A low volume, high quality source from the demand side perspective.The podcast is produced weekly. A transcript is posted on the day of.

Friday, March 5, 2010

Transcript: 363 Health Care, enabling the predators or filling the need?

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Today on the podcast, the health care debate with assists from Robert Kuttner and James K. Galbraith, reforming economic metrics from the Sarkozy commission and its chair Joseph Stiglitz, and a footnote on the forecast. After all, it is Friday.

More than one listener has asked us to comment in detail on the health care fiasco playing out in Washington. Long ago we placed our vote on the single payer system. A monopsony is the only appropriate consumer for oligopoly. The subsequent political melee is appropriately understood as the entrenched interests in Big Pharma and Insurance putting up a fight for their profits and rents.

Several years ago I read a study that demonstrated that in the legislative contest those who were specific interests would be willing to spend up to the amount they expected to gain from a particular piece of legislation in order to get it enacted. One would have expected, at least I expected, there to be some kind of risk aversion, a concern that if they spent so much and lost, they would be worse off than if they spent a more modest amount. But this is not what the study showed. Instead, all potential gains were on the table. That, we think, explains in part the enormous battle in Congress and in the media when the battle in the public's mind is already won. Or would be absent the propaganda campaign.

Robert Kuttner is better than we are at understanding the politics of the thing. James K. Galbraith points to the institutional economics in his book The Predator State. We'll get to that.
The simple economics is that health care is a public good. The private sector cannot provide it efficiently. The only proof needed is that the United States is the only nation to treat health care as a market enterprise. The United States spends by far more as a percentage of GDP on health care. The United States has by far the worst outcomes in terms of the health and well-being of its population.

Under the lead "The Cure that dares not speak its name," Robert Kuttner recently wrote:

In all of the debates about health care reform, one of the stubborn realities is that neither the Obama plan, nor any of the Republican alternatives, will seriously alter the trajectory of relentless cost-escalation in health care. If you look at the Administration's own projections of federal deficits in the next decade and after 2020, virtually all of the alarming growth in deficit spending is Medicare and Medicaid.
And that's only the public part of the health care bill. In 2009, total health care costs increased to 17.3 percent of GDP, with escalating premiums eating into both corporate profits and worker take home pay. The consensus among the usual policy experts is that there is no good solution. The march of technology and demography will just continue to raise health costs.
But you can reach that conclusion only by ignoring how the rest of the club of affluent countries manages to insure everyone for 9 or 10 percent of GDP, and have a healthier and longer-lived population, to boot. They do it, of course, through universal, socialized insurance.
There is no single formula. The Canadians do it with a single payer system for the insurance part, but physicians are private. The Brits have an integrated National Health Service. The Germans achieve near-universal coverage through a system of nonprofit health insurance plans.
What every other nation has in common is that they have taken the commercialism out of their health systems. As a consequence, they can direct health spending to areas of medical need rather than letting the market direct health dollars to areas of greatest profit. And with everyone covered, they can use highly cost-effective strategies for prevention, wellness, and public health. That's how you cover everyone for ten percent of GDP.
Our one island of single-payer medicine, Medicare, is phenomenally popular -- so popular that the Republicans' most effective attack on the Obama plan is that it would divert some money from Medicare. The Republicans, on the one hand, fiercely attack "government-run health insurance," while on the other they defend Medicare (which they would just as soon privatize).
But most Democratic politicians and policy wonks behave as if the option of a national health plan simply did not exist. These blinders are the result of the immense power of the medical-pharmaceutical-insurance complex combined with a failure of political leadership. Sooner or later, mainstream politicians will stumble their way to some form of single payer because there are no good alternatives unless we want to spend half of our GDP on health care.
In that regard, the best things about the still inconclusive end-game of Obama's efforts to enact his plan are that (1) the administration finally broke with the insurance industry, and (2) Obama is starting to get over the delusion of bipartisanship. So if we don't need either Harry and Louise, or John Boehner and Mitch McConnell, as part of the health-reform coalition, we might as well do it right.
With Obama's health summit behind us, there will now be a mad scramble for Democratic votes in the House and Senate to pursue the strategy that Obama should have used all along -- a Democrats-only bill relying on 51 votes in the Senate via the reconciliation procedure.
The problem is that Obama may have missed the moment. The prolonged, enervating battle for health reform, using a badly flawed bill, has scared off both conservative and liberal Democrats in both houses. The bill is politically toxic to legislators facing re-election, for good reason. The original formula, designed to enlist insurance industry allies, required a mandate to purchase insurance, diversion of Medicare funds, and unpopular taxes. Now that Obama has broken with the industry, an entirely different formula should be possible.
Alas, we are too far down the present road to advance single-payer in this legislative session. The president has done nothing to move public opinion in that direction, and has backed away even from the truncated version of it, the so-called public option.
I would put the odds at about one in three of Obama succeeding. Several Democrats who voted for the House-passed bill in November by the narrow margin of 220-215 have now defected, and several more are increasingly gun-shy. I don't much like this bill, but I still hope it passes so that the Republicans don't get rewarded for their relentless obstructionism.
Win or lose, the next great push should be for single-payer, assuming Democrats have a working majority again in foreseeable future. Given the collateral damage of Obama's strategy, that could be a long time coming.
Robert Kuttner.

Though I would suggest now that a strong push for a robust public option is a legitimate and worthy goal. To me -- who admittedly has very little interest in the political theater and so probably has a very limited understanding of what the dynamics are -- but to me, Republican obstructionism will not play well in the fall.

James K. Galbraith has a longer view of the health care drama. He has identified health care as a soft budget sector, a New Deal style social insurance area that has been targeted by the predatory corporate sector for looting. Perhaps I express this too strongly, but not much. His argument is much more comprehensively developed in his excellent book THE PREDATOR STATE, but I quote:

The politics of health care in our time does not revovle around any grand conservative scheme to return medical care to the private sector. It is immediately apparent that without state funding, both the medical sector and the overall economy would collapse
Without Medicare the life savings of many elderly would be quickly depleted, and their life expectancies would also fall. Nor does any serious politician propose drafting American doctors and transforming American hospitals into a replica of Britain's National Health Service. Such a move, if it reduced American health care costs to British levels, would entail reducing total health care spending by nearly half. No less than complete privatization, that would also cause the medical sector to collapse and the economy to implode.

Instead, the health care battle is waged in ways that tend to expand the system; the issue is on what terms and with how many concessions to existing predators. A major liberal goal is to extend the coverage of health insurance, particularly to children. The private insurance companies are opposed to this. Why? Because they stand to lose part of their existing clientele: better-off families with small children. THEIR economic function is uncomplicated: It consists in marketing to people who are relatively unlikely to need health care, while also NOT selling it to those most likely to get sick. Reform would be less profitable, and the health insurance companies have both profits to defend and resources (i.e., those very profits) to defend them with. The political battle is over nothing else.

Does the country benefit in any way from having such families with children under private insurance? No. Does it benefit from having any families under private insurance? No. To insure the whole population without screening would be economically efficient. It would save the resources now devoted to screening ...

and you know the argument.

responsible medical economists, namely David Himmelstein and Steffie Woolhandler of Harvard, have estimated that the bureaucratic waste from private medical insurance is around $350 billion per year, about 2 percent of GDP.

Woolhandler and Himmelstein conclude: Continuing later "The "Mandate model" for reform rests on impeccable political logic: avoid challenging insurance firms' stranglehold on health care. But it is economic nonsense. The reliance on private insurers makes universal coverage unaffordable."

We do not do Galbraith's predatory capitalism analysis justice here. Find it in THE PREDATOR STATE.

Now, briefly to the Sarkozy commission's report on economic metrics. This is old news, I suppose, since the report was released last fall, but it is important to understanding economies. The report was chaired by Joseph Stiglitz and its vice chair fellow Nobelist Amartya Sen.

The Commission's expressed aim was to identify the limits of GDP as an indicator of economicperformance and social progress, to consider what additional information might be required for the production of more relevant indicators of social progress, and to assess alternative measurements, tools and statistical presentations.
The commission said, "statistical indicators are important for designing and assessing policies and for assessing and influencing the functioning of economic markets." Their role has increased significantly over the last two decades as a result in improvements in education and technology and increased complexity of modern economies. Access to data, including statistical data, is much easier today. To respond to the growing demand for information, the supply of statistics has also increased considerably, covering new domains and phenomena.

"What we measure affects what we do; and if our measurements are flawed, decisions maybe distorted," says the report. "Choices between promoting GDP and protecting the environment may be false choices, once environmental degradation is appropriately included in our measurement of economic performance. ... We often draw inferences about what aregood policies by looking at what policies have promoted economic growth; but if ourmetrics of performance are flawed, so too may be the inferences that we draw.

"... There often seems to be a marked distance between standard measures ofimportant socio economic variables like economic growth, inflation, unemployment, etc. and widespread perceptions. The standard measures may suggest, for instance that there is less inflation or more growth than individuals perceive to be the case, and the gap is so large and so universal that it cannot be explained by reference to money illusion or to human psychology. In some countries, this gap has undermined confidence in official statistics (for example, in France and in the United Kingdom. only one third of citizens trust official figures, and these countries are not exceptions), with a clear impact on the way in which public discourse about the conditions of the economy and necessary policies takes place."

and we will continue to look at the Sarkozy report over the next month.
Now to the forecast. As you know, Demand Side does not classify the current economic experience as recovery. We classify it as bouncing along the bottom. If pressed, we might say the recession is over, but the depression continues. But the principle is, there is no double dip because we haven't got out of the soup. We're bobbing, not dipping.
Here is an example of the alternative view, quivering uncertainty, here expressed by

Fed's Lockhart: Incoming Data lines up with Modest Recovery Scenario

by CalculatedRisk
From Altanta Fed President Dennis Lockhart: Recovery and Reform Excerpts:
My current forecast—and that of my staff at the Federal Reserve Bank of Atlanta—lines up with ... the modest recovery scenario.

The incoming data through last week have not made me alter my basic forecast, but I consider it still too early to make a definitive call on which scenario will play out. The January numbers, as you may know, have been mixed. Consumer spending was strong for the month, while business spending on capital goods was weak, and job growth was flat. Upside surprises in inventories, capital spending, and consumption could tip the scales in favor of a stronger growth forecast. I will be particularly attentive, watching for evidence of these developments as the recovery proceeds.

Because I hold to this forecast of modest recovery and believe inflation is likely to remain subdued,I fully support the message of the most recent FOMC statement to the effect that the fed funds target rate will remain exceptionally low for an extended period.
This is a follow-up to Lockhart's The Economic Outlook: A Tale of Two Narratives.

I still expect the recovery to be sluggish and choppy in 2010, but for the economy to avoid a "double dip" recession.

To be absolutely annoying about it, we view the experience as winter in Nome, Nome Alaska. A thunderous shock occurred and everybody rushed inside and closed the curtains. Reverberations from the shock subsided, and people begin to look out. Is spring on the way. Occasionally the sun will rise. Ah, spring is finally here. But it sets quickly. No. Spring is not here, and it won't be tomorrow, and it won't be until the planet revolves to the appropriate position.

Maybe it's not a very good analogy. I'm trying to express that we need the causes and conditions to be in place. There is no amount of confidence or mumbo-jumbo economics that will put them in place. It has to be structural.

It is almost boring to debate the coming of spring when people are comparing today's daylight with yesterday's. Maybe it is brighter. But it doesn't matter how bright. We need the investment, the debt removal from the private sector, and aggressive reorientation of the economy. We need the Earth to revolve a quarter of the way around the sun.

At least spring is inevitable. Recovery is not inevitable.

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