“Winter of Our Discontent” – Krugman 11/26/07

On Monday, Krugman delivered an insightful piece concerning public opinion on the economy featuring information from a recent Gallup poll. I won’t delve into the public opinion stuff too much here, but a table that might interest you follows:

I think it is obvious there is a problem when two out of three self identified Republicans think the economy is getting worse. This isn’t nearly as partisan as the Bush administration would love to make it. The fact is that inequality is growing and wage gains are not keeping up with inflation. This combined with the current mortgage crisis, is yielding a significant portion of the population facing a significantly reduced purchasing power. Krugman alludes to this big issue of inequitable distribution of wealth generation - when he points out that the unemployment numbers are not that much different now than the late ‘90’s, yet the views of the average American are exceptionally different.

“Today by contrast, wage gains for most workers are being swallowed by inflation. In fact, the reality for lower- and middle-income workers may be worse than the official statistics say, because the prices of necessities like food, transportation, and medical care are rising considerably faster than the [CPI] as a whole.”

I can speak from personal experience in confirming that transportation and food are definitely rising faster than my CPI adjusted wage increase. I am fortunate enough to be less reliant on the box grocery stores (which I still use) and thus, the petroleum driven price increases in them. These increases have taken less of a hit on my wallet, but I am sure the increases are more than 3% over last year. Krugman goes on to directly state that just getting another Democrat as president will not solve all the problems. We still must address this continual income rift between the upper and lower class. We must also recognize the importance of some form of health care reform. Perhaps the golden nugget of the entire editorial, however, is a hint of one of the big potholes ahead for the Democrats in 2008.

“And there are good reasons to think that the negative effects of globalization on the wages of some Americans are larger than they were in the ‘90’s. That’s a hugely contentious issue within the progressive movement, with no easy resolution. I’ll write more about it in the months to come.”

I am sure this will be a contentious issue and will likely change the structure of the Democratic Party in the future. I look forward to seeing what Mr. Krugman has to say.

“The Real Rudy” – David Brooks 11/23/07

I watched a brief portion of the Republican YouTube debate on CNN last night. The issue of immigration came up (I understand it continued to do so throughout) and I was reminded of this David Brooks editorial from last week. The editorial focuses on Rudy G., and his apparent flip-flop from vigilant pro-immigrant NYC mayor to xenophobic authoritarian candidate. This transition has really manifested itself mostly in the past year, and to any serious follower of politics appears to be rooted in pandering to the perceived GOP base. Brooks selects numerous quotes from Giuliani’s past to highlight this change.

I am normally not a big fan of “gotcha” politics or journalism, but I am enthralled by the amount of backpedaling going on from several GOP candidates on the issue of immigration. Romney and Giuliani are the leaders in this reversal in direction from their earlier executive actions to the new “get’em out” mentality.

“At the moment, Giuliani and fellow moderate Mitt Romney are attacking each other for being insufficiently Tancredo-esque. They are not renouncing the policies they championed as city and state officials, but the emphasis as they run for federal office is all in the other direction. In effect, they are competing to drive away Hispanic votes and make the party unelectable in New Mexico, Arizona, Colorado, Nevada, Florida and the nation at large.”

I do believe that this ideological stance on an issue so personal to so many citizens is not in the long-term best interest of the GOP or the nation as a whole. The growing Hispanic population is an important part of America and to treat them as the “unwanted other” is to give way to xenophobic fear mongering at its worst. I do not proclaim to know the answer to the immigration issues that are facing America today, but I am confident that the vitriol being put into the “political debate” by the GOP candidates does not have a place in true political discourse. I should point out that I thought Huckabee and McCain were much more political in their responses that I heard on this issue. I never thought I would say that Huckabee seems more desirable and moderate at this point than Romney or Giuliani...

“Coulda, Woulda, Shoulda” – Friedman 11/14/07

Today’s column by Friedman on energy policy should be mandatory reading for all political candidates. The basic premise of the opinion is that America has failed to act in a coherent manner with regards to energy (i.e. oil) policy. Specifically, Friedman points out the drastic increase in oil prices from September 2001 through November 2007 (350%), which can largely be attributed to the increased global demand for oil. This increased global demand is significantly related to America’s failure to reduce its’ demand and developing nations (e.g. China and India) adopting the American developmental model with respect to energy policy (see 11/9 post). The real underlying issue Friedman has with the current policy is that America has blindly relied on market forces to guide energy policy, but in a situation as complicated as energy policy the market fails to consider all the costs and benefits of a transaction. In a completely free market there is no obvious incentive to the individual driver or company to reduce oil reliance because the benefits that accrue from such decreased reliance are to the nation-state and society at-large and not the discreet economic unit. The societal costs of additional pollution is not part of the transaction, nor are the implications on geopolitical stability and sustainability calculated (directly) into the spot price of West Texas sweet crude.

The question is how do we get these costs considered in each transaction? One method would be to get individual consumers to price in these costs on their individual consumption behavior. Though laudable, the aggregate effects of this change will likely be nominal due to the overwhelming costs of an educational drive and also due to the low participation rate in such a program. The low participation rate is economically understandable, because there is no rational economic disincentive to the behavior in question. This is where a second method of regulating the market comes in: taxes. Of course using taxes to modify behavior is never very politically palatable, but this is when a truth telling politician (don't laugh) is needed. Friedman argues we need a candidate (a Democrat in his mind, and probably the only hope at all) to speak to this issue in a clear and truthful manner.

“DEMOCRATIC CANDIDATE: “Yes, my opponent is right. I do favor a gasoline tax phased in over 12 months. But let’s get one thing straight: My opponent and I are both for a tax. I just prefer that my taxes go to the U.S. Treasury, and he’s ready to see his go to the Russian, Venezuelan, Saudi and Iranian treasuries. His tax finances people who hate us. Mine would offset some of our payroll taxes, pay down our deficit, strengthen our dollar, stimulate energy efficiency and shore up Social Security. It’s called win-win-win-win-win for America. My opponent’s strategy is sit back, let the market work and watch America lose-lose-lose-lose-lose.” If you can’t win that debate, you don’t belong in politics.”

The likelihood of any serious candidate making this kind of statement is slim, but just because the current political actors aren’t willing to say it does not mean it is without value (an argument could be made that precisely for this reason it has value) Americans need to realize that continued (over) consumption of oil has a number of negative externalities coming to bear on each additional barrel of oil imported from abroad. It is my opinion that the best method to address these concerns is through a fuel tax. I understand that this tax would be inherently regressive, but this could be addressed through a phase-in and/or a temporary (I know this is hard to do) fuel tax income tax credit. Taxes have their place, and though modifying individual behavior may be the most desirable, sometimes a little government intervention can get the ball rolling.

Take this as my personal call to arms for a Geopolitical Social Cost Benefit Analysis of US Energy Policy. There has already been an outcry for including a tax on oil that would incorporate the social costs of pollution, but I argue here that we must consider the geopolitical consequences of continue reliance on foreign oil from unstable regions. An extension of the current policy, leads to America in a showdown of increasing demand with China and/or India for a stagnating world oil supply.

“Health Care Excuses” – Krugman 11/9/07

Last Friday (before taking a sick day Monday?), Mr. Krugman offered a quick rebuttal to four of the favorite talking points for apologists of the current American health care industry. Krugman does a good job of deconstructing these four arguments into recognizable one-liners that reverberate through contemporary American culture:

1. No Insurance, No Problem
2. It’s the Cheeseburgers
3. 2007 is better than 1950
4. Socialized Medicine! Socialized Medicine

Point #1 is a true statement, if by health care you mean emergency care at a hospital. It is not true, however, if you are attempting to seek preventive care from most clinics or if you are seeking mental health treatment. This isn’t to say you can’t get this care without insurance, but the vast majority of Americans without insurance (the working poor) cannot afford it. Krugman highlights some of the other flaws with this logic:

We’re told, for example, that there really aren’t that many uninsured American citizens, because some of the uninsured are illegal immigrants, while some of the rest are actually entitled to Medicaid. This misses the point that the 47 million people in this country without insurance are an ever-changing group, so that the experience of being without insurance extends to a much broader group — in fact, more than one in every three people in America under the age of 65 was uninsured at some point in 2006 or 2007.

The “they are all illegal immigrants” and the “they might be coverable by Medicaid” are both arguments used to prop up a failing national health care policy. Are some of the 47 million uninsured in this country illegal? Probably so. Are others eligible for Medicaid? Almost undoubtedly. Do these two groups sum to 47 million? Definitely not. I know I spent a portion of 2006 uninsured, as I’m sure many professionals in between jobs or returning to school can attest – there are a lot of uninsured Americans out there who have no viable method of securing health care coverage.

Point #2 illustrates the argument that our health care costs are higher because we take on a heightened amount of risky behavior and lifestyle choices. We eat too much and don’t exercise; We drive to fast; and We saturate our lives with stress. This sounds like a great reason for an expensive health care system, but a McKinsey Global Institute report begs to differ. The report finds Americans are not significantly sicker than other countries studied.

As to #3, well to be as kind as I can be --- that is just stupid. Of course we have improved health care immensely over the last half a century, but we’ve have an even more amazing increase in knowledge and ability regarding computers and that has led to more access and lower costs.

Point #4 is the final corner of retreat for at least a quarter of all American politicians on any issue – “Program X is socialist, commie, pinko, over-regulated, inefficient, non-market based, abandons individual responsibility, and is bad for the economy.” These politicians will continue to spew this vitriol about these programs, until you bring up Medicare. Then they talk about how it’s such a wonderful program for our elderly population.

We have both supply and demand issues in America’s health care policy, but maybe it is time to start considering solutions instead of continuously giving heed to reactionary politicos and pundits who haven’t been without health care in at least twenty years (if ever). America already pays for premium health care, isn’t it time we give access to it to all Americans?

“No, No, No, Don’t Follow Us” - Friedman 11/4/07

What happens if India’s population starts driving at a rate close to that of America? I’m not sure of all of the consequences, but I agree with Friedman in thinking that it just isn’t likely to be a net postive. The factor driving (pun intended) this issue is the release by Tata Motors of India of a new $2,500 car, which will make a personal automobile a reality for millions of Indian families. It is hard to be the judgmental American on this issue, but developing nations need to understand that this is one area where America’s development model is very seriously flawed. In many ways the USA and China are in better form to handle this new domestic oil demand than India, because both of the former have significant reserves and domestic production. India, however, imports more than 70% of its oil and has virtually no strategic reserve. This means that as oil prices continue to increase and Indians continue to buy more $2,500 cars and thus increasing demand, India will see a larger percentage of its’ wealth shipped to the oil rich countries of the world.

This issue is awash in environmental concerns, both for India and the world as a whole. Additional issues include, India’s economic health, trade surplus, and perhaps the biggest cost, which ties all of these concepts together – the opportunity cost of Indian innovation working on a major problem of the world. Friedman is a champion of Indian innovation, and it is difficult to argue against the following thought:

“If it applied itself to green mass transit solutions for countries with exploding middle classes, it would be a gift for itself and the world... To do that it must leapfrog. If India just innovates in cheap cars alone, its future will be gridlocked and polluted. But an India that makes itself the leader in both cheap cars and clean mass mobility is an India that will be healthier and wealthier. It will also be an India that gives us cheap answers to big problems – rather than cheap copies of our worst habits.”

It would be wonderful if the world started solving the developmental problems that the American model of development has perpetrated. I am mostly concerned with this logic in the fact that if the Indians solve the issue, I’m not convinced America will take to it. We love our cars -- $100 barrel oil, despotic regimes, and declining discretionary income be damned. Until Americans are ready to make some sacrifices in giving up their single occupancy vehicles, we aren’t going to solve our transportation issues – but I guess there is hope for the rest of the world.

“Wobbled by Wealth?” – Krugman 11/5/07

Are the Democrats becoming corrupted by the influx of cash from wealthy supporters? This question is becoming more pertinent in the Democratic Party, as for the first time in recent history; the Democrats have raised more cash than the GOP from the business world. Are the Democratic officials selling out their progressive base by accepting the largesse of corporate America, or are they taking advantage of a political opportunity to broaden the power base?

The answer to this question will likely not come until sometime after 1/20/09, when a new president (likely Dem) will be able to develop an agenda for the nation. Will this agenda feature a more equitable tax structure with fewer loopholes and deductions for the rich? Will health insurance reform see the light of day? Will insurance reform to ensure that long-term policyholders aren’t dropped without cause become law? Or will hedge fund managers call on Mr. Schumer, drug companies on Hilary, and insurance on Mr. Dodd? Though this sounds a bit doomsdayish, the biggest concern I have is that progressives will fail to support the Democratic Party because they view it as the same as the GOP. Krugman hit the nail on the head on this point:

“O.K., some perspective. I sometimes hear people say that there’s no difference between Democrats and Republicans; that’s foolish. Look at the fight over children’s health insurance, and you can see how different the parties’ philosophies and priorities really are. All of the leading Democratic candidates are offering strongly progressive policy proposals; the Republicans are, if anything, running to the right of the Bush administration.

Perspective is key here, and I am not convinced that the Democratic presidential hopefuls are completely devoid of progressive principles. They have shown a willingness to at least espouse progressive ideals on the campaign trail. I am, like Krugman however, worried.

I have hope that opening the doors to business will generate immense electoral gains, arguably solidifying a governing coalition that can make a positive globalization effect for America into the future. I also have my concerns - Business is a bit of a serial monogamist, where nothing is forever. If the Democrats pursue this path of working closely with business, they may just cut some of the power out from under themselves were they to pursue a progressive agenda viewed as too extreme by the business community. Conversely, if they pursue an overly business friendly agenda, the possibility of losing unions, labor, and progressives is also real. I don’t believe in entrenched party lines, as they tend to make compromises more and more difficult as absolutes are embedded in party platforms. I do, however, find some cause for concern when the party that is stopping big boy hedge fund managers (all 150 of them) from being equitably taxed on their sizable income is the same party that for years has claimed to represent all the little guys out there.