James Pethokoukis

Politics and policy from inside Washington

Does Bowles-Simpson kill Obamacare or enshrine it?

Nov 11, 2010 16:29 UTC

On this there seems to be some differing of opinion. From the liberal side, Brad DeLong:

The second [worst thing about the plan]  is the capping of federal health spending growth at GDP+1%/year. That means that, adjusting the aging of the population, the government is supposed to spend a smaller share of incomes on health care as each year passes. That would require not just the repeal of the Affordable Care Act but the elimination of Medicare as we know it.

And from the  conservative side, James Capretta:

But the most important entitlement decision in the entire package is the explicit endorsement of Obamacare. The Bowles-Simpson proposal would leave in place the entire trillion-dollar monstrosity. Indeed, many of its supposed cost-cutting recommendations would build on Obamacare’s flawed structure of government-driven cost-cutting through price controls. In particular, they would like to create what amounts to a global budget on health care, with the Independent Payment Advisory Board (IPAB) given the unilateral authority to hit budget targets with price cutting. This is exactly the opposite of what’s needed, which is cost discipline through consumer choice in a functioning marketplace.

Meanwhile, Bowles and Simpson refused to endorse moving Medicare toward a defined contribution program, as Rep. Paul Ryan’s Roadmap proposes, relying instead on the usual laundry list of cuts to the existing program structure.

I think the right answer here is that the B-S plan keeps the structure of Obamacare but essentially defunds it as envisioned.  U.S healthcare will either move toward more government-mandated rationing or voucherization. Bowles-Simpson throw its lot in with the former by giving the Independent Payment Advisory Board even more power to cut, cut, cut.

Obama deficit commission: the Bowles-Simpson edition

Nov 10, 2010 21:20 UTC

Erskine Bowles and Alan Simpson have put out their recommendations. Here are my quick thoughts:

1. Limiting spending to 21 percent of GDP basically kills Obamacare. I am pretty sure it needs higher levels of funding, so we are talking a complete restructuring. Certainly the GOPers on the commission believe this to be the case.

2. But does the 21 percent include interest costs? That is a big item that could completely change the picture here as presented.

3. Have no doubt, boosting revenue as a share of GDP to 21 percent would put the U.S. tax burden at its highest level in history. It was 20.6 percent in 2000 thanks to capital gains from a booming stock market.

4. Speaking of cap gains, they would be taxed as ordinary income under all the Bowles-Simpson reform plans. Since the rate is currently at 15 percent, that means around a doubling depending on the plan.

5. Then again, corporate taxes would be slashed, which is good for competitiveness and worker incomes.

6. How does Bowles-Simpson compare to the Ryan Roadmap? In 2037, debt to GDP is 40 percent for Bowles-Simpson vs. 96 percent for Ryan.

More on Obama’s reelection chances

Nov 10, 2010 17:53 UTC

Megan McArdle says I am being a tad too pessimistic about Obama’s reelection chances if unemployment is at 8.5 percent or higher two years from now:

I’m not quite as pessimistic as he is about Obama’s chances, but if unemployment really is at 8.5%, I have to think that he will at the very least face a really tough campaign battle–yea, even if Sarah Palin is his opponent.  Unemployment was 7.7% when he took office.  I think he’s going to have a hard sell if four years later, it’s almost a full percentage point higher.  If we put the car in D, how come it’s not going anywhere, Mr. President?

It will be particularly hard if it’s not changing fast.  Unemployment was much higher under Reagan, hitting almost 11% at its 1982 peak.  But the rise was short and sharp, the decline equally dramatic; by June 1984, unemployment was back down to 7.2%.  We’ve already spent as many months above the 9% unemployment line as Reagan did, and it doesn’t look ready to drop below that level in the next few months.  Reagan was dealing with a pure monetary recession:  Volcker raised interest rates dramatically in order to get inflation under control, and as soon as he loosened his iron fist, the economy bounced back.  This recession is vastly more complicated, with fiscal, regulatory, and other problems that still need to be worked out.  I would be very surprised if we saw any sort of dramatic bounce in the next eighteen months–and the next eighteen months is what matters, because most political analysts I’ve talked to think that after about June, an improving economy doesn’t help the incumbent.  George H.W. Bush had a fabulous third quarter, economically speaking, and still lost to Clinton.

That doesn’t mean that Obama can’t get re-elected if unemployment is 8.5%.  But I don’t think any president since Roosevelt ever has–and if unemployment hadn’t hit nearly 25% under Hoover, I doubt Roosevelt would have won re-election either.  If I were the Obama administration, I’d be praying like hell for something in the low sevens.

Megan is absolutely right that recessions after financial crises tend to be nasty beasts. That argues against a 2011-2012 boom like the one Reagan had in 1983-1984 when GDP growth averaged 6 percent and the unemployment dropped by more than three percentage points.  There have also been some polls showing Obama trailing possible GOP contenders like Romney and Huckabee. Then again, Intrade still gives Obama a near 60 percent chance of a second term. And I have yet to meet the GOP consultant whose best-case scenario is anything much better than an extremely close contest.

COMMENT

This is just my general opinion — general meaning there are so many factors who knows — opinion speaks for itself.

There are three basic scenarios for 2012.

Employment above 9% …
In this case, Obama is toast. The democrats are toast. And the higher it stays above 9% the broader the bloodbath will be.
Seriously, if unemployment is 9.6% and the republicans think they will benefit from this anger they are mistaken.
The bloodbath will be hard, vicious and all encompassing and you will probably see more than a few Independents running and winning.
Interesting thing is the higher the unemployment the better for Mitt Romney.
Of all candidates Dem or Rep, he is the only one with the business chops for turnarounds … and successfully pulled a turn around in MA.

The conversation will be all about the economy. And if it is all about the economy. Obama has lost. because truth is he failed.
It doesn’t matter who caused the economy, who stalled, who worked, who didn’t.
As CEO it is his job to fix it regardless of the circumstances. And if the dialogue is about how/why he wasn’t able to fix it, he is fired.

Employment above 8% …
Here Obama has a who knows chance. Part of the who knows is whether it is closer to 9 or 8. Part of it is whether it is Romney/Huckabee ( or Christie? ) or whether it is a Gingrich/Palin/TP choice.

Here the convo will be about the progressive agenda ( HCR ) as well as the economy.
But the economy will be “our methods would make it FASTER recover”.

Under 8% …
Economy will be off the block.

But I am not sure Obama is “safe”.
The republican candidate will run on the platform “Elect me and give me 3 more senators. And we will repeal HCR and every other progressive thing this man has shoved down our throats.”

Simple clean and clear.
This is why Obama can NOT pull a Clinton.

See in 1996, they couldn’t run against HCR. It failed.
HCR will be the gift that keeps on giving until the people actually speak in a way that can not be spun to claim “Oh they are just scared.”

I personally think the last is the best. Not just because millions more would be working.
But seriously … if unemployment drops down to a reasonable ( from here ) 7.6% and Obama loses the election anyways?
Then since the dialogue was … elect me and we will repeal the Obama agenda.
Then the progressive agenda is clearly repealed. And Progressives will need to regroup, think about how to convince voters to change their minds, etc.

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Presenting your federal budget

Nov 10, 2010 15:16 UTC

The great graphics folks a the WaPo do another fantastic job:

wapo

Will 8.5 percent unemployment be enough to reelect Obama?

Nov 10, 2010 14:43 UTC

The Hill sets the economic bar awfully low:

Economists who study the labor market said this week that they expect unemployment in 2012 to average 8.5 percent, down more than a point from the 9.6 jobless rate of today. Heidi Shierholz, an economist at the Economic Policy Institute, said every forecast she has studied predicts rapid job growth in 2012, even though the national number will still be a far cry from full employment. “It’s still going to be so high in 2012, but people are going to be feeling better,” Shierholz said.

Mark Zandi, the White House’s favorite economist to quote because of his advisory role with Sen. John McCain’s (R-Ariz.) 2008 presidential campaign, sees the same picture. Zandi said Obama’s stimulus plan has achieved its goal. The plan, Zandi said, prevented another Great Depression while giving the public sector time to kick in and start hiring, which will be in full effect when Obama is running for reelection.

“The trend is going to be in strong favor of incumbents in 2012,” said Shierholz.

I really don’t think so, though Ms. Shierholz from the liberal EPI would surely like that to be the case.  There is a huge lag between what the numbers say about the economy and what people perceive. Bill Clinton won the 1992 election on the economy (“it’s the economy, stupid”) even though GDP had been growing for six full quarters. According to Gallup, 88 percent of Americans thought the economy was “fair” or “poor” in October 1992 with some 60 percent saying the economy was “getting worse.”

Two years later, it was the Democrats turn to feel the brunt of widespread economic anxiety as the Republicans captured both the House and the Senate. Even though the economy had then been growing for 14 straight quarters and the unemployment rate was down to 5.8 percent, 72 percent of Americans still thought the economy was “fair” or “poor” and 66 percent though the nation was headed in the wrong direction. Hard to believe, but 3 1/2 years after the 1990-91 recession ended, the economy was still a big negative for voters and hurting the incumbent political party.

So let’s say the unemployment rate is 8.5 percent on Election Day 2012. That is twice as high as what Americans have grown accustomed to.  As recently as May 2007, it was 4.4 percent. It was also under 5.0  percent from July 1997 through August 2001.  And before this recession, Americans hadn’t seen 8.5 percent unemployment since 1983. In addition, housing will still be in the tank, and budget deficits will still be in the stratosphere.  Morning in America II? Good luck with that.

COMMENT

A better place to start is with the proposition that Obama’s mistake was to first bail out the “big people” and not bail out the “little people”.

Many of these little people had been hurting two or three years back into the W Bush years. A fair case can be made that Obama got elected when the trouble hit and the Republician candidate demonstrated that he did not understand the problems.

Both the big people and the little people did stupid, improvident things. How was the moral standing of the little people held to be so much lower that they got no bail-out (an unemployment check vs. a $3,000/mo. mortgage payment, was not considered a ‘bail-out’) yet the big people (the financial markets et al) got bailed out.

The same as what was done for the big people would have been something like a six month freeze on homestead mortgage payments and then the right, with court help if necessary, to reduce the principal to the fair market value of the home. The government given a lien on the back end to the extent of anything not paid in case property values went up some day.

Such a program would have had “Moral Hazard” flying on banners but didn’t the govenment in effect remove moral hazard for the big people?

The point is that if the little people are still facing foreclosures, 12% unemployment, and like fears are they doing to vote Republician in 2012? Stranger things have happened but I don’t think “feeling better” is going to cut it.

Obama is going to have to propose some sort of tough mortgage foregiveness, the only thing not yet tried*. If the Republicians shoot it down, which they probably will, let that be the debate subject in 2012.

* Obama’s HAMP and similar programs are so bad that they make him look even more like a handiman of the “finance” (i.e., the big people).

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Democrats now favor the Pethokoukis ‘extend and reform’ tax plan

Nov 10, 2010 13:53 UTC

Evan Bayh and Kent Conrad like my “extend and reform” proposal (via the WSJ):

Two top Senate Democrats floated the idea Tuesday of extending the Bush-era income-tax rates for a limited time only, and tying that move to an overhaul of the U.S. tax code or passage of policies to address the budget deficit.

At a news conference, Sen. Kent Conrad (D., N.D.), the current chairman of the Senate Budget Committee, said he would prefer to extend the current breaks only until a complete tax overhaul can be accomplished. “If I were able to make the decision, I would go for changing the tax system fundamentally,” Mr. Conrad said. “And I’d have an extension [of the Bush-era tax cuts] until that was accomplished.”

Sen. Evan Bayh (D., Ind.) suggested a similar approach. He proposed a two-year extension of all the current tax levels, to be followed by the implementation of policies to reduce government deficits.

And here is the sort of thing I have been proposing:

The Bush tax cuts look on the verge of cheating death. The White House is strongly hinting it will compromise with Republicans and agree to extend temporarily wealthy and middle-class tax reductions set to vanish at year-end. That would provide welcome relief since even partial expiration risks sapping economic growth during a flaccid recovery. But a two-year deal, while welcome, would also still leave the long-term state of the tax code in flux. Washington should use the extra time for sweeping reform. … Obama’s deficit panel may offer some suggestions next month, but the basics seem basic enough. Taxes should be lower, broadly applied and subject to as few market-distorting deductions and loopholes as possible. As Indiana Governor Mitch Daniels often quips, American needs a tax system that looks like someone designed it on purpose.

Not bad for government work

Nov 10, 2010 13:21 UTC

This (from USA Today)  will only encourage the Chris Christie Republicans:

Federal salaries have grown robustly in recent years, according to a USA TODAY analysis of Office of Personnel Management data. Key findings:

•Government-wide raises. Top-paid staff have increased in every department and agency. The Defense Department had nine civilians earning $170,000 or more in 2005, 214 when Obama took office and 994 in June.

•Long-time workers thrive. The biggest pay hikes have gone to employees who have been with the government for 15 to 24 years. Since 2005, average salaries for this group climbed 25% compared with a 9% inflation rate.

•Physicians rewarded. Medical doctors at veterans hospitals, prisons and elsewhere earn an average of $179,500, up from $111,000 in 2005.

Federal workers earning $150,000 or more make up 3.9% of the workforce, up from 0.4% in 2005. Since 2000, federal pay and benefits have increased 3% annually above inflation compared with 0.8% for private workers, according to the Bureau of Economic Analysis. Members of Congress earn $174,000, up from $141,300 in 2000, an increase below the rate of inflation.

Congressional Republicans have definitely noticed what has been going on in New Jersey and would love to  trim federal payrolls. Indeed, within their “Pledge to America” is this proposal: “We will impose a net hiring freeze on non-security federal employees and ensure the public sector no longer grows at the expense of the private sector.” As it is, half of federal workers are due to retire in the next five years, by some estimates. Not replacing all of them is an option, I suppose.

Could Obama’s re-election plan be to devalue the dollar?

Oct 28, 2010 15:02 UTC

Will President Obama get re-elected in 2012 if his party suffers a crushing midterm defeat? His political team likes to point to the example of Ronald Reagan. Congressional Republicans were crushed in the 1982 midterms, but the Gipper cruised to victory two years later.

Of course, the “Morning in America II” scenario depends on a fast economic recovery. Unemployment fell from 10.8 percent in November 1982 to 7.2 percent in November 1984. GDP growth was 4.5 percent in 1983 and 7.2 percent in 1984.

But most economic forecasts don’t anticipate such a boom in America’s near future. More likely is trend growth — about 3 percent or so — with unemployment still over 8 percent by the end of 2012. At best, those numbers suggest a very close presidential contest. And current polls show the president will have a tough time again winning such electoral-vote rich states as Ohio, Michigan, Florida, Indiana, Pennsylvania, Wisconsin and North Carolina.

Obama could try to emulate Reagan by proposing a massive tax cut, but that seems unlikely given the administration’s belief that America is under-taxed right now.

But there is another way, although it is amazingly risky. A Bloomberg story, using a simulation run by Macroeconomic Advisers predicts a 10 percent decline in the dollar in the first six months of next year would do the following:

1. Gross domestic product would rise 1.1 percentage points more than the St. Louis-based firm’s baseline forecast for next year, to 4.8 percent.

2. In 2012, growth of 5.7 percent would exceed the baseline forecast by 1.3 percentage points.

3. Unemployment would fall to 7 percent by the end of 2012, 1.4 points lower than the firm’s baseline forecast.

There you go, Morning in America II, thanks to the weak dollar — unless of course the dollar starts plunging out of control, boosting inflation and creating a panic.

Treasury Secretary Timothy Geithner says he supports a strong dollar — although he wants it to weaken vs. the yuan — but does the White House political team share that view? And what about Ben Bernanke? Here is an interesting bit from a recent Reuters story:

While U.S. Treasury Secretary Timothy Geithner reiterated that the United States supports a strong dollar at the G20 meeting, there were few takers for that. “It is one thing for the Treasury to say that, but then the Fed holds all the ammunition and when it is set to print more money, the dollar will remain a weakened currency,” said Jane Foley, senior currency strategist at Rabobank.

COMMENT

Of corse Obama is trying to devalue the dollar, he said he wanted too before he was elected. He wants to bring us down to third world level, so that the world is more fair. It doesn’t matter to him, that we the people are paying for every cent he devalues the dollar by. It is the great hidden sales tax in the world, and Obama will try to ake credit for any phoney statistical improvements caused by what he and the fed are doing, while we all have and will suffer for it.

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