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

What is the POINT of this?

WASHINGTON — House Republicans on Tuesday put forward the outline of a response to a Senate proposal that would end the government shutdown and raise the debt limit into next year, but would also make some changes to the health care law.

Under their plan, members of Congress and the cabinet would be compelled to obtain health care coverage through the Affordable Care Act, often called Obamacare, but would not receive the employer subsidy from the government. Further, the deal would suspend a medical device tax for two years, something that was dropped from a Senate compromise in the making.

House Outlines Plan on Spending and Debt Limit, Jennifer Steinhauer, New York Times, 9:56 a.m.

Excuse me, but what is the point supposed be in compelling members of Congress and the cabinet to obtain health care coverage through the Affordable Care Act–which the law already requires–and removing their employer subsidy?  I mean, other than just showing yet again what jack asses they are.

By “the employer subsidy,” I guess they mean the money that their employer–the government–now pays toward their health insurance premiums.  So this would just be a reduction in their salaries.  What point are they trying to make by this?  How is this supposed to analogize to something that resembles anyone else’s situation?  I really don’t get this. At all.

These people are stupifyingly childish.

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The Way to Stop Discrimination on the Basis of Race Is To Stop Discriminating on the Basis of Race. (Except, that is, when the discrimination favors whites over racial minorities.)

 

The Way to Stop Discrimination on the Basis of Race Is To Stop Discriminating on the Basis of Race.

— Chief Justice John Roberts, Jun. 28, 2007, writing for a four-justice plurality in Parents Involved in Community Schools v. Seattle School District No. 1.

Given that statement of his own belief, and his concomitant pronouncement that discrimination by a state or local government on the basis of race necessarily violates the Fourteenth Amendment’s equal protection clause and that therefore the federal judicial branch is entitled to strike down as unconstitutional any law or policy that discriminates on the basis of race, I expect that the chief justice will vote to affirm a lower federal appellate court’s ruling in the high-profile affirmative action case that the Court will hear argument on tomorrow.

Let me explain.  Or, better, let me borrow part of the nicely succinct explanation in an editorial in today’s New York Times, which begins:

Can a state’s citizens amend the state constitution to ban affirmative action programs in public universities, even if the Supreme Court has approved those programs? That is the question the court is facing this week in the case of Schuette v. Coalition to Defend Affirmative Action.

Some background is in order.  In 2003 the Supreme Court upheld as constitutional the race-conscious admissions policy at the University of Michigan law school.  But at the same time, in a companion case, the court struck down a slightly different affirmative action policy for admissions to the University of Michigan’s first-year undergraduate class, as weighting racial minority status too heavily in order to attain more racial diversity.

In resolving these cases, the court applied its longstanding “strict scrutiny” test to evaluate the equal-protection constitutionality of these affirmative action programs, a test that originated in the 1940s as a constitutional protection under the equal protection clause for members of “suspect,” or “invidious” classifications.  Which did not include whites as a racial group, because, well, the purpose of the “strict,” or “heightened,” scrutiny under the equal protection clause was to protect politically powerless, stigmatized, possibly stereotyped, and historically discriminated-against groups.  Ordinary, everyday whites were the racial majority, not a minority, and clearly the most politically powerful racial group.

The strict-scrutiny standard, which is the highest level of what is now, at least formally, a three-tiered scrutiny hierarchy, requires that courts strike down laws or government policies that targeted suspect groups for negative consequences because of the invidious and immutable classification, initially concerning a fundamental constitutional right–the right to vote, for example–and then for any law or governmental policy, unless the law or policy serves a “compelling governmental interest”.  In which event the means chosen to accomplish the compelling governmental interest must be narrowly tailored so as to have no impact beyond what is minimally necessary.

Originally, the only other level of court scrutiny under the equal protection clause was “rational basis” scrutiny: as long as the government could state some conceivably rational, or legitimate, governmental purpose for the law or policy, the law or policy was fine.  “Rational basis” scrutiny, in other words, is another phrase for anything goes. Later, a middle tier was added–intermediate scrutiny–which applies to gender-based discrimination.

So the trick if you are challenging the equal-protection constitutionality of a law or government policy is to squeeze your discriminated-against class into the suspect-classification category. Which is hard to do when your discriminated-against class is the majority, and most politically potent, race.  But not so hard that it cannot be done, if you are 1980s-90s era Legal Movement conservatives at a time when 1980s-era Movement conservatives dominate the federal bench overall or at least hold a majority on the Supreme Court.  Madison Avenue-ishly marketed as reverse-racial-discrimination programs, race-based affirmative action programs were (and remain) on the Reagan-era-conservatives’ Legal Movement hit list.

So done, it was, initially in a 1986 case called Wygand v. Jackson, in which the court struck down as violating the equal protection clause a school board’s consideration of race in determining financially-necessitated teacher layoffs, holding that racial and national-origin diversity in the makeup of the teaching staff was not a compelling enough governmental interest to survive under the strict-scrutiny test, nor, the Powell opinion says, does the level of scrutiny “change merely because the challenged classification operates against a group that historically has not been subject to governmental discrimination.”

Nor, the court’s majority held in 1995, in a case called Adarand Constructors v. Pena, does the extent of the political power of the discriminated-against group change the level of scrutiny.  The white owners of Adarand Constructors, Inc., challenged an affirmative action program for federal contractors as violative of the Fifth Amendment, which has a due process clause that applies to the federal government, but the Supreme Court has interpreted that due process clause to implicitly require equal protection, in the same way as the Fourteenth Amendment’s explicit and separate equal protection clause applies to (and only to) the states.  White-owned companies vying for federal (or state or local) government contracts, the court held, cannot be disadvantaged in the competitive application process for government contracts by an affirmative-action program seeking to increase the very low number of racial-minority-owned government contractors.

The Koch Brothers could win a reverse-discrimination lawsuit, should they ever apply for any government contract or other special treatment for their businesses through a competitive application process.  Or should their lobbyists ever fall short, and the Kochs learn that racial minorities get more business subsidies than the oil and gas industries.

Or should hell freeze over. But I’m speaking in jurisprudential theory here., not in political theory.

So the suspect category for qualification for strict scrutiny, regarding race, is simply race.  Nothing else. Whites get to piggyback on the strict-scrutiny discrimination standard, instituted specifically and narrowly to protect racial and ethnic minorities, by simple virtue of the fact that white is a race.

Oddly enough, last spring there was a moment when it looked like the lack-of-political-power criterion was about to be restored as a prerequisite to strict-scrutiny classification.  Not the historically-discriminated-against criterion; just the lack-of-political-power criterion.  But it was notable because it was at least one Conservative Movement justice–Antonin Scalia, I believe, and one other, Roberts, I think–who invoked it.  During oral argument in at least one of the two same-sex-marriage cases (I can’t remember whether it was in both or only in one), Scalia and, I think, another justice noted that homosexuals are no longer without political power, as evidenced by their success in enacting same-sex marriage statutes in a sew states and obtaining favorable court rulings in a couple of other states. This, the justice (or justices) suggested, maybe should defeat the claim that anti-gay laws should be analyzed for muster under equal protection jurisprudence using the strict-scrutiny standard.

After all, Scalia said, strict scrutiny under equal protection jurisprudence requires a lack of political power to try to get the law changed; Adarand Constructors, be damned! For the moment, anyway. (Or it requires a violation of a “fundamental” constitutional right–a constitutional right expressly proclaimed by the court to be a fundamental one, and only certain select ones are–which is the only type of claim of denial of equal protection, other than one based upon membership in a particular group, that prompts strict-scrutiny analysis.)  And anyway, Scalia pointed out, the sole purpose of the Fourteenth Amendment, back when it was drafted and then ratified, was to protect people who had been slaves, or who were descended from slaves, or who were, or whose ancestors would have been, slaves had they lived in a state south of the Mason-Dixon line.

Scalia is an originalist, after all.  And he apparently when he said that, he had forgotten that Abigail Fisher, the unsuccessful white University of Texas/Austin applicant who challenged the constitutionality of Texas’s mild affirmative action freshman-admissions system for its state universities, and whose case had been argued to the court last October and was still pending last spring, was white and a resident of an upscale Houston suburb. In his dissent in Grutter, Scalia had written, “The Constitution proscribes government discrimination on the basis of race, and state-provided education is no exception”.  He reiterated that sentence in a one-paragraph concurrence when Fisher was decided in late June, the same week as the same-sex-marriage cases were decided. Fisher went as far as it could to kill affirmative-action programs at state colleges and universities without overruling Grutter.  The petitioner, Abigail Fisher, Anthony Kennedy and Scalia both noted, had not actually asked the court to overrule Grutter, but instead had argued that Texas’s program went beyond what Grutter allowed.  And, since Fisher was not a campaign-finance-law case, the court decided not to go beyond what the petitioner to the court had asked it to rule.

And anyway, there was that pesky problem of arguing the narrowness of the application of the strict-scrutiny equal protection standard in Fisher and then, for Scalia, Roberts, Clarence Thomas and SamuelAlito, blithely reversing course two days later in dissents in one of the same-sex-marriage cases, United States v. Windsor, which struck down the federal Defense of Marriage Act.  Section 1 of the Fourteenth Amendment, the section that contains the equal protection clause, does not specifically state that it applies to gays.  But neither does it say that its protections are limited to African Americans, or, for that matter, to racial discrimination. It says it pertains to all persons. Gays are persons.

But even if Scalia’s originalist view is accepted and the court suddenly reverts back to before the era of modern equal protection jurisdiction began in the early 1940s, and a majority of justices state that the equal protection clause prohibits only discrimination on the basis of race because that was how the amendment was understood when it was drafted and ratified–and that whites are decendants of American slaves, in the South and in Michigan–this would require them to uphold the Sixth Circuit Court of Appeals’ ruling in Coalition to Defend Affirmative Action v. Schuette that the Michigan voter initiative that passed in 2006 amending the state constitution to ban affirmative action programs in the state’s public universities itself violates the equal protection clause.

Here again I’ll borrow from the New York Times editorial:

Advocates of affirmative action sued the state on grounds that the amendment violates the United States Constitution’s guarantee of equal protection. They argued that it impermissibly altered the political process that determines admissions policies in a way that places special burdens on racial minorities.

For instance, an applicant who wants alumni connections to be considered in admissions could ask the admissions committee to adopt that policy, or she could lobby the university administration or its popularly elected governing board. But an applicant who wants the university to consider race as a factor has only one path available: to work to pass a new amendment that repeals the anti-affirmative-action amendment — which a federal appeals court called “a lengthy, expensive and arduous process.”

Michigan, in response, argues that the amendment does not violate equal protection because it treats all races the same. But the Sixth Circuit opinion said the denial of equal protection is not in treating races differently in the university admissions process but instead in treating racial-minority interest groups differently from other non-racial-minority minority interest groups, in effectively changing the very nature of the political system itself only for those racial-minority groups.  Every other minority interest group can try to change a law or a government policy through the normal political process of lobbying or trying to defeat or elect certain candidates, including for the state’s universities’ publicly elected boards of regents or trustees. It certainly seems to me that this is pretty much what Section 1 of the Fourteenth Amendment prohibits, in its equal protection clause as well as its (admittedly moribund) privileges and immunities clause.

Last year, the United States Court of Appeals for the Sixth Circuit rejected that claim, striking down the amendment because it especially harms racial minorities — the primary beneficiaries of affirmative-action programs — by prohibiting them from asking a public university to consider their race.

The Times editorial also notes the Sixth Circuit’s recitation of an appalling problem with this particular voter initiative–a problem to which I was witness. The editorial says:

This case is another reminder of the threat to minority rights posed by ballot initiatives, which can be prone to abuse. That was surely true in Michigan, where the process of gathering signatures to put the amendment on the ballot “was rife with fraud and deception,” according to the federal appeals court. In some cases, voters were tricked into believing that the measure actually supported affirmative action. The methods used by the amendment’s backers, the appeals court found, “undermine the integrity and fairness of our democratic processes.”

Yes. Make that, Yes! As it happened, in the ten weeks or so leading up to the November 2006 election, I was spending quite a bit of time on the University of Michigan campus in Ann Arbor, and also was reading the student newspaper, the Michigan Daily, almost daily.  And I remember the utter dismay, on campus and in Ann Arbor and elsewhere among many in the surrounding area, at the widespread campaign to mislead about the very nature of the proposed amendment.

So for me, in some sense, tomorrow’s argument at the court will be personal.

The court has delineated the parameters of permissible public-university admissions affirmative action programs under its current equal protection jurisprudence, which, for what in my opinion is not a legitimate reason, privileges the rights of whites over, say, the rights of high school seniors who don’t have a parent who is an alum of the school. As the Times editorial says, and applicant who wants alumni connections to be considered in admissions could ask the admissions committee to adopt that policy, or she could lobby the university administration or its popularly elected governing board. But at most universities, including public ones, they don’t have to lobby; alumni connections are considered in admissions. And though those who oppose that policy can lobby, and have lobbied, the university administration or its popularly elected governing board, at the University of Michigan and, probably at the University of Texas, it has been to no avail.  Not because those with alumni connections are a majority of the public, but because they have political and financial clout.

The Michigan state constitutional amendment is undeniably race-based discrimination in access to the normal political process.

The way to stop discrimination on the basis of race is to stop discriminating on the basis of race.  And the Constitution proscribes government discrimination on the basis of race, and state-provided education is no exception.

We have these statements right from two horses’ mouths.  Or keyboards.

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Social Security and the Deficit: More Basics

When the New York Times or the Wall Street Journal reports on THE federal budget deficit what number do they use? When OMB gives a top line number for THE deficit what is included or not? In particular is Social Security included? Now some will immediately jump in and say, and perfectly correctly, that Social Security is “off budget”. That is current law. But does it mean that Social Security is NOT included in the numbers used by government officials and political and economic reporting when talking about THE deficit? Well no.

When I typed the simple question into my browser of ‘what is the federal deficit’ an early result was this one:
http://www.usgovernmentspending.com/federal_deficit_chart.html
And in the accompanying chart we see the number as usually cited, one that shows that THE deficit topped out at $1.413 trillion in FY 2009 and was at the point of chart compilation projected at $973 billion for 2013 (a number that has been revised downward since).

Now where does this number come from and what exactly is it referring to? To get an answer to that question I would refer you to the Historical Tables of the Budget for Fiscal Year 2014 as published by OMB.
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/hist.pdf (2.2 MB)

If you scroll down the Table 1.1-Summary of Receipts, Outlays, and Surpluses or Deficits (-): 1789 to 2018 starting on page 23 you will see a column of fiscal years and then nine columns of dollar figures grouped into threes. The first group of three has the heading ‘Totals’ with sub-headings ‘Receipts’ ‘outlays’ and ‘Surplus or Deficit (-)’. I suggest the most natural reading here is that the column labeled simply ‘Surplus or Deficit (-)’ under the heading ‘Totals’ is representing THE budget deficit as normally cited. And indeed if you scroll down through the table to FYs 2009 and 2013 you do find that same $1.413 trillion for 2009 and $973 billion estimated for 2013. And I challenge anyone to find a mainstream or even lamestream media outlet that actually uses any other number.

Now is this the whole story? Why no, there are still two groups of three columns in Table 1.1 with the respective headings of ‘On-Budget’ and ‘Off-Budget’ with the same three sub-headings ‘Receipts’ ‘Outlays’ and ‘Surplus or Deficit (-)’. And if we scroll down and inspect the row for that peak year of 2009 we would see that the ‘On Budget’ ‘Surplus or Deficit’ was actually $-1.549 trillion which was offset by the ‘Off Budget’ ‘Surplus or Deficit’ of $137 billion to yield our familiar total DEFICIT of $1.412 trillion.

Let me spell this out slowly. The word ‘DEFICIT’ as normally used in government and media reporting is the SUM of ‘Off Budget’ and ‘On Budget’ ‘Surplus or Deficit’. It just is.

Now what all in included in ‘Off Budget’ numbers. Well we find the answer on page 13 in ‘Notes on Section 1’ where we are told “Off-budget transactions, which consist of the Social Security Trust Funds and the Postal Service fund”. Okay simple enough. But let me make three observations.

One: off-budget and on-budget do NOT correspond to ‘Trust Fund’ or ‘General Fund’. Because all parts of Medicare, including Part A which is funded out of payroll taxes allocated to the HI (Hospital Insurance) Trust Fund are actually included in ‘On Budget’.

Two: an inspection of the ‘Off Budget’ ‘Totals’ shows that this category has been in Surplus since 1985 and projects to remain in surplus until 2016.

Three: all of the surplus in the ‘Off Budget’ category is due to Social Security, because we don’t even have to dig into the subsidiary tables to know the Post Office isn’t and hasn’t been running surpluses.

Which leads to the grand finale. Does Social Security ‘contribute’ to THE federal deficit? Well not if you take ‘contribute’ to mean ‘add to’. Because for nearly 30 years Social Security has been in surplus and so actually has subtracted from the larger ‘on budget’ deficit to give THE deficit. By that same token if we take ‘contribute’ to mean ‘is calculated as part of’ then the answer is clearly yes. Social Security contributes to the deficit – by REDUCING IT. Will it alTays serve to reduce the deficit? Well no. Per Table 1.1 the total ‘Off Budget’ ‘Surplus or Deficit’ turns negative as soon as 2016. Unless we take the relatively minor steps needed to put it back into actuarial balance. Which would make the answer ‘yes Social Security will continue to be a net positive for deficit calculations’. And a nice start would be to implement Dale’s Northwest Plan of tiny increases in FICA rates. Or there are other possibilities. But in any case anyone who tells you that Social Security has been a major driver of TODAY’s deficit is flat out lying, either to you or to themselves. Because the numbers show that Social Security has actually been a BRAKE and not an ACCELERATOR in this process. But yes indeed it CONTRIBUTES to the process. Just not in the way the so-called ‘Reformers’ would have you believe.

(P.S. a lot of Social Security defenders resist this argument preferring to rely on the “Off Budget” status to argue that “Social Security CAN’t contribute to the deficit”. But to my mind this is a simple distortion of the facts and an attempt to translate “HASN’T” into “CAN’T”. And good intentions only carry us so far, at some point we have to use the numbers and definitions that are actually in play.)

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Social Security and the Debt Limit: the Basics Again

Well the word out of DC this morning is that the GOP will cave on holding Obamacare hostage at least to the debt ceiling in exchange for negotiations on long-term debt with Social Security explicitly on the table. So it is time to review some basics here.

First we have Public Debt and Debt Subject to the Limit. For practical purposes they are one and the same at $16.7 trillion dollars. You can examine the numbers and see the technical distinctions here: http://www.treasurydirect.gov/NP/debt/current

That same link will show that ‘Public Debt’ is the sum of ‘Debt Held by the Public’ (currently $11.9 trillion) and ‘Intragovernmental Holdings’ ($4.8 trillion). And what are ‘Intragovernmental Holdings’?
http://www.treasurydirect.gov/govt/resources/faq/faq_publicdebt.htm#DebtOwner

Intragovernmental Holdings are Government Account Series securities held by Government trust funds, revolving funds, and special funds; and Federal Financing Bank securities. A small amount of marketable securities are held by government accounts.

And the largest of these trust funds are the combined OASDI or Social Security Trust Funds at around $2.7 trillion.

Which gets us to a simple point. Intragovernmental Holdings including assets in the Social Security Trust Fund are included as a portion of Public Debt and so Debt Subject to the Limit. Which means any action that in the short term either accelerates receipts into the Trust Funds or decreases drawdown (depending on which way the arrow currently is running) has the arithmetic effect of increasing Trust Fund balances over the baseline which in turn INCREASES DEBT SUBJECT TO THE LIMIT. Now in the long term those receipt increases or outflow decreases have the effect of reducing what is called ‘Unfunded Liability’ and so arguably increase the health of Social Security over that same long run. Well fine, we can have that discussion. But what is clear is that extorting cuts in Social Security in the context of a short term debt ceiling increase makes no numeric sense at all. Because the effect of those cuts whether large or small has the first order effect of increasing that component of Debt Subject to the Limit that is comprised of Intragovernmental Holdings.

To repeat something I have said over and over: ‘Unfunded Liability’ is not ‘Debt’. Not as the latter is operationally defined in current federal budgeting. And pretending that it is as an excuse to drag Social Security into the current debate over shutdowns and debt limits is just dishonest bait and switch.

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Bluffing??

Lifted from Robert’s Thoughts

Obviously the main chance is that Boehner is bluffing and that he will bring a clean debt ceiling increase bill to the floor of the House and it will pass mostly with the votes of Democrats.  He would then probably lose the gavel to some new Speaker which will make us cry thinking of Boehner.  The problem with hoping for this, other than hope not being a plan, is that Boehner won’t cave till the last minute (he has made that clear) and may not correctly judge exactly when the last minute arrives.  I will assume that the Republicans won’t just pass a clean debt limit increase — that they will demand at least a fig leaf.

Now if it is something which amounts to nothing like the last time when it was that the Senate doesn’t get paid till it passes a budget resolution, this might do the trick.  Obama might sign it.

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Why You Shouldn’t Expect a Compromise On the Government Shutdown Anytime Soon

From Policymic on the incremental re-instating government services:

http://www.policymic.com

 

Why You Shouldn’t Expect a Compromise On the Government Shutdown Anytime Soon
Don’t get your hopes up about a compromise on the government shutdown anytime soon. The Pentagon has decided to bring 350,000 employees back to work and the House has votedunanimously (no, I’m not kidding) to pay furloughed workers when they return. This is great news for government employees and the economy, but it also means Congress won’t feel much pressure to strike a deal on the budget. And to make matters worse, the leaders in Congress are sticking to their guns: House Speaker John Boehner says he won’t approve a budget or raise the debt ceiling unless Obama puts off his health care law.
The dirty secret of the government shutdown – it was in the works for months (NY Times).
Everything you need to know to get caught up on the government shutdown (WaPo).

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Health Care Thoughts: Really Narrow Networks

by Tom aka Rusty Rustbelt

Health Care Thoughts: Really Narrow Networks

“Narrow networks” are in the news as the ACA exchanges begin to do business (or not?).

From the Columbus Dispatch: http://www.dispatch.com/content/stories/local/2013/10/07/low-cost-premiums-thin-out-providers.html

There may be other problems besides low payment rates. According to the Medical Group Management Association (MGMA) contracting is slow, uncertainty is high, and physician groups have not been read in to the administrative practices of the exchange plans.

(Disclosure: I have done editorial work and seminars for MGMA.)

But wait, we have almost three months, right? Insurance contracting and administrative processes can be put into place, right?

Three months is not really long enough. Physician practices may be satisfied picking up new Medicaid patients, or just staying with the existing practice base, or playing wait-and-see.

The insurers should have had networks fully in place before October 1. Now we scramble. Again.

 

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Fair Market Valuation; CBO, Student Loans, Food Stamps, Etc.

Earlier in 2013, CBO’s Douglas Elmendorf’s forecasted return on Student Loan’s resulting in a positive return for the Government. Later Elmendorf reversed the forecast claiming student loans would cost the government and the taxpayers by generating a negative return. Using one cost model (FCRA) to estimate the return, the government will make $184 billion on student loans in the next 10 years. Using another cost model (Fair Market Valuation ) to estimate return, the government will lose $95 billion over the same period. So why the difference? Utilizing the Fair Market Valuation methodology would necessitate additional compensation for investors to accept the risk that losses may exceed those already reflected in the cash flows. A premium for the possibility that debtors will default in large numbers is added into the calculation. Wait a minute, these are students locked in by signature to these loans which can not be discharged through bankruptcy. So why?

I happened upon a New America Foundation article by a former senior analyst in the Republican staff of the U.S. Senate Budget Committee Jason Delisle, who proclaims much the same as the CBO’s Douglas Elmendorf positing the Fair Market Valuation methodology being a fairer and more accurate way to assign risk to student loans. Beneath Jason’s article and within the comments section associated with the article by Jason were comments by Alan Collinge of the Student Loan Justice Org disputing Jason’s assumptions on Fair Market Valuation (The New America Foundation agreed to a discussion with Alan and reneged. Alan has gone unanswered by Jason and The New America Foundation).  Alan’s argument is the Fair Market Valuation methodology uses the less abundant commercial data to evaluate the return on student loans as opposed to the more readily available and abundant Department of Education student loan data (which has been used in the past by the CBO). The difference between the two databases is the Fair Market Valuation uses commercial loan data reflecting riskier loans than what occurs from the Federal Direct Loans program. While there exists a level of default within the student loan program administered by the Federal Direct Loans program; remember too, Federal Direct Loans can not be discharged through bankruptcy proceedings. Additionally, the collection percentage on Federal Direct Loans is much higher than commercial credit collections which can be disposed of via bankruptcy proceedings. Griffith and Caperton of the Center for American Progress add to the criticism of using Fair Market Valuation stating government loans of all types has cost taxpayers 94 cents for every $100 loaned over the last 20 years. While the FHA took a huge hit when Wall Street crashed, it still performed better than the commercial counterparts. Government programs appear to be on pretty stable ground in their projections yet The New America Foundation and the CBO arbitrarily claim otherwise. Reviewing the history of government lending over the last 20 years shows it has overestimated the total costs to government by $3 billion. For those who may not know, Federal Student loans are like a Roach Motel, checking in by loan signature is near to impossible to negate or check out except to die, become disabled, or pay it off . . . a bankers dream. CBO’s Douglas Elmendorf is showing a partisan preference for the Fair Market Valuation of Student Loan which in the end favors commercial interests over students and the Direct Loan program.

Most recently, another supporter of the Fair Market Valuation methodology of loans, Jason Richwine formerly of the Heritage Foundation and the AEI, wrote an article at the National Review on Farm Subsidies. Myself, I am not a big fan of farm subsidies; but if it comes to eating, I would prefer my food to be homegrown rather than controlled by an out-of-country food cartel the way oil is today. ~ 50% of the US food base is imported today, so why more? There is a need to control subsidies to food manufacturing farms which differ from the family farms as many know them; but to throw the baby out with the wash, I am not sure is necessary. The SNAP program has been heavily contested in Congress with the Repubs looking to balance the budget on the back of the poor. One comment by Jason Richwine within his Farm Subsidy article challenges the ~$4.50/day food stamp recipients get daily and its correlation to health:

“Henry Olsen criticized House Republicans for seeking to cut food stamps but not crop-insurance subsidies in the recently passed ‘farm bill.’ Point taken. But personally I think he is being too hard on conservative activists. To say that cutting the food-stamp budget by a small percentage is ‘the taking of food from the mouths of the genuinely hungry’ and will ‘cut back on your dinner’ is a bit overblown. In fact, I would guess that a randomized controlled study, were it done, would show that food stamp recipients are no healthier than non-food stamp recipients in the long run.”

Well Jason Richwine is correct on one thing, the Food Stamp recipients would be no healthier than the poor non Food Stamp recipients not on SNAP. Consider the SNAP ~$4.50/ day could not buy a one time saltier and higher fat content Quarter pounder meal (soda + fries) at McDonalds. So why quibble over 5 or 10 cents? The true issue is ~$4.50 per day does not go far in many sections of town or in the suburbs and at the store as it now stands. If health is truly the issue here, maybe the program should be expanded to include others and increased in daily dollars? Health is not so much the issue as being hungry or hungrier and then being expected to work while hungry in order to gain the Food Stamps as expected by many states. Or perhaps they can eat cake?

Jason Richwine claims the Fair Market Valuation methodology (based upon commercial data) will give a more accurate picture for the farm subsidies which he also asserts are also less risky than the Food Stamp and the Student Loan Programs. Jason may have a point here since the economic growth of recent has been driven by wild swings on Wall Street and Repubs always look to the poor to make up the difference. I would want to look to past projects to determine what the historical difference has been before making radical changes resulting in phantom deficits. This seems to have been throw to the side with the push to use Fair Market Valuation for relatively stable programs with good returns.  The Food Stamp program is but one area for Fair Market Valuation to come from Jason Richwine.

“Right now, the cost of almost every government credit or insurance program – from crop insurance, to student loans, to public pensions – is underestimated. The movement for ‘fair value’ accounting is intended to fix that problem.”

What Alan Collinge points out does makes sense. Jasons Delisle and Richwine and CBO Director Douglas Elmendorf scrapped decades of data on student loans and other programs which show a return even after historical cost. In place they assume higher risk as taken from commercial loan data, a riskier environment which is not reflective of degree of risk within these programs. We are not talking MBS or CDOs here and the end game are students locked into these loans whether they default or not. The long arm of the government extends much further for students than it does for AIG, Lehman, or Goldman’s Executives to the extent it will garnish Social Security or Disability benefits and future wages. The risk of default Delisle and Richwine, which is so prevalent in commercial loans, is mitigated substantially in Student Loans.  The wild swing seen in the CBO’s projection of Student Loan Return was caused by using the riskier data of FMV and assuming the interest rate charged no longer covers the cost of the Student Loan program. Commercial Investors would demand a higher interest rate to cover losses in case Wall Street blows up the economy again or risk as taken from commercial data (Fair Market Value) rather than the historical data (FRCA) of the US Department of Education. In the end, this will drive interest rates higher for student loans and other loan programs to cover projected potential phantom deficits or costs. This makes sense on Wall Street and for TBTF who failed to mark down investments when they defaulted; but, it does not make much sense for student loan borrowers who are locked into it. there are other things to consider.

An Invitation to Jason Delisle of The New America Foundation by email on September 25, 2013:

from: run75441 aka Bill H
To: delisle@newamerica.net

Good morning Jason:

I write on Angry Bear Blog and I have also helped many soon-to-be college students apply for grants and loans.

I have been reading and watching the discussion going back and forth on Fair Market Valuation of student loans and the resulting change in return as projected by Douglas Elmendorf’s CBO. This change in valuation establishes a basis for a dramatic change in how student loans rates are calculated for risk and return which in most cases does not exist in the same manner as what exists for commercial loans when using commercial loan data. There is no bankruptcy for student loans which would mitigate the risk factor and is also reflected by the collection rate as opposed to lets say credit cards?

Allan Collinge has rasied several points challenging Douglas Elmendorf and your conclusions on the utilization of Fair Market Valuation in determining the return on student loans. Reviewing all of the posts, I have not come across a response to Allan’s points arise from The New America Foundation. His points go unchallenged and I would offer you an opportunity to respond in dilogue to Allan on Angry Bear Blog in your own and unaltered words. Is this a possibility?

Please let me know. Thank you for your time and consideration.

Regards,

Bill

 

1. Deseret News; August 14, 2013 “Making a Killing or Getting Fleeced?”

2. The New America Foundation; March 23, 2012, “Fair Values Accounting Shows Switch to Guaranteed Student Loans Costs $102 Billion”

3.  Student Loan Justice Org

4. Forbes, July 11, 2013 “Interview with Student Loan Activist Alan Collinge – Fair Value In An Unfair System?”

5. The Center for American Progress, May 2012 , “Managing Taxpayer Risk”

6  National Review, September 23, 2013;  “Farm Subsidies, Even Worst Than You Think”

7. The Center for American Progress, April 26, 2006,  “Understanding Mobility in America

8. The Heritage Foundation; May, 2012 “The Real Cost of Pensions”

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THE CBO AND SOCIAL SECURITY… HYSTERIA and HONEST MATH

by Dale Coberly

 

THE CBO AND SOCIAL SECURITY

HYSTERIA and HONEST MATH

The Congressional Budget Office (CBO) recently released a new projection for the costs of Social Security  [no citation.  I looked up the link in the AEI article (below) and did not immediately find a projection for SS].  

They say that increases in life expectancy will increase costs, and increases in unemployment will reduce revenues.  They say an “immediate and  permanent” 3.4% increase in the payroll tax would be needed to pay or the expected shortfall over the next 75 years.  Please note that this new projection is a projection of increased costs due to changes in life expectancy and the wages of workers. It is NOT due to any inherent flaw in Social Security, or any failure to “fix” it sooner.  SS was designed to help workers during hard times.  CBO is projecting hard times.  That is exactly NOT the time to cut it.

Andrew Biggs and the American Enterprise Institute say this increase is “almost twice as much” as the last time CBO projected a  needed “immediate and permanent” increase (of 1.9%).  This means, they  say, “we must act now.”  By “act now” they mean “cut benefits,” which they have been calling for for the past twenty years.  They have no interest in an “immediate and permanent” increase in the payroll tax.  But with the help of the Washington Times Washington Times they hope to stampede you into believing a 3.4% increase in the payroll tax would be a staggering burden.

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John Boehner Demands Fairness to Arkansan Butch Matthews and His Wife, and Offers to Give Up His Own Healthcare Insurance, Just to Start the Fairness Thing Rolling.

WASHINGTON — House Republicans emerged from a closed-door meeting on Friday with no new strategy to end the budget standoff and an angry plea to President Obama to negotiate over his health care law.

“This isn’t some damned game,” said Speaker John A. Boehner, his voice rising in anger. “The American people don’t want their government shut down, and neither do I. All we’re asking for is to sit down and have a discussion, reopen the government and bring fairness to the American people under Obamacare.”

With No New Plan, Boehner Makes Angry Plea on Shutdown, Jonathan Wiesmann and Ashley Parker, New York Times, today

I totally agree that we need fairness to the American people under Obamacare.  But which, presumably, Boehner means that Obamacare should be amended to ensure that everyone has medical insurance with full benefits (the “gold” policy) without struggling to pay the premiums.

No more having to pay $13,000 per year for a married couple with $10,000/yr., $150-per-office-visit, deductibles.  Even if, like Arkansan Butch Matthews and his wife, you’re a lifelong solid Republican.

No more being rejected for healthcare coverage because of a preexisting condition.

No more fear of bankruptcy or the loss of your home, or both.

No more being asked the status of your mortgage payments and car payments in a hospital emergency room, as a prerequisite to non-lifesaving but necessary emergency treatment.

No more not being treated like citizen of any advanced nation in the world except the United States, when you need medical care.  Which you probably aren’t. Or like you’re not a member of Congress or the spouse or child of one.  Also which you probably aren’t.  No, sir.  No, ma’am.

Oh, but wait.  I think I misunderstood Boehner’s comment about fairness to the American people—a comment he has made, repeatedly, this week.  Apparently, he didn’t mean that the multitudes of American people who now have no access to healthcare insurance, or have huge deductibles and struggle to pay the premiums and those deductibles because they have lower incomes than John Boehner and his colleagues, and who now will have medical coverage without struggling financially to pay for it while still worrying about the huge costs if they do need major medical treatment, will now have access to affordable and comprehensive medical insurance.

What he actually meant is that the Republicans are demanding that they and their congressional colleagues and their families henceforth be denied healthcare benefits for preexisting conditions; that those who have no persisting conditions and therefore can get medical insurance have huge deductibles and pay premiums that they can afford or instead have comprehensive insurance and pay their utility bills only every other month in order to be able to afford the premiums; and that they take pay cuts sufficient to make the payment of those difficult financially.

It is, after all, fairness that they’re demanding.  Parity.  And since they now say that they’d settle for just a one-year delay in Obamacare in order to pass a short-term budge and a debt-ceiling increase, they are demanding only a one-year removal of their own healthcare benefits.  At least until next year, when they renew their demand, for another year.

I suggest that Boehner contact Mr. Matthews and his wife directly and tell them the good news. They’re sure to welcome the fairness.

 

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