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This will be a seven-part series about budgetary restrictions Obama will face, especially with respect to his health care proposal, addressing both policy and politics angles, dropping some ideas and trying to make some reasonable recommendations. As always, pet photos and the poll.

I dedicate this series to Andrea and her partner, who deserve a chance to something people who deserve it rarely achieve: Happiness.

"We shall welcome to a participation of all our rights and privileges, if by decency and propriety of conduct they appear to merit the enjoyment"
George Washington. Quoted by John F. Kennedy in ‘A Nation of Immigrants,’ 1963

"The use of a national origins system is without basis in either logic or reason. It neither satisfies a national need nor accomplishes an international purpose. In an age of interdependence among nations such a system is an anachronism, for it discriminates among applicants for admission into the United States on the basis of accident of birth."
John F. Kennedy in ‘A Nation of Immigrants,’ 1963

"There are the folks who pay the price of affirmative action when their sons and daughters are pushed aside to make room for the Sonia Sotomayors."
Rep/ Todd Tiahrt (R, Kansas), 2009

The art of snatching defeat out of victory

0. A last note on immigration, NumbersUSA and affirmative action before getting into the subject of this entry

Sometimes I have found people letting them be tempted by the mermaid singing of xenophobic groups like NumbersUSA. To sell discrimination against Third World skilled immigrants, they have used the ludicrous idea that if we let Third World immigrants come to America, Third World countries would never have the human capital to develop. This idea is deeply immoral as it implies making of Third World immigrants a kind of subhuman entities because while we are people, free to pursue our happiness and to move freely around the world, those immigrants would be pretty much appendixes of their countries whose lives should be perpetually plugged to their place of birth, as if they peasants of the Middle Ages. This idea is also deeply dishonest because it would require making of scientists, doctors, economists and engineers not skillful but extraordinary politicians because they would have to deal with the ultraconservative societies, submerged in widespread political illiteracy, that have excluded them in the first place. This idea is also deeply dishonest because rejecting these immigrants for the reasons invoked by NumbersUSA would require providing them with properly funded projects so they could have a chance to transform the societies of their birth. The same way as many conservatives swallow the ideas of the Right that tax cuts are moral because it puts money back on those who have earn it, some at the left them NumbersUSA to seduce them with the idea that if those brown immigrants magically disappear, suddenly the American dream will come back to them without further hard work to change America.

The idea I wanted to add on this end of the debate is, especially for those who do not see anything unfair or racist on the whoppers delivered by NumbersUSA, is this: If you consider that NumbersUSA is right and that is moral to discriminate in favor of the native born and First World skilled immigrants because forcing them to stay in their places of birth is necessary to develop those places, then you should also agree with the idea of forcing South Dakota or those born in states with little opportunities to stay there, banning them from moving to other states because otherwise those states would never have the human resources to develop. Likewise, following the same criterion, we should have forced skilled residents from the areas of Louisiana affected by Katrina to stay in the devastated areas because otherwise those areas would always lack the human resources to develop. No funding, no support would be necessary to develop those areas; only forcing these people to stay there. Likewise, following the same criterion, to develop inner cities we should force skilled children to stay there, even erecting walls to be sure that they won’t affect the development of their communities by escaping, and, as affirmative action could put this goal in danger, we should penalize the families of those recipients of affirmative action help if they escape of the projects. This way no reforming inner city schools would be necessary, any community development spending could be saved to the taxpayer. If we can determine a person’s fate using his place of birth, why not using also his family of origin? Relatives of skilled citizens born in depressed areas could be legitimately used to force them to stay in those communities.

The only difference between one stupid derivation of prejudice and the other is that in the NumbersUSA-sponsored discrimination we deal with external migration and in the cases I use to make evident the absurdity and immorality of such position we deal with internal migration.

Recently Senator DeMint said that health care reform could be Obama’s Waterloo. This is the first time I find myself agreeing with DeMint. The most important challenge of the Obama administration is still the economy but not only the damage inherited from the Bush administration was too big to expect a quick recovery but also Obama made the mistake of releasing overoptimistic expectations about GDP and unemployment rates. Worse, having limited budgetary options, Obama was not bold enough in his approach to problematic financial institutions, as he was not bold enough to repeal Bush’s tax cuts for people making more than $250,000 (completely irrelevant to reverse the negative expectation at the base of the current recession), letting those financial institutions take him hostage, what has prolonged the uncertainty linked to toxic assets that are still in the balance sheet of these institutions. On the other hand, the necessary overhaul of the economy could not seriously ignore the energy, competitiveness (infrastructure and education) and entitlement related challenges ahead. Thus, the midterm elections have turned into the best Republican hope to derail Obama’s plan making look the not-provided overoptimistic short-term projections as evidence of Obama’s failure in order to regain the filibuster power in the Senate. As I have said in previous entries, with a radicalized Republican representation and the involution resulting from McCain running with the far right agenda (so giving the far right the chance not only to get rid of him but also to endorse him the disastrous legacy of the Bush administration), filibuster power could represent a Gingrich-style way to abort Obama’s agenda before it has a reasonable chance to provide results, what could reasonably happen in the next general elections. This is the reason way I stated that pursuing bipartisanship in the short term was, at best, infantile, because Republicans would hope Obama’s political capital gets wasted in half-baked reforms and Obama’s agenda doesn’t get a chance of being debated until Obama’s popularity and numbers in the Senate vanish. While Democrats have been busy making cool and funny versions of the ‘Survivor’ ad, Republicans have dishonestly demanding premature results from Obama on employment, eroding his popularity in a significant way. This is as bizarre as Sideshow Bob campaigning against Major Quimby on the issue of unsafe prisons that make possible putting back on the streets dangerous criminals like Sideshow Bob. The question is what is the Democratic party doing to generate rational expectations of accountability and recovery among the American public?

On the other hand, reaching 60 seats in the Senate push Senators like Nelson against the wall because the poor excuse of bipartisanship cannot be used anymore as a necessary way of avoiding a Republican filibuster. If Obama pushes hard for his agenda, this could put them in the difficult position of having to choose between yielding to Obama or filibustering against his own party just before the mid-term elections. Thus, the 60 seats in the Senate play more to pressure Democratic Senators than Republicans.

Considering all of the above, Obama does need health care reform before the mid-term elections in order to count with enough support from the voters in order for them can see the first results of the Obama agenda before the next general elections. Even though health care reform can provide faster results than other reforms, nobody misses what has had no chance to experience. Beyond the political conjuncture, health care reform needs time to flourish so later Republicans don’t come with horror tales trying to amend (destroy) what already works well.  Health care reform now is the line of defense Obama needs to gain time for the rest of his agenda. Of course, the repealing of Don’t Ask, Don’t Tell and immigration reform doesn’t have to cost money if seriously made. Delaying this kind of reforms could not be justified on budgetary restrictions. In a previous entry I have addressed the benefits in terms of both policy and politics of reaching immigration reform and not just a poor band-aid amnesty (http://www.dailykos.com/...). Restructuring the CIA to clean it from the influence of Dick Cheney should not require significant new spending and would liberate Obama’s counterinsurgency strategy not only from the militaristic short-term vision inherited from the Bush administration but also from elements that contradict Obama’s speech of Cairo, like hiding the detainee-abuse photographs of whose existence everybody, Muslims included, already know. Finance campaign reform, a crucial one, as I have stated in my notes to Molly Ivins’s book of my previous entry, is not even being mentioned. On the other hand, financial sustainability is a serious challenge that cannot be ignored, otherwise reforms like health care will not live long enough for people getting as used to them as they are already used to Medicare.

This entry is about the conciliation between reforms like health care and the budgetary restrictions the Obama agenda has to  meet not only but especially in the short term. I will begin addressing problems affecting Obama’s economic options and I will finish addressing health care reform in this context. As I am not an expert on health care reform, my approach will come from other kind of experiences and should be seen with this warning in consideration.

Before entering in the main topic of this entry, I want to share with you my comments to two articles of Irvin Stelzer, the best columnist of The Examiner. I consider him the best columnist of that newspaper not because I agree with him –actually, I disagree with him most of the time-, but because he offers arguments with which I can disagree, something I cannot say of clowns like Jay Ambrose or Gregory Kane.

I. Disagreeing with Irvin Stelzer
Somehow my answer to an article by Irwin Stelzer published by The Examiner (http://www.washingtonexaminer.com/...) was not posted in that newspaper’s Web page. This is why I post it here:

"Irwin Stelzer is by far The Examiner’s best columnist. I say this not because I normally agree with him but because he always brings arguments with which I can disagree. Nevertheless, his last article is inaccurate in many ends:

  1. In the short term the approach to energy independence may have to be more comprehensive than many environmentalists would wish but I wonder if Stelzer, when saying "Never mind that we are fortunate to live in a country in which inexpensive energy has produced the world’s most productive agriculture, a population capable of navigating America’s huge spaces in air-conditioned comfort" is taking into account the wars in which our dependence on foreign oil has involved us.
  1. The card check does not eliminate the secret ballot. It lets workers decide between secret ballots and cards.
  1. The public option does not involve a "takeover of the health care sector" unless there are subsidies. On the other hand, we spend much more than other industrialized countries and get very poor results in the rankings prepared by the World Health Organization. The private sector has to earn its place providing a better cost-benefit mix than the public sector could do. Private enterprise is not a principle per se, whatever the cost.
  1. The CBO estimated the incomplete version of the Kennedy-Dodd bill on health care on $1 trillion. $1.6 trillion was a maximum estimation. Nevertheless, in a more complete version of the bill that includes the public option for insurance and a pay or play principle for employers, the costs drop to under $700 billion, what can be covered by the savings and additional incomes proposed by Obama even in the 10-year period used by the CBO.
  1. You write about the "tax on employer-sponsored health care benefits that now seem to be the only way to pay for the president’s health care plan" but the Congressional proposal is not to eliminate but to cap the exempt part of health care fringe benefits. Actually, Obama’s proposal is to cup itemized deductions instead.
  1. You say "They are instead committed to continue spilling red ink on the government books long after the recovery takes hold. This is an unsubstantiated statement as the current trends of health care costs is unsustainable, Obama’s plan is an overhaul to reduce future outflows in this sector and the Obama agenda for this first term is centered in energy policy reform, health care reform, and recovery/regulation of the economy, what seems to be covered by what has been already released. Obama could have overestimated the velocity of the recovery and should have taken bolder actions on the financial system from the beginning and that will have a cost but that is very far from being a commitment "to continue spilling red ink on the government books."

II. The problem of not being bold enough and of being overoptimistic

1. My position in previous entries

As I try to be consistent with previous opinions, I will have to quote some of my previous entries:

In October 2008 (http://www.dailykos.com/...) I ridiculed Jay Ambrose’s attempt of economic analysis making him notice that a crowding out effect (the negative effect of government spending on the private sector through taxes and interest rates) was irrelevant at the moment, even though theoretically it could not escape budgetary realities. I also notices that a soft-landing (not a quick rebound) was the reality ahead and that health care, energy and competitiveness represented financial challenges that could have made anything but serious the necessary planning (budgeting) to face the consequences of Bush’s economic legacy. Ignoring these problems and then looking surprised when they came to know the door was the irresponsible band-aid approach proposed by the Republican party that fortunately was counterpunched by Obama in the debates:

"Jay Ambrose’s weekly involuntary parody of analysis "Obama’s proposals collide with reality" (with the subtitle "Just my opinion". Yes, Jay. Everybody can have one) [A canvasser could find somebody sharing these opinions. You never know]:

  1. Ambrose decries that Obama do not share McCain position on "federal spending freeze". Jay, in a depression you need to be very flexible and so you need liquidity. Maybe you are thinking in the conservative mantra of the crowding out but we are talking about a depression. Just on the opposite side. You need liquidity to help the economy, and especially the most vulnerable sectors of the population, to absorb the adjustment of the economy through a soft landing instead of a traumatic slump.
  1. You say Obama has to face "budget realities". I agree, the budget realities resulting from the Bush administration have destroyed all the achievements of the Clinton years. But then you attack Obama for promising to try to not affect investments in health care, education and infrastructure. Yes, Jay, despite the way these items are counted in the GDP, they are really investments. You could ask any economist; real economist, I mean. We need to detract expenses from current expenses and increase savings. Infrastructure, education and even health care are widely considered, in economic terms, investment. I agree that Obama could not reach the total amount of his promises because your buddy Gingrich can still wound the economy beyond any present estimation."

In November 1 (http://www.dailykos.com/...), I went against The Examiner editorial to defend the way Obama has structured by recovery package, distributing it along a reasonable period of time and on investments that could reduce any derailing pressure on prices in the short term. That is why I was afraid but hoped for the best when later Obama announced overoptimistic projections for the economy that were not credible for the kind of crisis Obama would be facing next year:

"4. A very important part of the $800 billion new spending and the $300 billion stimulus package you decry in your editorial of October 24 is for overhauling infrastructure. The American Society of Civil Engineers (in its recently published report "The infrastructure crisis") estimates in $1.6 trillion the needs to overhaul and maintain our infrastructure. The urgency of this inversion is not limited to the painful memories of the New Orleans levies or the Minneapolis’s bridge but is at the roots of keeping our competitiveness with the rest of the world. Even Cato admits that an important amount of public investment is needed on this field.

  1. Another important part of Obama’s spending is investment in education, urgently needed to close the growing gaps with other developed countries. China and India, aware of this, have not mind in making heavy investments on education to close their gaps with us. We need to invest heavily in science and education.
  1. As we cannot seriously estimate the dimensions of Bush’s economic legacy, which McCain said to have supported in at least 90%, we need to set priorities. While McCain was unable to set them in the second debate, Obama wisely put energy independence as his first priority. As we need to restructure the $5 trillion debt resulting from the Bush irresponsible tax policy, which McCain has endorsed, we need to be prepared for a pessimistic scenario in which a ‘peak-oil’ inflicts severe financial pressure as early as around 2015 (Cf. Hirsch, 2005; Phillips, 2006). "Drill, baby drill" is a ludicrous answer to this risk. Financially, the need to include the entitlements for Social Security and Medicare in such restructuration was wisely put by Obama as his second priority in that second debate.
  1. Overexposed in the balance of capital and dangerously negative in the balance of goods and services. This reflects not only the weakening of our fundamentals but also of our competitiveness with respect to other countries. Worse, in an over indebted economy, the effectiveness of the Federal Reserve rate could be seriously impaired to help the economy make the necessary soft-landing to sustainable levels of consumer spending. Let’s not forget that the vulnerability of the government sector, with $5 trillion of additional debt, is due mainly to Bush’s irresponsible tax cuts in the first place and the war in Iraq in second. McCain opposed those tax cuts at first but then, as Republican nominee, has pledged to make them permanent.
  1. "Irvin Stelzer is by far your best columnist. In his column of October 24, despite his very libertarian positions, he admitted that regulation on reporting, rating agencies, and the leverage of mortgage originators could be needed. Additionally, we have to properly regulate the mark-to-market accounting used by Enron to distort values and astonishingly used now to deceive about the level of risk associated to ABSs [Asset Backed Securities]. We also have to extend the Secretary of the Treasury’s power to buy the mortgages covered by the Housing Bill signed into law on July 31 at the initiative of the borrower if the lender does not do so. We need to give guidelines to the Federal Reserve to use the interest rate as an anti-bubble mechanism; to keep the interest rate artificially low, although politically opportune for McCain, was inadmissible in a market that was clearly performing a bubble even before 2006. For the same reason, we also need more flexible regulation of the leverage financial institutions can take. We need to reverse the line set by Wendy Lee Gramm in the Commodity Futures Trading Commission and modify the Phil Gramm Banking Act of 1999 on its repealing of the Glass Steagall Act and revise the Depository Institutions Deregulation and Money Control Act of 1980 at the light of this mortgage bubble, 19 years after the failure of the Federal Savings and Loan Insurance Corporation resulting from the real estate bubble of the 1980s. We also need to regulate credit default swaps and any other derivative as far as they could create systemic risks. We also need to increase the level of accountability of executives who flew with millionaire severance packages after literally destroying their own companies; after the Enron scandal members of the board alleged ignorance of the financial statements because they did not have the obligation to sign them and things do not seem to have changed too much since then. Another regulation urgently needed is the regime of credit card fees, which have made even more vulnerable the finances of many households."

From the points I proposed in the point 9 of my letter, as far as I know, the mark-to-market accounting, the guidelines for the Fed using interest rates to deflect bubbles, the leverage of financial institutions, the regulation of rating agencies, the regulation of derivatives like credit default swaps and the Glass Steagall issues has not been addressed yet. I have no news whether or not these issues are being addressed in the pending overhaul of the financial regulatory system. Credit card fees have been addressed satisfactorily. About whether the powers of the Treasury to directly buy mortgages inside the framework of the bill passed by the House in July 31 of 2008 is something I have not been able to follow. In any case, Obama renounced to be bold enough and take ownership instead of debt in the troubled financial institutions rescued with public funds, what has prevented a faster process of cleaning balances and realizing losses inside those institutions. This is a luxury Obama could not afford but, nevertheless, did with the consequences we all know.

This year, on February 4 (http://www.dailykos.com/...) I victimized Jay Ambrose’s ignorance of economic topics once again. In this occasion I tried to make him understand why the short-term Republican approach to the stimulus package was counterproductive:

"Furthermore, expense in infrastructure provides a long-term, predictable income flow, which is more appreciated by lenders in an economy plagued by uncertainty. It also improves our competitiveness and provides a more balanced distribution of the stimulus between final goods and capital goods, reducing the risk of stagflation. Finally, if there are about 1% of debatable projects, you don’t have to sink the whole package because you have a lot to choose from. The American Society of Civil Engineers, another Communist organization, has downgraded our infrastructure again and has proposed the need of spending $2.2 trillion in infrastructure during the next five years."

On March 15 (http://www.dailykos.com/...), I explicitly addressed Obama’s overoptimistic short-term expectations for the economy but also made Noel Sheppard, my Right-wing victim of that moment, notice that Bush was guilty of a sloppy lack of supervision, what precipitated the harmful effects of the economy during his administration. In that same letter, I made him notice another point: deregulation was not just a banking problem but a financial problem and as a sample of that I mentioned how Paulson had lobbied for increasing the leverage of investment banks before being appointed Secretary of the Treasury. Of course, regulation of the financial system goes well beyond Glass-Steagall.

"It’s true that a 3.2% increase of the GDP may be too optimistic for 2010 but it is infantile to accuse Obama of being overoptimistic on one side and of spreading terror on the other and his parallels with the Russian Revolution and the Nazi Germany are delirious and revealing of a profound ignorance.
(...)
It’s true that the deregulation of the financial system comes from the Reagan era but the shrinking of supervision budgets and the appointment of lobbyists as regulators made possible, from FDA to EPA, from Labor to SEC, the environment that made possible the lowest correlation between Real GDP and the Dow in the last 50 years. This is the period in which the prices of stocks began to reflect the short-term goals of many well-connected executives more than the value of the companies; in which the unregulated credit default swaps jumped from $900 billion to more than $45.5 trillion; in which Paulson moved from lobbyist for increasing the leverage of investment banks from 12:1 to 50:1 to Secretary of the Treasury: Madoff’s heaven."

Finally, on April 16 (http://www.dailykos.com/...) I defended Obama’s plan but warning that I would lead to a ‘more modest’ but ‘more sustainable’ growth, confirming my previous opinions:

"Also [Obama] explained that we need to get into a path of higher savings and exports, what will imply a more modest domestic consumption but a more sustainable growth."

I must say that I stay in my points of view. Now let’s see whether they can resist a new challenge.

2. Projections and projections
While there is some consensus about some variables indicating the end of the fall (a point of inflexion), and even a turning point by October of this year followed by a quick fall and rebound by May of next year (http://forecasts.org/...), more thoughtful opinions make us think that the recovery will be more modest and slow than a rebound. The Economist (http://www.economist.com/...) expects a contraction of the real GDP of 2.6% for 2009 and not a recovery (of 1.4%) until 2010. The optimistic declarations made in May by the National Bureau of Economic Research offering the possibility of declaring April 2009 as the end of the recession, shared by Barclays Capital, or the inflexion point found in March by the National Association for Business Economics in July (Anyway, inflexion points usually present contradictory indicators that make difficult to determine the turning point) could seem now less important than the debate about the slope the new growth path will have.

An important reason contributing to that result is the limited tools over troubled financial institutions the Treasury has made available for itself. If we were in a model of perfect competition, theoretical model many people take as if it were real, everybody would have access to efficient information and to perfect understanding of that information about the toxic assets in those balances and gains and losses would be made effective instantaneously, what would lead to an automatic adjustment. In a model of perfect competition, there is no room for uncertainty. In such a world, a financial rescue would have been completely unnecessary because unlimited amounts of capital would have made themselves available to cover the financial needs of good projects. In real life, the Treasury can only hope that banks want to realize their losses on toxic assets and that they want to unfreeze credit to keep the economy moving. Meanwhile, the Treasury can only hope that new bad decisions of those institutions do not require a new rescue package, with all the political and financial cost that such rescue package would imply for the Obama administration.

On the other hand, alarm about the behavior of the bond yield (http://www.economist.com/...) is not solid enough when we see in the graphic a more extended picture of the yield of Treasury bonds and obligations. The yield rate reflects the risk of a security and the level of indebtedness is a factor contributing to such risk but is not the only one. Unrealistic cash flows could affect the level of risk more than a level of debt accompanied by a realistic and sustainable cash flow. An excessive level of debt could push away (crowding out effect) private participation in the economy but we don’t have solid evidence that we have reached that point yet. What we do need is serious fiscal projections and so a serious debate about taxation. We have already lost the first opportunity to launch that debate in Obama’s moment of maximum strength and probably will not have it back until after the mid-term elections, if a health care reform with an efficient public option lets Obama regain momentum before the next general elections.

The first graphic plots the behavior of 3-month, 10-year and 30-year Treasury obligations and bonds respectively since the beginning of 2008. This graphics shows that the Treasury bond rate increase of the end of 2008 may not have been a result of the increase of the ratio ‘public gross debt’/GDP, plotted in the third graphic. The next one plots the amount of bank credit for the same period, what would put in doubt claims of the American economy approaching the point of crowding out, especially when you compare the period before October 2008 with the period after November of the same year.
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Aspca photos
2009 Adopt-A-Shelter-Cat Month Photo Contest - Hera
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2009 Adopt-A-Shelter-Cat Month Photo Contest - Huey
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2008 My Furry Valentine Contest - Daphnee
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Originally posted to Alfredo Martin Bravo de Rueda Espejo on Thu Jul 23, 2009 at 05:08 PM PDT.

Poll

The plan of Michael Steel to take America back implies endorsing:

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| 3 votes | Vote | Results

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