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Thursday, May 26, 2016

THE SIMPLE TRUTH

Jeffrey Sachs has a must-read op ed in today's Washington Post.  I pay to get access to the Post but if you do not, here it is [I imagine this is illegal, but what the hell]:


Jeffrey D. Sachs is director of the Earth Institute and a professor at Columbia University.

Mainstream U.S. economists have criticized Democratic presidential candidate Bernie Sanders’s proposals as unworkable, but these economists betray the status quo bias of their economic models and professional experience. It’s been decades since the United States had a progressive economic strategy, and mainstream economists have forgotten what one can deliver. In fact, Sanders’s recipes are supported by overwhelming evidence — notably from countries that already follow the policies he advocates. On health care, growth and income inequality, Sanders wins the policy debate hands down.

On health care, Sanders’s proposal for a single-payer system has been roundly attacked astoo expensive. His campaign (for which I briefly served as a foreign policy adviser) is told that his plan will raise taxes and burst the budget. But this attack misses the whole point of his health proposals. While health spending by the government would go up in the Sanders health plan, private insurance payments would disappear, generating huge net savings for the American people.

Countries such as Canada, Germany, Sweden and Britain all follow something like a single-payer approach and pay much less for health care than the United States does. While the United States spent 16.4 percent of gross domestic product on health care in 2013, Canada paid only 10.2 percent; Germany, 11 percent; Sweden, 11 percent; and Britain, 8.5 percent. U.S. overspending is about 5 percent of GDP, or nearly $1 trillion as of 2016, mainly because of the excessive market power of private health insurers and big drug companies. An authoritative study by the U.S. Institute of Medicine confirms this extent of excess costs, finding losses of about 5 percent of GDP in 2009. Critics of Sanders’s health plan have failed to recognize or acknowledge the huge savings and cost reductions that would accompany a single-payer system.

On economic growth, Sanders also easily wins the debate. While President Obama opted for a short-term stimulus that peaked after two years and disappeared by the end of his first term, and Hillary Clinton has proposed a modest infrastructure program over five years, Sanders calls for a much bolder public investment program directed at the skills of young people (through free college tuition) and at modernizing and upgrading America’s infrastructure, with a focus on renewable energy, high-speed rail, safe drinking water and urban public transport. Sanders’s growth strategy would get back to fundamentals: a long-overdue increase in productive investments to underpin good jobs and rising worker productivity.

Sanders’s mainstream critics are mostly Keynesians. Their focus is on total spending, whether it’s consumption or investment. Sanders, instead, focuses on investment because long-term growth depends on more rapid capital accumulation (including in skills and technology). America’s slow growth is no mystery. The U.S. net investment rate has declined to about 5 percent of GDP, down from about 10 percent of GDP during the 1960s and 1970s. Sanders’s plan would restore a high-investment economy and, with it, a higher growth rate.

On income distribution, Sanders accurately argues that U.S. income inequality is uniquely high among the rich countries. Only the United States has deep poverty alongside soaring wealth. Only the United States tolerates a hedge-fund industry in which poorly performing money managers (not to mention quite a few crooks) take home billions of dollars in pay, backed by unconscionable tax breaks pushed by Democratic and Republican senators who live off of the largesse of Wall Street.

Consider the most basic measure of income inequality, the Gini coefficient. This measures the inequality of income among households, with zero signifying complete equality and 1 complete inequality. For high-income countries, a Gini coefficient below 0.3 reflects a low degree of income inequality; between 0.3 and 0.4, a moderate degree; and at 0.4 or above, a high degree. According to the most recent data from the Organization for Economic Cooperation and Development, the U.S. Gini coefficient stood at 0.40, with Canada at 0.32; Germany, 0.29; Sweden, 0.27; and Britain, 0.35.

What accounts for this striking difference? Most important, U.S. inequality has soared in the past 35 years, since the start of the Reagan era. The U.S. Gini coefficient stood at 0.31 in 1980. All countries have faced market pressures pushing toward more inequality — especially increased trade with low-wage countries such as China and automation that has claimed the jobs and wages of workers with only high school educations. Yet only in the United States have these pressures turned into massive inequality of income.

The reasons are clear. The United States unleashed the power of CEOs to enrich themselves with mega-salaries, weakened trade unions and gave massive tax breaks to the super-rich. Sanders’s policies would go after all of these unconscionable moves, bringing the United States back into line with the rest of the high-income world. He would, in short, end the age of impunity in which the rich and the powerful get their way, while the rest suffer. Sanders’s policies include higher taxes on the rich, strengthening unions, raising the minimum wage, supporting families, providing free tuition at public universities and cracking down on financial crimes.

There is nothing magical or utopian about Sanders’s recommendations. He is advocating policies of decency long ago adopted by other prosperous high-income countries. Our own neighbor, Canada, is a case in point. Canada has lower-cost health care, a life expectancy two years higher than in the United States, much lower college tuition, far lower poverty rates and, not surprisingly, more happiness (ranking sixth in the world in life satisfaction, behind Scandinavia and well ahead of the United States, which is 12th).

Mainstream economists long ago lost the melody line. Their models are oriented to the status quo and underemphasize the benefits of public investment. They take America’s bloated health-care costs as a given, not as the result of the influence of the U.S. private health lobby. They treat low growth as natural (“secular stagnation”) rather than as the result of chronic underinvestment. They have come to accept cruelly rising income inequality and rampant impunity for financial crimes. Sanders knows better, based on worldwide experience, an abiding sense of decency and a strong and accurate vision for a brighter economic future.

 

7 comments:

s. wallerstein said...

Thanks for posting this.

David Palmeter said...

I don’t think all mainstream economists oppose single payer; the argument I’ve seen (and think is correct) is that it is not politically possible to get it in foreseeable future. Obamacare couldn’t even get a public option. Recall how far Bill Clinton got with his health care efforts.

As to stimulus, Obama had to cut and cut his requests to get the votes in the Senate to pass anything. I recall seeing an Obama advisor (can’t recall who) at the time being asked for his response to Paul Krugman’s criticism that the stimulus was too small. The response amounted to something like this: “We don’t need Krugman to tell is that the stimulus should be greater; we need him to tell us how to get 60 votes in the Senate for it.”

Chris said...

David, when Obama was trying to pass health care reform Democrats had a majority in the senate and house. Bare minimum they could have started at single payer and compromised on a public option. Instead, Obama appointed several straight up Rx and health insurance corporate funded democrats (the names of which presently I cannot remember but could find them again if pressed to) to spear head the legislation, and started in the political middle and compromised towards the Romney plan.

As usual Democrats are much further right than people seem to know...

David Palmeter said...

Chris,

You’re correct that the Democrats had a majority in both the House and Senate during Obama’s first term, and if they had voted in the lock-step way of parties in a parliamentary system, single payer could have passed. But that wasn’t the case in our system, even with the majorities.

Conservative Democrats, like Mancin of W. Va. in the Senate balked at most of Obama’s initiatives. He had to reduce the stimulus package to get Snow and Collins of Maine on board. Pelosi’s House majority included the conservative “Blue Dog” Democrats who were opposed to much of Obama’s program and had to be bought off. I’ve forgotten the details, but it is clear that without the support of people like Mancin, Snow, and Collins, there was no way Harry Reid could get 60 votes for a Mother’s Day resolution.

The question then for Obama was whether to go with single payer and lose nobly for a great cause, or to try to better the current situation to degree possible. Given the experience with Hillary Care in the 90’s, I don’t think there was anyone who seriously thought that single payer had a ghost of a chance. The insurance industry was just too powerful; it had defeated Clinton and there was no reason to believe it wouldn’t do the same to Obama. The Administration’s political judgment was that a single payer plan would not be taken seriously and would be dead on arrival. This might have been wrong in this assessment, but some fairly shrewd observers of the House (Emmanuel) and Senate (Biden) were involved in the judgment, as well as Pelosi and Reid. I know of no basis to say that they were wrong.

Obama, therefore, decided to co-opt the industry and get them behind the program, which he did with the individual mandate. It’s far from the ideal single payer, which I would vote for without question, but it’s also much better than the previous situation.

Chris said...

David,
I would argue with your order of operations, it's not that "Obama, therefore, decided to co-opt the industry and get them behind the program", but that the industry co-opted the plan before it got rolling, and got what they wanted. Now you could argue that I'm incorrect because " It’s far from the ideal single payer, which I would vote for without question, but it’s also much better than the previous situation, " but empirically that's not true. The insurance industry is MORE powerful, not less. Rx profits are higher, not lower. Insurance profits are higher not lower. Yes more people are covered (although still not over 20 million I believe), but if you actually go into the details as to whether or not this coverage is helping or hurting them, the answer is that it's DEFINITIVELY financially hurting the newly insured (my wife and I for instance now have to pay an extra $320 a month, a huge HURT when she's a hair stylist and I'm a teaching assistant, i.e., we are poor), and medical results are not all that better, if at all. Moreover, if something big and bad actually happens to my wife and I, or other working families under Obamacare (e.g., cancer) the co-pays and deductibles are so outrageous, we are still going to go bankrupt (e.g., my wife's plan for instance only kicks in during traumatic crisis and would still bankrupt us). So basically, they get $320 from us a month, and if we ever need help we are guaranteed bankruptcy.

So the objective facts are this.
Insurance and Rx more profitable.
Working families are poorer.
Actual medical outcomes, about the same.
Source:
http://www.nytimes.com/interactive/2014/10/27/us/is-the-affordable-care-act-working.html#/

So yeah fine, this plan is "better", I guess, if you're rooting for corporations. If you're for working families (like my family) we are worse off.


Other sources besides anecdotes:

http://isreview.org/issue/94/affordable-care-act
http://www.nytimes.com/2016/05/15/sunday-review/sorry-we-dont-take-obamacare.html?_r=0
http://www.nytimes.com/2013/10/03/health/millions-of-poor-are-left-uncovered-by-health-law.html?pagewanted=all
http://www.nytimes.com/interactive/2014/10/27/us/is-the-affordable-care-act-working.html#/

Best,
Chris

David Palmeter said...

Chris,

I'm very sorry about your situation. It's easy for someone like me, who is not affected by the program's short-comings, to be dispassionate about them. My wife and I are both on Medicare, so they don't affects at all. Two of our children have benefited from Obamacare, and that no doubts colors my view of it. Previously, they had been without employer-provided insurance and have been able, under Obamacare, to get fairly good policies that they could afford.

The prescription drug situation is unconscionable. A few years ago, before I retired, I had a medical emergency while in Geneva, Switzerland. The hospital gave me a prescription which I filled at a Swiss pharmacy without benefit of insurance. It cost about $22 equivalent in Swiss francs. When I got home,my doctor gave me a prescription for another 30 day's supply which I filled at the local CVS. My co-pay was $20. The pharmacy, of course, collected quite a bit more from my insurance carrier and the manufacturer also collected more--for the same drug, same manufacturer--Pfizer.

Chris said...

David,
Appreciate the sympathies. I do want to be clear though, although my personal anecdotes render Obamacare as ineffective at best, and corrupt at worst, the statistics and experiences my wife and I have are backed by the data in the first NYTimes link, and the subsequent ISJ link. Even without Obamacare I would go bankrupt if we had cancer or got in a car wreck, it's just now we ALSO get to essentially give away $320 a month, plus still pay into medicare, medicaid, and the level of income taxation which helps cover government officials (i.e., paying into 4 health care programs!).

On the plus side, as a student and employee at my university, I can pay about $60 a semester for near unlimited trips to the campus doctor....So I go in all the time getting constant check ups to ensure I don't have any unexpected accidents that my insurance will bankrupt me over.

Best,
Chris