
So, in 2006, last numbers available, the top 1% had expanded their share of earnings to 22.06% of the total American Pie, from 8.31% 25years prior, in effect sucking up a large part of the wealth effect of GDP growth that the average citizen assumes was distributed by all Americans.
Paraphrasing J. K. Galbraith, it is a seldom admitted fact that more equitable economies perform better than ones where the wealth is held in high concentration. You know, he's comparing evolved countries to the proverbial Banana Republic. Clearly we are moving backwards on that scale. Is that inevitable? That does not happen in other developed economies that don't follow our model... but, we are the best - let's not forget that! No argument works better than patriotism to prevent us from learning from others.

It is the function of the government to determine fiscal policy, and the result of the policy of the last 30 years has been this huge displacement of the wealth towards the top layer, no! sliver. When the tax topic is discussed the issue is always framed in terms of the burden placed on the highest income earners. In 2006, they say, the top 1% paid 40% of all taxes up from 20% in the early 80's. True, but if you look deeper and figure out that they almost tripled their share of the income pie, having only doubled the share of the tax pie was a pretty good deal. In fact their effective tax rate dropped from 33.37% to 22.79%. And this figure is misleading in the sense that the richer you are the less tax you paid. The actual percentage for the top 400 tax-payers in 2006 was 17.17% (IRS figures).

Let's add some perspective to this data:
What the data tells us is that since reaganomics was introduced as a fiscal policy of "small government and low taxes", it was used to create a huge health effect biased towards the top layer of tax-payers, leaving 50% of working Americans out in the cold while the economy more than doubled (116% economic growth per capita and adjusted for inflation, 2.5% total growth in 25 years for half of tax paying Americans).
In my view it is not much use to debate the low tax small government aspect, which seems to be palatable to most people, but that is not what in reality happened. What happened, in this age where lobbyists multiplied and PAC contributions to politicians mushroomed, the interests of the pay masters were well looked after, while the democratic power of the little guy shrunk. Welcome to US democracy in the 21st century! The century inaugurated with the Florida fiasco that turned the political destiny of this country in the opposite direction of what the other 49 states had determined! Sorry, off topic... or maybe not!
But let the dupes for the so called conservative right understand that one out of two Americans are worst off than ever in 25 years in spite of large productivity increases. As their income stagnated, housing, health care, education, all the benefits of an aspiring upwardly mobile society were priced out of their means. Higher Education, which was practically free 30 years ago, requires now that even higher middle class students (80-95 percentiles) mortgage their futures for decades. Housing, by virtue of the bubble bursting, associated with unemployment resulting from the 2008 crash, has become a mechanism of wealth destruction reversing the traditional role of wealth growth motor of the middle class. And health care costs which have zoomed past GDP growth as executive salaries and shareholder returns are prioritized by a profit seeking insurance industry have become a luxury out of reach of a large part of the population, leading to the current debate on reform. Meanwhile, as we have become increasingly aware, there is a thin slice of society who spends their vast means figuring out how to profit from the activity involving the savings of all Americans (401-ks, pension funds, investments), therefore producing nothing, and effectively taxing our savings as a whole, to award themselves multi-million dollar bonuses when luck strikes, and getting bailed out by tax payers when their inflated leveraged pies in the sky fall back to earth. No accident, these slick operators are exactly in the part of the curve where the tax rate drops precipitously from 35% to 17%. That's the sweet spot! It is in fact somewhat unfair to place everyone in the top 1% in the same class. Anyone making less than $1 million actually pays the highest tax rate, but the IRS does not provide details within that 1% class where all this happens.

Ultimately I think there is a challenge here for the economists of all the various vociferously competing schools of thought: how do you explain to the average Joe how we got here, why we should continue or change, and where different trends will lead us. I think it's fair to say that supply siders did not get us what they promised (trickle down, remember?), so a fair share of suspicion is warranted on anything they have to say for themselves now... but, give them a chance to talk (1st Amendment and all that!). Once we know what the choices are, then it's a political choice, not up to economists.

Finally, to give us a perspective we can relate to the size of the growing debt:
In 1981 the top 1% (Richie) earned 8 times the average of the other 99% (Joe); 25 years of trickle down and in 2006 Richie earned 28 times as much as Joe.
At 1981 income distribution levels each Joe (all 99 out 100 Americans) would have added $8,319* to their 2006 income, and $74,716** to their accumulated income since 1981, while Ritchie would have more than doubled his wealth. All Joes would have an aggregate wealth gain in 2006 of $10.039 Trillion***, which is the actual wealth transfer effect of these 25 years. This is enough to pay off most of the debt and secure the viability of Social Security and Medicare, in spite of the gross mismanagement of the last 8 years.
When we hear politicians proclaim their fiscally conservative principles, here is a useful fact: the cost of the fiscal fiasco we find ourselves in is about the same as the amount of wealth transferred to those Americans that already had it pretty good in 1980, presumably operated through our government fiscal policy through the Reagan-Bush-Bush eras. Although the Clinton era was not a complete reversal, it did reverse the deficit spending trend, which is what the effect adds to.
So when you hear someone say "we can't afford it!", just ask yourself: are they talking about wasting money in a new Ferrari for Nino (okay, that sounds like an example from the Sopranos - not what I intended)? Or are they talking of paying for life saving access to medical care, access to education for growth and opportunity, or sustaining the ultimate safety net of Social Security? Well, when you have the answer, then you'll know if they're serious.

Notes on calculated values (all figures from IRS data):

*((2006 earnings of top 1%) -total AGI x (1981 share of top 1% earnings))/(99%of population)=
=(1,791,886-8,122,040 x .0830)E6/(1,357,192 x 99)=8,319

**same calculation for each year from 1982 through 2005 and accumulated

*** 99% of population x per capita accumulation=
1,357,192 x 99 x 74,716= 10.039 E12 = 10.039 Trillion

****population is #of tax returns