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Kevin Drum

"Finish the Kitchen"

| Mon Feb. 8, 2010 5:53 PM PST

As told by E.J. Dionne, this is a brilliant extended metaphor for why Democrats need to pass healthcare reform. It's about Rep. Jay Inslee (D–Wash.), who lost his House seat after the failure of healthcare reform in 1994 and then won it back four years later:

He recounted all the grief he and his family went through while work on their kitchen renovation dragged on and on and on. "During that time, I had blood lust against my contractor," Inslee said. "Six months went by, and he was still arguing with the plumber. Eight months went by, and there were still wires hanging down everywhere, and he was having trouble with the building inspector."

But eventually, the job got done. "And now I love that kitchen," Inslee recalls saying. "I bake bread in that kitchen. My wife cooks great meals in that kitchen. The contractor's now a buddy of mine, and I've had beers with him in that kitchen."

Inslee looked at his colleagues and declared: "We've got to finish the kitchen." His point was that Americans won't experience any of the benefits of health-care reform until Congress puts a new system in place.

I called Inslee about his kitchen oration after Rep. David Wu (D-Ore.) told me it was one of the turning points in calming Democrats' nerves. "Now," Wu says, "people run into him in the hallway, smile and say, 'Finish the kitchen.' "

Anyone who's ever had any contracting work done understands this sentiment instantly. Likewise, everybody hates the legislative process while it's underway. But once healthcare reform becomes law, the storm will begin to blow over and everyone will start to focus instead on the real, concrete benefits of the bill and the people who made them into reality. And just to remind of you what those benefits are, here's the nickel summary again:

Insurers have to take all comers. They can't turn you down for a preexisting condition or cut you off after you get sick or lose your job.
Community rating. Within a few broad classes, everyone gets charged the same amount for insurance.
A significant expansion of Medicaid.
Subsidies for low and middle income workers that keeps premium costs under 10% of income.
Limits on ER charges to low-income uninsured emergency patients.
Mandates minimum levels of coverage.
Caps on out-of-pocket expenses.
A broad range of cost-containment measures.
A dedicated revenue stream to support all this.

Pass the bill. And the sooner the better. It's time to have a real accomplishment under our belts, not a bunch of exposed sheetrock and arguments over when it's going to be finished.

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Continued From Above

A Modern Day King Canute

— By Kevin Drum

| Mon Feb. 8, 2010 5:18 PM PST

Ross Douthat suggests that we liberals are being too hard on Rep. Paul Ryan's "Roadmap for America's Future." In particular, we're being too hard on his Medicare proposal:

The difference between the cost-control proposals in the Democratic bill and the cost-control proposals in Ryan’s roadmap isn’t that the former are “complicated and really hard to understand” (read: smart) while the latter are simple, unimaginative and cruel. It’s that the Democratic bill wouldn’t come close to balancing the budget in the long run, and Ryan’s plan would.

But this just isn't true. In fact, Ryan's plan doesn't have any cost controls. It merely has payment caps. Here's a description of how it would work, excerpted from Ryan's summary of the legislative text:

Medicare Payment. For beneficiaries first becoming eligible on or after 1 January 2021, creates a standard Medicare payment to be used for the purchase of private-sector health coverage.

- Payment Amount. Standard payment is the average amount Medicare currently spends per beneficiary, and is indexed for inflation by the projected average of the consumer price index and the medical economic index. For affected beneficiaries, the payment replaces all components of the current Medicare program.

Aside from a few minor bells and whistles related to risk and income adjustments, that's it. Ryan takes the average amount Medicare spends today and sets that as the cap for vouchers that would be given to seniors to buy private insurance. The value of the vouchers would deliberately be allowed to grow at a lower rate than medical inflation.

This isn't cost control. Regardless of what you think about Democratic cost control proposals, there's nothing in Ryan's plan that even attempts to reduce medical costs.¹ There's simply an arbitrary cap on how much the government will pay. In 30 years that cap will be about half what it takes to actually buy insurance, and if you can't afford to pay the other half yourself then you're out of luck.

Now it's true that if we adopted Ryan's plan and stuck to it, it would balance the budget. But not by reining in medical costs. It would balance the budget by simply refusing to pay for medical treatment for all seniors. The same is true for Ryan's discretionary budgeting proposal: he simply sets a cap and declares that the domestic discretionary budget has to meet it.

This is silliness. Anybody can pick up a piece of paper, write down some cap numbers, and declare the budget balanced. But that does nothing to bind future congresses and provides no plausible mechanism for actually reducing spending. It's just a number, not a serious proposal.

¹Actually, elsewhere in his plan there are two proposals that might reduce the growth of medical costs a bit: full transparency on pricing and tort reform caps. But whether or not you like these ideas, they're a fringe part of Ryan's plan that would have only a minor impact on cost control. What's more, they don't matter. Ryan's plan specifically limits voucher growth to less than medical inflation no matter what medical inflation is. So even if these things lower medical inflation a bit, they'd lower the voucher cap at the same time. No matter how you slice it, his plan relies on simply capping payments and then letting seniors sink or swim.

Goldman Sachs vs. the Taxpayers

— By Kevin Drum

| Mon Feb. 8, 2010 2:10 PM PST

In the New York Times this weekend, Gretchen Morgenson and Louise Story write about how Goldman Sachs both helped along the collapse of AIG and profited from it at the same time. Basically, Goldman acquired lots of mortgage-backed securities they thought were likely to tank, then bought CDS contracts from AIG to insure against that decline. Megan Carpentier summarizes the rest:

When Goldman’s investments declined, they submitted insurance claims for the losses, but insisted on determining the amount of their damages on their own, without any input from AIG, any auditor or the market.
After Goldman got as much money out of AIG as they thought they could, their stock analysts issued a report about how AIG was bleeding cash and their creditors wouldn’t negotiate, without mentioning that AIG was bleeding cash because of them and that Goldman was the creditor that wouldn’t negotiate. AIG’s stock tanked.
The government stepped in, took an 80 percent share in AIG and then paid Goldman and the other creditors all the money they’d asked AIG for at the start of the negotiations in 2007, without using their power to force AIG’s creditors to negotiate.

Given the scope of AIG's problems, I guess I doubt if any of this really mattered in the long run. AIG was going to collapse no matter what Goldman did or didn't do, so in a sense this is a bit of sideshow. But then there's this:

When the federal government, including then-Treasury Secretary Hank Paulson (who once served as chairman and CEO of Goldman Sachs), directed AIG to pay Goldman exactly what it wanted, it overrode significant and long-standing misgivings by AIG’s lawyers and accountants that Goldman’s estimates of its losses were correct. Morgenson and Story note that the prices on the very securities for which Goldman demanded insurance payments have since rebounded — but under the terms of the deal struck by the federal government, Goldman doesn’t have to pay a cent of its insurance settlement back to either AIG or the taxpayers. That’s quite the sweetheart deal for Goldman Sachs, if not taxpayers.

Now, of course, the question is what did Tim Geithner know about this and when did he know it? That story is still developing.

Quick Hits

— By Kevin Drum

| Mon Feb. 8, 2010 11:38 AM PST

A few quick hits:

The Economist's Erica Grieder is at a Sarah Palin rally in Houston and reports that she's a lot better in person talking to an adoring crowd than she is on television being grilled by skeptical journalists. (And who wouldn't be, after all?) But there's also this: "Although Mrs Palin often attacks other politicians and says that her policies would be better than theirs, she doesn't welcome debate, and her preferred oppositional strategy is abrupt withdrawal. Think about the resignation from the Oil & Gas commission and from the statehouse, or her choice to "go rogue" rather than convince the McCain campaign of the merits of her approach. That's how you get 30% of the vote, not 51%."
A state department SUV plowed into a Daily Caller reporter last week. Result: a broken left knee, lacerations, bruises, and a ticket for jaywalking. Nice.
Healthcare premiums paid by employers aren't taxed. This lowers its effective cost, and simple economics says that it therefore increases consumption of employer-based healthcare. Austin Frakt is trying to figure out how much less healthcare we'd consume if we did away with its tax subsidiy, and comes up with a rough guess of $100 billion per year. "And that’s the price tag of health reform." So we'd spend less and the government would get an additional revenue stream. That's why so many of us like the idea of the excise tax, which is basically a start at taxing employer healthcare premiums like ordinary income.
Felix Salmon reports that Citigroup plans to start selling risk protection against a financial crisis. What could possibly go wrong?

Why Do We Subsidize Debt?

— By Kevin Drum

| Mon Feb. 8, 2010 10:41 AM PST

I talk about leverage as the source of all evil in the financial sector fairly frequently, but it's been a while since I've had a post reminding everyone about the tax treatment that makes debt so attractive. Today, Pete Davis revisits this issue:

The corporate income tax deduction for interest produced a -6.4% tax rate on debt financed investments, while the double taxation of equity income (dividends and capital gains) produced a 36.1% tax on equity financed investments according to this 2005 Congressional Budget Office study. See Table 1. That negative tax rate is the root of the fiscal crisis. Taxpayers paid a large subsidy for Wall Street investors to take those risks.

....The hard part of tax reform is that you have to raise taxes on those getting the subsidies. There are far fewer of them than the many taxpayers who stand to get slightly lower tax rates, so Wall Street corporations will finance the lobbying to kill tax reform before it has to chance to prevent the next financial crisis. We'll end up with watered down quick fixes at best, and the roots of the next financial crisis will remain in the Tax Code.

I'm not sure that I buy the tax code as the "root" of the financial crisis, but it's certainly a contributing factor — and at the very least, removing its tax favored status would remove some of the incentive for the enormous gearing that made the housing bubble so catastrophic. If we want to address leverage abuse, this is one of the arrows that should be in our quiver.

Quote of the Day: Living With DADT

— By Kevin Drum

| Mon Feb. 8, 2010 10:11 AM PST

From Andrew Sullivan, responding to Rich Lowry's claim that the military's Don't Ask Don't Tell policy isn't a substantial burden on gays because, after all, "we all have aspects of our lives we don't talk about":

Rich says that it's no big deal to live hiding one's sexual orientation. If you're straight, try it for one day.

Try never mentioning your spouse, your family, your home, your girlfriend or boyfriend to anyone you know or work with — just for one day. Take that photo off your desk at work, change the pronoun you use for your spouse to the opposite gender, guard everything you might say or do so that no one could know you're straight, shut the door in your office if you have a personal conversation if it might come up.

Try it. Now imagine doing it for a lifetime. It's crippling; it warps your mind; it destroys your self-esteem. These men and women are voluntarily risking their lives to defend us. And we are demanding they live lives like this in order to do so.

To be honest, it didn't look to me like Lowry's heart was really in this one. He didn't even have the talking points down. Why not come out of the closet, Rich, and admit that you're actually OK with repealing DADT?

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Continued From Above

Healthcare's PR Battle

— By Kevin Drum

| Mon Feb. 8, 2010 9:09 AM PST

As regular readers know, I'm skeptical of Barack Obama's continued insistence that the way forward on healthcare is to keep talking with Republicans in the hopes that eventually they'll start cooperating. But hey — maybe his political instincts are the right ones. Maybe he understands better than me that the public needs to see graphically that Democrats did everything they could to work with the GOP and were completely rebuffed. Maybe.

In any case, he's proposed yet another meeting with Republicans later this month to chew the fat over healthcare reform and incorporate the very best ideas they have to offer. The problem, as Ezra Klein points out in detail this morning, is that the current Senate bill actually incorporates most of the four big ideas that Republicans have put on the table: buying insurance across state lines, allowing small businesses to pool together to buy insurance, allowing states more autonomy to implement their own ideas, and tort reform:

On Sunday, John Boehner and Mitch McConnell responded to Barack Obama's summit invitation by demanding Obama scrap the health-care reform bill entirely. This is the context for that demand. What they want isn't a bill that incorporates their ideas. They've already got that. What they want is no bill at all. And that's a hard position for the White House to compromise with.

Now, as Ezra explains, Republicans didn't get 100% of what they wanted. There's no real tort reform in the Democratic bills, at least not the kind that Republicans want, and the other three items are more limited than the original Republican proposals. Still, with the exception of tort reform, I think it's fair to say that GOP negotiators extracted quite a few concessions during the Gang of Six negotiations with Max Baucus. Certainly as much as any party should expect that controls only 40% of Congress.

Barack Obama wants a chance to make that clear to the country on national television. Republicans, understandably, are rejecting his invitation to meet because they're scared silly that he might succeed. But if they refuse to meet at all, they play into his hands as well.

I'm still not convinced this is the right way to go, but there's no question that Obama has put the GOP into a tough position. And since it's basically a PR move, it's largely going to succeed or fail based on how well Democrats and Republicans are able to make their case in the media. Stay tuned.

Who Do You Trust?

— By Kevin Drum

| Mon Feb. 8, 2010 8:46 AM PST

AdAge reports that Edelman's "Trust Barometer" has grim news: we don't trust much of anybody anymore when it comes to product and company recommendations. But for a lucky few, there's also some good news:

Conversely, CEOs — who have of late been trotted out as public faces of their companies in times of stress, such as General Motors CEO Ed Whitacre — saw the biggest year-over-year increase from 17% in 2009 to 26% this year. Other groups seeing increases in the level of consumer trust were government officials (22% vs. 27%), a financial/industry analyst (46% vs. 52%)....

In some cases, social networks themselves may be contributing to the decline in trust. Platforms such as Facebook and Twitter have allowed people to maintain larger circles of casual associates, which may be diluting the credibility of peer-to-peer networks. In short, the more acquaintances a person has, the harder it can be to trust him or her. Mr. Edelman believes the Facebook component has "absolutely" played a role in diluting trust levels.

If this is really true, it's beyond bizarre. Consumers trust each other less but trust CEOs, government officials, and financial analysts more? In other words, they trust the very people who were most responsible for our recent financial collapse? WTF?

FBI Procedure 101

— By Kevin Drum

| Mon Feb. 8, 2010 8:08 AM PST

White House counterterrorism chief John Brennan, apparently a little tired of Republican grandstanding over the fact that the Christmas bomber was taken into custody by the FBI, told Meet the Press yesterday that he had personally briefed the GOP leadership about this the day after Christmas and nobody had complained about it. Spencer Ackerman reports their response:

Sure enough, Sen. Chris Bond (R-Mo.) and Rep. Pete Hoekstra (R-Mich.), the ranking Republicans on the congressional intelligence committees, insisted that Brennan never specifically told them the FBI would Mirandize Abdulmutallab. “If he had I would [have] told him the Administration was making a mistake,” Bond said. The entire Republican leadership, including fact-averse Sen. Mitch McConnell (R-Ky.) and House GOP leader John Boehner (R-Ohio) echoed Bond’s claims in one form or another. Apparently these men, who claim leadership on national security, know less about FBI procedure than the average movie-goer. Obviously the FBI Mirandizes suspects in their custody.

I suppose facts don't really matter in this case, since Republicans have decided that yammering about Obama being soft on airplane bombers is a winning strategy and they don't plan to stop no matter what. Still, just for the record, it would be nice if the FBI could tell us if it Mirandized all the terrorist suspects it held during the Bush administration. I'm pretty sure the answer is yes, and I'm pretty sure no Republicans ever complained about it then.

Deficit Fever

— By Kevin Drum

| Sun Feb. 7, 2010 10:11 PM PST

Paul Krugman wonders why everyone is suddenly panicked over the long-term deficit:

The main difference between last summer, when we were mostly (and appropriately) taking deficits in stride, and the current sense of panic is that deficit fear-mongering has become a key part of Republican political strategy, doing double duty: it damages President Obama’s image even as it cripples his policy agenda. And if the hypocrisy is breathtaking — politicians who voted for budget-busting tax cuts posing as apostles of fiscal rectitude, politicians demonizing attempts to rein in Medicare costs one day (death panels!), then denouncing excessive government spending the next — well, what else is new?

It's more than that, of course. Guys like David Walker and Pete Peterson have been banging the deficit drum for years and were mostly dismissed as tedious cranks. Editors would barely grant them a squib on A16 for their speeches and PowerPoint presentations. Likewise, the long-term problems of Medicare and Social Security have been common knowledge for a long time and haven't changed a whit in the past year. The other causes of the deficit — Bush-era tax cuts, Bush-era war spending, Bush-era Medicare expansion, and a Bush-era recession — are also common knowledge. And the global recession makes short-term deficits far more defensible than they ever were under Bush.

Given all this, the fact that Republicans think deficit mongering is a handy political tool isn't enough to explain the sea change in media attention. Reporters are all properly cynical about political opportunism, after all. The far more important cause of the change is conservative media. Despite the fact that the operation of the noise machine is hardly a secret, reporters and editors remain curiously obtuse about the effect it has on them. But when the machine goes into overdrive, as it has with the deficit, its memes take on a life of their own. The fact that "regular people" are talking about the deficit is what makes it news, but of course they're only talking about it because every conservative outlet in the country suddenly contracted deficit fever last year on January 20th. And to appropriate a saying, when the Drudge/Fox/Rush axis catches a fever, the rest of the media catches pneumonia. So more people talk about it. And the media pays even more attention to it. Nice work if you can get it.

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