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When Did Hillary Lose the Election? In 1964.

The half-century story of Democrats’ abdication and decline

By Steve Roth. Publisher, Evonomics

On January 1, 1964, John F. Kennedy posthumously initiated the half-century decline of the Democratic Party, beginning its descent into this moment’s dark and backward abysm of slime. His massive tax cuts for the rich, implemented in ’64 and ’65, were the turning point and beginning of Democrats’ five-decade abandonment of its longtime winning formula: full-throated, unabashed, progressive economic populism. It was the signal moment when Democrats began to abandon the working and middle class. The working and middle class, betrayed and feeling betrayed, have now returned the favor.

Unapologetic progressive economic populism — starting really with Teddy Roosevelt’s slash-and-burn trustbusting, and turned up full-throttle in his namesake’s New Deal — had given Democrats three decades of electoral success. FDR lost two states and eight electoral votes in 1936. He got 523 out of 531. Over four campaigns, he never got less that 432. Eisenhower got a couple of terms as a very moderate Republican, really a progressive, but Democrats’ dominance of Congress and state governments seemed eternal.

Because: that economic populism also delivered success for America. The New Deal, combined with the government deficit spending of World War II, resulted in the greatest burst of widespread growth, progress, prosperity, and individual economic freedom in American history — before or since.

James Carville was certainly right: “It’s the economy, stupid.”

Democrats’ remaining progressivism under Johnson — civil-rights legislation, Medicare and Medicaid, and the wholesale movement of liberated women into the workforce — eventually pushed a hot middle-out economy into the demand-driven inflation of the 70s. That torrid growth brought government debt down from 120% of GDP in 1947, to 35% in 1980. (You know what happened after that.)

But even amidst that burst of growth and sustainable government finance, Democrats were abandoning the very source of their economic and electoral success. Kennedy’s top-tier tax cuts were a preemptive, voluntary abdication to trickle-down theory, before “trickle-down” even existed. When Reagan turned that dial to eleven, he was only occupying ideological ground that Democrats had ceded and abandoned to the enemy, long before. It was an epochal own-goal of historic proportions.

Democrats have been kicking the economic ball into their own net ever since. The obvious solution to the 70s inflation was to raise taxes, reducing government deficit spending, to drain off excess demand from a too-hot economy. Instead they acceded to the banker-industrial complex and the diktats of childish monetarism, again conceding the win to an economic belief system that is egregiously self-serving for the rich, and anathema to Democratic progressive economic populism.

That’s when the enthusiastic, progressive Democratic base stopped turning out in force. (Exception: Obama. For other reasons.) Progressive baby boomers have spent their whole lives voting against Republicans and their swingeing, destructive economic policies, not for inspiring Democrats. Think about the Democratic presidential candidates since 1964. McGovern was a true social progressive, but really a one-issue anti-war candidate. Bill Clinton did okay, within the confines of the post-Reagan economic belief system, which he never seriously challenged as FDR did. Obama didn’t either, in rhetoric or practice. His administration’s failure to prosecute a single prominent bankster is arguably the best single explanation for Hillary’s electoral meltdown.

Can you name one full-throated economic progressive Democratic candidate in the past half century? I’m not even asking for fire-eating. Here’s some help: Humphrey. Carter. Mondale. Dukakis. Gore. Kerry. (Are you still awake?) Aside from Obama, no Democratic candidates had the Democratic base flocking to the polls. (Compare: Republicans and their rabid Tea-Party base.) Add Hillary to that rather stultifying list.

Starting in the 60s, Democratic candidates stopped delivering an inspiring economic message. But the real failure was substantive. In their sellout to the enrich-the-rich supply-siders, Democrats abandoned the working and middle class, and the party’s winning legacy of widespread prosperity. The Democratic party elite bought into and helped promulgate an economic belief system (the “Washington Consensus”) in which distribution and concentration of wealth and income not only don’t matter, they can’t matter. The quite predicable results are upon us — decades of working-class wage stagnation, and wealth concentrations that are as high or higher than any period in modern world history.

It’s no wonder the Democratic base feels betrayed. They were betrayed.

Still: despite those decades of weak-kneed collaborationism, Democrats have obviously remained more economically progressive than Republicans. Clinton and Obama managed to raise taxes some, and Obama gave us Obamacare. And the economy has shown the results. Democratic presidents have delivered growth, progress, widespread prosperity, individual economic security, and true personal economic “freedom” that Republicans — the self-proclaimed “party of growth” — can only imagine in their fever dreams.

By almost any economic measure — GDP or income growth, job creation, stock-market runups, deficit reduction, people in poverty…choose your measure — Democrats’ economic performance has unfailingly beggared what Republicans have offered up. That is true for any multi-decade period you choose to look at since World War II, or over the last century for that matter. It’s true at the national, state, and local levels. Republicans constantly promise prosperity and growth. Democrats consistently deliver it (at least compared to Republicans). They’ve kicked Republicans’ economic asses, decade after decade.

Bigger pie? Raise all boats? Talk to the Democrats.

But nobody seems to know that. Did you? And Democrats never even say it — much less repeat it endlessly over decades, shouting it from the rooftops to stir up the base as Republicans would. The old saw is apparently right: “A liberal is someone who won’t take their own side in an argument.”

Perhaps that failure is a result of progressives’ fussy squeamishness about people getting rich. They don’t really like that word. But voters do. A third of Americans’ think they’ll be rich someday. Fifty percent of 18–29-year-olds do. (About 5% of Americans actually are rich, with more than couple of million dollars in net worth.) That squeamishness explains the persistent “anti-capitalist” strain of American liberalism, which is such an electoral disaster at the voting booth.

Democrats have much to atone for in their failure to hold the line on progressive economic principles, their failure to wholeheartedly champion and defend the working and middle classes, their sellout and abdication to the bankster class. But they also have much to crow about. Instead, though, they’ve stood by for decades while Republicans have falsely claimed the “party of growth” moniker, contrary to all historical evidence.

It is the economy, stupid. Voters, Democratic and Republican alike, will tell you in surveys about all the things they care about. But when they walk into the voting booth, they’re going to choose the person who they think will make them, their families, and those around them more prosperous, comfortable, and economically secure. They vote for candidates who they think will deliver better lives — starting with people having enough money to pay the bills. The Republicans realized that forty-plus years ago, and they’ve been winning based on that ever since. “I’ll cut your taxes and deliver economic growth.” Full stop, drop the mic.

Trump showed us that fire-breathing populism wins elections. While his brimstone reeked of many things, economic populism was at the core of his rhetorical fur ball. Even as he prepared to betray the working class at unheard-of levels, he channeled that betrayal straight onto his vote tally. “Audacity”? Obama should grab a stool and go to school.

And Bernie showed us the same thing. His campaign was unprecedented in American political history, funding a full-boat national campaign and outspending Hillary by 25 million dollars, almost completely with small donations. His message of economic populism brought in more than 200 million dollars in donations from 2.5 million people. And he turned out the enthusiastic base, in droves. Presumably he would have done so on election day, as well. Are Democratic political operatives finally beginning to take note?

There is a path out of the wilderness for Democrats. It’s the path they’ve trod before, with huge success. It involves (for once) coalescing around a core message that resonates with all Americans, repeated endlessly over years and decades. “Equality” and “opportunity,” important as they are, are weak beer on the campaign trail. Most Americans change the channel.  Tell them what they want to hear:

“We make America rich.”

The double meaning is fully intended.

 

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Net Migration and Economic Growth Around the World

This post uses data from the World Bank to look at the effect of migration on countries around the world. I will begin by looking at all countries for which the World Bank has data, then drill down.

So to begin, the data used in this post:
1. Net migration, by country available here. The most recent data is from 2012. Net migration is defined as the “total number of immigrants less the annual number of emigrants, including both citizens and noncitizens. Data are five-year estimates.” As an example, the US reportedly had net migration of 5,007,887 (i.e., positive) in 2007 through 2012, while Bangladesh had a figure of -2,226,481 (i.e., negative) in the same years. That should fit with your intuition.

2. PPP GDP per capita. Data available here. The last year for which data is available is 2015.

3. Data on population through 2015.

I started by looking at immigration relative to the size of the population. I assumed that the net migration figure was the same in each of the five years. (I know – not correct, but reasonable.) I then divided the Net Migration from 2012 by Population from 2012. I then compared that to the annualized growth in PPP GDP per capita from 2012 to 2015. In other words, I looked at the Net Migration as a share of the Population in 2012 and the growth rate in the subsequent three years. I put both series up on a scatter plot.

Before I put up the graph, I would also note that I did leave some data out. It goes without saying that if a country did not report information, I did not include it. Additionally, countries reporting zero net migration were left out. After all, even North Korea has escapees, er, migrants, even if they won’t admit to it. Otherwise, everything went into the pot leaving a sample of 176 countries. Here’s what the relationship between Net Migration (from as a share of the Population in 2012 and the growth in PPP GDP per capita from 2012 to 2015 looks like for them:

Figure 1.  Net Migration div Pop 2012 v. Growth from 2012 to 2015, 176 Countries 20170112
Figure 1

The correlation is -0.32. That is, countries with higher Net Migration as a share of their Population tended to perform less well over the subsequent three years. In other words, it is better to give than to receive, at least when it comes to migrants.

Of course, if we want to understand the effect of Net Migration in the US and other Western Countries, perhaps it makes sense to narrow things down. The next graph uses only countries deemed to be “High Income” by the World Bank. I also restricted the sample to countries with populations exceeding 1 million people to avoid trying to learn life lessons based on recent happenings in Monaco or Andorra. Here’s what that looks like:

Figure 2.  Net Migration div Pop 2012 v. Growth from 2012 to 2015, 44 Countries 20170112
Figure 2

The population sample dropped from 176 countries to 44, and the correlation tightened up a bit to -0.48.

Frankly, I think the sample still needs cleaning up. Most of the points on the graph look bunched up because there are a few countries with very, very high Net Migration. For example, Oman is at 6.8%(!!!!), Qatar 3.6%, Kuwait 3.0% and Singapore 1.5%. These are mostly special cases, even for high income countries, and I would venture to say, provide very few lessons on immigration that are applicable to the US or most of the West. Limiting the sample to countries with Net Migrants to Population under 1.4%, the graph now looks like this:

Figure 3.  Net Migration div Pop 2012 v. Growth from 2012 to 2015, 40 Countries 20170112 - with corrected axis
Figure 3

This doesn’t change the outcome much, but it makes things easier to see. If desired, we can cut out one more outlier – this one on account of excessive economic growth. The point on the far right side of the graph is Ireland, bouncing back (in PPP GDP) from the monster collapse in 2007-8. Removing Ireland as well gives us this:

Figure 4.  Net Migration div Pop 2012 v. Growth from 2012 to 2015, 39 Countries 20170112 - with axis corrected
Figure 4

The absolute value of the correlation drops, but the fact remains: we are still left with a negative correlation between Net Migration as a percentage of the Population in 2012 and the growth in PPP GDP per capita between 2012 and 2015. We can do a bit more pruning, but frankly, the data simply refuses to support Holy Writ. Sure, these graphs don’t prove that immigration is bad for growth. However, they make it very, very hard to argue that immigration had a positive effect on growth during the past few years. Of course, that isn’t what we hear from our betters.

I will follow up this post with looks at other periods for which data is available from the World Bank. Meanwhile, I put together a spreadsheet that allows the user to make changes to the dates or downselect the data through income level, population, etc. It’s a bit large, but I will send it to anyone who contacts me for it within a month of the publication of this post.  I can be reached at mike and a dot and my last name (note – just one “m” in my last name) and the whole thing is at gmail.com.

 

Updated about fifteen minutes after original posting.  Figures 3 and 4 needed an additional significant digit on the Y-axis.

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The Cost of Repealing the PPACA

Would love to tell you; but, Randian House Leader Paul Ryan along with most of the Republicans voted on a Bill restricting the CBO from examining what the cost would be. The vote was 234 Repubs “for” restricting the CBO to 193 (190 Dems + 3 Repubs) against restricting the CBO examining the cost automatically. I wonder why they are afraid of the CBO examining the cost resulting from the repeal of the PPACA?

An earlier June 2015 study had this information. “Excluding the effects of macroeconomic feedback—as has been done for previous estimates related to the ACA (and most other CBO cost estimates)—CBO and JCT estimate that federal deficits would increase by $353 billion over the 2016–2025 period if the ACA was repealed.” CBO Estimate. I chose the harsher number as this I believe is a fairer numeric to take into consideration. A lesser number is $137 billion over the same 10 years.

I suspect the number is higher as the Repubs are restricting the CBO from weighing in on their plans.

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Graduation 2010 – Daviess County, KY

An acquaintance was talking about a program called Graduation 2010 which was implemented in public schools in Daviess County, KY (total county population just south of 100K). Here’s an article from 2003:

Michelle Hancock doesn’t need to read brain research books. She reads her children.

One got in on the start of an experimental brain-building program in Owensboro, Ky., and one only experienced part of it.

Eleven-year-old Adam Hancock is in the first target class. He’s due to graduate in 2010. The program started when he was in kindergarten with special brain research-based programs in foreign language, music, art, exercise and chess. He knows some Spanish words, he reads music, he plays chess — and his brain just works differently from his older sister Tori’s, says Hancock.

“Adam is much more of a planner than his sister. He has got to know what he’s doing ahead of time. He thinks things over, then makes his move,” his mother says.

“It could be just a difference in personalities, but I have to think the chess has something to do with it.

“He’s getting things that Tori wasn’t exposed to. When kids are younger, that’s when their brains supposedly absorb like sponges.”

The article goes on:

That research is infused into the Daviess County school system’s classes, creating what internationally recognized author and brain-based education consultant David Sousa calls “a lighthouse district” among the nation’s schools.

Sousa, author of “How the Brain Learns,” served as a consultant to the school district. He spoke at community meetings, helped train teachers and has watched the program progress.

“It’s a well-organized, well-thought-out plan that’s been working for six years now,” he says. “We’re beginning to see more schools changing their programs (to reflect brain research), but Daviess County was one of the first.”

The program emphasizes major research areas in brain/education science: the well-accepted “window of opportunity” for foreign language learning that closes around age 12, the connection between making music and ability in mathematics, and the development of what Sousa calls higher order problem solving using chess and other challenging games and teaching methods.

It also incorporates a fitness program and expanded arts programs including dance and professional performances.

There’s a strong emphasis on parent involvement and a program wherein corporations adopt a class for those students’ full 13 years in school, acting as mentors, and participating in class-room and community projects with the students.

Every Daviess County teacher has received brain-based training.

From kindergarten on, children are exposed to nongraded Spanish language lessons, music and keyboard labs, dance and chess lessons to encourage critical thinking skills.

“I see a difference in the way these children respond to learning, and children 10 years ago,” Stacy Harper says. “These students are much more involved in their learning process.”

She’s read about the brain research findings, but the students prove it every day, she says.

“You can see, they’re developing those connections. We do Spanish videos two or three times a week, and we’re learning together. It’s so much easier for the kids to learn Spanish than for me as an adult. Now is the opportunity for them.”

Children who learn early increase their learning capacity forever, says Daviess County Superintendent Stu Silberman. That’s a staggering concept that educators can’t afford to ignore, he added.

Sadly, I have found very little on this program online. The name of the program doesn’t help: “Graduation 2010″ is a bit too generic. Nevertheless, it is hard to escape the conclusion that if the program did work, it would be touted more widely. So it probably didn’t work. (Note: the state of KY did experience a large increase in graduation rates from 2010 to 2013, but since Daviess County is so small I imagine the two facts are largely unrelated.)

Anyway, since I have a school-aged child, I have started paying more attention to children’s education. An awful lot of well-meaning and and logically-sounding ideas and concepts seem to have been tried over the years, only to be overtaken by the next generation of ideas and concepts. Other than parental involvement, time and effort, have any of these new approaches rolled out by the educational complex really helped? (This is a question, not a statement.)

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Repealing the PPACA

I am back to the Henry J. Kaiser Family Foundation, as it gives an accurate assessment of what the public really wants with healthcare insurance rather than a political view. Given that Senator Sessions, and Rep. Upton, and Rep. Kingston stopped all funding of the Risk Corridor by placing a sentence in Section 227 of the 2015 Appropriations Act (dated December 16, 2014) effectively eliminating the financial assistance to Co-ops and Insurance companies; it comes as no surprise healthcare insurance premiums would rise, Co-ops would be especially hit hard and go bankrupt, and healthcare insurance companies would leave the PPACA insurance exchanges all together. For sure, we have seen healthcare insurance premiums go up due to the unregulated healthcare industry, less competition due to fallout of companies and bankruptcies, and mostly because of the impact of Section 227 of the 2015 Appropriations Act (dated December 16, 2014). This was a well-orchestrated attack on the PPACA by Republicans, Senator Jefferson Beauregard Sessions, Rep. Fred Upton, and Rep. Jack Kingston to disrupt healthcare coverage, claim to be saving taxpayers money, and shift the blame for increased out-of-pocket costs to the PPACA and President Barack Obama.

invisible hand Kaiser does a good job of tracking trends with little of the political bias you might see in other polls. The number one concern of the Democrat and Republican constituency is not repealing the PPACA; but, lowering out-of-pocket costs paid by individuals such as premiums, co-pays, and deductibles. 93% of the people polled found this to be a #1 priority followed by lowering the cost of prescription drugs (89%). For sure, Sessions, Upton, Kingston, and their fellow Republicans have aggravated the healthcare premiums costs by restricting the Risk Corridor funding and are hiding in the weeds knowing they put one over on the Dems and the voters. The opportunity was there for Repubs to work with Dems and come up with ways to lower the overall out-of-pocket cost. Republicans let it go by for political reasons and now we have the head Randian Republican Paul Ryan trying to kill the PPACA, Medicare, Medicaid, and Social Security. To replace them, you will get tax vouchers for each of those programs and a copy of “Atlas Shrugged” telling you to tough it out and be independent. This is coming from a man who has been in politics much of his life, has worked little in the private sector, went to college on Social Security Survivor benefits, and occasionally drove the OM Wiener Mobile around. Unlike ours, Representative Ryan’s congressional healthcare and retirement are a sure thing.

There are those in Congress who wish to repeal the PPACA in favor of whatever might be better as determined in their own minds. It took a long time to get to this point and the last time someone made an attempt at healthcare coverage was in the early nineties by someone named Clinton. In the early nineties, Congress did not like a President telling them what to do which is why Obama had Congress write the PPACA . . . well at least the Democrats put together the PPACA with no input from Republicans. In the chart above, 58% of the constituency favors repealing the PPACA. It is a majority; however within that majority, there are some other questions to be answered. This particular Kaiser Poll is dated December 13, 2016 so it has some relevance to invisible hand what is going on today. For example, most Americans prefer Congress to either not repeal the PPACA or at least wait until the detail of the alternative plan is revealed. The second chart gives the percentages. 75% do not want to repeal and want to know “first” what is going to replace the PPACA before repealing.

The percentage of who oppose and support the PPACA shifts with the argument being made for or against. Sometimes the phrasing of the question can determine or lead to the answer given. While healthcare is one of the top priorities for the President – Elect and Congress, repealing the PPACA is not the first or even the second actions the constituency wishes the President to take as shown by the Kaiser pie and bar charts. Overwhelming the constituency wants to know what will replace the PPACA before Congress acts. Furthermore the constituency would rather see Congress deal with lowering out-of-pockets costs first, fix pharmaceutical costs second, and deal with the Opiod epidemic before even deciding on repealing the “catastrophic event ” Mr. Trump called it today. By asking for an immediate repeal of the PPACA by Congress, perhaps Mr. Trump is attempting to distract attention away from the Senate Confirmation Hearing of Senator Jefferson Beauregard Sessions an AG candidate who has some serious issues challenging his candidacy. We can be just as lively in both political arenas.

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Issues Affecting Economic Growth – Gored Oxen Edition

I write about issues I believe affect economic growth. For example, over the years, I have written a lot about taxes. And here’s a simple graph showing why:

Tax Rates v Growth in Real GDP per capita

What we see is that tax rates at any given time seem to be related to the growth rate of real GDP per capita over the next decade. What is more, the correlation is positive. That is to say, growth tends to be faster when tax rates are higher, and not lower. This of course contradicts popular belief, particularly among Republicans. However, since economic growth is important for the quality of life of all Americans, getting this right matters. Unfortunately, over the past few decades, government policy has gradually moved us in a direction that inhibits growth.

Of course, it could be the relationship between tax rates and future growth shown in the graph is a spurious correlation. But that is unlikely, since it is very easy to explain why (up to a certain point) higher tax rates would lead to faster economic growth. Additionally, even people who get the direction of the correlation wrong are certain a correlation is there. But… if it ever does turn out that the relationship is spurious, we won’t find that out by keeping our head in the sand.

Another topic I have been writing on a lot lately is immigration. Here’s what a graph looking at the foreign born population in certain years and the growth rate of real GDP per capita over the next ten years:

Foreign Born Population v. Growth in Real GDP per capita

The correlation between the share of the population that is foreign born and the growth rate is negative, which indicates that as the foreign born share rises, growth falls. The correlation between these two variables, at least in the post WW2 era, is stronger than the correlation between tax rates and growth. This of course contradicts popular belief, particularly among Democrats. However, since economic growth is important for the quality of life of all Americans, getting this right matters. Unfortunately, over the past few decades, government policy has gradually moved us in a direction that inhibits growth.

Of course, it could be the relationship between the percentage of the population that is foreign born and future growth shown in the graph is a spurious correlation. But that is unlikely, since it is very easy to explain why (up to a certain point) having less immigration would lead to faster economic growth. Additionally, even people who get the direction of the correlation wrong are certain a correlation is there. But… if it ever does turn out that the relationship is spurious, we won’t find that out by keeping our head in the sand.

If it seems to you that I have written almost exactly the same thing about taxation and immigration, it isn’t your imagination.  I did a copy and paste of a big chunk of the first half of the post to the second half and changed a few words.  The fact is, the analysis is very similar. The only difference is whose ox is getting gored. A grown up is willing to look the data in the eyes and follow it where it goes.

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Risk Corridor, Healthcare Premiums, Companies Leaving the Exchanges, and Republicans

The Washington Post story “Rubio’s inaccurate claim that he ‘inserted’ a provision restricting Obamacare ‘bailout’ funds” is about a year old. Its relevance to the PPACA is in depicting how the Republicans undermined the PPACA causing many Co-ops to go bankrupt, insurance companies to leave PPACA exchanges, saddled insurance companies with $millions in debt, and is a reason for much of the premium increases. I am not pro-insurance; but, this effort to get even with Obama has set the stage for what will negatively affect millions of the insured.

I had written earlier about Rubio playing a part in cutting the funding for the Rick Corridor funding. He did play a not-so-critical part and while researching some additional information I ran across a better explanation.

The Risk Corridor program in the PPACA protects insurance companies from losses during the first three years if they did not estimate premiums properly which can happen in new markets with different characteristics. With the mandate to insure all with pre-existing conditions, keeping children on parents plans, the exchanges, etc.; the Risk Corridor program was put in place (besides two other safe guards) giving insurance companies and Co-ops a three year window to get it right. Besides looking at losses, the Risk Corridor also looked at the profits of companies who had estimated accurately, had excess profits as a result, and required them to pay a ratio of excess profits into the Risk Corridor fund to help underwrite the losses of other companies. Outside of a plus or minus 3% was the basis for whether you gave up a ratio of profits or received a ratio of funding from the Risk Corridor program. The Risk Corridor program is nothing new and was used successfully with Medicare Part D forcing the evil insurance companies to share profits with the government. It still is in place for Part D and “still” generates additional revenue for the government. I do not recall any Republicans complaining about funding for insurance companies then; but then too, Part D was Bush’s legislature while the PPACA legislation was Obama’s. Strictly politics and constituents will pay the price of it.

Depicting the Risk Corridor particulars rather than attempting to explain it in writing will give a better explanation. Click on the image to better read the chart. Please note the plus or minus 3% and then the different ratios of revenue sharing or funding from and to healthcare companies and Co-ops.

invisible hand So what happened? The Risk Corridor program works well for Part D, brings in revenue for the government, and is still in place. February 2014 found Rubio testifying to the House Committee on Oversight and Government Reform on behalf of his bill. At the same time the CBO released their evaluation of the Risk Corridor program. Instead of being detrimental and a fiscal drag, the CBO projected the federal government would collect $16 billion from health insurers. Premiums would outpace claims, $8 billion would be distributed to the plans losing money, and $8 billion in additional revenue would be left for the federal government. Another House probe suggested initially there would be a shortfall with claims exceeding premiums.

The Republicans were not sitting idle and were investigating ways to derail the PPACA. As the ranking member of the Budget Committee, Senator Jeff Sessions and the chairman of the House Energy and Commerce Committee, Rep. Fred Upton came up with a plan to attack the legality of the Risk Corridor payments. They joined forces with the Appropriations Panel Chairman Rep. Jack Kingston whose panel funds the Department of Health and Human Services and the Labor Department. Kind of get the picture so far?

Questioning whether the Risk Corridor payments were being appropriated correctly, the Appropriations Panel forced the HHS to make changes in how they appropriated funds allowing Congress to stop all appropriations. The PPACA could no longer appropriate the funds as they were subject to the discretion of Congress. The GAO issue an opinion on the legality of what the HHS was doing with funds.

GAO Letter to Senator Jeff Sessions. September 30, 2014: Discussion; “At issue here is whether appropriations are available to the Secretary of HHS to make the payments specified in section 1342(b)(1). Agencies may incur obligations and make expenditures only as permitted by an appropriation. U.S. Const., art. I, § 9, cl. 7; 31 U.S.C. § 1341(a)(1); B-300192, Nov. 13, 2002, at 5. Appropriations may be provided through annual appropriations acts as well as through permanent legislation. See, e.g., 63 Comp. Gen. 331 (1984). The making of an appropriation must be expressly stated in law. 31 U.S.C. § 1301(d). It is not enough for a statute to simply require an agency to make a payment. B-114808, Aug. 7, 1979. Section 1342, by its terms, did not enact an appropriation to make the payments specified in section 1342(b)(1). In such cases, we next determine whether there are other appropriations available to an agency for this purpose.”

Further down in the GAO letter, the GAO leaves the HHS an out of using other already available appropriations for the Risk Corridor payments to insurance companies. Classifying the payments as “user fees” was another way to retain the authority to spend other appropriations already made by Congress. Otherwise if revenue from the Risk Corridor program fell short, the administration would need approval for addition appropriations from Congress. As it was, the HHS could no longer appropriate funds to make Risk Corridor payments unless the funds were already appropriated by Congress or Congress approved new funds which was not going to happen with a Republican controlled House.

Appropriations Panel Chairman Rep. Jack Kingston put the final nail in the coffin by inserting one sentence in Section 227 of the 2015 Appropriations Act (dated December 16, 2014) which escaped notice. In the 2015 Appropriations Act, the sentence inserted said no “other” funds in this bill could be used for Risk Corridor payments.

Sec. 227. None of the funds made available by this Act from the Federal Hospital Insurance Trust Fund or the Federal Supplemental Medical Insurance Trust Fund, or transferred from other accounts funded by this Act to the “Centers for Medicare and Medicaid Services–Program Management” account, may be used for payments under section 1342(b)(1) of Public Law 111-148 (relating to risk corridors).

This action blocked the HHS from obtaining any of the necessary Risk Corridor funds from any other Congressional appropriated program funds.

Nothing was said by Sessions, Upton, or Kingston before passage on what they had managed to do. It was Rubio who issued a news release saying the provision was appropriate even though he had little to do with it. In the end, Rep. Jack Kingston’s one sentence purposely created a $2.5 billion shortfall in the Risk-Corridor program in 2015 as the HHS had collected $362 million in fees. Insurers who had misjudged the market sought nearly $2.9 billion in payments, many nonprofit insurance Co-ops failed, healthcare insurance companies began to raise premiums to compensate, and some healthcare insurance companies recognizing an untenable environment created by Republicans took their losses and left the market.

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How do Americans get rich? (and stay rich?)

Originally published at Evonomics and reposted at Naked Capitalism, Angry Bear Steve Roth continues his conversation on riches, income, debt, and expectations. Steve Roth serves as Publisher of Evonomics.

By Steve Roth

How do Americans get rich?  (and stay rich?)

It’s the American dream. A third of Americans think they’ll be rich someday. More than half of 18–29 year olds think they will be.

Less than 5% actually make it.* And many of those do it the old-fashioned way: they inherit it. About 60% of U.S. household wealth is inherited. Between a quarter and a third of Forbes 400 billionaires got rich that way. It may not be the most common way to get there, but it’s widespread, and it’s surely the easiest way.

That aspiration to wealth is deeply understandable. Getting high income from a good job is all well and good, but because wealth begets more wealth — people are compensated simply for owning things — wealth is, potentially, forever. It persists, and spreads through families and dynasties. Wealth can, and often does, endure for generations.

So it’s worth asking: how do Americans accumulate wealth? And how does that vary across income and wealth classes? How do the bottom 50% accumulate wealth, for instance, compared to the top 1%?

The Distributional National Accounts

A huge aid to answering that question arrived last month. Gabriel Zucman, Emmanuel Saez, and Thomas Piketty (PSZ) released one of the most important pieces of economic research in the last century. Their Distributional National Accounts (DINAs) reveal the distribution of national income to different income classes, wealth classes, age groups, and genders (and potentially different races, etc. etc.). This has been unavailable in the national accounts, and as a result it’s absent in most macroeconomic empirical work.

Here’s one poster exhibit:

Collect the whole set.

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