Category Archives: Wall Street Journal

How to Create a More Just and Equal Society

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In a recent Washington Post column, “Government is Not Beholden to the Rich”, the economics writer Robert Samuelson shows that the federal government is actually “beholden to the poor and middle class.  It redistributes from the young, well-off and wealthy to the old, needy and unlucky.”
For example, in 2006 “53% of non-interest federal spending represented individual benefits and healthcare.  Of these transfers (nearly $1.3 trillion), almost 60% went to the elderly.  Of the non-elderly’s $550 billion of benefits and healthcare, the poorest fifth of households received half.  The non-elderly paid about 85% of the taxes, with the richest fifth covering two-thirds of that.  If government taxes and transfers – what people pay and get – are lumped together, the average elderly household received a net payment of $13,900 in 2006; the poorest fifth of non-elderly households received $12,600.  By contrast, the net tax payment for the richest fifth of non-elderly households averaged $66,000.”
A couple of months ago a Wall Street Journal Op Ed “Obama’s Economy Hits His Voters Hardest” by the economist Stephen Moore, points out that during the time period 1981 – 2008, the Great Moderation, income for black women was up by 81%, followed by white women up 67%, black men up 31% and, finally, white men up only 8%.  Of course, all of these groups have lost income in the last four years, during the very weak recovery from the Great Recession.
The answer is clear.  The best way to help low income people lift themselves up is not to redistribute even more government resources to them but rather to boost the economy to create more and better jobs.  There are tried and true methods to get this done: tax reform (to encourage more risk taking and entrepreneurship), immigration reform (to provide more willing workers) and true healthcare reform (to get healthcare spending under control).
We need national leaders who understand how to make the economy grow faster and are able to stay focused on this urgent task.

The Floundering of America

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In yesterday’s Wall Street Journal, columnist William Galston talks about “The Floundering of America”.  Based on recent reports from the Congressional Budget Office, Mr. Galston says that “Today we are hurtling toward a less dynamic economy, a meaner society and a riskier world.”
His argument is based on these observations:

  • For the past 40 years, 1970-2010, the labor force expanded at an average rate of 1.6% per year.  It will soon slow to only .4% annual growth, because of more retirements and a plateauing of women’s labor-force participation. This means that growth in GDP will slow down to about 2% annually from its historical average of over 3%.
  • America is aging very fast.  Today there are 57 million Social Security beneficiaries which will increase to 76 million in 2023.  Obviously this will rapidly increase entitlement spending on retirees.
  • America already spends 18% of GDP on healthcare costs and the CBO projects that this will grow to 22% by 2038.

“In sum, current trends and policies will yield lower rates of economic growth, painfully slow gains in real incomes, huge increases in outlays for expenses related to an aging population, and a health sector that devours more and more of the national product”, he says.
These trends are all contributing to an explosion of the national debt.  The only current strategy to keep this debt even roughly stable during the next decade, let alone reduce it, is to shrink discretionary spending through sequestration.  This will lead to a decline in discretionary spending to 5.3% of GDP by 2023.  This means roughly 2.6% of GDP for national defense with an equal share or all other domestic purposes.
“This is pure folly”, says Mr. Galston. “The country needs a new national strategy for a viable future.”
How do we achieve a new strategy?  Immigration reform will increase the size of the workforce.  Tax reform could boost the economy by encouraging business expansion, risk taking and entrepreneurship.  True (consumer-driven) healthcare reform could dramatically lower the cost of healthcare.  In other words there are potential policies out there that address our national floundering. We simply need leaders who are capable of going beyond partisanship in order to help create a better future!

Beyond ObamaCare: Where Do We Go From Here?

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Last Sunday’s Washington Post has an Op Ed column by Jon Kingsdale, “Beyond Healthcare.gov, Obamacare’s Other Challenges” which describes the many challenges confronting ObamaCare besides just the website problems and the millions of individual policies which will be cancelled for not meeting the minimum requirements of the Affordable Care Act.  Based on his experience setting up the Massachusetts Health Insurance Exchange from 2006-2010, there will  be huge problems in getting enrollment, billing and premium collections working smoothly for such a large government program.  For example, an estimated 27% of those who will be eligible for tax credits under the ACA do not have checking accounts.  How will their monthly premiums be paid and tracked for these people if they’re late?
Considering all of the problems involved in the implementation of ObamaCare, and the fact that it does not really reform our current very costly healthcare system but rather just extends it to cover more people, it makes much sense to move toward real healthcare reform, which will control costs.
A column in today’s Wall Street Journal by Ramesh Ponnuru and Yuval Levin, “A Conservative Alternative to ObamaCare”, lays out several basic features which should be included in a sensible, market oriented approach to healthcare reform.   The principles are:

  • A flat and universal tax credit for coverage which applies to everyone and not just for employer provided healthcare.  The (refundable) credit would be roughly the amount necessary for catastrophic coverage.
  • Medicaid could be converted into a means-based addition to this tax credit.
  • Everyone with continuous coverage (which would be provided by the tax credit) would be protected from price spikes or cancellations if they get sick.  This provides a strong incentive to buy and retain coverage without the need for a mandate.

A market oriented healthcare system like this is not only preferable to all of the mandates and restrictions of Obamacare, it also improves our current system by both expanding coverage to more people as well as controlling costs by giving health consumers (all of us) a much bigger stake in purchasing healthcare.
The United States spends 18% of GDP on healthcare, twice as much as any other country in the world.  Our fiscal stability and future prosperity depend on getting this huge and growing cost under control.  The ObamaCare fiasco provides an excellent opportunity to get started on doing this.

Where Are the Jobs? III. The Real Inequality Gap

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Today’s Wall Street Journal has a story “Job Gap Widens in Uneven Recovery”, which shows how unbalanced the economic recovery is.  For workers aged 25 and older, unemployment is only 6%, compared to the overall unemployment rate of 7.3%.  But for the young, ages 16 – 24, unemployment is 15%.  Since the end of the recession in June 2009, wages have risen by 12% for the highest paid 25% of all workers.  For the lowest paid 25%, wages have only risen by 6% over this time period.
“Households earning $50,000 or more have become steadily more confident over the past year and a half.  Among lower income households, confidence has stagnated.  The gap in confidence between the two groups is near its widest ever.  That isn’t only bad for those being left behind.  It’s also hurting the broader recovery, because it means families are able to spend only on essential items.  Consumer spending rose just .1% in September 2013, after adjusting for inflation.”
Unfortunately, this data is entirely consistent with other gloomy economic trends which I have been reporting on recently such as the threat of technology to the middle class, the increased competition from globalization, and the shrinking size of the labor pool because of baby boomer retirements.
The New York Times has a running series of articles on “The Great Divide” and how to address it.   Here is a clear cut example of this divide: how older, better trained and more affluent Americans are recovering from the recent recession more quickly than the less well off.  This evident unfairness is damaging to the health of our society.  The question is how do we address it in an effective manner?
The basic problem is the overall slow growth of the economy, about 2% of GDP per year, since the recession ended in June 2009.  There are many things that policy makers can do to speed up this growth if they were only able to set aside ideological differences.  The best single action by far is tax reform, for both individuals and corporations, lowering overall rates in exchange for reducing deductions and loopholes which primarily benefit the wealthy.
Here is yet another reason why it is so important to speed up the growth of our economy.  How exasperating that our national leaders cannot figure out a way to come to together and get this done!

Is It Mean Spirited to Cut Food Stamps?

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In yesterday’s Wall Street Journal, columnist William Galston writes “In Defense of Food Stamps” that “food stamps reach their intended targets, poor and near-poor Americans. The large increase in the program’s cost over the past decade mostly reflects worsening economic conditions rather than looser eligibility standards.  Since 2000 the number of individuals in poverty has risen to 46.5 million from 31.6 million.”
Mr. Galston also states that “the number of able-bodied adults without dependents receiving benefits under the food stamp program has risen to nearly 5.5 million from under 2 million since 2008 even as work requirements for those individuals have been relaxed.  Here the critics have a case: the federal government should reconsider the waivers of current requirements it has extended to 44 states and the District of Columbia and it should consider toughening those standards.”
Congressional Republicans have proposed cutting $40 billion from the food stamp program over 10 years, or $4 billion per year.  Since the total food stamp budget is $80 billion per year, this amounts to a 5% cut.  And this 5% cut is directed precisely at those 5.5 million able-bodied adults without dependents.  Expecting these people to find a job, even if minimum wage, in return for receiving food stamps, is not asking too much.  It is really just “tough love” more than anything else.
Putting a substantial portion of these 5.5 million able bodied adults back to work would also be a big boost to the economy.  One of the biggest drags on the economy at the present time is the low labor participation rate which has dropped from about 66% to 63% since the recession began in 2008-2009.
Trying to make the food stamp program more cost effective is really just an example of what should be done across all programs of the federal government, routinely, as a matter of sound operating procedures.  It is unfortunate that ideology and political partisanship get in the way of such common sense!

Are Deficit Fears Overblown?

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In yesterday’s Wall Street Journal columnist David Wessel responds too mildly in “Why It’s Wrong to Dismiss the Deficit” to Larry Summers’ view that we should not worry about the deficit.  Mr. Summers says, “Let me be clear.  I am not saying that fiscal discipline and economic growth are twin priorities.  I am saying that our priority must be on increasing demand.”  According to Mr. Wessel, here is the essence of Mr. Summers’ argument:

  • The deficit isn’t an immediate problem; growth is.
  • We’ve done enough (about the deficit) already.
  • The future is so uncertain that acting now is unwise.

Granted that the deficit for fiscal year 2013 is “only” $680 billion after four years in a row of deficits over a trillion dollars each and that interest rates are at an historically low level at the present time.  The problem is that the public debt is now at the very high level of 73% of GDP and is projected by the Congressional Budget Office to continue climbing indefinitely.  Interest on the debt was $415 billion for fiscal year 2013 which represents 2.5% of GDP of $16.8 trillion.  With GDP growth increasing at about 2% per year since the end of the recession in June 2009, this means that interest on the debt is already slowing down the economy and it’s just going to keep getting worse as interest rates inevitably return to higher historical levels.
Growth is very definitely an immediate problem.  But increased government spending is the wrong way to address it.  The right way to address it is with broad based tax reform (lowering tax rates in return for closing loopholes) to stimulate investment and risk taking by businesses and entrepreneurs.  Significant relaxing of the regulatory burden would also help, especially for the small businesses which are responsible for much of the growth of new jobs.  So would immigration reform to boost the number of legal workers.
As uncertain as the future is, we can be quite sure that entitlement spending (Social Security, Medicare and Medicaid) will be going up fast in the very near future as more and more baby boomers retire and the ratio of workers to retirees continues to decline.  It would be very risky indeed to assume that economic growth will increase fast enough to pay for increased entitlement spending.
Conclusion:  large deficits are a very urgent and immediate problem which we ignore at our peril!   Furthermore the best ways of boosting the economy don’t require increased government spending.

When Will Young Obama Supporters Wake Up and See the Light?

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Yesterday’s weekend interview in the Wall Street Journal with money manager Stanley Druckenmiller, “How Washington Really Redistributes Income”, vividly illustrates how disastrous Obama economic policy has been for the young people who form the core of his coalition.  “High unemployment is paired with exploding debt that they will have to finance whenever they eventually find jobs.”
“I thought that tying Obama Care to the debt ceiling was nutty”, says Mr. Druckenmiller. “I did not think it would be nutty to tie entitlements to the debt ceiling because there’s a massive long term problem.  And this president, despite what he says, has shown time and time again that he needs a gun at his head to negotiate in good faith.”
How about the “rat through the python” theory which holds that the fiscal disaster will only be temporary while the baby-boom generation moves through the benefit pipeline and then entitlement costs will become bearable.  Unfortunately for taxpayers, “the debt accumulates while the rat’s going through the python,” so that by the 2030’s the debt and its enormous interest payments become bigger problems than entitlements.  “That’s where Greece was when it hit the skids”, he says.
What is Mr. Druckenmiller’s solution?  Raise taxes on dividends and capital gains up to ordinary income rates and eliminate corporate taxes all together.  This is justified because it ends double taxation of corporate profits.  But, in addition, the people who run the corporations would be more incentivized to invest the profits in growth and expansion.  Ending corporate taxation also ends crony capitalism and corporate welfare.  All of this would be “very, very good for growth which is a good part of the solution to the debt problem long-term.  You can’t do it without growth.”
Bottom line:  we urgently need to rein in entitlement spending but we also need smarter policies to grow the economy faster.  Young people ought to be totally on board with all of this.  When will they wake up and see the light?

What Is the Best Budget Outcome in the Current Standoff?

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In yesterday’s Wall Street Journal, columnist Holman Jenkins describes “The Best Budget Outcome: Tax Reform”.  His point is that the only way we can possibly continue to pay for our rapidly growing entitlement programs of Social Security, Medicare and Medicaid, is by speeding up the growth of our economy.
All of the various fiscal reforms of these programs which have been suggested such as means testing for Medicare, raising the Social Security wage base ($113,700 in 2013), changing the way the COLA is computed, raising eligibility age limits for both Social Security and Medicare, and block granting Medicaid to the states, can at best slow down the growth of their costs.  This is because the number of retirees is growing so rapidly as well as the number of eligible recipients for Medicaid.
Most sensible people know that we have to do a much better job of controlling the cost of entitlement programs, even though it is tough in practical terms to agree on specifically which costs to rein in.
In addition to holding down the growth of government spending, the other way to shrink the deficit and slow down our soaring national debt, is by speeding up economic growth.  The best way to do this is by lowering tax rates (offset by closing tax loopholes) in order to encourage more entrepreneurial investment and risk taking.
But too many people are ideologically opposed to lowering tax rates because they think that it increases economic inequality.  As Mr. Jenkins says, such people would rather “see the lives of the young and unskilled be blighted by a slow-growth economy than approve a reform of rates and loopholes that …(could be mislabeled)… as a tax cut for the rich.”
In other words, the two sides in the budget debate can probably hammer out some reasonable ways to rein in entitlement spending.  But they probably will not be able to agree on sensible tax reforms which would grow the economy faster and put more people back to work.  What a shame!

What Should the Republicans Do Now?

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An editorial in yesterday’s Wall Street Journal, “A GOP Shutdown Strategy”, offers good advice to the House Republicans for how to proceed in the shutdown stalemate.  “ …the best chance to move Democrats is Louisiana Senator David Vitter’s amendment that would annul the exemption from Obama-Care that the White House carved out for Congressmen and their staff.  These professionals will receive special subsidies unavailable to everybody else on the insurance exchanges, and preserving this deeply unpopular privilege would be a brutal vote for Democrats.”
The House Republican Caucus should attempt to line up 218 votes to attach this provision to a continuing resolution to fund the government for all or part of the new fiscal year at the current level.  If 218 votes to support this approach cannot be found, then the House should pass a clean funding resolution.  Nothing else has a chance of succeeding (the idea of trying to defund Obama-Care for even one year is absurd) and the American people will grow increasingly impatient. 
The bigger issue by far is the need to raise the debt limit by October 17th at the latest.  Here the Republicans have major leverage, namely the sequester, which takes a bigger bite out of discretionary spending each year for nine more years.  The Republican House can give the Democratic Senate a choice:  either agree to a sensible long range plan for spending restraint (including entitlements), or else we’ll agree to raise the debt limit for six months or so, into early 2014, and then revisit the debt limit issue after the 2014 tighter sequester limits take effect. 
This is what I suggest.  Now we’ll wait and see what happens!

A Much Better Republican Strategy for Obama Care

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On the eve of its implementation, the Affordable Care Act (aka Obama Care) is more unpopular than ever amongst the general public.  But the House Republican strategy of trying to defund the ACA as part of a continuing resolution to fund the government for the new fiscal year is a very poor idea.  It will never pass both houses of Congress and be signed by the President.  All it can possibly do is lead to a temporary shutdown of the government and therefore cause mass confusion.
The Wall Street Journal recently suggested a much more effective way for the House Republicans to proceed in “Carve-0uts for Congress”.  The legislation establishing the ACA contains a provision requiring all members of Congress and their staffs (11,000 people in all) to purchase their own health insurance on the new exchanges which are being set up to enroll uninsured Americans.  The idea behind this provision is to insure that members of Congress and their staffs and their families will obtain their insurance just like everyone else so that they will fully experience how healthcare reform actually works in practice.
But just a month ago the Administration personnel team issued a regulation exempting all Members and aides from the requirement to use the exchanges.  A recent poll taken by Independent Women’s Voice shows that 92% of likely voters, regardless of their views of the ACA, think that this exemption is unfair.
The implication is clear.  Republicans should show their dissatisfaction with the ACA by attaching the repeal of this exemption, which is contrary to law, as well as highly unpopular, to the continuing resolution to fund the government for the next fiscal year.  Let the Democratic Senate defend this exemption if it wants too.  It’s an opportunity for the House Republicans to do the right thing and also to stand with the “little guy” against the Washington elite.