Relevant and even prescient commentary on news, politics and the economy.

It’s No Wonder People Don’t Understand the "Public" Debt

A friend of mine posted this on Facebook:

I started to explain it, but realized that the standard usage is wildly screwy and confusing for any normal human, and decided to explain it here instead.

The problem is that even in standard economists’ usage, “public” is used in two different ways:

1. “Public” debt: debt owed by the government. In this usage, “public” means “government.” It’s sort of metaphorical: the government r us. As in “the public [versus the private] sector.” “Public debt” is often called “gross public debt.” That includes money “owed” to Social Security, etc.

Note that these debts to trust funds don’t in any way represent the liabilities of those programs; they’re pretty much arbitrary numbers, accidents of the moment, bookkeeping artifacts of a political/ideological construct, that are best ignored if true understanding is the goal. “Gross public debt” a.k.a. “public debt” — the $14.3 trillion shown in this graphic — is not an even vaguely useful figure in understanding the fiscal position of the country or the federal government.

2. “Debt held by the public” (not the public as described in this graphic): in this usage, the public is exactly not the government. It refers to debt held by non government — including other governments, and private holders in other countries. This is often called “net public debt.”

Watch: two (contradictory) usages of the same word, in one equation!

Net public [government] debt = debt held by the public [non government]

You can see this if you search for “public debt” on Fred. Or, read this wikipedia graph caption:

Red lines indicate the debt held by the public (net public debt) and black lines indicate the total public debt outstanding (gross public debt), the difference being that the gross debt includes that held by the federal government itself.

It’s no wonder people are confused.

This graphic makes it even more confusing, because “the public” here is the domestic private sector plus state and local governments. And it excludes foreign-held debt, which is included in the normal definition of “debt held by the public.”

This is the fault of the New York Times, which uses the term in the infographic from which this graphic is prepared. Not only they start with the gross figure rather than the more useful net figure, but they use “the public” in a completely idiosyncratic way.

A further complication: in standard usage, “debt held by the public” includes Fed holdings, even though the Fed is part of the government. The interest it is paid (by the Treasury) on government bonds is paid right back to the Treasury. (The presumption is that those bonds will eventually be sold back to the private sector.) This is not usually such a big deal, but these days the Fed is holding 17% of the Debt Held By The Public.

I suggest the word “public” should be eradicated from all these usages, in favor of more descriptive and precise terms. “Public” does nothing but confuse if you don’t know exactly what it means. Instead, say things like:

Net federal debt.

Net federal debt minus Fed holdings.

Federal debt held by the domestic private sector.

Government debt [including state and local]

And etc. The bookkeeping at this high level is not actually very complicated, so hopefully careful usage will help people better understand and discuss fiscal issues.

Cross-posted at Asymptosis.

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Angry Bear to have new look and more resources for readers

Angry Bear to have new look and more resources for readers

Sometime later in the next month Angry Bear will have a new look to offer to readers as we switch from Blogger platform to the more versatile WordPress platform.  I hope to be posting with quick looks at different aspects of our redesign and explain new features that will be offered to our readers who want to take better advantage of the information Angry Bear contributors bring to the debate and discussion of economics, recommended policy and impacts,  and of course some of the political debate that is part and parcel of ‘political economics’.

The look will be more modern and cleaner to look at.  More functions to access more information from posts will be a part of the design.  But further work is needed before I elaborate.

More details to come next week.


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Can Borrowing From Abroad Avoid The Debt Ceiling?

Barkley Rosser at Econospeak points us to a portion of the nature of debt and borrowing, federal debt, and financing:

Can Borrowing From Abroad Avoid The Debt Ceiling?

No, but Allan Sloan in the Washington Post today thinks it can, or maybe it can.  He proposes that Treasury borrow $200 billion in US government securities from China to use to continue to pay bills if we hit the ceiling, thereby supposedly overcoming dumb gridlocks that should not be happening and have led to such stupidities as the current “fiscal cliff.”  Sloan modestly calls this the “Sloan Strategem” (Ahem, rule against people naming things for themselves holds here, ahem!)
But the answer is no.  Treasury already has a bunch of delaying mechanisms that hold off the moment of truth for several weeks.  We saw that in 2011, when we breezed past technical bankruptcy in June only to fact it in early Augusst when the fiscal cliff got cooked up.  This device would only add some other arbitrary amount of time that would simply delay the moment of blackmail reckoning.

The answer is to abolish the debt ceiling.  People ranging from Bill Clinton through Bruce Bartlett to me and a lot of others have argued that the debt ceiling is unconstitutional on multiple grounds, quite aside from being bizarre and self-contradictory, actually incoherent.  Obama should bite the bullet when it next comes really due, and declare it unconstitutional.  I bet the markets will go up if he does so, although there will of course be a Supreme Court case on the matter.  But better to fight that fight than to be set up to constantly have to deal with these blackmail threats that the House Tea Partiers have made it clear they will continue to impose repeatedly, no matter what comes out of the current fiscal cliff negotiations, which may well be things that voters most definitely did not vote for in this recent election and should not be put into place.

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Jack Cummings, General Utilities Repeal, and Treasury’s Rollover

by Linda Beale

Jack Cummings, General Utilities Repeal, and Treasury’s Rollover

Jack Cummings (aka Jasper L. Cummings, Jr.) writes in the November 12, 2012 Tax Notes at 797-808 about “The Demise of the Liquidation-Incorporation Doctrine.”  This is a must-read not only for corporate-tax policy wonks, but also for those who want to understand at least one of the reasons for the decrease in corporate taxes over the last few decades.

In the major rewrite to the tax code achieved in 1986, Congress legislatively undid the result of General Utilities, a case that allowed appreciated assets to leave corporate solution without taxation.  That is, Congress enacted provisions, particularly section 311(b), that purports to eliminate the ability of corporations to make distributions of appreciated property to shareholders without paying the tax toll on the appreciation while in corporate solution, except for certain situations covered by section 332 (i.e., complete liquidation into a corporate parent) and section 368 (i.e., bootless corporate reorganizations) that explicitly provide for non-recognition of gain in target corporate assets.  The policy grounds for nonrecognition in those provisions is that a domestic corporate parent or acquirer receives the corporate assets in kind, allowing a deferral of the recognition until the assets’ later sale or distribution out of corporate ownership.

But the best-laid plans of mice and men oft go astray.  And General Utilities repeal has gone astray at least in part with the avid assistance of Treasury and IRS, which Jack Cummings ably explains in his article.

Since 2000 we have witnessed another response to General Utilities repeal, this time with the aid of Treasury and the IRS: the conversion of the C reorganization (and sometimes the A reorganization) into a tool to avoidGeneral Utilities repeal as well as dividend taxation, through the upstream reorganization plus reincorporation.Today a corporate tax director who wants to move Business A out of Subsidiary X, leaving it with Business B, can do so by (1) making sure that X is a “checkable entity”; (2) checking the box to liquidate X into a disregarded entity; (3) having X transfer Business A to Parent; and (4) checking the box to reincoporate X.  After those easy steps, which can be entirely invisible to the outside world, X may be more bnubile, more easily spun, or sold with less tax cost, because any gain in Business A need not be recognized.
Several conscious acts by Treasury and the IRS have led to this new escape hatch from General Utilities repeal: the 1996 reg. section 301.7701-1,-2, and -3 check-the-box rules; the 2000 repeal of the Bausch & Lomb doctrine; the 2007 adoption of the ‘no recharacterization’ regulation [Reg. section 1.368-2(k)], which is the subject of this article; and IRS ruling practice that confirms all the beneficial results of those changes. Id. at 797.

Cummings assesses a likely logical path that the Treasury and IRS may have followed to become comfortable with the reg’s statement that these transactions would not be subject to recharacterization, and then concludes:

[T]he principal practical consequence of the rule, when combined with chief counsel’s lenient attitude toward complete liquidations, is to permit a subsidiary to make a distribution to its parent without recognizing gain under section 311 or 361(c), and without the parent receiving a section 301 or 356 distribution.  …  Those consequences may provide clarity, but they provide a very taxpayer-friendly clarity that writes out of the tax law the step transaction doctrine in cases of incomplete liquidation, even though the doctrine remains stated in reg. section 1.331-1(c) and section 346.  Id. at 801.
But the step transaction is one of those regulations that states a doctrine established by the Supreme Court in multiple reorganization decisions.  The step transaction doctrine surely can reveal Controlled to be the reorganization successor of Subsidary, and Congress has not provided otherwise.Reg. section 1.368-2(k) has [therefore] left the law in a confused state, or perhaps in a near perfect state for spinoff planners who want electivity by form. Id. at 802.

Cummings discusses a number of “basic principles” — including Congressional intent that section 332 control the nonrecognition and basis results of liquidations; Congressional support for a “substantially all” criterion for reorgs; Congresional treatment of related corporation reorganizations as “special”; Congress’s declining to provide that C reorgs cannot be recharacterized; and the reiteration of the liquidation-reincorporation rule in regulations — and concludes that they “counsel strongly against writing a no-recharacterization rule.” Id. at 806.

Whatever benefrits of certainty Treasury thought it would achieve by eliminating the cross-chain reorganization possibility have been swamped by the uncertainties it left or created …, the closing agreements the IRS still has to seek, and the gutting of section 311 it has facilitated (not to mention further encouraging the notion that any consolidated group that pays tax on an excess loss account must have a stupid tax director). Id at 806.

Cummings concludes that the various “simplifications” discussed in the article are troubling:

[These simplifications] have led to the unexpected consequence that well-advised subsidiary corporations need never recognize section 311 gain. Perhaps that is good tax policy.  . . .  But usually when that type of tax policy is made it involves the action of Congress, not Treasury, particularly when Congress has indicated a contrary intention by repealing General Utilities.  Id. at 808.

Tax practitioners and academics alike have thought that the open, communicative relationship among Treasury and IRS officials and the tax bar, demonstrable at any ABA tax section meeting, is generally good.  It permits the bar to share with government officials real situations that may have escaped attention in a regulatory or legislative development, thus making officials aware of any potentially harmful impact of those proposed regulatory or legislative changes.  At the same time, it allows the bar to comprehend the underlying rationales for proposals, thus providing a sound foundation for policy discussions.

But there are also real problems for tax administration if that relationship grows too cozy at the same time that there exists a continuing revolving door between service at the Treasury or IRS and significant positions as officers in the ABA or state bar associations and as commenters and panelists on regulatory or legislative proposals.  Many of those officials remain in office, while many of their former teammates have resumed their careers and are frequent commenters on regulatory developments.

The taxpayer-friendly developments in the liquidation and reorganization areas under the Bush administration are a predictable result of that sometimes-too-cozy relationship and the corporatism inherent in much corporate tax lobbying.  Regulatory developments — in particular the regulations regarding recharacterization and gain and loss recognition in the reorg context and the many tax-saving opportunities opened by the check-the-box regs and the decision to recognize “upstream” reorganizations (like A reorg mergers of a subsidiary into a parent) –represent an overture to corporate taxpayers that is not merited by the current economic realities, the longstanding application of the step transaction doctrine in these contexts, nor even the actual language of the tax code.

cross posted with ataxingmatter

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Waldmann’s thoughts on voting districts

by Robert Waldmann

I think this is the best post I have read so far on the topic by Kathleen Geier.  Just go read it before reading my comment below.

Of course I have my usual comments:

Thank you Kathleen Geier  for your excellent post based on good shoe leather (OK leather ear to the phone) reporting.  I should also thank the political scientists who have been doing their job while I pretend to do it commenting on blogs (I’m supposed to be an economist).

But (of course there is a but) in those comments I have been stressing that bipartisan and court-drawn maps systematically cause Republicans to win a larger fraction of seats than votes.  The reason is that a bipartisan and court (except sometimes the Supremes) principal is that the House should look like the country and not like the White plus some brown and no black at all Senate.  There is an absolutely deliberate effort to create majority minority districts.  Those districts are overwhelmingly Democratic districts.  The intent isn’t partisan, but the effect is to cause Republicans to be over represented.  I add that I support the effort to make the House look like the country and not like the Senate.

Also, while I see why incumbency helps the party with more seats I do not at all find an explanation for why it explains the gap between popular vote and seats won.  The advantages of incumbency discussed in the post should cause the party with more incumbents to get more votes, yet they are discussed as if they affect seats won but not vote totals.  To explain the gap, one has to argue that incumbents generally win by narrow margins or lose by wide margins.
Here I think the problem may be with the reported vote totals.  Some states don’t report votes in races where there is only one candidate on the ballot.  Incumbents often get on the order of 99% of votes or more.  That’s a lot of wasted votes which would cause the party of incumbents to have a lot of votes per seat won.  But only if they are counted.

Even if the votes are counted, they may be few.  Some people (definitely including me) are irritated when invited to vote for the only candidate on the ballot (if I wanted to live in the USSR I would have moved there back when it existed).  For decades I chose Michael Capuano over write in, but I’m sure lots of other people left the oval empty out of irritation (this year I actually got to vote in a contested congressional election for the first time since hmmm voting for O’Neill over Abt in 1982 IIRC).  I think some correction for races with only one candidate on the ballot is needed.

Finally I don’t get this bit about fewer people in red districts.  What geographic boundaries are being considered ?  I can see how the requirement that each state have 1 representative could in theory create a small population at large district.  However, I think it doesn’t as even Wyoming is not an unusually small district.  I don’t see why representation of low population states would be rounded up more often than down.  If the boundaries are, say, county boundaries, then current redistricting does not respect them (I vote in the same county and a different district).  I tend to suspect that the random districting which respects geographic boundaries doesn’t correspond to anything but a silly modeling assumption.
Polite conclusion about how this is a great post and political scientists are awesome.

cross posted with   Robert’s Stochastic Thoughts

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More on the Threat to Social Security and Medicare from the so-called "Fiscal Cliff"

by Linda Beale

More on the Threat to Social Security and Medicare from the so-called “Fiscal Cliff”

In several posts recently I have discussed the harmful demands the right is engaging in related to the so-called “fiscal cliff” created by the original Bush tax cuts (set to sunset en masse), the artificial debt ceiling (used by the GOP to exact promises of spending cuts during a recession along with extension of unneeded tax cuts for the rich), and the ill-conceived notion that the U.S. military should continue to be funded at dangerously high levels that (i) ensure that the military-industrial complex will find a war or quasi-war in which to engage their newest toys while (ii) sucking resources from public infrastructure projects and education that are vitally needed to sustain our economy.  See, e.g., The GOP’s extortion demands: cut Social Security or we’ll shoot;
If the Dems got backbone;  
Is it a fiscal cliff or merely a bump in the road;  
We face an ‘austerity crisis’ not a ‘fiscal cliff.

A. The Explanation.

At least the national media and a slew of bloggers are beginning to provide some background information to ordinary Americans on just what is driving the national discussion of “fiscal cliffs” and “austerity” demands.  See, e.g., Richard Rubin & Heidi Przybyla, Tax Pledges Confound Math as Obama Seeks Deal with Republicans, (Nov. 16, 2012) (noting that “The $607 billion fiscal cliff is the combination of tax increases and spending cuts that will take effect in January if Congress doesn’t act” and characterizing the positions of the parties as follows: “Republicans want to extend expiring tax cuts for all income levels and are demanding an overhaul in 2013 of entitlement programs and the tax code” while “Obama wants $1.6 trillion in higher taxes for top earners over the next decade, achieved through a combination of limits on breaks and higher tax rates on ordinary income, capital gains, dividends and estates”); Jackie Calmes, Demystifying the Fiscal Impasse that is Vexing Washington, New York Times (Nov. 16, 2012), at A19 (the online article is dated Nov. 15).

[A] slew of tax cuts — $400 billion for 2013 — expire on Dec. 31: All of the Bush-era rate reductions; smaller tax cuts that periodically expire for businesses and individuals; and the 2-percentage-point cut in payroll taxes that Mr. Obama pushed in 2010….  Also, 28 million taxpayers — about one in five, all middle- to upper-income — would have to pay the alternative minimum tax in 2012…. That is because Congress has failed to pass an inflation adjustment….


An emergency unemployment-compensation program is expiring, which would save $26 billion but end payments to millions of Americans who remain jobless and have exhausted state tax benefits.
Medicare payments to doctors would be reduced 27 percent, or $11 billion, because this year Congress has not passed the usual so-called ‘doc fix’ to block the cuts….

The biggest cut would be $65 billion, enacted across the board for most federal programs over the last nine months of fiscal year 2013, from January through September.  This cut, known as the sequester, was mandated by an August 2011 budget deal between [President] Obama and Congress that ended [the GOP] standoff over raising the nation’s debt limit.   Demystifying the Fiscal Impasse that is Vexing Washington
It is surely accurate that our still-weak economy would do better if we do not hit it too hard with decreases in government spending–especially decreases to government spending that supports the most vulnerable amongst us who need unemployment support in order to provide the basic necessities.  Similarly, it is surely true that some of the Bush tax cuts and the Obama payroll tax reduction are still vitally important to those in the lower 60% or so of the income distribution because of the slow growth in the economy.  We will want to find some resolution to the situation that accommodates the need to avoid a harmful austerity approach.
So the Times’ explanation of the components of the so-called “fiscal cliff” is okay.  And it is reasonable in noting that the situation is currently “vexing” to Washington.  Similarly, the Bloomberg article succinctly characterizes the clear poles of the Democratic and Republican positions–a Democratic insistence on higher taxes paid by the rich, and a Republican insistence on so-called “tax reform” and spending cuts, aimed in particular at the earned benefit and safety net programs of Social Security, Medicare, and Medicaid.

B. A Grand Bargain or a Devil’s Bargain–How the Heck Did Social Security Even Get In the Picture?

Where the Times article fails is in its discussion of the “reasons”  for excessive worry about the “fiscal cliff” (if one can really call the GOP recalcitrance to immediately pass an extension of at least a good portion of the Bush tax cuts for individual taxpayers in the true middle class any form of reason). 
The Times article asserts that the “main disagreement” between Dems and Republicans is merely the question of extending the Bush tax rates for the top 2 percent of taxpayers.  That is a considerable understatement, one that results in part from the way the media reduces complex issues to easily retained soundbites, in that it ignores the considerable disagreement about whether and to what extent there should be any changes at all to the various earned benefit programs.

The  article author appears to operate on an unstated assumption that because President Obama seemed ready to trade off changes in Social Security, Medicare and Medicaid benefits for higher taxes on the very richest of the rich in August of 2011, he will still enter into such a “Grand Bargain” to avoid the so-called “fiscal cliff.”  Progressives hope, at least, that Obama will not fall prey to those same conclusions: Obama is now in a position of considerable leverage, and he must recognize that he cannot allow the Democrats to be extorted into a Devil’s Bargain to reduce Social Security, Medicaid, and Medicare benefits in exchange for the pittance of slightly higher taxes on the upper crust.
The article goes even further astray at the end with its label of a “two-part deal” as the “best-case outcome”.  It claims that “[m]any budget experts and economists are hoping for a two-part deal.  The first part would extend many of the tax cuts and repeal the automatic spending cuts to avert the changes scheduled after Jan. 1.  But it would be contingent on the second part: a framework for reducing projected long-term deficits by overhauling both the tax code–to raise revenues–and entitlement programs–chiefly Medicare and Medicaid, whose rising costs in an aging population are unsustainable.”  Id.

Of course, here the “many” is simply put out there without any context, so one can’t challenge the statement as accurate or inaccurate.  The right-wing has a stable of market fundamentalist economists who want to see earned benefit programs reduced, and there are certainly the Blue-Dog Dems and a number of others (like the Bowles Simpson group) who go along with that with little questioning of the ultimate negative impact on quality of life and decency of those determinations.  Overall, there is considerable parroting of the right-wing rhetoric that suggests that these vitally important programs have to be overhauled, rather than recognizing that it is the factors that lead to ever-increasing costs for medical care in the United States that must be addressed.  And it mistakenly suggests that there is a consensus in that regard. This is a perfect example of the way today’s journalists buy into the rhetoric that is promoted (at great expense) without questioning the fundamental presuppositions underlying it.  In fact, the sequester deal did not touch Social Security, Medicare and Medicaid because there was no consensus that these programs should be reduced.  And the election results demonstrate that there is no consensus now that these program benefits must be reduced, though there is likely a consensus that health care costs in this country are increasing well beyond what is reasonable.  It is absolutely critical that the distinction be made.

So let’s take these issues into consideration here.

C. Thinking about the two key components of the so-called “fiscal cliff”–tax cuts and spending cuts.

1. The Bush tax cuts, job creators, and uncertainty

The right has, not unexpectedly, argued that not extending all of the tax cuts–including those that amount to significant dollars for the wealthiest upper crust–will create a dire situation since, the right argues, the wealthy are the “job creators”.  There is no empirical evidence supporting the idea that tax cuts for the upper crust do anything to create jobs: most jobs are created by small businesses, and those with incomes above $250,000 make up only about 3% of small businesses.

Others argue that the uncertainty of letting the Bush tax cuts expire on December 31 is itself a dire blow to the economy.  But in the same breath, the media and most members of the Democratic and Republican parties acknowledge that they do not disagree on the need to extend the tax cuts for the middle income group at this time–the Democrats because they recognize that the tax cuts are still needed at a time of continuing slow growth out of the Great Recession caused by the profligate regulatory and tax policies of the Bush years, and the GOP because they recognize that they have no opportunity for an electoral majority if they continue to ignore the middle class.

Thus,  savvy political advisers note that allowing the Bush tax cuts to expire and then enacting judiciously selected tax cuts targeted at the middle class (perhaps similar to the Bush tax cuts for the lower income groups or perhaps more carefully selected and without the many corporate tax giveaways) are fairly sure things, so that the arguments from uncertainty reduce to the same-old right-wing scare tactics.

2. The sequester, military spending, health care costs, and the importance of Social Security, Medicare, and Medicaid

Some conclude that neither side wants the sequester, with its domestic spending cuts and military cost-cutting, to go into place.  This, too, may be incorrect and overly simplistic.

Many progressives recognized that we have a substantial imbalance in spending, in which we neglect public infrastructure (roads, bridges, public transportation especially rail and inter-and intra-city rail) and human capital development (funding for public education and for basic research) while pushing money at the military-industrial complex.  The latter step merely encourages the military to find ways to use the military investment it makes–i.e., more money essentially fosters war-mongering simply by providing plenty of the tools to carry it out through exorbitant expenditures on the military.  Letting the sequester take place is probably the only way that our dysfunctional Congress–with far-right-wing/Tea Party dominance in the House and the minority-control rule through the filibuster in the Senate–will be able to undo the disastrous emphasis on military spending above everything else that began with Reaganomics.
Accordingly, a better course might be to let the sequester take hold, too, and then selectively undo cuts that jeopardize sound government–such as cuts to research, centers for disease control, public transportation, public infrastructure, education, and funding of public pension obligations.  Surely the right recognizes that Americans are not happy when lax regulation results in deaths from medical care because Congress was lobbied out of regulating compounding pharmacies or deaths from bridge collapse because Congress refused to spend sufficiently on upgrading our antique transportation infrastructure or continually falling behind in research on Alzheimers and cancer and the many other modern afflictions because Congress has been so stingy with federal funds supporting basic research at our research universities.

OF course, we know from the election that today’s GOP sees no problem with cuts to various domestic programs that the Dems (and many ordinary Americans) hold dear–the right’s admitted goal since Reagan has been to reduce the size of government, on the ill-founded belief in market fundamentalism that private markets can do everything better. 

But we have years of evidence that disproves that belief, and progressives must start publicizing the absurdity of the right’s claims about market fundamentalism and the right’s denials about basic scientific theory.  Climate change is real, and investments will be required to protect our great cities.  Social Security is not bankrupt, and there is no reason that it cannot continue for years (even indefinitely) without reducing benefits.  Markets like medical care simply don’t work without governmental intervention because Big Pharma, Big Insurance, and Big Med (especially for-profit hospitals, nursing homes but also too highly compensated doctors combined with too lowly compensated aides and other assistants) exercise near-monolithic control of access and pricing, rendering the health care “market” dysfunctional, and government intervention will be required to create health-care delivery systems that serve the people.

(Even those who ascribe to Milt Friedman’s views of how markets work–views which in my view are based on unrealistic and overly simplistic assumptions that leave out most of the truth of human behavior in order to arrive at neatly mathematical formulas–recognize problems with the health care market where physicians operate in a structure of monopolistic competition.  In Capitalism and Freedom, Friedman noted that state licensing acts as a barrier to entry that gives physicians considerable market control, thus resulting in rent profits.  Friedman’s market fundamentalism solution would be to allow anyone to practice medicine without a license, thus creating consumer “choice.”  Query whether anyone without considerable wealth would actually prefer a return to those “quack” days of frontier medicine where such a market existed or would rather have a version of today’s regulated system of health care professionals with both affordability and competence. I argue that the latter is both preferable and attainable.  See below.)

The following provides some of the factual evidence for the importance of government intervention in the medical care market–European and Canadian health care, which are generally forms of government single-payer or single-payer/single-provider care, and Medicare, which is a form of government single-payer care, are both considerably less costly and substantially more universal in coverage than the standard, private market U.S. medical care model.   See, e.g., the OECD’s comparative statistics on medical care provision in the US compared to OECD countries and Canada, available here (see statistical spreadsheet here).

Total Healh Care Spending Per Person, 2010: US (8233); OECD avg (3268); CA (4445)
Total Health Care Spending* as Share of GDP, 2010: US (17.6); OECD avg (9.5); CA (11.4)
Pharmaceutical Expenditure* Per Person, 2010: US (983); OECD avg (496); CA (741)
Practicing Physicians Per 1000 Population, 2010: US (2.4); OECD avg (3.1); CA (2.4)
Practicing Nurses Per 1000 Population, 2010: US (11.0); OECD avg (8.7); CA (9.3)
Physician Consultations Per Person, 2010: US (3.9); OECD (6.4); CA (5.5)
Medical Graduates Per 100000 Population, 2010: US (6.6); OECD (10.3); CA (7.2)
*expressed in dollars adjusted for purchasing power parities (rates of currency conversion that equalise the cost of a given ‘basket’ of goods and services in different countries)

The U.S. medical care market’s high costs are attributable to a variety of factors, but perhaps the most significant is the potential for “rent” profits to Big Med, Big Pharm, and Big Insurance.
Note that the right’s “reaganomics” rhetoric has been that we have to reduce the size of government by cutting government costs specifically for the social justice programs that serve a majority of our citizens, particularly in their old age.  The right’s most important priority for reductions in government services, that is, are reductions to the earned benefit programs that it calls “entitlements” (a term that it does not extend to the various tax expenditures that provide all kinds of gravy for the upper crust and multinational corporations like Big Oil, Big Pharma, Big Banks, etc.).  The right wants to reduce the deficit on the hides of the poor, the elderly and those who have little besides Social Security and Medicare for retirement (because of their reasonable reliance on their availability to buffer the viscisitudes of private markets in their old age).  So the right proposes either privatizing (“voucherizing” Medicare; “optionalizing” Social Security) or shifting programs to the States (where reductions in Medicaid funding for the poor can be hidden more easily) and/or reducing benefits by increasing the age for eligibility and decreasing potential payments.  In other words, the right treats a problem caused by the unduly high costs of a wacky, quasi-monopolistic, market-based medical care system as best solved not by bringing the costs down the way every other civilized peer nation has done, but instead by preventing the majority of Americans from having access to decent medical care if they are poor or old and dying or physically handicapped or otherwise unable to afford private insurance.


After all, as Robert Reich argues, the “fiscal cliff” and “looming budget deficits” aren’t the worst of our problems.

The central problem of our economy is widening inequality. It’s reducing the purchasing power of the vast middle class on which job growth depends, and turning the economy into a speculative casino for multimillionaires and billionaires.  It’s also undermining our ability to turn the economy around, as those millionaires and billionaires subsidize politicians who refuse to raise taxes on the wealthy and seek to cut spending critical to the middle class and the poor.  Robert Reich, Stop income inequality!, (Nov. 15, 2012) (formatting changed).

The more I think about this, the more I am convinced that, as Kenneth Thomas says, Democrats Should Just Sit Back and Ride Over the Fiscal Cliff (in a post at Middle Class Political Economist, republished on, here) and Angry Bear here.

[The fiscal cliff] is the combination of spending cuts and tax increases set to take place on January 1 based on several different laws.  Estimates of the consequences run as high as $800 billion next year, or 5.2% of the country’s$15.29 trillion gross domestic product in 2011.  Yes, that would mean a recession, with obvious consequences for the middle class.  But this is only true if we did nothing after January 1, and that’s not going to happen.  Id.

cross posted with ataxingmatter

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Health Care Thoughts: Health Exchange Delay

by  Tom aka Rusty Rustbelt
Health Care Thoughts: Health Exchange Delay
The Obama administration has delayed the decision point on state health exchanges until December 14th.
Much of the discussion on this issue has centered on politics. My focus is on more practical issues.
The Obama administration has a track record of being unable to develop administrative regulations on time and for writing complicated and incoherent regulations. We still do not know for certain what “essential benefits” might be and how the administration will balance intense lobbying on this issue versus affordability.
From a management and financial viewpoint it may make perfect sense to have the feds install their “plug-and-play” model exchange and to let the feds do the heavy lifting, politics aside. Maybe the Democrat governors are wrong on this one?

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Sore-Losing Doesn’t Bode Well for Well-Considered Policy Choices on Taxes…

by Linda Beale

Sore-Losing Doesn’t Bode Well for Well-Considered Policy Choices on Taxes…

Romney and Ryan have apparently joined the GOP sore-losers ranks most ably demonstrated by John McCain’s bitter post-presidential candidate spin.  Romney betrayed the GOP’s disregard for ordinary Americans in a post-election talk with some of his major donors.

Like his “47% comment” in which he disparaged those who don’t have to pay income tax (but generally pay payroll and other taxes) by asserting that they aren’t personally responsible and enjoying being dependents, Romney’s comment about the reasons he lost essentially blames the voters for taking bribes from the sitting president.   He suggested that Obama appealed to specific interest groups “the African American community, the Hispanic community and young people” with generous “gifts” like health-care reform, amnesty for children of illegal immigrants. See  Maeve Reston, Romney attributes loss to ‘gifts’ Obama gave minorities, (Nov. 15, 2012).

Young voters, Romney said, were motivated by the administration’s plan for partial forgiveness of college loan interest, the extension of health coverage for students up to age 26 on their parents’ insurance plans and free contraception coverage under Obama’s healthcare plan, which he credited with ushering greater numbers of college-age women into Obama’s coalition.
The extended insurance coverage, in particular, was “a big gift to young people,” he said, noting that they turned out as a “larger share in this election even than in 2008.”  Id.

Similar language was used to describe the reasons African Americans and Latinos voted in large numbers for Obama.

Such willingness to attribute defeat to political bribery goes a long way in demonstrating how out of touch the GOP is with what government should be doing.  There is some obligation for politicians to serve the people–thinking in the long term and not just for the short term, but considering what kinds of programs merit consideration because of the good they do for individuals and in turn for society. Romney’s deafness to this issue–and his view that taking care of the wealthy few is the only goal of tax policy (and probably spending policy as well)–justly helped in his defeat.  It is terribly important that federal officials recognize the staggering inequality now existing and growing in this country and its impact on all of our lives and the sustainability of the economy as well as the future of our democratic institutions. Romney didn’t get it.  Obama got it imperfectly.  Given a choice, a majority recognized the difference.

It is now time for the GOP to take off its blinders and get a better sense of how their economic policies and in particular their tax policies have been harmful to ordinary Americans and hence to the economy.

cross posted with ataxingmatter

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