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If HIT Plan A Doesn’t Work, What’s Plan B?

By VINCE KURAITIS, JD, & DAVID KIBBE, MD

Pop quiz: Among early-stage companies that are successful, what percentage are successful with the initial business model with which they started (Plan A) vs. a secondary business model (Plan B)?

Harvard Business School Professor Clay Christensen studied this issue.  He found that among successful companies, only 7% succeeded with their initial business model, while 93% evolved into a different business model.

So let’s take this finding and reexamine our human nature. In light of these statistics, what makes more sense:

  • Defending Plan A to your dying breath?
  • Assuming Plan A is probably flawed, and anticipating the need for Plan B without getting defensive?

We question many of the assumptions underlying HITECH Plan A. We also want to talk about the need and content for Plan B in a constructive way.

In this essay we’ll discuss:

1) The Need for HITECH Plan B

2) Questioning Assumptions — Issues to Reconsider in Plan B

a) Rewarding Incremental Progress
b) Addressing Root Causes for Non-adoption of EHR Technology
c) Questioning Health Information Exchanges (HIEs) as Building Blocks for the Nationwide Health Information Network (NHIN)
d) Catalyzing Movement Toward Modular EHR Technology
e) Focusing Incentives on High Leverage Physicians
f) Recalibrating Expectations for EHR Technology Adoption
g) Getting Bang-for-the-Buck in Achieving Meaningful Use Objectives
h) Comprehensively Revamping Privacy/Security Laws vs. Tweaking HIPAA
i) Maximizing Sync Between HITECH and PPACA
j) Leveraging Potential for Patient-Driven Disruptive Innovation
k) Promoting EHR Adoption Beyond Hospitals and Physicians, e.g., long-term care, home health, behavioral health, etc.
l) Dumping Certification

3) Summing Up

1) The Need for HITECH Plan B

Please remember that we’re fans of HITECH – we’re supportive of the innovation and quality improvement it’s attempting to achieve and we’re supportive of the three major policy recommendations made by ONC (see post #3).

So why do we need a Plan B? John Mullins and Randy Komisar explain the rationale in their recent article in MITSloan Management Review, A Business Plan? Or a Journey to Plan B?

…what separates the ultimate successes from the rest is what they do when their first plan sputters. Do they lick their wounds, get back on their feet and morph their new insights into great businesses, or do they stick to their original plan?…There is a better way to launch new ideas….This better way is about discovering a business model that really works: a Plan B.

We want to start the discussion of PLAN B, not end it. Our point is not so much to specify what Plan B needs to be, but more importantly that we need to discuss Plan B openly.  HITECH Plan A has sooooo many moving parts.

Having a Plan B is not an admission of failure or a disgrace…it’s a necessity. Not discussing Plan B is the disgrace.

2) Questioning Assumptions — Issues to Reconsider in Plan B

The HITECH Act requires ONC to report to Congress on additional legislation or modifications to HITECH that might be needed for success. We’ll suggest some specific areas where we believe the assumptions guiding HITECH Plan A deserve reconsideration in HITECH Plan B.

a) Rewarding Incremental Progress

Let’s start with an issue that should be fairly easy…one with few if any sacred cows.

HITECH Plan A mandates that financial incentives for physicians and hospitals are structured as “all or nothing”, pass/fail.

At this point in the debate we see no one left in the room who still thinks this is a good idea. We’re not sure why anyone ever thought this was a good idea in the first place

On the other side of the debate, hospital associations, physicians, IT vendors and just about everybody else have argued that “all or nothing” makes no sense — it raises risk in participating in HITECH…thus there will be fewer participants and more failures. HITECH incentives should be based on incremental payments for incremental achievement of meaningful use objectives.

b) Addressing Root Causes for Non-adoption of EHR Technology

An implicit assumption of HITECH Plan A is that prohibitive cost is the major explanatory variable for non-adoption of EHR technology. HITECH also assumes that financial subsidies are the critical ingredient in creating a tipping point toward mass adoption — HITECH allocates $30 to $45 B (estimates vary) for financial incentives, yet less than $2 B for other adoption support activities.

We’re not so sure this basic assumption is correct. While cost is certainly one factor, there are many others:

  • Lack of usability of current EMRs
  • Loss of  practice financial productivity from EMR implementation
  • Forced changes in workflow with most EMRs
  • Culture issues
  • High failure rates and the perception of excessive risk

Does HITECH get at the root causes of  non-adoption of EHR technology? As we discussed in post #2, there is substantial evidence that large, important groups of physicians are sitting on the sidelines. What’s Plan B?

c) Questioning Health Information Exchanges (HIEs) as Building Blocks for the Nationwide Health Information Network (NHIN)

OK, now let’s talk about some sacred cows.

Under HITECH Plan A, ONC is allocating over $600 million in funding to for the development of health information exchanges. The assumption here is that the HIEs will develop sustainable business models and revenue streams for ongoing operations. This strikes us as wishful thinking:

  • Predecessors to HIEs — Community Health Information Networks (CHINs) in the 90s and most Regional Health Information Exchanges (RHIOs) in the 00s — failed to develop sustainable business models.  They were often loose coalitions of fiercely competing entities, with little reason for sharing data among themselves.
  • While RHIOs are conceived as collaborative community health exchanges, most HIEs today have been constructed as proprietary, closed networks.  They were created to advance business and competitive interests of a subset of hospitals and other care providers within a geographic region.  Can the technological infrastructures and mindsets migrate effectively to more open, interoperable models?
  • What about existing payment structures that 1) continue to reward physicians and hospitals for piecemeal work – tests, visits, admissions, procedures, and 2) continue to reinforce care providers viewing health information as a competitive asset rather than under the control of patients.  While in post #6 we expressed optimism for long-term changes in payment based on demos/pilots authorized by the PPACA, these changes are years away.

In turn, ONC has recently and proactively convened a group to develop NHIN-Direct, a set of specifications which will permit  using the Internet as the primary network for exchanging specific types of health information in a manner that is simple, secure, and scalable.

While we understand that NHIN Direct is not a complete solution to healthcare data exchange, we do wonder whether ONC has it’s priorities straight. Why is the default option to spend $600 million on a questionable construct of HIEs, when every other industry on the planet is successful in using the Internet as a primary network for information exchange?

d) Catalyzing Movement Toward Modular EHR Technology

The Interim Final Rule on Standards has an extensive discussion on 1) The value of creating modular EHR technology, and 2) The understanding that it will take time for vendors to create/adapt offerings in the form of EHR modules (see, e.g., pp. 37-42).

Note the internal incoherence in HITECH Plan A:

  • Hospitals and physicians are being incentivized to buy EHR technology ASAP
  • Yet, ONC recognizes the limitations of current technology and the need for market evolution. Physicians that buy today’s expensive, monolithic EMRs will not easily switch and adapt to modular technologies.  They may well be “locked in” to the older technology for many years to come.

How can this disconnect be minimized?  How could ONC immediately catalyze the evolution of modular technology through Plan B?

e) Focusing Incentives on High Leverage Physicians

HITECH Plan A assumes that all doctors:

  • Are of equal value in creating a scaled, national EHR network, and
  • Should be paid equal financial incentives.

We question whether these assumptions are correct. As we discussed in post #2,

  • Physicians in large groups are already much farther along in EHR adoption (71% have at least partially adopted); these physicians get a financial windfall from HITECH, and the potential for incremental adoption is by definition lower.
  • HITECH incentives directed at these large physician groups will do little to improve community-wide care coordination. Physicians in large groups are more likely to refer patients to other physicians within their group (who are already more likely to be using a shared EMR).
  • Specialists with larger incomes likely won’t be bothered with HITECH incentives, period.
  • The most critical and numerous group of adopters — small/medium primary care physicians — are most likely to sit on the sidelines. This group has the most leverage in improving community-wide care coordination since patients referrals will be made to outside specialists.

So why are we treating all physicians equally?

f) Recalibrating Expectations for EHR Technology Adoption

HITECH Plan A has the right idea in using financial carrots for EHR technology adoption: physicians and hospitals are provided financial incentives (carrots) through 2015, and are given increasingly stringent penalties (sticks) through 2015.

However, we ask whether the carrots and sticks are sufficient. Will it be necessary to increase incentives (at least for key physicians and hospitals), increase penalties, or even to go as far as Massachusetts has in requiring EHR adoption as a condition of medical licensure (more sacred cows).

g) Getting Bang-for-the-Buck in Achieving Meaningful Use Objectives

HITECH incentivizes adoption of “EHR technology”.  EHR technology is defined through specification of meaningful use objectives (EHR modules) — 25 for physicians and 23 for hospitals.

We’ll raise some questions here:

  • Which of these MU objectives provides the most value to patients? Evidence to answer this question doesn’t exist, and it’s highly likely that some MU objectives are more valuable than others.
  • Are EMRs really foundational to creating a broader NHIN? For example, the Nutting Report notes:

…[I]t is possible and sometimes preferable to implement e-prescribing, local hospital system connections, evidence at the point of care, disease registries, and interactive patient Web portals without an EMR.

  • What about technologies potentially in the pipeline for Phases II and III of HITECH, e.g., remote patient monitoring, personal health record connnectivity, medical device interoperability?

How could Plan B focus on incentivizing adoption of use of the highest value EHR technologies?

h) Comprehensively Revamping Privacy/Security Laws vs. Tweaking HIPAA

Deven McGraw argues that privacy/security should be viewed as foundational to effective health information exchange. See her insightful article Privacy As An Enabler, Not An Impediment: Building Trust Into Health Information Exchange.

HITECH Plan A makes major tweaks to existing HIPAA legislation. HIPAA was created in the 90s, before the broad use of Internet technologies. HIPAA did not anticipate patient use and control of personal health information.

If we’re going to do it right, Plan B should reconsider a comprehensive revamping of privacy/security legislation and harmonization of state/federal regulations. The Markle Foundation has already developed a Common Framework that can serve as a template.

i) Maximizing Sync Between HITECH and PPACA.

HITECH Plan A was enacted before the adoption of this year’s national health reform — the Patient Protection and Affordable Care Act.

For example, in post #6 we discuss how HITECH and PPACA payment reform demos/pilots are potentially synergistic, but are not in sync in their timing. How could Plan B create synergies between HITECH and PPACA?

The incentive payments for “meaningful use” of EHR technologies are really only the priming fluid needed to get the engine started;  the engine’s sustaining fuel tank is payment reform that offers to share dollars saved on health care delivery with accountable care organizations that have the vision, capital, management skill, and clinical IT necessary to become an order of magnitude more efficient than today’s providers.  We fail to see how today’s EHRs enable that kind of transformation and business model shift.   The incentives going to today’s EHRs are helping doctors and hospitals “skate to where the puck is today,” not where it will likely be tomorrow.

j) Leveraging Potential for Patient-Driven Disruptive Innovation.

In post #5, ePatient Dave took the lead in describing the concept and potential of patient-driven disruptive innovation.

We question whether HITECH Plan A is doing enough to leverage the potential enable and spark patient-driven disruptive innovation.  The $45 B question — would it be more effective and efficient to focus significant funding on “patient-pull” vs. “provider-push”?

k) Promoting EHR Adoption Beyond Hospitals and Physicians, e.g., long-term care, home health, behavioral health, etc.

HITECH Plan A presumes that hospitals and physicians are key leverage points in moving toward a digital health system.

While this seems intuitively plausible, this assumption is still worth reexamining, particularly in light of the evidence that many physicians are sitting on the sidelines. Should Plan B place more emphasis on incentivizing other care providers to adopt EHR technology?

l) Dumping Certification?

No discussion of HITECH Plan A would be complete without discussing everyone’s sacred cow of certification.

We do see the value of an EHR technology testing process – one that measures ability to achieve minimal privacy, security, and interoperability standards (i.e., not EHR functionality).

However, we continue to question the value of a broader certification process, particularly now that hospitals and physicians will be held accountable for their ability to achieve specific MU objectives. Isn’t certification redundant – adding the cost of measuring an intermediate activity without adding value? For amplification, see recent thoughtful writings by Will Weider and Margalit Gur-Arie.

.3) Summing Up

Let’s conclude by revisiting the original question: “Is HITECH Working?”

Bottom line: at this point we see mixed signals

  • On the positive side: hospitals are playing in the HITECH game, ONC is executing with careful attention and balance, EMR vendors are beginning to open their APIs and move toward creating platforms instead of products, and there is great potential to leverage patient-driven disruptive innovation toward EHR technology adoption.
  • On the cautionary side: many important physician groups are sitting on the sidelines, it’s questionable whether Walled Garden Proprietary EHR Technology Platforms will be sufficiently open to stimulate needed innovation, and many assumptions guiding HITECH Plan A need to be revisited.

In our introductory post, we characterized HITECH as being at the top of the third inning…there’s a lot of ballgame yet to play. It’s time BOTH to celebrate the hits delivered in early innings…AND time to revisit the original game plan.

Thanks for reading our series. We welcome your comments.

Vince Kuraitis JD, MBA is a health care consultant and primary author of the e-CareManagement blog where this post first appeared. David C. Kibbe MD MBA is a Family Physician and Senior Advisor to the American Academy of Family Physicians who consults on healthcare professional and consumer technologies.

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42 replies »

  1. The national debt is a crisis that concerns me. I am concerned that, with me being so young, that all my money will go to taxes or that I will die working. According to CNN, in 2020 the average American will owe 155,000 in federal debt. The growing national debt will be consumed by interest rates and entitlements, such as Medicare and Social Security. Educational and defense programs will be left out in the cold as U.S. revenue pays on the national debt. Even with increased income taxes and working longer, a VAT (value added tax) may be needed to pay of the debt. Europe uses the VAT. Europe has higher taxes, but they control health care cost and retirement benefits are less generous but are distributed to more citizens. I am frightened that I will work and work and then when it is time for me to retire, there will be some new law in which I will not be able to get Social Security or Medicare. I am also working now to pay off the baby boomers entitlements. After working the next forty plus years and I am ready to retire, who will be there to pay my entitlements? I do not feel that America’s youth will be there to pay my way when I get there. Many youngsters don’t even care about graduating from high school. I doubt they care about working a job to pay my way for retirement.
    http://money.cnn.com/2009/06/05/retirement/next_crisis_americas_debt.fortune

  2. When people turn 65 they are bombarded with sales information regarding Medicare Supplemental Insurance. They receive mailers from every insurance company and get called by every local insurance agent in the area. All of this information can be overwhelming and can make even the most astute shopper want to hide until the barrage of sales tactics subsides.
    The truth is all Medicare Supplement Plans are standardized by the Center for Medicare Services, which means every insurance company must offer the same exact plans. They cannot add additional benefits to these plans and they cannot take benefits away. The only difference between companies is the price the charge for those plans. Therefore it is relatively easy to see you should purchase your plan of choice from a company who offers that plan for a low price.
    Even though price is the most important factor when shopping for Medicare Supplemental Insurance, there are other things to consider such as customer service, history of rate increases, and financial stability. Financial stability can be easily understood by the companies’ A.M. Best rating, and you should be able to ask an insurance broker about rate increases and customer service.
    Financial stability is the least of our concern as you will have guaranteed issue if your insurance company becomes insolvent. However, you should make sure the company you choose does not have a history of significant price increases and they should offer good customer service. You don’t want to be caught with an expensive Medicare Supplement and a company that doesn’t help when doctors and hospitals accidently send you a bill.
    Popular companies that offer Medicare Supplement Planss include Mutual of Omaha, AARP, Blue Cross, and Gerber Life. These companies all have an “A” rating with A.M. Best, which is a good indication they won’t be going bankrupt anytime soon. In addition, these companies offer excellent customer service and rarely have any billing issues. All insurance companies raise their prices as you age, but if you choose a plan offered by one of these companies you should rest easy knowing you made a good choice.
    There are several methods of getting quotes for Medicare Supplement Plans. You can call each company individually, contact your local agent, or connect with a national insurance broker that specializes in Medicare Supplemental Insurance and carries every company. The national insurance broker, if knowledgeable, should be able to offer you an honest opinion and give you quotes for multiple companies at the same time. In addition, they should be able to shed some light on customer service and rate increase history.
    Shopping for Medicare Supplement Plans is never easy, and there are several companies from which you can choose. However, if you contact an insurance broker all of your toughest questions should be answered with ease. Make sure to consider

  3. Nate, change the topic if you want, but the bottom line is that the Bush tax cuts impoverished the Federal government massively without providing much benefit in the end, and the fact that the tax cuts went overwhelmingly to the wealthiest who then had excess capital (too many dollars chasing too few assets, creating asset bubbles) while the poorer 50% saw no wage growth relative to CPI despite large gains in efficiency and went into debt to sustain their accustomed level of demand and standard of living (credit cards, no money down mortgages) played large roles in the Bush Bust. Other factors mattered, too, but they don’t take away from the significance of these factors.
    Permanent tax cuts on the wealthy can expect a return on investment in the 30%-50% range (in this economy). The return on reduced taxes for the poor is closer to 100%, and the return on direct investment in the form of stimulus (road building, etc.) is more than 100%. I’m sure Heritage or Cato will produce different numbers, but a non-ideological economic analysis will agree directionally with the numbers in my link.
    I never compared the Bush bubbles to the Clinton bubble. When a bubble pops the money is lost no matter what. But I’d happily compare the Bush presidency to other presidencies, including Clinton’s. Bush loses to Clinton on almost every economic measure. It is a test of your honesty to admit that. Clinton’s years had enormous growth in jobs and national wealth that was spread more equally across the population than Bush’s while also being far larger in total and less of it was lost in bubbles. Somehow Clinton’s better years happened despite the tax increase enacted early in Clinton’s presidency and the tax decrease enacted early in Bush’s. That goes against your orthodoxy, but it is what happened. In fact, Democratic administrations since Roosevelt have had higher job growth and economic growth than Republican administrations across the board. The best performing president, Reagan, is about equal with the worst-performing Democrat (Carter, if memory serves).
    As for the Daily Kos stuff, yours were very silly comments that reflect a lack of understanding of how I approach that site. It’s full of demagoguery, but sometimes useful. Much like yourself, but for different reasons.
    But enough of this. Definitely into diminishing returns on this discussion.

  4. I have to admit, it seems pretty hopeless. Unfortunately, there are no decision makers who don’t have their hands in the deep pockets of their constituencies. There are simply no unbiased people to make law. While everyone is looking out for number 1, we’ll always have to bankrupt the futures of number 2, 3, 4, etc. Is that a bad thing? I’m not sure. We are now in the day and age when sustainability is the goal, despite the lack of resources. We want a socialistic future where we take care of everyone, yet we have a free market economy that doesn’t pursue that goal.
    These are interesting times for sure. Do we tip over into the one or stay as we are? As I’m getting more and more cynical these days, I feel it doesn’t really matter. As long as the same people are doing the same things, we’re all just going along for the ride.

  5. As usual with most of your posts – then what is your larger point? 60% 58.5% Pick anothe arbitrary point . . .

  6. what would be an interesting discussion is what political ramifications will the Bush housing bubble create as far as the millions of relocated voters. Parts of the SW are far more liberal then they have ever been, histroically liberal sections of the country appear more conservative now though. Forbes or Fortune had a really great interactive migration map that showed this transition. How different was the electorate in 2008 becuase of population shift vs change in political ideology and will that change again in 2012?

  7. http://www.census.gov/const/compann.pdf
    Here is the info you need to do a correct analysis jd. As you will notice the number of new homes built under bush was far greater, especially after the clinton recession, then under Clinton. Far more real tangible job creating assets thus were made under the bush bubble then the clinton bubble. While yes it was a bubble atleast the masses got to enjoy Bush’s, unless you were a stock trader, which many of us became, the Clinton bubble wasn’t nearly as beneficial in its footprint.

  8. JD you seem to agree with me, the Clinton stock bubble was far less productive and beneficial then the bush housing bubble, at least we have new housing to show for it. Where is our disagreement?
    And you totally butchered the analysis of new homes to existing, Of course existing home sales will always outnumber new home builds, you have existing stock of tens of millions. The correct way to compare would be the number of new home builds during the asset bubble compared to new home builds during a normal base line period. Come on kids if you can’t even set up the experiment no wonder you can’t get anything right. More new homes where built during the bush asset bubble then probably any time in history but after WW2 if you adjust for population. We went on a huge building binge and have the assets to show for it and had the jobs.
    Daily Kos…..that rings some bells, is that the guy that just admitted all his polling data his website is based on and his new book was based on is phony? Research 2000 I think it was called? All the numbers were made up. Now the polling firm is saying they have dirt on Kos that is going to close his site. Great Source jd, if your foundation of knowledge is all lies and propoganda no wonder the rest of this eludes you. This explains why your perspection is so out of whack, you believe the lies and indoctorination you have been feed. When Kos him self comes out and says everything you have been told was a lie how exactly does that make you feel? empty? betrayed? or who cares of the facts are wrong all you care about is the narritive?

  9. For what it’s worth, I agree with everyone that this is a terrible time to raise taxes in general because of the recession. But with the vast increase in the share of national wealth in the hands of 1% of the population, there is still a need to raise taxes on that contingent. And since they have so much money that is essentially being parked rather than being used productively, the multiplier effect (yes, I’m more or less a Keynesian) of redistributing that wealth will make it a net positive for economic growth.

  10. Nate, really stupid of you to pick this fight on asset bubbles and new vs. existing homes. I’ll look it up for you. Here is the data on existing home sales during the bubble years. It peaked in 2005 at 7 million. In contrast, in 2005 new home sales were 1.2 million. In other words, a 6:1 difference back at the peak.
    And the asset bubble for securities was even less productive. All that money that went into stocks, how much of it actually was used to generate new capital investment and productive capacity? A tiny fraction. Most of it just jacked up the price of stocks, and is now gone. vaporized. Hundreds of billions that could have been spent on reducing the deficit if Bush hadn’t cut taxes.
    If you want liberal talking points on the lameness of the Bush tax cuts, here, I’ll give you some from Daily Kos.

  11. MG your really not that brite. Let me type this real slow for you;
    if
    you
    tax
    me
    Key word here being if, that implies that I am not currently being taxed at 60% effective rate. If I were then I would no longer be a business man. So…about that fibbing acquasation…..

  12. Nate – Not necessarily I just don’t have religious dogma to ideas regardless of really how successful they are or generally spout nonsense as you typically do on here such as ‘The Bush tax cuts created more revenue then they returned.’
    There is not a single way to prove or disprove this either way. What is much more likely is that the significant reduction in interest rates had a much more profound effect than the 2001 Bush tax cuts did. By the time the 2003 tax cuts were officially enacted, the recession had already passed.
    “As a business owner that knows many business owners I can say for a fact if you tax me at to high of a rate I will stop putting my money at risk. I’m not going to risk my life savings for 40% of the return.”
    There is no way your overall marginal overall tax rate was 60%. Either you are one of the dumbest business man around or you are fibbing quite considerably. I would venture the later.

  13. Foreign Institutions own 28% of debt. Total debt is $13 trillion. China owns $877 billion. So it’s just 7%. Good luck defaulting based on the spy theories. The anecdotal stories are for gullible public and not international financial institutions.
    The drug theory is intriguing. I am sure Mexico catches a lot of narcotics. They should have been world power by now or Afghanistan which is world’s largest producer of opium.
    Now about oil, in a way feel happy that all oil is not drilled now. Once we run out of oil in 50 years Oil will sell at $20/gallon. Why would you want to sell it at $3/gallon?
    Like that idea of liberal tax. I always though war tax would be appropriate so that folks could put money where their mouth is. SSN, Medicare and Medicaid- atleast we pay directly for them and we know the costs. What about wars? Do we know how much tax would have been levied per person to afford Iraq and Afganistan wars?

  14. Vikram, we have enough oil resources that we could drill all out for 20 years till a replacement technology was found and pay off the national debt in that time. The hit to GDP and corresponding loss in tax receipts from importing so much oil cost us that opportunity.
    My personal faviorte strategy for debt retirement is unilateral write off of chinese owned bonds. We have solid proof China has stole certain technologies, like Aegas for example, spelled wrong I think, it’s development cost was $x billion, we simply retire an equal amount of bonds they hold and send them a receipt. I think we could find a trillion easily, might also teach them to knock off all the intelectual theft.
    Second faviorte is to step up the war on drugs. Have DEA go balls out on seasing drugs. After we have a nice stock pile close the borders then sell the national inventory. Should be good for another trillion.
    Finally a liberal tax, since it is SS, Medicare, and Medicaid, three pillars of liberalism that created this problem anyone casting a vote for a liberal is taxed $50, this should pay off the debt they are responsibile for and stop them from racking up any more.

  15. Margarit,
    Yes that’s right. Provide options to seniors to stay overseas. Currently many seniors stay in Mexico even though medicare coverage is not available. It can be a win-win situation in many cases.
    As far as devaluation is concerned- yes, all will be poorer but employment rate will also be higher. Since current politics is around employment rate and not around lifestyle standards I expect policy makers to focus on employment numbers in short term at expense of losses in other areas. Besides, at present devaluation is the only known way to repay debt.

  16. ” Some homes were created, but overwhelmingly the homes that were purchased and increased in value during the bubble years were existing homes.”
    Sorry jd but yoy are way off on that one! Ever heard of a little town called Las Vegas? The entire CA inland empire? Phoenix? Some homes? I don’t know the exact numbers but would gladly take any bet that this period in discussion saw more new homes built then any time in our history. There was a major population migration from NE, detroit, cleveland, etc to the southwest, where do you think all these people sleep?
    The Bush tax cuts created more revenue then they returned. Without the cuts GDP would have been substantially lower and we would have stayed in the Clinton recession longer.
    Look at the number of jobs created in small firms during that period of time, your perception is yours but it disagrees with the facts.
    If you wanted to discuss a virtual asset boom with no substance you would be talking about the clinton .com boom, that was built on nothing. Compared to Clinton the Bush years were solidly based in reality.
    curious mg what you do for a living? Your political bias and reliance on liberal text books seems to blind you to obvious human nature. As a business owner that knows many business owners I can say for a fact if you tax me at to high of a rate I will stop putting my money at risk. I’m not going to risk my life savings for 40% of the return. If I am not out there taking risk then I am not hiring people. Join the real world buddy.

  17. I’m sorry Vikram, I’m not sure I understood your points 3 and 5.
    Are you suggesting that we outsource our elderly citizens, send them to Panama or something, and the rest of us left in the US just get used to being poorer?

  18. While we are onto the philosiphical debate about taxes, it should be borne in mind that effective tax rate is at lowest expected point. We cannot afford to drop it further without increasing deficit.
    This is what could be done to reduce deficits. It’s all about tough choices and vision. Lowering tax ain’t a tough choice.
    1. End Afganistan war and let neighbouring countries run the show. Accept the risk involved.
    2. Protect new innovations being killed by established industry. This is really the biggest one. We need science and technology to feed every bigger population and demands.
    3. Permit and coax seniors into living in low cost countries and receive medicare payments for treatements overseas.
    4. Raise retirment age and find solutions for seniors to continue contributing to economy.
    5. USD devaluation. Effectively lowering standards for life. I believe Yuan appreciation will bring inflation and a mirage of growth. USD will be devalued.
    Some of these may sound very harsh but it has to be borne in mind that expenses will not always what they are right now. They will grow. Iran and N Korea are unfinished business and one day will have to be tackled. We are all very lucky that oil prices have been down for last 2 years. That will not be the case for ever.

  19. “Low interest rates reflect the cost of capital, not whether or not credit is easy to come by. Raising rates before there is a demand for capital will constrict the economy. Raising taxes before there is real economic growth and real job growth in the private sector will cause a return to recession.”
    This is oversimplistic nonsense the supply-siders try to push to simplify complicated economic terms into 10-second sound bites to push to the general public. “Lower taxes always equals more growth.” True but only to a point.
    The GOP tax agenda has been high-jacked by these crazy supply-siders championed by the Club for Growth & Norquist that any tax increase regardless of what it funds is inherently a bad thing. Talking with ideological zealots who have an agenda that they won’t alter even if it in the end it will have disasterous/poor outcomes for most aren’t worth talking to normally.
    You rant and rave on here about deficit spending but if you want to do something about it than tax increases have to be on the table. You simply can’t begin to get to a more reasonable deficit level without some form of tax increases.
    Defense spending also has to be on the table because when you really it up all of the costs of the wars, veteran benefits, and other gov’t agencies that are really related to defense (NSA, CIA, etc) the U.S. defense budget last year was well north of $1T and consumed between 25-30% of the overall federal budget last year depending upon what you include.
    http://www.cbo.gov/publications/collections/tax/2010/graphics.cfm
    If you look at the federal tax rates here they have declined notably among all income quintles the past 30 years and if you stretched back further they are at their lowest level in 80 years. Reality contrasts with what most Americans believe.

  20. Low interest rates reflect the cost of capital, not whether or not credit is easy to come by. Raising rates before there is a demand for capital will constrict the economy. Raising taxes before there is real economic growth and real job growth in the private sector will cause a return to recession. The administration is time contrained by its term in office and will not have the luxury of patience to wait for it to happen. If FDR had forseen his four terms he never would have raised taxes in 1937 and caused a dip back into depression.
    Raising taxes now will spiral us down.

  21. MD as Hell – Actually there has been some ample evidence emerged that the incredibly low interest rates and easy capital flows across country borders are the principal factors in what has caused the notable uptick in bubbles starting with the Latin American soverign defaults and junk bonds in the 80s.

  22. http://www.msnbc.msn.com/id/37991437/ns/world_news-the_new_york_times
    Ireland enacted the ‘austerity’ measures that were called for nearly 2 years ago and since then they have seen even higher unemployment, taxes, lower gov’t revenues, and further slashed gov’t expenditures. More neoliberalism economic nonsense leads to disasterous economic policy.
    They have been rewarded by the Bond markets by increasing interest rates on rolling over existing debt, high interest rates on new debt, and even wider CDS spreads. Lords of Finance say pay me. Don’t care what the consequences are. Like a loan shark with his customer. Come up with my VIG. Don’t care how you do it and what happens to you.
    The Irish gov’t is lying to their people that their will be growth of 3% by 2012 and that ‘exports’ will lead their away out especially because they tracked in the Euro. Exiting the euro for a return to their own currency or defaulting are the only inevitable options for Ireland to free themselves as it will be for other countries in the EU including Greece and Spain.
    Even if Ireland has a SDE, the same neoliberalists who spouting that the global financial markets will treat Ireland as a pariah are almost completely full of it too in regards to the issuance of new debt in their own currency. Get X of $1.00 is better than $0. Argentina and the past 100 years have shown that Western banks are only more than obliged to come rushing back into a country that has a clean ledger sheet.

  23. KRUGGIE
    ” .. Paul Krugman could have written this article and has many times ..”
    News-flash: Mr. Former ENRON consultant is considered delusional by large numbers of reasonable people. So are his followers.
    Mr. OWE-bama someone thinks a Harvard Law degree means he is right that the ACORN nuts deserve billions. He is wrong, wrong, wrong.
    And Don Berwick? Of course — video lies. Not.

  24. “Wasted Money in healthcare” is nothing more than economic stimulus. Borrowing for either is stupid. Spending all around must be cut. Who is going to lend us the money, God?
    jd,
    It was not the spending of the wealthy that caused the bubble, but the runaway credit given to the nonwealthy by Fannie and Freddie that sunk the ship, along with the derivatives and credit default swaps that were supported by nothing more than illusion. If you will stop looking backwards you will see that replacing a private debt crisis with a government debt crisis is still stupid and still a crisis.
    The President must get over the fact that the country cannot keep spending. It is not his money.

  25. Nate, regarding your last point: when I wrote that the trillions in tax savings for the wealthiest didn’t get pumped back into the economy, but instead created asset bubbles, I was speaking imprecisely but the intent was clear. What I meant was that the money was largely squandered in inflating the value of existing assets, rather than creating new assets. Some homes were created, but overwhelmingly the homes that were purchased and increased in value during the bubble years were existing homes. Some stocks were split (if you want to call that value creation), but overwhelmingly it was existing stocks whose value climbed then collapsed.
    I wrote too quickly in suggesting that none of the money was productive in creating value. Certainly, some was. But again, the point is that a huge portion of the tax savings for the wealthiest went to inflating the value of existing assets rather than creating new assets, and this inflated value was unsustainable and is in fact now gone. I’m sure someone could quantify what portion of the tax savings went to assets whose value is lost, and thus decreased tax revenue in the 00’s but as of 2010 is not in anyone’s pocket.
    What I’m saying isn’t controversial or a talking point. It’s not even economic theory so much as simple accounting. Don’t be so quick to make accusations of a lack of understanding.

  26. ” The reason is that almost all the cut went to the top 10% in income, and what they did with that money was mostly buy assets that were increasingly overpriced relative to fundamentals (securities, homes)”
    jd forgets to mention these were magic homes that just appeared. They didn’t employee millions to build them. And that whole home repear DIY fad that lead Home Depot and Loews to riches didn’t employee anyone either.
    The 5.7% unemployement, even after 9/11 had nothing to do with the tax cuts, it just so happens that every time they cut taxes the economy improves and jobs are created but they are not related, correlation not causeation remember,m even if it happens like 7 times in a row.
    ” Those trillions didn’t get pumped back into the economy. They helped to create asset bubbles, now popped.”
    How do you create an asset bubble without spending? Wasn’t it spending on homes and securities that drove the price up? Maybe you should understand the talking points before you regurgitate them?

  27. “I never understand the obsession with unfunded liabilities stretching out s far as the eye can see.”
    Matt’s right why as a 35 year old would I worry that there is no possible way for government to fund the benefits they are promising me and for which I pay taxes? I can just wait 30 years, find out there is no medicare then get a part time job or something then. Just becuase I falsely assume the SS payment they tell me I am going to get each year will be there won’t it’s not like I can’t just work till I am 90 to support myself. Planning ahead is pointless the government will take care of me, no need to worry.

  28. ciphertext – What about nearly any defense program over the past 25 years? F-22, Osprey, etc?
    Regulatory capture is a differnet issue entirely but having a ‘fair and fair market’ operation is incredibly difficult unless you have an active and aggressive FTC/SEC which looks to prevent monopolies or oligpolies.

  29. When the goal of all voting blocs is to get more money out than you put in, it is inevitable that the sum of those blocs goes upside down over time. It’s like throwing a bunch of Ponzi atoms into a test tube, and then being amazed that out pops a Ponzi molecule.
    This is human nature. The Founders saw this, and their solution was a minimal public treasury. In the last century or so, we’ve decided they were a bunch of pre-modern rubes. We’re smarter now. We can create these huge cradle to grave entitlement democracies, and if we have the right wonks from Harvard managing them, it will all work.
    We. Shall. See.

  30. I believe there is a body of good, empirical evidence (Social Security, Medicare, Medicaid, U.S. Postal System, NASA, etc…) that indicates that it is generally a bad idea to trust a governing body (federal, state, local, or their associated appendage bureaucracies) with items of fiscal concern. The evidence also makes a strong case for minimizing the actual amount of influence the regulatory agency can exert over the market to a level such that it (regulatory body) only concerns itself with insuring a fair and fair market operation.

  31. Matt, governments can’t prefund their entitlement programs? Which is to say, governments can’t pay for the promises they make at the time they make them?
    Of course they can. There are about 32 countries in the world today that are partially or fully paying for social security retirement benefits with personally owned, funded accounts. And Singapore funds its entire welfare state with personal, funded accounts.
    Governments don’t have to operate Ponzi schemes if we do not let them.

  32. “Real reform means creating systems in which each generation saves and invests and pays its own way.”
    What a joke. Generally I don’t see any indication of this from Boomers whether or the left or right.

  33. Conservatives and the right are correct about deficit levels becoming problematic around 60% of GDP and that around 90% of GDP and higher they do create several fundamentals. Too bad they did zilch about it and were like grasshoppers during the summer with further tax cuts and massive military spending/buildup. Do as I say, not as I do.
    The other issue is that the last time debt levels were this high after post-WWII there was relatively low levels of debt among the private households, commercial, and financial sectors. That isn’t the case today especially in the U.S.
    Still a dramatic cut in spending right now would be incredibly problematic. Kind of reminds me of what the Brits are trying to do with the ‘financial austerity’ budget that Osborne just set forth. However, since the Conservatives in the UK aren’t willing to cut NHS funding and are loathe to really reduce their defense budget, their budget will likely have to realize spending cuts of +20% in a number of gov’t departments in real-dollar terms over the next 4 years. Going to means lots and lots of job cuts. No other way. Going to be interesting to see how that plays out with their Social Democrats partners. Even they realized they had to raise the VAT because it couldn’t all come from gov’t spending cuts.
    Most Republicans are spouting nonsense about ‘cuts’ without tax increases. Hell, guys like Toomey in the PA Senate Race and the Norquist’s minions at the Club for Growth are talking about further tax cuts. Reality is that you can’t begin to close the deficit without tax increases on both the wealthy and the middle class who now have marginal federal income tax rates that are their lowest in 80 years.
    As for the few Western democracies that have enacted ‘austerity’ measures to keep the Lords of Finance (bondmasters) happy, they have seen their GDP crater and drop like a rock. Ireland GDP has decreased nearly 16% in over a year. Iceland has gotten so bad that they actually saw a negative population increase last year as a ton of younger and middle-aged people left the country to pursue better opportunities elsewhere.

  34. “Real reform means creating systems in which each generation saves and invests and pays its own way.”
    This sentiment seems so very sensible and appealing. But there is no such thing as the beginning or end of any “generation.” All populations are a fluid continuum, with people getting born, growing, working, retiring, and dying in an amorphous flow.
    We speak carelessly of Flower Children, Baby Boomers, Gen X, and so forth. But generational labels are useful only in the most general way. The trends are real, but they are ONLY trends, not events.
    It is not possible, then, to speak of “each generation” in other than abstract language. Otherwise we fall into a serious mistake, confusing SOCIAL security with INDIVIDUAL security. Both are real and important but they are by no means the same.
    Whether speaking of individual income, public safety, fire protection, medical care, food or any other critical life support requirement, we must always clearly distinguish between INDIVIDUAL differences (rightly attributed to habits, merits, abilities, inheritance, whatever) and SOCIAL differences (which are nothing more than safety nets protecting ALL of us against misfortunes we cannot otherwise escape).

  35. There is nothing magical about dedicated taxes from which program budgets must be drawn. But if you think there is something special about such taxes to induce responsible spending, why not create a dedicated tax to pay for the military, education, and every other major part of government spending?
    We talk about health care spending being out of control, which it certainly is, but another part of our federal budget which is wildly out of control is the military. If anything, we get less from our trillions in excess military spending than we do from our trillions in excess health care spending.
    Basically the same combination of interest group politics, political cowardice and voter misinformation contributes to the grotesque misallocation of funds in both cases. But no one talks about a dedicated tax for military spending, and almost no one talks about our unfunded liabilities stretching as far as the eye can see for the Pentagon. There is no good reason for that, only groupthink that serves certain political interests. It’s a shame that this administration seems to have surrendered to that groupthink.
    That said, it is basic economics that in an economy that is struggling to get back on its feet, a great way to knock it down again is to cut the short term flow of government spending. It’s also overwhelmingly clear that the Bush tax cuts were a disaster, and that repealing them will provide substantial net benefit to the economy. The reason is that almost all the cut went to the top 10% in income, and what they did with that money was mostly buy assets that were increasingly overpriced relative to fundamentals (securities, homes). Those trillions didn’t get pumped back into the economy. They helped to create asset bubbles, now popped. Meanwhile low income folks have been falling behind relative to increases in the cost of living and the haves are getting more compared to the have-nots than at any time since 1929. That’s not really debatable.
    More taxes on the rich isn’t a moral imperative so much as an economic one.
    And yes, on top of all that we need to cut the share of GDP spent on health care from 17% to something closer to 12%. Can a dedicated tax tied to a capped budget be part of the solution to achieve this? Of course. But a global budget without a dedicated tax would accomplish as much, and any such austerity needs to be phased in over several years or we’ll lose another few million jobs when we can least afford it.
    And while we’re at it, let’s start working on the fact that America spends more on its military than the rest of the world combined. If you thought our health care spending was ridiculous and an albatross on the economy, you’ll love our military spending…

  36. I never understand the obsession with unfunded liabilities stretching out s far as the eye can see. Everyone can agree that we need to cut the rate of growth in health spending vis a vis the rest of the economy. Paul Krugman could have written this article and has many times. But what’s the point in talkng about prefunding libilities. That’s not how governments work. They take in taxes and pay out benefits, and we have to change the basic math that our benefits exceed our taxes. Clinton did that in 1993 BUT we cant do that while the economy is still in recession or else we’ll go into total collapse (even John Goodman should realize that)
    So we need to make adjustments to reduce future benefit costs. And the bonus is, we can do that without reducing actual value because we waste so much money in Medicare AND in private healthcare. But much of that is in the bill just passed, and more is to come.
    Yet the Republicans want to repeal it. Where does John stand on that I wonder?

  37. All benfits and all retirement, public and private, is becoming unsustainable. We cannot afford to pay a retired teacher for 30 years after they stop working. The tax status of private retirement contributions and growth will draw Congressional attention as a place to nab some quick tax money. Even Roth plan money will get zapped by a VAT. These are the good old days. Soon the entire bubble will pop. There is no free lunch. The next generation will cut the older generation’s gravy train off at the cliff.

  38. Brilliant to spend more on meaningfully useless HIT equipment that has not any benefit to the sick patient.
    Oh yeah, buy it for the worried well so that they can follow their cholesterol levels while blind patients with diabetes die from neglect because tax dollars are being spent on crap devices rather than on Medicare coverage of doctors’ time.
    This is criminal. President O, there is need for an Investigative Commission on the Defrauding of the Citizens and the Congress by HIMSS, CCHIT, and the EHRVA. I nearly forgot, you are buds with these Crook County folks and relied on the CEO of an IT company to advise you.

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