Has dismantling of American health care system begun?

Financial fAQs

We now know that the revised Republican repeal of Obamacare is really intended to dismantle and perhaps destroy any federally-funded health care program, which would return health care to either cash-starved states or private industry; to the high cost, broken healthcare system it was before Obamacare. And all this is to give the wealthiest among us a tax break they don’t need?

We know because the CBO and JCT estimate just out says that, in 2018, 14 million more people would be uninsured under H.R. 1628 than under current law. The increase in the number of uninsured people relative to the number projected under current law would reach 19 million in 2020 and 23 million in 2026.

We also know this because no public hearings were held on the House plan and none are planned for the still-secret Senate plan, something that Senator Diane Feinstein said has never happened before for major legislation in her 40 years in Congress.

And it is a very major bill. For instance, in 2026, an estimated 51 million people under age 65 would be uninsured, compared with 28 million who would lack insurance that year under current law, according to the CBO. Under the legislation, a few million of those people would use tax credits to purchase policies that would not cover major medical risks, but their costs would rise because no longer protected by the ACA prohibition against raising costs for those with pre-existing conditions, for example.

It therefore dismantles the possibility of affordable health care that covers pre-existing conditions for most Americans. It gives businesses and the wealthiest a juicy $664 billion reduction in taxes, which are the tax revenues needed to pay for the Obamacare state subsidies—mainly to reimburse states that cover their poorest Medicaid citizens. So, it’s to be paid for with a total of $1.111B in spending cuts for Medicaid and social security disability coverage.

 Graph: CBO

It is what the white racist agenda of Tea Party Republicans and President Trump is leading us towards. It is what they mean by making American great again. Let us hope there are enough intelligent Senators to block what is being done in secrecy, in the hopes that most Americans won’t notice there is nothing great about leaving a total of 53 million in 10 years—mostly the elderly and poor—without any healthcare options except the most expensive, and a budget that wants to continue to redistribute our tax dollars to the wealthiest one percent where it will do the least good.

And in a coda, Senate Republicans face increasing pressure to rescue health insurance markets and protect coverage for millions of Americans amid growing fears that the Trump administration is going to let the markets collapse, said the LA Times.

This is because President Trump has repeatedly threatened to withhold federal aid that helps millions of low-income Americans afford their deductibles and co-pays.  The aid, which reimburses insurers for lowering out-of-pocket costs for low-income consumers, was paid by the Obama administration. But it is now the subject of a lawsuit by congressional Republicans, who argue Congress must approve the payments.

In recent days, leading hospitals, physician groups, health insurers and the U.S. Chamber of Commerce have pleaded with the Senate to step in, effectively going around the White House.

“Congress must take action now,” the groups warned in a letter to Republican and Democratic Senate leaders. “At this point, only congressional action can help consumers.”

Can it be any clearer that health care coverage for many, if not most Americans, is in danger of collapse? 

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

The Sequester Dilemma—How Much Is Too Much Austerity?

Financial FAQs

Come March 1, we will begin to see how much damage the sequester agreement causes. A recent CNBC column by Larry Kudlow illustrates both the misconceptions and reason for the gridlock on avoiding across-the-board spending cuts of some $85 Billion to the federal budget..

Kudlow says “Looking at the sequester in this light (only half of sequester cuts take place immediately), it's clear that it won't result in economic Armageddon. In fact, I'll make the case that any spending relief is actually pro-growth. That's right. When the government spending share of GDP declines, so does the true tax burden on the economy. As a result, more resources are left in the free-market private sector, which will promote real growth.”

In fact, GW Bush’s program of huge tax cuts that lessened the “true tax burden” while continuing government spending proved just the opposite. Pumping all that money into the private sector resulted in the slowest post-WWII growth in history, plus the Great Recession, the worst recession since the Great Depression.

Taxpayers paid for those tax cuts and wars, in other words, pushing corporations to record profits and the top 1 percent of income-earners to 121 percent of all income earned from 2009-2011. This is while incomes of the 99 percent that do most of the spending actually shrank 0.4 percent during that time, per economist Emmanuel Saez. So “real growth” wasn’t promoted, because the 1 percent hoarded their profits and paid themselves higher salaries, rather than reinvesting in the economy.

The Congressional Budget Office predicts that allowing the sequester cuts to kick in on March 1 will ultimately result in 750,000 lost jobs and subtract 0.6 percent from GDP growth. Why? Because when both the private sector and government cuts spending, there is no investment in future growth, period.

Graph: Calculated Risk

It’s actually worse than that, because unused production capacity will remain unused, which is the real casualty of a further cut in government spending. It has already been reduced some $2.35 trillion from existing legislation. Policymakers have enacted nearly $1.5 trillion in spending cuts for appropriated programs (mainly through the annual caps enacted in the 2011 Budget Control Act) and nearly $600 billion in revenue increases in ATRA, the American Tax Relief Act agreement reached in December.

The Congressional Budget Office expects the deficit to shrink from 8.7 percent of GDP in fiscal 2011 to 5.3 percent in fiscal 2013 if the sequester takes effect and to 5.5 percent if it doesn't. Either way, the two-year deficit reduction — equal to 3.4 percent of the economy if automatic budget cuts are triggered and 3.2 percent if not—would stand far above any other fiscal tightening since World War II, and could lead to another recession. For without rising household incomes, with private sector businesses that aren’t reinvesting, only the government can boost the demand for goods and services.

Harlan Green © 2013

Follow Harlan Green on Twitter: www.twitter.com/HarlanGreen

State of the Union—Why So Few New Jobs?

Popular Economics Weekly

President Obama's State of the Union address was all about jobs. So why have so few been created since the Great Recession?

Federal Reserve Vice Chair Janet Yellen gave a recent speech entitled: A Painfully Slow Recovery for America's Workers: Causes, Implications, and the Federal Reserve's Response. It is a warning about future job formation. She attributes most of the weak recovery to ‘fiscal headwinds’ (a shrinking of government spending to support growth and jobs), as well as the busted housing market that reduced consumers wealth some 40 percent. And because housing will take years to recover, more government stimulus is needed to bring down unemployment to an acceptable level.

Why do we need the government to continue spending? The reduction in household incomes since the 1970s reached its climax in the Great Recession. Income inequality had risen to the levels of 1929, just before the Great Depression. And Economist Emmanuel Saez has just updated income growth since the Great Recession. From 2009 to 2011 the top 1 percent incomes grew by 11.2 percent while bottom 99 percent incomes shrank by 0.4 percent. Hence, the top 1 percent captured 121 percent of the income gains in the first two years of the recovery.

And expectations of future income growth haven’t improved, as shown in this graph from 1978 presented by Dr. Yellen. Just 25 percent now expect higher incomes since the Great Recession, vs. a historical average of 50 percent since 1978.

Graph: Federal Reserve

So we are in a very tough spot. The fiscal headwinds Dr. Yellen speaks of have to do with the shrinking budget deficit, believe it or not. The Congressional Budget Office expects the deficit to shrink from 8.7 percent of GDP in fiscal 2011 to 5.3 percent in fiscal 2013 if the sequester takes effect and to 5.5 percent if it doesn't. Either way, the two-year deficit reduction — equal to 3.4 percent of the economy if automatic budget cuts are triggered and 3.2 percent if not—would stand far above any other fiscal tightening since World War II, and could lead to another recession. For without rising household incomes, and private sector businesses that aren’t reinvesting, only the government can boost the demand for goods and services.

Graph: Calculated Risk

There is no simpler explanation for the employment picture. There cannot be more private sector growth if the government continues to shrink spending, since household incomes aren’t growing that control most of the aggregate demand (70 percent) for goods and services. Businesses account for approximately 20 percent of total demand, and government spending accounts for the other 10 percent.

Lower taxes can help if they go to the right households, but most tax cuts enacted since 1980 have benefited the wealthiest, or corporations’ record profits, rather than economic growth overall. In fact, corporations have been hoarding their profits—some $2 trillion in cash—rather than reinvest it in the economy. Overall buying power has been significantly reduced, in other words. And the 2 percent payroll tax increase just enacted with further cut consumer spending.

So the problem is how to create enough new jobs to generate more demand for goods and services. And only government is in a position to do that at present. Nothing else will generate the growth we need.

Harlan Green © 2013

Follow Harlan Green on Twitter: www.twitter.com/HarlanGreen

Dear Supercommittee: “It’s Consumer Spending, Stupid!”

Financial FAQs

“With only about a month remaining before its recommendations are due, lawmakers on the congressional supercommittee charged with finding savings from the federal budget wrestled with cuts to defense, foreign aid and other programs on Wednesday”, said Bloomberg Marketwatch.

But the historical record tells us that finding “savings” in government spending will shrink, not expand economic growth. And so finding savings that aren’t spent elsewhere on stimulus programs won’t in fact reduce the federal deficit, which depends on increased growth. So once again as Paul Krugman has said, “And those who are determined to forget the past run a high risk of reliving it — which is why we’re in the state we’re in.”

At the risk of stealing the title from a New York Times Op-ed by economic historian and Rutger’s Professor James Livingston, “It’s Consumer Spending, Stupid”, we now have historical data verifying that consumers and government spending have driven economic growth over the past century, not corporate profits. This should not be surprising given that consumer spending now makes up 70 percent of economic activity.

Professor Livingston’s apostasy is letting us in on the “best kept secret of the last century: private investment—that is, using business profits to increase productivity and ouput—doesn’t actually drive economic growth. Consumer debt and government spending actually do”.

This is blasphemy to the classical orthodoxy, needless to say, but a truth that the #OccupyWallStreet protests recognize. Livingston says, in fact “…corporate profits are…just restless sums of surplus capital, ready to flood speculative markets at home and abroad. In the 1920s, they inflated the stock market bubble, and then caused the Great Crash. Since the Reagan revolution, these superfluous profits have fed corporate mergers and takeovers, driven the dot-com craze, financed the “shadow banking” system of hedge funds and securitized investment vehicles, fueled monetary meltdowns in every hemisphere and inflated the housing bubble.”

Graph: Congressional Budget Office

This also tells why this recovery has been so frustratingly anemic. It isn’t consumer debt, as much as the lack of income that has prevented consumers from spending enough to boost economic growth. There has been almost no household income growth above inflation since the 1970s, mainly because so much wealth was siphoned off to the wealthiest via tax loopholes and less progressive tax rates, according to the latest CBO study on income inequality.

It should no longer be a surprise to anyone that the share of income going to higher-income households rose, said the CBO study, while the share going to lower-income households fell. But it’s nice that the CBO is also providing more evidence, to whit:

• The top fifth of the population saw a 10-percentage-point increase in their share of after-tax income.
• Most of that growth went to the top 1 percent of the population.
• All other groups saw their shares decline by 2 to 3 percentage points.

How do we know that it isn’t corporations reinvesting their profits that spurs growth? After all, between 1900 and 2000, real gross domestic product per capita (the output of goods and services per person) grew more than 600 percent.

We know because net business investment declined 70 percent as a share of G.D.P. over that century, says Professor Livingston. In 1900 almost all investment came from the private sector — from companies, not from government — whereas in 2000, most investment was either from government spending (out of tax revenues) or “residential investment,” which means consumer spending on housing, rather than business expenditure on plants, equipment and labor.

In other words, over the course of the last century, net business investment atrophied while G.D.P. per capita increased spectacularly. In other words, corporations decided to spend their profits elsewhere. “The architects of the Reagan revolution tried to reverse these trends as a cure for the stagflation of the 1970s, but couldn’t, said Livingston. In fact, private or business investment kept declining in the ’80s and after. Peter G. Peterson, a former commerce secretary, complained that real growth after 1982 — after President Ronald Reagan cut corporate tax rates — coincided with “by far the weakest net investment effort in our postwar history.”

So even cutting corporate taxes, the cry of conservatives today, hasn’t encouraged corporations to invest in future growth. Professor Livingston has done a great service in what may be a first—actually exploding the myth that profits drive growth. It also explodes the myth that corporations have their customers’ best interests at heart. For their customers are consumers in the main, and consumers’ incomes have not even kept up with inflation. The huge jump in labor productivity has not been shared by their employees, in other words.

On the other hand, it is the investor class that profited immensely from the myth that business investment creates jobs. Even though the historical record shows it merely bloated the financial sector from 8 percent to more than 20 percent of GDP over the past decade, which led to excessive speculation. It was excessive investments in new technology, for instance, that caused the dot-com bubble and market crash in 2000. Then came the housing bubble that resulted from overbuilding of housing, fuelled by too easy credit conditions.

“Consumer spending is not only the key to economic recovery in the short term; it’s also necessary for balanced growth in the long term,” says Professor Livingston. “If our goal is to repair our damaged economy, we should bank on consumer culture — and that entails a redistribution of income away from profits toward wages, enabled by tax policy and enforced by government spending. (The increased trade deficit that might result should not deter us, since a large portion of manufactured imports come from American-owned multinational corporations that operate overseas.)”.

We don’t need the traders and the C.E.O.’s and the analysts — the 1 percent — to collect and manage our savings. Instead, we consumers need to save less and spend more in the name of a better future. We don’t need to silence the ant, but we’d better start listening to the grasshopper, says Professor Livingston. 

So when will consumers—you and I, that is—wake up to the fact that the future is ours for the taking? 

Harlan Green © 2011