Marooned in the Horse Latitudes

Horse Latitudes

More than a year after glimpsing “green shoots” of economic recovery, President Obama saw nothing but parched brown in June’s employment numbers. The continuing stream of bad economic news is a far greater threat to his Presidency than that sickening orange plume of oil furiously gushing into the Gulf of Mexico. The 9.5% June unemployment rate is essentially the same as it was a long thirteen months ago.. And support in Congress for more pump priming is essentially at an end.  Despite a 59 vote Senate majority, an increasing number of Democrats as well as the Republicans appear unwilling further to increase the federal deficit, even to extend unemployment benefits.

In 2010 thusfar , the economy has replaced only 600 thousand of the 8 million jobs lost in the recession. Only a little more than 100 thousand new private sector jobs have been created in the past two months, while the labor force shrank by almost a million.  If you add discouraged workers and those working part time involuntarily to the people officially unemployed, there are almost 26 million people out of work. A lot of those young people who fought to make Barack Obama President will have spent at least half of his term living in their parents’ basements.

President Obama is trapped between his increasingly angry core Democratic constituents- public sector unions, minorities, young people- and their muse, former economist/now political polemicist Paul “Jeremiah” Krugman, who believes we’re in a depression and need to throw yet more borrowed money from helicopters, and the rest of the country that is trying mightily to pay down their debts and is profoundly uncomfortable mortgaging our future to the Chinese.  It’s not obvious that either formula for salvation- the traditional Democratic balm of more money for worthy causes or the traditional (pre-George Bush) Republican regime of austerity and balanced budgets- gets the economy out of the ditch. Captain Obama has not enough political support to pursue either course, so the Ship of State and his Presidency are becalmed, sails flapping, sweltering in the Horse Latitudes.

Most of the federal policy levers- fiscal and monetary- have been pulled.  The Federal Reserve continues to hold interest rates at, effectively, zero. That’s basically free money for anyone who wants to borrow it.   Interest rates on federal bonds are near historic lows and falling, as foreign investors pile into the safest sovereign debt, our Treasury securities.  Long-term mortgage rates are in the high 4 % range.    Monetary policy is as accommodating as it is going to get, and with no inflation on the horizon, is likely so to remain.  Why isn’t it helping?  Because borrowing more money even at bargain rates doesn’t seem like a sensible solution to an economic problem caused by excessive borrowing.  

What the President wants to happen is, unfortunately, out of his hands. A private sector driven recovery depends on a confident business climate. The business climate in the United States, to put it bluntly, sucks!

Corporations are sitting on a staggering $1.6 trillion in spendable cash and investments.  Why aren’t they spending it?  Wellll, as Reagan would have said, by the end of the year, we will not only have the highest corporate tax rate among developed nations, but a capital gains rate that, between health reform and the expiration of Bush’s tax cuts, will have increased 60% in twelve months.  If you had a choice, as many of the multi-national corporations do, you’d probably invest that money overseas where demand growth is likely to be higher and taxes lower.

Business is a problem for Obama.  As the Economist’s Lexington said of the President, “he doesn’t understand business. . . .he is interested in economics and technology; but not in how you make money”. During the campaign, he referred to capital gains as “easy money”. Capitalism obviously isn’t his thing. This is a President who fired the CEO of General Motors, and who nationalized the Chrysler Corporation and handed a majority equity position to a labor union.  He also basically ordered the Chairman of BP, albeit widely reviled, to suspend his dividend and hand over $20 billion to a Presidentially appointed mediator to dispense to Gulf oil spill victims as he saw fit.  He called health insurance CEO’s into his office and personally berated them for increasing their rates. 

Obama has displayed a camaraderie and light touch with business leaders comparable to that of Vladimir Putin. Democratic fundraisers are coming back from meetings with business and financial leaders empty handed.   Perhaps business people have realized that all they have to do to get rid of this Administration and Speaker Pelosi is . . . nothing.  Just sit on their cash for another eighteen months, the safe and perhaps prudent thing to do, and the Republicans are back “in charge” of the economy. (Wonder what happens then?) 

What, patient reader, does this have to do with healthcare?   Unfortunately, a lot, because it’s all connected.  Health reform is the dry hole down which the President flung a huge fraction of his spendable political capital, which he now doesn’t have to fix the economy.   Three months after enactment, only about half of the public approves of health reform. According to the June Kaiser Family Foundation tracking poll, only 28% of the public thinks that health reform will actually help their families.  The real benefits of health reform- expanded access and reduced uncertainty about coverage-are still three years away- a political light year for a hobbled Presidency.  

And at this inopportune moment, the healthcare job machine seems to be running out of gas.  In this recession, the health system has been the only reliable non-government creator of new jobs, levitating above the rest of the economy as if by magic.  The health system has added almost nine hundred thousand new jobs, since the beginning of 2007, more jobs than the federal government (!), But, in June, the health system created only 9,000 jobs. The business climate in healthcare is coming to resemble that of the rest of the country, in part because of health reform. 

Despite the fact that health reform will eventually create close to thirty million new paying customers for their products, healthcare executives are furious with the Obama administration and Congress.   As they wade through the gigantic health reform bill, health executives have succumbed to confusion and uncertainty about the effect on their business.  Pharmaceutical firms and device manufacturers are laying off workers.  Hospital CEO’s are reading the handwriting on the wall, with Medicaid programs in full retreat, and the safety valve of cost shifting to private insurers gummed up by the quasi-price controls on private insurance.  Hospital payrolls actually shrank in June, for only the third time in the recession.   So even the reliable healthcare jobs machine is likely to reverse gears in the rest of the year. 

By now, I’m sure you’re asking what would I do if I were President?   Wellllll,  since this President seems at his best when firing people who’ve disappointed him, I’d fire my incompetent economic advisors, starting with the idiot who predicted that unemployment would top out at 8% if Congress passed the stimulus package. Then I’d call back my ex-Budget Chief Peter Orszag, the only grownup on his economic team, and pledge to do whatever he felt necessary to get our fiscal house in order. Orszag’s resignation was almost certainly related to his failing to prevail over White House economic and political advisors over the need to attack the deficit.  Orszag’s departure was both untimely and damaging.

I’d have Orszag prepare the FY12 federal budget he wanted, one that aggressively cut wasteful federal spending wherever he could find it.  If the Brits can do it, so can we.    I’d institute a stiff tax on soft drinks and transfats, consistent with the First Lady’s campaign against child obesity.  I’d use that money to pay for a reduction in the corporate income tax rate.  I’d let the Bush income tax cuts expire for everyone, not just the “needlessly wealthy” and use some of the increased revenue to reduce capital gains taxes on  any business investment in plant or technology that increased American jobs. And I’d tell the public sector unions, that unless they agree to wage freezes and sharp reductions in their pension contributions, which are drowning state and local governments, I’ll reduce federal education and other public subsidies to their states. Finally (it’s now next spring),  I’d send Rahm Emanuel up to Capital Hill to negotiate a budget deal with the new Republican majority in the House, just as he did in 1997 for Bill Clinton with Newt Gingrich.   

Finally, I’d begin renovating my house in Hyde Park and preparing for the end of the achievement filled but unpopular one term Presidency Obama said he’d rather have than to live with gridlock.    Academia isn’t such a bad place.    Blaming George Bush for this economy is no longer helpful politically.  This is now Barack Obama’s recession, and unless begins taking some real political risks, including with members of his own party who are a major part of the problem, the bright promise of his Presidency will be extinguished.   

Categories: Uncategorized

Tagged as:

15 replies »

  1. Salaried medical practice, everyone working for the hospital, that’s innovation? According to MGMA, 65% of all physicians hired last year were hired by hospitals or systems, and about half of all docs leaving training.
    Why that’s just like the National Health Service (except the NHS doesn’t employ the primary docs), or Kaiser, which is, effectively, completely unionized. These are seventy year old business models that are remarkably rigid and challenged on responsiveness and customer service. Why aren’t we having a debate about whether this is what we want, because it’s happening at lightening speed?

  2. Margalit;
    I don’t happen to agree with you that small practices necessarily = better quality. In fact, they often lack the basic quality controls and systems-oriented thinking that larger practices do. I do understand your fear that the large monoliths, having consolidated power, will proceed to put profit over quality, and this is a real concern. See Paul Levy’s post on this blog (and his own, runningahospital.blogspot.com) concerning equity investors’ eyeing hospitals as attractive investments.
    But physicians learn best medical and systems practice in group practices of at least a certain size. Good EMR would help – why you need to keep posting on this blog! (:

  3. Were the consequences really unintended? The grumbling about “cottage industry” and “mom and pop shops” were around for quite sometime, and so where the high praises for the outlier integrated systems with their salaried docs and “economies of scale”. And if eventually government will be setting the prices anyway, like in the much admired Maryland, then consolidation and extinction of private practice will make no difference, other than to quality as we know it, but I have a feeling that the meaning of “quality” will be redefined towards “value” and “convenience”, so it’s all good and perfectly in line with Prof. Christensen’s notion of innovation – a cheaper, lower quality product that will first attract non-consumers and then march upmarket to replace the dinosaurs.

  4. “But it would work just like our recent Wall St. experience worked – with periods of great success followed by periods of abject failure.”
    Compared to government provided healthcare which is just complete failure, this is better becuase it is consistent? I rather have highs and lows then all lows.

  5. Jeff (and Nate);
    As Clayton Christensen writes, those who benefit by the status quo fight tenaciously to maintain that status quo, hence the reactions you describe. It is precisely when there is panic and disarray that innovative solutions can gain traction, and who’s to say who will wind up in power? Docs are very (and rightly) wary of ceding even more power to hospital administrators, so virtual ACO’s have a chance, even if a small one. The point is, the pot was stirred. It would not have been had a bill not been passed. If things get worse, then all the more reason that something else will be tried.
    In other words, I think things were so desperate that any action was better than no action – a nihilistic viewpoint, yes – but realistic in my view.
    Nate, yes we could apply the free market to health care as you advocate, and it would work. But it would work just like our recent Wall St. experience worked – with periods of great success followed by periods of abject failure. This is how a free market runs, with wide swings in either direction. Are you willing to gamble that it will be your life lost during one of those swings downward? It’s one of those things that sound good in theory, but is no more workable in fact than the government interference you describe (and which I also recognize, by the way. It’s just a matter of what the choices are.)

  6. Jeff, perhaps you could dispel some confusion about the US having “the highest corporate tax rate among developed nations, along with the highest corporate income tax rate”.
    I’m sure you’re aware that comparing isolated elements of national tax schemes is like comparing isolated elements of population health status indicators. Neither exercise is easy, and neither is terribly conclusive even when well done.
    So why suspend so much of your extended argument on the slender thread of that tenuous assertion – and then fray it with your subsequent post asserting that, rather than fleeing the field with their resources under their arms, in the face of health reform hospitals and health systems are “doubling down” on consolidation of their corporate selves?

  7. You’d be amazed about how much of the discussion in the hospital and health system community is “solving” the problem of reducing health costs by a further wave of merger and acquisitions, and how important it is to roll up the community’s physicians inside the hospital/system so that “incentives are aligned”, etc. The wave of unintended consequences of this legislation is underway LONG before anyone actually enrolls in coverage. It’s not clear how the health insurers are going to respond to this; intense confusion and anxiety reigns. Anxious people make bad strategic decisions.
    Protecting the franchise, not “reducing costs”, is the visceral response.

  8. “HOWEVER, if this bill had failed, there would have been no health reform of any meaningful sort”
    Sometimes the best treatment is no treatment. Sometimes the best reform is no reform. I could list a dozen “reforms” that didn’t accompolish their stated goal, increased cost, and had a negative impact on cost and care overall. In those cases and many others, no reform would have been the best reform.
    Keep in mind in the past 5 years of increasing cost by no means have they been absent reform. It was minor federal and major state reform that lead premiums to double.
    “Unfortunately, our country cannot seem to do anything without an immediate crisis confronting it.”
    Our politicians do nothing until there is a crisis and then usually do the wriong thing and to much of it.
    “The effect of this bill has been to throw everyone into a panic and really generate some serious conversation and even action around reducing health care costs. You would not have seen that even discussed had the bill not passed.”
    Everyone was talking Healthcare long before this bill passed, this bill took those discussions off productive paths and destroyed any hope for useful discussion that could generate even a possibility of positive outcomes.
    Since 1965 there hasn’t been more then 12 months that Healthcare wasn’t reformed. Politicians are always tinkering and 95% of the time making it worse. We didn’t need this terrible bill any more then we needed a hole in the head

  9. Not really sure why you voted for Obama, Jeff. I am also disappointed with his actions (or lack thereof), but in the exact opposite direction. Health care reform is too tepid. We should have had a public option when all the needed majorities were there, and the entire thing should have become effective in 2011.
    And right now, I hope he goes with Paul Krugman’s option. As Krugman said yesterday, you don’t go an a diet while you are starving. We need public works, meaningful public works, capital creating public works.
    Unfortunately, we will probably get just another ill conceived, ineffective compromise, and after November, it will be a long string of more of the same. Mr. Emanuel will achieve nothing on the Hill. Republicans made it abundantly clear that they will not work with THIS President. Do you think the tune will change when they have a majority, or even a bigger minority?

  10. Jeff;
    I didn’t mean my comment personally and your personal politics doesn’t matter to me. I guess I saw your post as more a general political commentary on Obama’s presidency rather than a predominantly health-related post,although it is true the two are intertwined.
    My own view is that this is not a very good health bill. HOWEVER, if this bill had failed, there would have been no health reform of any meaningful sort (no matter what the republicans claimed would have happened) for the next 10 or more years – and that we could not survive. As a retired physician, I am in a group policy offered by my professional association, and my premiums are rising about 15% every 6 months, between their normal increases and my increasing age over 55. I already have a 10K deductible and there is not much further up I want to go. Yes, I can afford it, but there are many who can’t. The # of uninsured would have started to rise exponentially.
    The effect of this bill has been to throw everyone into a panic and really generate some serious conversation and even action around reducing health care costs. You would not have seen that even discussed had the bill not passed. Unfortunately, our country cannot seem to do anything without an immediate crisis confronting it.
    For that reason, looking at the long term, I think Obama made the right decision, even though it may well make him a one term president. It’s just too bad it had to come to that, when a reasonable bill could have been passed at much less cost years ago.

  11. Here’s a few suggestions on my solution to go back the way we were when we were all happy and making money. Make Jim Cramer secretary of the treasury, after all we could use some pre-recession realistic hype, remove all regulation from business cause business knows best, get back to those liar loans (silly little income qualifications), give everyone a cedit card with no limits spending, allow real estate agents to once again conspire with appraisers to set home values, allow rating agencies to get back to giving that AAA rating to any junk security cause the only bad debt is the one you’re holding, allow predatory lending of those usary ARMs so we can fill up those houses again, only allow CNBC’s analysis of the stock market cause bad news is bad for business, especially when you’re trying to suck in the little guy, and let’s let the banks invest in any damn thing thay want, after all it’s only YOUR money not MY government protected bonus.

  12. My God! We have a politcal statement that has such leanings of a Tea Party Sponser. If you find someone who has a answer for everything.It is time to question the very premise of ones ideaology.
    If its your conception to give Corporate America a free pass from Civil and Criminal responsibility. Then your ideals are critically and prefoundly flawed. We are raised to be accountable for our actions and/ or inactions and in your view Corporations are not to be held accountable for theirs. The Scales of Justice are to be swayed by ones Monetary worth?
    BP turns the Gulf of Mexico into a tar Pit, kills ocean ecology and ruins lively hoods of those who respect and conserve our oceans for Future Generations. Yet! you dont think they need to be called in on the Carpet. No Wonder America’s Values are being flushed and our Country’s resources are being eroded.

  13. I’m sorry if you were offended by the politics, Bev. You’ve always had very thoughtful contributions to this blog. I’m a Democrat who voted for Obama, and I expected, indeed, was promised, a more conciliatory and balanced approach than the one he’s taken.
    This post was about the price paid for pressing ahead with health reform when we couldn’t afford it, nothing more or less. No-one expected him to end the recession in eighteen months and his administration is far from over. But he isn’t going to get us where we need to go without a fundamental change in economic strategy. And the gains in health reform will be placed at risk unless he does. . .

  14. Well, I have been teetering for some time on the edge of ceasing to read this blog (too many “borrowed” posts, tired retreads, predictable comments from too few thoughtful commenters, etc.), but this post has pushed me further over the edge. Health care takes up about 1/8 of it; the rest is political diatribe. Take it to the Wall St. Journal or something; it doesn’t belong here.

  15. I like your analogy – here’s mine.
    The economy seems to be like that loaf of bread that’s been sitting in the bag for over a week. It’s starting to get mold on the edges, and nobody knows whether to throw it away or pick off the mold and make french toast. Unfortunately, this problem is so complex and global, it will probably just continue to sit there and gather more mold.