Thursday, January 21, 2010

Who's To Blame?--The Sequel

The little fire-storm set off by my post of a couple of days ago on TPM Cafe produced a great many angry rebuttals, some of them curiously personal; but most were written with seriousness and, like my post, occasion diagnosis, not catharsis. They deserve a response. For starters, some cruel facts of life.

One
. The US Senate, as Rick Hertzberg tirelessly reminds us, currently puts an effective veto in the hands of 41 elected officials representing perhaps a sixth of the population.

Two
. The top 10% of the population own about 80% to 90% of stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate; the top 1% about 42% of financial wealth, that is, money for new investment. Quite apart from their direct influence over legislators who believe in the amazing grace of the invisible hand, their attitudes toward the economy more generally are a big part of what macro-economists mean by "confidence."

Three. The private sector is about 10 times bigger than the public, so that getting the economy "moving" in a crisis like the one we just experienced means, if you have digested One, first reassuring and inspiring this 10% of the population, regardless of how fairly a subset of them made their money in the first place.

Four. The approximately 40% of people with higher education map more or less perfectly onto the 40% at the top of the wealth distribution. In a knowledge economy, haves and have-nots map roughly to knows and know-nots. The gap will only widen in the years ahead. This means phrases like "taking on the elites" can mean anything from making taxation progressive to teaching Creationism; making heroes of Michael Moore or of Sarah Palin.

Five
. On the whole, the people feeling the most financial stress also tend to be people who are least educated, most "religious," most isolationist, most flagwaving, most NRAish, most cable newsish--you get the idea. This is not to demean or caricature anyone; I live in New Hampshire part of the year and have friends who voted McCain. But to unleash their anger against the "elites" and hope for Sweden is to ignore much of what made the fascism of the 20th. century so memorable.

Six
. Changing One through Five means working for a generation to change political structures, commercial standards, a strong social safety net, and educational infrastructure. But change requires growth, or budgets get busted, inflation takes over, and private sector investors go back into a panic.

NOW TO HEALTH care, the Massachusetts vote, and so forth. The draft reform that took shape since last May, like the law currently working (and covering my son, his wife, and their daughter) in, of all places, Massachusetts, would cover virtually everybody. It would force insurers, HMOs, community coops, etc., to compete on service, not on cherry picking. And it would do so by regulating the industry and subsidizing the poor, gaining revenue for extending coverage by raising about $200 billion in progressive taxation of various kinds. This is what we stand to lose, and it is not a little thing. How did we get here?

Some say blame the White House. Perhaps the most trenchant argument along these lines comes from my old friend Bob Kuttner; you can read his analysis here. Basically, Bob says that the bill itself is manifestly not what it could be because it accommodates Blue Dogs, who in turn were accommodating insurers and big pharma, all the while insisting that this was not a "government-run" plan--that is, the White House plan was not only inadequate, but its defenders seemed to be attacking government action while asking all to depend on it.

Bob is not against the plan, since there was never any question that most of health insurance would remain private and employer-based. But the politics of the plan's framing was wrong, he insists. And it had to be. Because the White House's critical mistake was dealing with health care before the economy turned around. Presumably, so long as there is high unemployment, health care must seem a secondary matter. Besides, the administration had been meanwhile been "playing inside games with bankers." Ordinary people were bound to smell a rat.

Obama, besides, made the mistake of letting the legislative branch write the bill, where lobbyists would load it up. And by mandating insurance, or prospectively using savings from Medicare to help pay for the uninsured, he also scared people already with insurance by proposing graduated taxes and union members who were doing quite well, thank-you.

MUCH OF WHAT Bob says is reasonable, but I disagree with its thrust. It alleges that, at bottom, by the time health care became front and center, Obama was already so associated with Wall Street--you know, the Geithner and Summers crowd, the "elites" who screwed the "people"--that he didn't have the political capital to get the Blue Dogs in line.

Okay, there is some question about whether Obama was right to let the Congress write the bill, although intuitively it still seemed a good idea to have let the leadership that had to corral the votes "own it"; once the bill got to Congress, the lobbyists would be activated in any case. And there was something to be said for waiting until unemployment numbers looked better before trying any social policy, though I'm not sure that would have satisfied Obama's "base."

But the rest of this case against Obama makes no sense--and never did. If the key to the politics of health care was that Obama had to come into the debate about it without having become the target of a populist insurrection against Wall Street and "government give aways," well, how did that insurrection get fueled? What he did to save the economy inevitably meant first, bailing out the banking system, and reassuring people who were rich.

More important, the people who publicly and relentlessly tarred the Obama administration with Wall Street associations were not Republicans--how could they be?--but "progressives." First it was the size of the stimulus, which should have been--what?--20% bigger? Then it was the treatment of the big banks which, for anyone who studied the 1930s--so the argument went--were all bankrupt, because recovery would be a 2-3 year slog--as if we still communicated by short-wave, telegraph, and surface mail. Geithner--so the argument continued--invited investment funds to profit from acquiring toxic assets, or let bankers overpay themselves too much. All of which made Obama seem responsible, or at least cavalier about, AIG's bonuses, and so on.

But the progressives' alternative was some form of bank nationalization, a step that certainly doesn't look so wise in retrospect and was arguable even then. By the beginning of April, the most powerful public criticisms of Obama were coming from, of all people, Nobel lauriate Paul Krugman--the "loyal opposition" to the White House, Newsweek told us, though loyalty was obviously particularly strained when Larry Summers was the target. Who, if not Robert Rubin's boys, were responsible for the regulatory problems in the first place?

LET ME BE clear. I am not saying progressives like Krugman wield great power in the halls of Congress, or that the people who joined the "tea party" movement were reading The New York Times, or TPM, for that matter. I am saying that progressives were able to seriously discredit the administration as no Republicans could, especially on television, where their skepticism was ramified by cable news anchors and ditzes, who were watched by you-know-who; skepticism implying that Obama and all those smarty-pants intellectuals, who looked so much like smarty-pants investment bankers anyway, were not on the side of the "common man"; that government was becoming a give way to big shots. As I said a couple of days ago, the story was that Obama's own people had turned on him for being against the people.

This was catnip to the right. Obama came into office with an economy on the verge of a meltdown. He stopped the chain reaction, and by the summer had a little power back up. In stopping the decline in the stock market, say, he of course allowed wealthy people with stock, pensioners, etc., to breathe easier before the unemployed could. He did not immediately stop job losses, or create enough new jobs; more public sector stimulus might be best, though nobody has ever proven Obama could have gotten more through the Senate last winter.

But Obama did restore a climate for future investment, which meant less panic, fewer mortgages going "under water," hence, less toxicity in bank assets. Jobs, "consumer confidence," and so forth, always lag these achievements. And, yes, by saving the banking system he had to save bankers, too, alas. Did the people on his left have his back?

ALL OF WHICH brings us to health care itself. Since early last spring, clearly, the White House knew they did not have the Senate votes for anything like single-payer or enlarging a Medicare-like government agency, irrespective of its merits. "Democracy" is not always winner takes all. Sometimes its is loser foils a great deal. The idea that Obama could have changed this Senate reality (got something closer to single-payer) with "political capital," presumably cowing Blue Dog Democrats from Montana and Nebraska, or the Senator from Aetna who supported McCain, is, shall we say, not persuasive.

But the merits of a Medicare-like plan were not so obvious in any case. Obama saw his main chance was to begin turning the economy around, and make health care reform a part of movement toward a knowledge-based economy, along with the educational and green investments contained in the stimulus; to get the best deal he could from the senators he needed for the last mile. That's why he signaled early on that he'd be open to creative ways to provide a "public option"--a market force to compete with private insurers--such as non-profit cooperatives.

Moreover, there were reasons to like that idea irrespective of whether one could get a big Medicare-like plan through the little funnel called the Senate, which one could not: reasons that are not about being a gutless and bought "centrist," but about trying to apply the lessons of the information revolution to medical provision, drug development and claims processing. (As in every other industry, the new information platforms tend to increase the power of individual enterprises, and syndicates of small enterprises, in ways only big corporations and big bureaucracies could have enjoyed a generation ago; it also makes therapies more genetically personal and expensive. As Atul Gawande wrote when the health care process was launched, counter-intuitively, small scale non-profit providers could be the best way to increase quality and reduce costs; the key to reform was first to get virtually everyone covered.)

Progressives, for their part, insisted again and again that the Obama plan would not control costs--more catnip, given that the only card Republicans had left was "deficits." But the alternative proposed was dubious on this score, too, since, as Arnold Relman, Gawande, and others have shown, Medicare-style plans were as guilty as private insurers for the fee-for-service medicine that balloons costs.

No, no, was the refrain on the left, cost control depended mainly on the "buying power" of a big government agency. This was a give away to the insurance companies. As if Walmart does not bid down suppliers. As if syndicates of buyers cannot now form as easily on the web as Facebook groups. As if giving people interest free university loans is nothing but a give away to book publishers and private universities. As if costs are not going to be brought down, if at all (given the high cost of the science that extends life), by systems that reward outcomes, digital medical records and legally mandated standards for claims processing, hospitals that specialize in particular problems and surgeries--in all, a medical industry fit for a knowledge economy.

THE BOTTOM LINE is this. Some Democrats--"progressives" seems the wrong moniker, since how many recognize the commercial and technological progress all around them?--worked inadvertently, but conspicuously, to discredit the Obama administration all spring, when it did the dirty work of saving all of our bacon. They helped fuel the "populist backlash" against Obama last summer. More recently, they opposed taxing the plans of unions as if they were defending "the proletariat." When people asked, not what is the right thing for the commonwealth, but what's in it for them, the left made this seem only natural. Then--as the wave of criticism mounted against Obama, and elections fell to Republicans--they accused him of political incompetence, faulting him for his effort at "bipartisanship," insisting that he should "fought for us."

Well, what about us fighting for him? He can't just frame things in terms of "democracy" vs. "elites." He is the president, one-third of the government, but commander-in-chief and cultural-icon-in-chief. Elites matter to a democracy more than ever. He orders people of all political views into battle. He is trying to help young benighted kids in lousy schools and a coarse, violent culture learn civility. The people who should have been reminding America incessantly where the mess came from, and the difficult work of fixing things, are us.