De-Funding Obamacare

It is odd that even after a bill becomes a law, it can be defunded, thereby effectively killing it even though it has not been voted down.  One would think that it would be required to pass the funding that is required by the law. The Republican Party has strategized on how to deconstruct Obama’s health-insurance law through various means.

Republicans could turn to the annual appropriations and budget process or push stand-alone bills to delay or stop funding for provisions of the law they dislike, including the individual mandate, the health insurance exchanges and the Medicaid expansion. They might also work to weaken provisions in the bill that deal with Medicare physician reporting requirements that some physicians find onerous and block the creation of a nonprofit research institute to examine the effectiveness of various medical treatments. Mandatory funding, which comprises much of the health measure that began in 2014, will continue unless Republicans can change current law. Discretionary funding must be approved each year but differences between House and Senate versions of appropriations measures must be ironed out and that generally produces a compromise package. Why all of the law’s funding would not be mandatory as part of the law defies logic and government functioning. Also, how the mandatory funding could comprise much of the law when the individual mandate, the exchanges, and the medicaid expansion can be defunded, is also beyond me.

A major problem with the defunding strategy is that since so much of the bill is inter-related, trying to dismantle it piecemeal could lead to unintended consequences. While the individual mandate is unpopular, “you can’t pull it out of the law without all sorts of other elements falling apart,” Reischauer says. And scrapping the mandate, which requires most people to have coverage or pay a penalty, would anger health insurers — a core GOP constituency. Insurers have agreed to abide by new consumer protections, such as not denying coverage based on a pre-existing medical condition, in exchange for 32 million new customers. Hospitals agreed to payment cuts on the premise that more people would have health care and hospitals would have less uncompensated care. In other words, because the health insurance industry got basically what it wanted—the mandate without a public option—it would be highly unlikely that certain parts of the law would be defunded unless it were in the interest of the health insurance companies.  Therefore, the mandate is not apt to be defunded unless the rest of the law is to go down too.

I contend that law should not be allowed to be defunded. That is, upon passage, the law should have its required funding established as a matter of law.  Secondly, I contend that private companies with a vested interest in a law should not be allowed to have such power that they can tailor the law to their liking. Extant industries have too much power in the US Government.  As a reflection of this condition, we over-rely on private companies and the market—ignoring their downsides. Where basic necessities such as access to basic health-care is concerned, our over-reliance can be fatal.

Source: http://www.msnbc.msn.com/id/39295110/ns/health-health_care/

A Bit of Federalism in ObamaCare

Senator Ron Wyden has written to government officials of Oregon to encourage them to “come up with innovative solutions that the Federal government has never had the flexibility or will to implement.” This is significant because he is a democrat. As long as a state covers the same number of uninsured and keeps coverage as comprehensive, the following can be waived:

1. the individual mandate to purchase insurance (i.e., what Virginia and Florida are suing over)

2. regulations about business taxes

3. federal standards for minimum benefits

4. allocation of subsidies in the insurance “exchanges.”

These are called section 1332 waivors. There is also some flexibility on medicaid--but how much flexibility do these waivors proffer? The states might be able to determine how the uninsured are to be insured. For instance, they could go single-payer. Or could they?The federal allocation of subsidies in the insurance “exchanges” can be waived, but can the “exchanges”?

There is a trade-off involved in federal standards and state waivors. If the federal standard is too high (e.g., the number of uninsured covered and the amount of minimum coverage), then not much freedom is involved in the waivors because the standards must be met regardless. Given the diversity within the Union and our system of federalism, the US Government should have been oriented to coming up with minimum standards for health-care rather than trying to make it a federal responsibility. By minimum, I mean that below which is unacceptable for a state in this union. For instance, it could be that universal health-care is a minimum if health care is to be considered an American right. The states, rather than the general government, would then be required to pass laws to implement the minimum standard in any way they preferred. They could determine the means, whether single-payer or exchanges. I’m not sure that the existing waivors, which do not begin until 2017, allow for such flexibility as would accommodate the various political ideologies of our states. Once power is grasped, it is very difficult indeed to let go of some of it.

Source: Wyden Defects on ObamaCare, WSJ, September 3, 2010, p. A16.

Making Too Big To Fail Costlier: A Check on Empire-Building

Testifying before the Financial Crisis Inquiry Commission on September 2, 2010, Ben Bernanke, chairman of the Federal Reserve, observed, “As of 2003 and 2004, there really was quite a bit of disagreement among economists about whether there was a bubble, how big it was, whether it was a local or a national bubble. We certainly were aware it was a risk factor, but frankly by the time it was clear it was a bubble” it was too late to address it through monetary policy. The New York Times also reported that he spoke favorably of forcing huge banks to hold much more capital, particularly if they were systemically important — so much capital, indeed, that being big would be costly. He advocated that the increased capital requirements should include capital that is more aligned with risk and able to absorb losses more effectively, and that works in a countercyclical manner, so that banks have more of it during times of stress.
Given the difficulty involved in recognizing a bubble even as it crests, Bernanke’s statements on capital-holding changes make sense. Absent breaking up banks too big to fail, making it very costly for them to be big is the next best option. The regulators would be wise to be on the look out, however, for bankers who try to hide their banks’ true sizes (and risk). Given the empire-building proclivity in the business world, designing a system that makes bigness more costly could result in an overall balance of forces. The key is to make being big sufficiently costly that the drive to empire-build is sufficiently checked in the banks.

Source: http://www.nytimes.com/2010/09/03/business/03commission.html?_r=1&ref=business

Catalania as a State in the E.U.

When Catalania held a referendum on whether to break off from the E.U. state of Spain, the E.U.’s basic law was silent on whether a state’s region would be a new state. The Prodi Doctrine, however, states that a region seceding from a state is automatically no longer part of the European Union. Such a region would have to apply for statehood as if it had been outside of the Union. I submit that such a stance is problematic.

Firstly, “using the euro as a Catalan currency could prove problematic.”[1] Disentangling the region more generally from the Union economically would face formidable challenges. The free movement of workers, for instance, would no longer be possible.

Secondly, to become a state, Catalania would face the unfair hurdle of needing the ok of every extant state, meaning that formerly Spanish region would need the permission of the Spanish government. The latter would likely exploit the conflict of interest that would be involved. Generally speaking, a party to a secession dispute should not be able to veto statehood for a former region of the state. Considering how many states were in the E.U. at the time of Catalania’s referendum on Catexit, the federal requirement that every extant state approve any proposed statehood is problematic. More generally, giving every state a veto even on a matter of basic (i.e., constitutional law) hampers the interests of the federal level of governance. I submit, therefore, that a two-thirds majority is a more viable (and fairer) requirement for the role of the states in cases of proposed states. Spain and other states friendly to the state would not so easily exclude Catalan out of resentment or political vengeance at the expense of the E.U.

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[i] Damian Grammaticas, “Could the EU Throw Out an Independent Catalonia?” BBC.com, October 9, 2017.

On conflicts of interest in government (and business), see: Institutional Conflicts of Interest.

Amtrak: Avoiding the Obvious

According to The New York Times, Amtrak’s management “knew for years that they would have to replace large sections of deteriorating track in Pennsylvania Station in New York City.”[1] The management instead had engineering crews apply “short-term fixes to rows of rotted ties, crumbling concrete and eroded steel.”[2] Incredulously, the management was putting off replacing the tracks in part “to give work time to a nearby passenger hall renovation.”[3] Additionally, the management sought to minimize taking tracks out of service even on weekends so as not to disrupt service. In 2017, three accidents at the station finally got the management to commit to undertake an emergency repair program that “cut back service through the summer for thousands of passengers daily.”[4] Even by the objective of minimizing impaired service, prioritizing a hall renovation and putting off needed track repairs are problematic. The deeper problem is that of seriously misjudging utility.

The utility gained by passengers from a renovated hall is rather superficial, whereas the disutility from derailments at a station could result in passengers deciding to no longer travel by train. Put differently, limited service disruptions on weekends pale in comparison to having trains derail coming into, or leaving a station. Even if the latter are mistakenly deemed low-probability/high impact events, the business calculus that favors short-term fixes over long-term stability is problematic.

I suspect that Amtrak’s management had a hypersensitivity to passengers’ sense of utility because of basic impairments in the routine conduct of the trains. The route between Pittsburgh and Philadelphia, for instance, has been severely impacted as Amtrak trains must wait for other trains to pass because of track ownership. The prioritizing of freight over passenger trains is itself problematic, so the ownership of the tracks that Amtrak uses is as well. Barring outright ownership of the tracks, Amtrak should insist on contracts giving priority to the passenger trains.

I suspect that Amtrak’s management (including on the train level) has looked too tolerantly on delays. Traveling between California and Arizona on an overnight train, I was surprised (and dismayed) to learn that the train stopped somewhere in the desert because a man had been smoking marijuana in a bathroom. The conductor could have waited until the next station stop. A car’s designated employee even woke up all of the passengers in that car by shouting at the man in spite of the fact that he was no longer smoking. I was also surprised when an employee on the train arrogantly informed me that wifi is only for those passengers who had purchased sleepers. That customer service, and thus utility, can be so misjudged is itself a red flag on Amtrak’s management.

Besides having to put up with delays between station-stops and bad on-board service, having too many such stops on a given route can also be distressing to passengers. Why not have express trains run between San Francisco and L.A., for example, two or three days a week? Also, passengers have often had to accept traveling at slow speeds. To be sure, the local laws and bad track conditions go beyond the company’s control. Even so, that the company’s management decided to market its Acela train running between Boston and New York City as “high speed” nonetheless set up passengers to be less than satisfied. I think only twenty minutes were cut by the “high speed” train between the two cities.

In short, the utility of the product in this case may itself be so bad that the company’s management became distorted on just what constitutes real passenger utility. The management’s attention has not been on core matters, whether they be track replacements or the very functioning of the trains on the tracks. The lesson for all companies is that attention should be primarily on the basic quality of the products or services themselves.

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[1] Michael LaForgia, “Delaying Repairs on Decrepit Tracks,” The New York Times, October 9, 2017.

[2] Ibid.

[3] Ibid.

[4] Ibid.

Spain’s Government: Measuring the Will of the People

“’No government in the world’ could tolerate the threatening of its unity,” said Mariano Rajoy, the prime minister of the E.U. state of Spain after a week of protests pro and con on whether the region of Catalonia should secede from the state.[1] On October 1, 2017, the region had held a referendum on the question in spite of the efforts of the state police to stop the vote. Ninety percent of the 40% of the region’s residents voted in favor of breaking off from Spain, but the active presence of the police means that the results could not be taken as an accurate reading of what the population of Catalan wanted.

I contend that the state government should have permitted the referendum because democracy itself depends on a people’s self-determination. In intimidating the vote, the state government inhibited a result that could be taken as the people’s will. The respective sizes of the political protests could not be taken as indicative; neither could pronouncements by Catalan or state officials either way. Sergi Miquel, a Catalan lawmaker, insisted that the turnout would have been much higher had the police not acted violently against potential and actual voters, but we cannot surmise how that turnout would have voted. He had an interest in portraying the averted turnout as pro-secession, while the state’s prime minister had an interest in portraying the Catalan people as pro-Spain. Only a fair and open referendum could have revealed what the region’s people wanted, and democracy itself prizes the will of the people even above a government’s political and territorial interests.

That Spain is an E.U. state mitigated what was on the line (i.e., the significance of secession), assuming that Catalan would be a state too. Generally speaking, being part of the same federal system would mean that Catalan and Spain would be part of the same political system and thus have some laws and regulations in common. One of the prime benefits of federalism is that such commonality coexists with differences that reflect different cultures and self-identifications of peoples. People in Texas are both Texans and Americans. So too, Catalan people would be both Catalans and Europeans; Spaniards are of course Europeans as well. In other words, both Catalans and Spaniards would be E.U. citizens even if the region were to secede and become an E.U. state, and this track would mitigate the significance of secession. It follows that the state’s drastic efforts to violently curtail the referendum can be seen as excessive, as well as being at the expense of democracy. It may be that government officials generally are inclined to lose perspective and resort to force because they can. I submit that force in a democracy should be a last resort, especially when the use interferes with taking the measure of the will of the people.

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[1] Patrick Kingsley and Jason Horowitz, “Amid Catalan Crisis, Thousands Hold Rallies in Madrid and Barcelona,” The New York Times, October 7, 2017.

See also: Essays on the E.U. Political Economy

Dubai Bankers and Responsibility: A Question of Presumed Complicity

Reacting to the debt troubles of Dubai World (which was carrying $59 billion in debt in 2009), the director general of the Dubai Department of Finance, Abdulrahman al-Saleh, said  “Creditors need to take part of the responsibility for their decision to lend to the companies. They think Dubai World is part of the government, which is not correct.”  This sentence strikes me as odd.  Al-Saleh was suggesting that in deciding to make a loan to a company, a banker takes a risk, which entails the possibility of working with the company if it comes up short in cash.  Is such flexibility in the vocabulary of the typical loan officer, much less in the culture of major banks?  I doubt it.

On the same week that Dubai World’s problems were being made public, the Obama administration announced plans to pressure mortgage companies to reduce payments for many more troubled homeowners, as evidence was mounting that a $75 billion government-financed effort to stem foreclosures was foundering.  "The banks are not doing a good enough job,” Michael S. Barr, Treasury’s assistant secretary for financial institutions, said in an interview. “Some of the firms ought to be embarrassed, and they will be.”  Even as lenders had accelerated the pace at which they were reducing mortgage payments for borrowers, a vast majority of loans modified through the program remained in a trial stage lasting up to five months, and only a tiny fraction had been made permanent. Mr. Barr said that the government would try to use shame as a corrective, publicly naming those institutions that move too slowly to permanently lower mortgage payments.  However, shaming is not the only weapon in the government’s arsenal. 

The Treasury Department waited until reductions were permanent before paying cash incentives that it had promised to mortgage companies that lowered loan payments. “They’re not getting a penny from the federal government until they move forward,” Mr. Barr said.  A week after Barr’s statement, the Treasury Department said it would withhold payments from mortgage companies that weren't doing enough to make the changes permanent. ”We now must refocus our efforts on the conversion phase to ensure that borrowers and servicers know what their responsibilities are in converting trial modifications to permanent ones,” Phyllis Caldwell, who was named to lead the Treasury Department’s homeownership preservation office, said in a statement.  So here we find that dreaded word—responsibility—as if it applied to the mortgage issuers as well as the homeowners.  Considering Senator Dick Durbin’s statement that the banking industry owns Congress (which he said after the industry’s lobby effectively scuttled a bill to allow judges to adjust mortgage terms for homeowners in trouble—even as the banks played a role in the bad mortgages), it is not surprising that even two years later, little benefit had come to mortgage borrowers from the U.S. Government, even as the banks had been rescued by TARP funds.

The banking industry has been more powerful, even though it was at least partially complicit in the crisis. Of course, Wall Street bankers have instinctively resisted claims that they were part of the problem that led to the financial crisis in September of 2008. Al-Saleh’s admonition to lenders that the bankers in his country step up to the plate was ignored in favor of the mantra, “it's the other guy’s fault so why should I pay?  I'm not budging.”  This is the mentality of a spoiled child.  The rest of us don’t see it as such when it applies to people in expensive suits because we are too impressed with the trappings of money and power.  As long as bankers get away with making their own rules in the halls of governments, the power ties will remain as though undisciplined children.

Sources: http://www.nytimes.com/2009/11/30/business/global/30dubai.html?ref=world ; http://www.nytimes.com/2009/11/29/business/economy/29modify.html?scp=1&sq=pressure%20mortgage%20companies&st=Search ; http://www.msnbc.msn.com/id/34204856/ns/business-real_estate/