The Economic Impact of the Senate Healthcare Reform Bill

One notable complaint about both the House and senate healthcare reform bills is the fact that there would be significant cuts in Medicaid offset by major tax cuts, primarily for the wealthy.  Focusing only on the senate version, only 5 or 6 of the 52 Republican senators oppose the senate bill.  Senators such as Susan Collins of Maine, Rob Portman of Ohio, and Shelley Moore Capito of West Virginia oppose the bill because the Medicaid cuts would severely hurt their states.  One question not being asked is “What states will benefit from this bill?”

The Medicaid cuts will affect primarily rural states and rural areas of major states such as New York and Pennsylvania.  These states and areas tend to be more conservative and represented by Republicans.  They have been the most vociferous supporters of the repeal and replace Obamacare movement.  For example, Kentucky, the state represented in the senate by Mitch McConnell, the majority leader, and Rand Paul, is an interesting example.  Senator McConnell is the primary driver of the senate bill, known as the Better Care Reconciliation Act (BRCA).  Senator Paul opposes it not because of the Medicaid cuts and tax cuts, but because it does not go far enough in repealing Obamacare.

However, the same can be said for New York.  Both New York and Kentucky accepted expanded Medicaid dollars, so both will lose from BCRA.  According to a Business Insider article, New York will lose 17% in Medicaid funding and Kentucky will lose 20%.  The two Democratic senators for New York, Charles Schumer, the minority leader, and Kirstin Gillibrand, oppose BCRA for the same reasons.  They don’t want Medicaid cuts so the wealth can receive tax cuts.

This does not answer the question I posed above.  What states will benefit from BCRA?  However, the answer is in where the wealthy live.  According to Fortune magazine, the number 1 metropolitan area where the wealthy live is New York City.  There is no area in Kentucky that falls within the top 10 areas where the wealthy live.  This means that even though both New York and Kentucky lose on the Medicaid side, New York gains from the redistribution of dollars from Kentucky (and other rural states) to New York (and other urban regions).  From an economics perspective, the economic stimulus from dollars in tax breaks for New York can offset the de-stimulus effect of the Medicaid losses.  Kentucky just loses, as does West Virginia, Ohio, and other primarily rural states.

Let’s do some rough calculations.  According to a Brookings Institution article, about 11.5% of households making $200k or more live in the New York Metropolitan area.  For Kentucky, it is less than 1%.  According to the Healthcare consulting firm, Avalere, New York loses $40.880 billion and Kentucky loses $7.894 billion.  The Congressional Budget Office (CBO) estimates the tax cuts at $772 billion.  If we apply our household percentages, it roughly means that New York will get about $62 billion of the tax cuts while Kentucky gets only about $5 billion.  That means New York nets a gain of about $21 billion while Kentucky loses a net $2 billion.  New York wins!  The table below gives the rough estimates.

	New York	Kentucky
Tax Cuts	$62.215	$5.410
Medicaid Cuts	$40.880	$7.894
Net Impact	$21.335	$(2.484)
In  billions of dollars

(Perhaps senators Schumer and Gillibrand should reconsider and support the bill.)

Seriously, if the senators from New York and Kentucky were only interested in the economic impact to their states, Senators McConnell and Paul would oppose the Medicaid cut/tax cut aspects of BCRA and senators Schumer and Gillibrand would support BCRA.  Why is the opposite true?  Senators Schumer and Gillibrand are adhering to the Democratic Party principle of supporting working families.  So even though on one hand there is an economic interest to support the provisions above for their state, Schumer and Gillibrand recognize that the loss to working families (both in and out of New York) outweigh the economic gains to New York.

For residents of red states, you have to ask yourself “Are my congressmen and senators working in my interest or in the interest of wealthy New Yorkers?”

Mr. Trump, Pittsburgh, and Climate

I was particularly amused when President Trump, in his speech withdrawing from the Paris Climate Accord, stated “I was elected to represent the citizens of Pittsburgh, not Paris,” because he once again demonstrated his ignorance of history.  I grew up in Pittsburgh.  My father worked for US Steel.  I know about the impact of pollution on an economy such as Pittsburgh.

Here is a picture of Pittsburgh at noontime 1940, at the corner of Liberty and Fifth Avenues (source: http://digital.library.pitt.edu).

The smog was so dense that it was more like night than day.  The streetlamps and car headlights had to be on.  I don’t know if even Beijing can compare to Pittsburgh before World War II.  Like in Beijing, people wore surgical masks because of the soot and smoke.

One consequence of World War II was the rise of new powerhouse businesses such as Westinghouse, ALCOA, Gulf Oil, Rockwell International, just to name a few.  Along with existing businesses like H.J. Heinz, these businesses ran into a major problem.  They found it hard to recruit new managers to their corporate headquarters because the pollution was so bad.  As a result, in 1949 Allegheny County (where Pittsburgh is located) passed a smoke control ordinance, pushed by these companies.  This began the trend for improvement in air quality.  Pittsburgh’s success was so highly regarded that The U.S. State Department made a film documenting Pittsburgh’s achievement and presented it in London.  Since pollution from coal-fired plants are a major source of greenhouse gases, the new laws reducing pollution contributed to the slowing of the growth of these gases.

Contrary to President Trump’s assertion about negative economic impacts, Pittsburgh and the Steel industry continued to prosper.  By the 1960s, Pittsburgh was the third largest corporate headquarter city after New York and Chicago.  Today, Liberty and Fifth Avenues look like this (source: Google Maps).

No streetlights on and beautiful sunshine brightens the intersection.  As for the steel industry, it’s decline was not due to pollution control (they changed technology away from coal), but to other economic factors and foreign competition.

One of the problems we have is that we see what exists today as always having been that way.  Many of the anti-vaccine activists never experienced life when measles, mumps, whooping cough, and many other diseases, especially polio, harmed and killed millions.  Most Americans born after 1960 grew up with much cleaner air and water.  This was all due to government actions taken to prevent pandemics and reduce the health costs associated with pollution.  However, we face the threat of global warming.  It is a fact that the average planetary temperature is rising, that the ice is melting at the poles, that the ocean levels are rising threatening coastal areas. 

In addition, people tend to discount the future.  In recent years, we have seen changes in our weather and I leave it to the climatologists to explain it, but as an economist, I know that there are growing economic costs associated with these trends.  Homeowners on the coasts are facing flood conditions they had never experienced before, necessitating spending more on insurance and prevention.  Think about our major cities on the coasts.  Rising ocean levels will require them spending hundreds of billions, if not trillions, of dollars on infrastructure to protect themselves.  The heartland is not immune.  They too face increasing environmental costs.  We see that already.  We worry about the costs of entitlements on our children, but ignore the costs of global warming.

President Trump’s decision to withdrawal from the Paris Accords is short-sighted and ultimately hurts Americans.  Even Pittsburghers will agree with that.

Liberal Elites Hate Middle America. Really?

Ed Kilgore in a recent post makes some good points ("Do Coastal Elites Hate Middle America").  There is a narrative among conservative circles that the liberal elites care more about minorities and the environment, etc., than working class people.  Is this really true?

I can go into a long essay on the subject but how about a few factoids?  Let's go with the new Trump budget.  This budget calls for major cuts in programs that affect the heartland.  Included are eliminating the Rural and Business Cooperative Service that helps rural business in Trump states, the Rural Water and Waste Disposal Program, and the Rural Economic Development Program, all suported by urban liberal elites.

Then there is the elimination of Appalachian Regional Commission, the Delta Regional Authority, the Denali Commission, and the Northern Border Regional Commission, all serving the heartland, Trump country, and all supported by the liberal elites.

The fact is that the liberals in the coastal states looked upon in such disdain by the heartland tend to be the groups fighting to keep the programs that help them.  None more so than Medicaid and funding for opiod addiction, a major problem in Trump country.  It is Trump and the conservative Republicans that want to cut or eliminate this aid.

Let us not forget that the liberal coastal states like New York and California pay more in taxes than they receive in benefits.  If we liberal elites were more self-interested, we would support the Trump budget since our taxes would go down more.  That we think the Trump budget is an abomination should say something about our "disdain" for Middle America.

Ryan: Obamacare in a 'death spiral' because healthy people are forced to pay for sicker people
Source: Washington Post

This is a video with House Speaker explaining how Obamacare is in a "death spiral" because healthy people are being forced to pay for the health care of sick people.  It sounds grim except for one problem, that is the definition of insurance.

Insurance is about risk, the probability of an event occurring.  In the case of health care, it is the probability of a significant health event.  Think about yourself.  How likely is it you will have a heart attack?  Young? Maybe the likelihood is small.  Older?  The likelihood is greater.  But the likelihood is not zero for either group.  A young person can have a heart attack.  Many do.  If both sign up for insurance, the risk is spread and the cost is lower for all.

The cost of the event is high.  Heart surgery, therapy, medication; all of these costs are significant.  Spreading the risk means a relatively small potential cost for everyone.  Consider company provided health care insurance.  The premiums are lower because the insured are not determined by their health condition but by their employment with the company.  So the healthy workers essentially pay for the sick workers, but since no one knows who will be sick or healthy, all are covered.  Is Paul Ryan saying company provided health care insurance is in a death spiral?  No.

With health care, the risk may be low but the cost is high.  Spreading the risk lowers the potential cost for everyone which is why insurance is valuable.  The mandate that everyone sign up means that everyone is covered so the potential cost of a health event is lower.  It's like car insurance.  You may never need it, but when you do, your covered.

Paul Ryan is making a political argument.  He is trying to pit one group against another.  The Congressional Budget Office projected that the new Republican health care plan will mean about 24 million people will lose their health insurance.  They will not be able to afford normal medical treatment, so they will wait until it is a crisis and go to the emergency room for care.  That is much more expensive and will be paid for by those who do have health care insurance, raising their costs.  Not smart!

Advice for Democrats: “All Politics is Local”

While the current trials and tribulations of the Trump White House are entertaining and concerning, Democrats must not let this distract them from the essential goals of the party.  The Democratic party lost in 2016 and it is important to understand why and rebuild the foundations of the party.  I think we can but we must simplify opposition to Republican leadership at all levels of government.

The Democratic Party chose a new party chair. Meanwhile, Republicans at the state level are acting, as a recent New York Times Headline tells it “State G.O.P. Leaders Move Swiftly as Party Bickers in Congress.”  The facts are clear, Republicans control the governorship in 33 states, complete control of legislatures in 32 states, and partial control in 6 states.  These are not good statistics.  Yet the Democrats seem to be dwelling only on national issues and issues not resonating with voters.

One problem is conservative Republicans have consistent and clear policies on many issues, smaller government with lower taxes, less regulations, and family values.  They promise less government and job growth, particularly through business-friendly policies.  This is a message that resonates, particularly in states that were traditionally democratic, like Michigan and Wisconsin.  The Carrier Corp. agreement to keep 1,250 jobs in Indiana is due more to the state giving tax breaks than President Trump’s verbal pressure.  Even in New York, with a Democratic governor and assembly, similar policies are used.  But ask voters and I don’t think they will view the Democratic party that way.

This wasn’t always the case.  Democrats were successful in the industrial north because they promoted a jobs agenda, supporting unions and seeking better pay and benefits for workers.  The Democratic party was the party of the immigrant working class, like the Irish in the 1880s and as they ran for office and became city council members, mayors, state legislators and governors, the party’s strength rose.  The Republican party was seen as the party of business interests.  There was a friction between the two at the state level and local level, but there was a balance as well.  But both parties recognized that good jobs meant attracting business.  In the late 1970s and early 1980s, Pittsburgh, PA, faced a collapsing steel industry, its primary industry at the time.  The then mayor, Democrat Richard Caliguiri, helped create a new renaissance for the city by changing the tax laws and encouraging development.   New business and new building appeared and Pittsburgh became a city known for technology and health care.  So, while the decline of steel hurt, Pittsburgh was able to recover and is currently thriving.  Companies like Apple, Google, and Uber operating there.  Uber is testing its driverless cars in Pittsburgh.

These are the type of policies Democrats need to build on at the state and local level.  Republican policies like what was executed in Kansas led to a fiscal crisis, loss of jobs, and sluggish economy.  Democrats can do better.  However, the Democratic party needs a consistent message.  That message must be focused first on economics, particularly developing business that creates jobs.  Even Democrats disagree on cultural and social issues.  Joe Manchin of West Virginia and Bob Casey Jr. of Pennsylvania are both conservative democrats.  They and other conservative Democrats participation in the party can help maintain balance and focus on essential principles of the party.

Promoting low taxes and fiscal responsibility at the local level is sound policy for Democrats.  At the state level, promoting that and policies for maintaining public works, jobs and businesses, and protecting voter rights are also important. 

One example is technology.  Broadband is ubiquitous in urban and suburban areas.  That is because of population density.  In small towns and rural areas, there is not enough density (customers) for telecoms to invest.  These are the same communities that lost manufacturing.  By investing in broadband in small towns and rural areas, these communities can participate in the new technological age.  I worked for a technology company that was located in Los Angeles but had employees all over the country.  I had a colleague who found it was great to work in a small town in West Virginia, but connect with coworkers and clients around the country using Skype and Go-to-Meeting.

But it is especially at the national level, Democrats need to clarify their message.  Support for working-class Americans remains a primary principle of the party.  Secretary Clinton lost in part because that message did not come across.  Too many working-class Americans felt the country needed a change.  They believed they were being ignored, particularly by the Democrats.  They believed that Donald Trump would bring changed that helped them.  Now we hear that many Trump voters did not really expect Obamacare would be repealed even though Democrats warned them.  Now they are worried and protesting at Republican town halls.  The Democratic party message must resonate to these voters.  Fiscal responsibility, equal opportunity, promoting growth especially in small towns that lost business and jobs overseas are what Democrats need to speak loudly and clearly about.  Remember as Tip O’Neill liked to say “All politics is local.”  White working-class American will worry less about illegal immigrants and Muslims if they know that government is helping them.

The Democratic party is choosing a new party chair.  That person must insure that every level of government has a focus.  The principles of the party he or she must promote include:

·         Jobs and growth. 

·         Fiscal responsibility.  One of the successes of Obamacare was that it paid for itself.  Indeed, the CBO analysis concluded it would reduce the budget deficit.  Also, don’t forget Democratic policies led by the Clinton administration gave us budget surpluses by 2000.

·         Equal rights and opportunity.  Too often Republicans at the state level used dodgy tactics to promote the conservative agenda.  The recent election of a Democratic governor is an example.

·         True religious freedom, including the freedom to not be religious.  When a baker refuses to bake a wedding cake for a gay couple, remember the days when Jews were refused service for being Jews.  Providing a service promote nothing more than promoting your business not undermining your beliefs.

My final suggestion is to take a page from the conservatives.  They have the American Legislative Exchange Council (ALEC).  ALEC provides template for conservative legislation.  It has been wildly successful at the state and local level.  Democrats need something similar, tied to the party and the Democratic National Committee (DNC).  The DNC should not only raise money but become a resource and clearinghouse for ideas that state and local Democrats can rely upon.  If a good idea is implemented in New York, that idea should be shared with Democrats in Georgia or Mississippi, helping the party to be a greater force everywhere.

A consistent message from the local level to the national level must be implemented, particularly at the local and state level.  The Democratic party has been lax in promoting Democratic policies regarding the working-class (no matter what the race) and its message to local audiences.  That means Republicans are favored locally, so they have a better opportunity to succeed nationally.  It is time for Democrats to reverse this trend.

A Few Thoughts on David Brooks and the Enlightment

In a recent column, David Brooks of the New York Times had an interesting take on the current political trends and what he called "The Enlightenment Project."  The Enlightenment grew up at a time when people challenged orthodoxy.  Martin Luther and the Reformation led the way in religion, but at the same time the were growing commercial rejections of church teachings on fair price and the "sin" of usury. Finally, science began to prevail against church traditions.

Brooks states that this Enlightenment Project has weaknesses.  First is as he states "Enlightenment figures tell themselves that religion is dead (it isn't) and race is dead (it isn't)."  The second weakness is that it is "thin on meaning."  People are considered "bland egoists" and governments are run by "soulless Technocrats."  Finally, "Enlightenment governance fails from time to time."  This is when the "Anti-Enlightenment movements gain power."

I think Brooks is wrong in this viewpoint, but it is consistent with conservative views of liberalism.  As I stated above, the Enlightenment grew out of a challenge to religious orthodoxy.  That orthodoxy aligned with papal authority and eventually royal authority.  New Christian sects developed (Lutheran, Methodist, Baptist, etc.), challenging the authority not only of the Roman church, but of the Church of England.  The American colonies came about in great part to the desire of groups to worship freely (Puritans in Massachusetts, Quakers in Pennsylvania, Catholics in Maryland) and this freedom extended to the freer thinking of the Enlightenment about government.  Our founding fathers learned a sense of skepticism around religious authority being connected to the state.  They believed a state religion would undermine the religious freedom immigrants desired in coming to America, not that religion was dead.  Thus the founders spoke of God in more secular terms such as "Nature's God" and the "Creator."  While many scientists may be atheists, most belong to religious congregations and their moral compasses guide their scientific work.  There are many Galilean biologists fighting the battle of evolution against the creationist orthodoxy.

As far as "soulless technocrats" go, I would love to meet some of them.  Before the Civil Service act, many government positions were filled by political "friends" and corruption was a  significant problem, if not rampant.  These "technocrats" are usually forced to adhere to rules of conduct because those rules are established to prevent corruption.  If I were to make an exception to you, is it because I am sympathetic to your needs or giving special treatment to a friend.  Soulless as it seems, the problems come when we decide to relax rules and regulations.  Think about what might of happened of Commodity Futures Trading Commissioner (CFTC) Brooksley Born had gotten her way in 1998.  She warned of the dangers in the rise of over-the-counter derivative trading and sought greater oversight, but was rejected.  I believe if that oversight had been given, the financial crisis would not have occurred.  The financial crisis occurred not because of the failure of the "Enlightenment Project" but the failure to listen to a "soulless technocrat."

Finally, that the Enlightenment governance fails from time to time, is simply not accurate.  Brooks is correct to point out that anti-enlightenment forces gain power from time to time, but is it because of the failure of Enlightenment or the fact that power centers who lose from Enlightenment style policies find ways to gain power again?  For example, as gains were made on race, various forces sought to undermine those gains.  The Supreme Court ruling on Shelby County v. Holder, nullifying section 4(b) of the Voting Rights Act governing election rules in districts were racial prejudice had been rampant, opened the door on new efforts to restrict voting.  The establishment of the new Consumer Finance Protection Bureau (CFPB) led to the forcing of Well Fargo to stop the unapproved opening of accounts for unknowing consumers.  The new Congress and President want to weaken, if not eliminate the CFPB, undermining those new protections.

One of the key aspects of the Enlightenment was the skepticism of authority, but not the complete rejection of it.  John Locke in his Second Treatise of Government began by stating that men were equal in Nature.  However, while "this may be a State of Liberty, yet it is not a State of Licence..."  (his italics).  He states that civil government is the remedy for the "inconveniences of the State of Nature."  However, Locke likens government authority to parental authority and Liberty is bestowed on people at the age of reason.  Therefore, government authority is limited as is parental authority.  The anti-establishment wants to extend power through authoritarian rule.  When President Trump says news organizations spread "fake news" he wants people to follow his 'approved' news; the news that says his inauguration crowds were large, Muslims danced in New Jersey on 9/11, and so on.

The leaders of the Enlightenment believed in the rule-of-law.  Our founding fathers, students of these leaders established a Constitution and government based on Enlightenment principles and rule-of-law.  Where things were not clear, they acted by setting precedent.  George Washington did not seek a third term as president, setting a precedent that lasted until Franklin D. Roosevelt.  Afterwards, the Constitution was amended so that a president could not serve more than two elected terms.

Brooks concludes: "I wonder if there is a group of leaders who will rise up and unabashedly defend this project, or even realize this fundamental thing is under attack."  Unfortunately, I believe it has been under attack since the 1980s when conservatives pushed back on the progress made in individual rights and responsible government.  In the Reagan administration, Supply-side economics was the economic policy that led to major tax cuts for the top income earners.  Instead of the economic boom that would offset those cuts, we ended up with record deficits and debt.  The same occurred in the George W. Bush administration where the same promises were made.  The anti-enlightenment forces hold on to those economic beliefs in spite of their failure because those beliefs benefit those interests.  The new "populism" of the Trump era returns us to the racist and xenophobic bigotry authoritarian forces exploit to undermine liberal democratic government.  I too wonder and worry where those leaders are.