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The Procrustean Democracy of AmericaSpeaks: Part Five

letsgetitdone's picture
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In my last post I continued my analysis of the June 26th AmericaSpeaks Community Conversation event I attended in Falls Church, VA, focusing on Step Five in the decision process used in the meeting. In that post I was critical of the overall bias in the general orientation toward the options workbook and the choices to be made in the process. In this post I'll continue with my examination of step five of this process, shifting my attention to the specific option choice frameworks and the bias inherent in the way they were structured by AmericaSpeaks. Here once again is a statement describing step 5.

Working through the Options Workbook and arriving at decisions about what cuts in Federal Expenditures or tax increase to make in order to cut the projected Federal Budget. Reporting to the group about the choices made by each participants and something of the reasoning behind these choices. Summing up by facilitator highlighting the most popular choices of options for reducing the deficit.

There were four categories of Government spending that organized the items in the options workbook: Health Care; Social Security; All Other Non-defense; and Defense Spending. The workbook provides an introductory discussion of each category giving the line of reasoning used to arrive at the options for cutting spending offered to participants in the options exercise.

In the health care category, AmericaSpeaks provided a summary of the background of the current situation of Federal expenditures, with brief descriptions of how Medicare and Medicaid work. The workbook goes on to describe rising health costs and opines that rising health care costs and the aging of the population will greatly increase Federal spending on health care from 5.1% of GDP, to 7.5% of GDP by 2025, and then says:

”Federal health care costs are closely tied to cost trends in the overall health system, so the key to controlling federal health care spending over the long term is to bring overall health care costs under control. The new health care reform law includes measures that could help move in the direction. In this exercise, however, we are not asking that you reopen or revise that law. Instead, we ask that you focus on how to reduce Medicare and Medicaid spending. Some of the options outlined below hold the promise of encouraging wider reforms across the health care system that could help to tame overall health spending. Others may reduce federal costs but increase private costs. . . .

”Generally, the nation could fundamentally change the health care system in at least three basic ways. Each of them could slow the growth of health care spending, but none of them is guaranteed to do so. First, we could replace the current system of employer-provided coverage and public programs with one known as premium support – in which the federal government gives Americans a certain amount of money each year to cover their health care costs, but allows them to choose their insurance coverage from carriers that meet minimum federal requirements. Second, we could replace the current system with one known as single payer – in which the federal government pays for health care in a similar fashion to which it currently runs Medicare. Third, we could maintain the current system but achieve savings through more regulation – relying on policymakers to achieve savings by regulating the system more heavily. . .

”At the moment, the nation does not seem prepared to consider fundamental reform of the kind suggested in the first two approaches above – premium support or single payer. As a result, the options outlined below would enable you to achieve savings through changes within the existing system.”

And right there is the bias in the set-up of the health care cost-cutting options. The participants are constrained by the workbook from considering options relating to either premium support or single-payer approaches to health care reform. In particular, the single payer approach is the most important one since there is much survey evidence suggesting that 2/3 of the population prefers Medicare for All to any other approach. The excuse given for this is that America doesn't seem ready to support fundamental reform including single-payer. However, even assuming this is correct (and it seems much more likely that only Congress and the President are not ready for single-payer) the exercise asks the participants to suggest options that would save $1.2 Trillion by 2025. So what is politically feasible right now in 2010 isn't really relevant to this task. The mood of the nation could easily change by 2011, 2012, or by 2014, and certainly by 2020, in ample time to save substantial Federal expenditures on Health Care through single-payer.

AmericaSpeaks rightly calls out rising costs in health care at a rate much greater than general inflation as a major problem, but it says nothing about the fact that rising costs are being driven by the private sector insurance companies and providers. Medicare for All would take the insurance companies out of the health insurance picture for basic and necessary health care services and would leave the Government in a position to see to it that costs do not exceed the rate of inflation. Just as importantly, a national Medicare program could regulate practices in health care to greatly increase both efficiency and effectiveness. Right now there is little incentive for providers to adopt “lean” process practices well-known in other industries to decrease the frequency of medical errors and the costs associated with those, since those costs are passed on to the insurance companies and consumers. But a Government program regulating medical practices and also keeping cost increases at the general rate of inflation would provide incentives for everyone in the Medical system to improve practices and reduce costs.

While all nations have had problems with increasing medical costs, since the 1960s cost increases in other nations with tightly regulated or single-payer systems have proceeded much more slowly than in our system. With the effect that the nation that spends the most on health care other than the United States spends only 2/3 of what we do for health care systems that are more effective than ours, as measured by the most important indicators of health care quality. Some performance rating systems put the United States down as low as 37th in the world in the effectiveness of our system and some of the top rated systems are spending only half as much as we are, measured as the % of GDP they spend on health care.

By the way, I'd be remiss here, if I didn't mention that the AmericaSpeaks projection that Federal Health care expenditures will be 7.5% of GDP is dependent on their 2025 projection of GDP at roughly $27.3 Trillion. A projection that assumes more historically normal rates of growth for the economy in the next 15 years puts the projected GDP at $42.1 Trillion. Assuming, that the level of projected Federal health care spending remains at $2 Trillion, without any cuts in the amount projected, that figure would be about 4.8% of GDP or less than it is now. This suggests that the so-called emergency in rapidly rising Federal health care expenditures is due much more to GDP projections based on CBO models than it is the rising Federal health care costs themselves.

Moving back to the workbook and its framing biases, by constraining participants from considering single-payer options, AmericaSpeaks hews to the orientation of the President's Fiscal Commission and their narrow and false notion of fiscal responsibility. In the short run, single-payer would increase our budget deficits, because it would probably increase Federal health care costs to as much as $1.8 Trillion annually from the present level of about $745 Billion. On the other hand, single payer would also increase FICA revenues by creating 2.4 million new jobs according to an econometric study conducted by the California Nurses Association.

Even in 2025, assuming general inflation is at 2% per year, Federal expenditures for Medicare for All would probably be at $2.5 Trillion. But that expense would be less than 10% of GDP in 2025 even using the pitiful GDP level projected by AmericaSpeaks for that year, and that will be nearly all of our health care expenses, whereas if we stick with the present system, as much as 25% of GDP could be consumed by both private and public health care expenditures, again assuming the AmericaSpeaks GDP projection in 2025. So, real fiscal responsibility here, lies in Government spending to create a health care system that will be more effective and will not eat up so much of our economic activity, not in figuring out how to cut Government health care expenditures, while doing very little to contain the rapidly accelerating increases in the cost of health driven by the financialization of the health care industry.

In any event, the approach to health care expenditures taken in the workbook and the community conversation I attended considered four options for Government cuts in health care spending: 1) cut by 5%; 2) cut by 10%, 3) cut by 15%, and 4) no change from what the cost would otherwise be in 2025. That cost was estimated at: $2 Trillion. How would the cost be cut, if at all? The workbook suggests this would happen by: a) raising the Medicare premium for higher income beneficiaries; b) raising deductibles, or coinsurance, or both for Medicare beneficiaries; c) increasing the Medicare eligibility age; d) replacing the Medicare program with a voucher for beneficiaries
to buy insurance; e) limiting eligibility for Medicaid; and f) using Federal block grants to states for Medicaid, rather than matching payments. This is a very limited framework within which to think about options and it provides no way for participants to evaluate the impact of any cuts they select on American society and public purposes. But this is characteristic of the workbook's approach to all categories. AmericaSpeaks starts by assuming that deficit and debt statistics must be controlled, and it directs participants toward choosing particular options which it assumes will do that. But, it provides no way for participants to assess the real costs to Americans of the choices they are making about spending cuts, except for brief and very abstract arguments for or against costs in the workbook. So, participants are largely flying blind in selecting options, and when they are further constrained by the workbook about selecting other options whose consequences they may understand much better, the exercise in selecting options departs even farther from either objectivity or reasonableness.

The second expense category of the workbook is Social Security. The workbook provides a historical context for Social Security, and then claims that it has a problem of solvency. It puts the problem this way:

”The surpluses that Social Security has been generating over the past two decades have been invested in Special Issue Treasury Bonds. The bonds represent the debt that the United States owes to its citizens and which it must pay back, with interest, when the funds are needed to pay benefits. Although the bonds cannot be sold on the open market, they are backed by the full faith and credit of the United States, just like bonds sold to private investors.

”As the baby boom generation begins to retire, Social Security will need to redeem the bonds in order to pay benefits. Because the government is spending more than it brings in from revenue, policymakers will need to find the money by raising new revenue, reducing benefits, or borrowing more, which will add to the deficit. Ensuring the solvency of the system is the core challenge of Social Security reform.”

Of course, here is the bias of neo-liberal economic thought, once again. Government, it contends, can only pay its Social Security obligations by bringing in more revenue, reducing benefits, or borrowing more, and adding to the deficit, and these are the only ways for Social Security to avoid insolvency, so that's why hard choices have to be made by the participants in the workbook exercise and by the US Government itself. The only problem with this argument is that Government doesn't have to either raise more revenue, or reduce benefits, or borrow to pay it Social Security obligations. It can just spend. And even though this will increase the deficit, it won't increase the national debt, unless the Government insists on continuing its current irrational practice of issuing debt after it spends money.

However, this alternative view of how Government can spend was never presented to the participants in the community conversations or the meetings in 19 cities. So no one had an alternative view of how to meet Social Security obligations other than by raising revenue through taxation, cutting spending, or borrowing. As a result they entered the process of selecting options relevant to the future of Social Security with a limited and biased perspective, which was very likely the intention of the designers of the process, or a measure of their lack of qualifications to carry it out in the first place.

Here are the options that were offered to the participants at the meetings: 1) for future beneficiaries, gradually raise the age for receiving full benefits to 69 by 2028; 2) for future beneficiaries, limit increases in starting benefits for all but the lowest earners; 3) For current beneficiaries, change the formula for raising benefits each year to reflect a lower measurement of inflation; 4) raise the 12.4% payroll tax gradually to 13.4% by 2025; 5) raise the 12.4% payroll tax gradually to 14.4% by 2025; 6) raise the limit on taxable earnings, so it covers 90% of total earnings in America; 7) create personal savings accounts within the system; and 8) make no changes. Now, the first thing that strikes one about these options is why option 7 is offered here at all. According to the scorecard distributed at all the meetings, the potential deficit reduction attached to this proposal by 2025 is negative $61 Billion. That is, it adds to the deficit. This is a relatively minor matter in the whole picture, but it is a very clear indication of bias in the decision process. Peter G. Peterson whose foundation is a major supporter of AmericaSpeaks has advocated privatization of Social Security for many years. What can this option be except a concession to a funder's pet notions, and a concession that is totally inconsistent with the avowed purpose of cutting deficits.

The second striking thing about these options is that taken together they add up to a projected total of $92 Billion in savings by 2025. Considering that the projection of GDP for that year is $27.3 Trillion, the projected savings are less than 0.3 of one percent of GDP, and only 1.3% of the projected Federal Budget for that year. The question is: why bother? Why get people angry for such a small saving, especially since the Government has no solvency risk in continuing to pay all benefits at the present level forever? Surely, including Social Security in this scorecard is nothing but an ideological bias of right-wing funders who have always been against that program.

Third, that same bias is also visible in the option calling for raising the limit on taxable earnings to 90% of all such earnings. On its face that seems like a concession to progressivism, but there are two glaring questions about this. First, why are any taxable earnings exempt from FICA taxes? If the deficit problems are so serious, then why have any exemptions? And secondly, why not make FICA contributions progressive? If we're really so much in need of revenue because Social Security is becoming insolvent then why shouldn't everyone pay their fair share of taxes according to their income, just the way they pay taxes? I'm not so much advocating these options as asking why they're not among those considered. They're obvious options, and the decision to exclude them suggests ideological bias in the process.

This completes my discussion of workbook biases in the health care and Social Security categories. In my next blog I'll cover the remaining workbook categories and also analyze the dynamics of the community conversation occurring around the workbook.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

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nihil obstet's picture
Submitted by nihil obstet on

First, thanks for your reports.

This is bizarre:
”As the baby boom generation begins to retire, Social Security will need to redeem the bonds in order to pay benefits. Because the government is spending more than it brings in from revenue, policymakers will need to find the money by raising new revenue, reducing benefits, or borrowing more, which will add to the deficit. Ensuring the solvency of the system is the core challenge of Social Security reform.”

In other words:
As the bond-purchasers want to withdraw funds , the U.S. Treasury will need to redeem the bonds in order to pay the bondholders. Because the government is spending more than it brings in from revenue, policymakers will need to find the money by raising new revenue, reducing redemption value, or borrowing more, which will add to the deficit. Ensuring the solvency of the system is the core challenge of Treasury bond reform.”

letsgetitdone's picture
Submitted by letsgetitdone on

Hi nihil, I think what they're saying, a bit implicitly, is that Social Security, the holder of the bonds, will have to redeem them to pay retirees. So the Treasury will be forced to pay SS back all of the money it borrowed by issuing those special SS bonds. Since it doesn't have the money, however, Treasury will have either have to raise taxes or raise money by selling TSYs to other buyers like the Chinese, who have lots of USD and would rather earn interest on the money than but goods.

What these birds ignore is that SS doesn't need any money to pay retirees. The Treasury can just mark up retiree accounts when payments come due or issue checks drawing on the Treasury account at the Fed. While its doing that it can mark down the totals that it owes SS in Bonds, until the bonds are paid off. As Treasury is doing that it can choose if it wants to, to not issue any additional Treasuries. thereby not incurring any new debt.

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