Why Obama is failing on health reform

Recent setbacks are real, but it must be emphasised, first of all, that some kind of health reform is still likely to pass. For the Democratic party to come up with nothing under these circumstances would be an act of self-harm remarkable even by its own standards. The Democrats would be seen as incapable of governing. Essays describing the long-term leftward realignment of US politics in 2008 would have to be trashed, less than a year after that supposed electoral earthquake.

Precisely because it would be such a catastrophe, the Democrats - surely - cannot let it happen. At worst, a scaled-down reform can be put together. So long as it provides a substantial widening of insurance coverage, along with the taxes and/or savings to balance the books, the party can claim victory and retreat. Perhaps this is where Senate Democrats may soon be heading and, with little alternative, House Democrats might be willing to follow. In this limited sense, Mr Obama is right when he says, "Don't bet against reform."

But the question remains, why under these uniquely favourable circumstances has the process run into such trouble? In my view it is not because the US rejects the case for comprehensive health reform. The fault lies with the president, and his strange failure to lead.

The Gates affair

The incident reminds me of a case near my home in Georgetown a while back. After a robbery and murder, a senior police officer advised residents to be alert to black men in the area--his point being that very few live there, so their mere presence should arouse suspicion. The comments attracted wide attention and caused an outcry. 

For the police (or anybody else) to be suspicious of somebody on grounds of race alone is unjust and unacceptable, and it is surely plain bad policing too. I don't doubt that it happens all the time, and the anger of many black Americans over this seems entirely justified. I do find myself wondering, though, whether the Gates case really fits the same pattern, and whether Obama was right to react as he did.

Certainly the outcome was absurd. To cart Gates off in handcuffs for disorderly conduct after he was confronted in error in his own home is preposterous. But everybody, including Gates, is just taking it for granted that this could only have happened to a black man. Based on my admittedly limited encounters with the police, I find it easy to imagine them doing exactly the same thing to a white man.

Conforming to the pattern of learned brainlessness which seems pervasive through many US bureaucracies, public and private, the police seem obsessively preoccupied with "following procedure". If a person, black or white, becomes angry and unruly when being interviewed by an officer, I can well believe that the procedures call for handcuffs and detention. Whether the procedures cause crazy outcomes is no concern of the officer on the spot. The training seems to induce limitless tolerance for absurdity. These are the procedures. The officer has no discretion. It is all by the book.

This is the same mindset that has TSA officers dismantling the wheelchairs of sweet old ladies to check for explosives. It is also the mindset, by the way, that has prisoners like Bernie Madoff, an old man who poses no physical threat, cuffed and shackled as he is moved to and fro. I don't know what the rules called for in the Gates case, or what actually happened. But if you ask me whether the same thing could have happened to a white man, my instinctive answer would be, "Sure, why not?".

In any event, it was unwise of Obama to say the police acted stupidly--and to affirm that race was a key factor--without knowing all the facts. You'd think a lawyer would know better. On the other hand, of course, he and Gates are friends, and Obama may have found it impossible to believe that Gates could in any way have been in the wrong. Nonetheless, a milder comment, deploring the outcome--which was bad on any analysis--but not assigning blame so confidently, and not simply assuming that race was a key factor in this instance, would have been more presidential.

Anyway, so much for post-racial America.

Bernanke's exit

The Fed chairman told Congress how the central bank would unwind its interventions once the recovery picks up (testimony; Monetary Policy Report, see pages 34-37).

The FOMC is confident that it has the necessary tools to withdraw policy accommodation, when such action becomes appropriate, in a smooth and timely manner.

Bernanke describes the techniques. They include paying higher interest on bank reserves to keep the funds locked in, or reducing the volume of reserves by selling debt (in co-operation with the Treasury, in the case of Treasury bills). One way or another, the Fed does have the tools. The key questions are timing and politics. The timing is bound to be difficult, as unemployment stays high even as the economy starts to rebound. Keeping monetary policy too loose for too long is at least part of the reason we got into this mess in the first place. And not many voices were raised in protest against that policy at the time.

Politics worsens that dilemma of course. Will the Fed be allowed to make its own judgement about monetary policy? It doesn't help that Bernanke's term is nearly up: that gives Congress and the administration extra leverage. Congress is unhappy with the way the Fed has conducted itself lately, and is in the mood to change the rules. Wider oversight powers by the Government Accountability Office are being discussed. Bernanke touched on this in his testimony.

The Congress, however, purposefully--and for good reason--excluded from the scope of potential GAO reviews some highly sensitive areas, notably monetary policy deliberations and operations, including open market and discount window operations. In doing so, the Congress carefully balanced the need for public accountability with the strong public policy benefits that flow from maintaining an appropriate degree of independence for the central bank in the making and execution of monetary policy. Financial markets, in particular, likely would see a grant of review authority in these areas to the GAO as a serious weakening of monetary policy independence. Because GAO reviews may be initiated at the request of members of Congress, reviews or the threat of reviews in these areas could be seen as efforts to try to influence monetary policy decisions.

Indeed they could. Having the tools is not enough. Knowing when to use them, and being allowed to, also count. Watch this space.

Obama's press conference

Not a very inspiring performance, I thought. He seemed subdued. Also, this steady emphasis on cost control as the rationale for action on health reform just does not work, I think, since the bills which Obama is ready to support largely fail to address that issue--a point which the CBO and others have driven home to the public. The substance and the presentation seem persistently at cross purposes to me. I did think it was good to underline the benefits of guaranteed coverage to those who already have insurance, though. Better late than never. I think this has been a seriously neglected theme in the drive to sell reform. That guarantee is worth a great deal to everyone, not just the uninsured.

This reference pointed to something new and significant:

We also want to create an independent group of doctors and medical experts who are empowered to eliminate waste and inefficiency in Medicare on an annual basis, a proposal that could save even more money and ensure long-term financial health for Medicare.

That idea isn't in the bills at the moment, but the administration is right to try and insert it. It might not be easy. The WSJ reports on House Democrats' response: many object.

Why is this idea significant? Because what "cost control" is going to boil down to under any of this family of proposals is the way Medicare (and the public option, if that happens) is managed. Under these structurally timid plans, the system as a whole won't move away from fee-for-service until Medicare does.

The problem is, Medicare is popular precisely because it wastes so much money. The harder Congress and/or the administration press down on Medicare outlays, the better the prospects for cost control across the whole system, and the louder Medicare's existing beneficiaries and their advocates will complain. This is the political challenge that will kick in as soon as any reform to widen coverage--any "health insurance reform", as Obama called it last night, in an interesting choice of words--is on the books.

Obama's suicide march

I don't know if I would call it a "leftward surge" or a "suicide march"--a little hyperventilating for my taste--but David Brooks is essentially right in this column. Those, including me, who predicted that Obama's most difficult challenge would be his confrontation with Democratic party liberals have been proven wrong. Obama is falling out not with them but with the party's moderates. As Brooks says, he did it on the stimulus, he did it on the budget, and he is doing it on healthcare. Obama remains well-liked overall, but his support among independents is slipping, and his policies are less popular than he is. A rot appears to be setting in. Can the White House really be surprised?

For a moment put the merits of the policies to one side. (Just to remind, I was for a big fiscal stimulus, but wanted to see more front-loaded tax cuts; I was dismayed by the long-term fiscal implications of the budget; I am for comprehensive health reform with a guarantee of universal coverage but favor broad-based taxes to pay for it, including limits to the tax deductibility of employer-provided insurance.) Let us suppose Obama thinks that Nancy Pelosi and the unions are right on all these topics, and Max Baucus is wrong. Even then, shouldn't somebody be advising him on political strategy? This is the aspect I find completely perplexing.

Brooks says:

The party is led by insular liberals from big cities and the coasts, who neither understand nor sympathize with moderates. They have their own cherry-picking pollsters, their own media and activist cocoon, their own plans to lavishly spend borrowed money to buy votes.

No doubt, but surely even from within the cocoon you can see what a losing approach this is. Why did Obama win in the first place, for heaven's sake? Because he campaigned as a centrist. Admittedly, what he really believed was often in doubt, and some of the policy specifics made one wonder. But look at health care. He positioned himself to the right--toward the cautious center--of Hillary Clinton. And it worked pretty well, didn't it?

If Obama offends the left, what are they going to do apart from whine? Let them whine. If he offends the center, he loses votes and is deeply wounded electorally. And so is the party in Congress, since the swing seats are almost by definition the ones where moderates and independents drive the outcome. When Max Baucus declared that the president wasn't helping him, sirens should have gone off in the White House--and some advisers should have been fired on the spot.

Obama could fix this problem so easily. I say that because I don't think he has strayed as far left as Brooks does. It's as much about messaging as policy. But he has to start disappointing the party's liberals. He has to pick a fight or two, and takes sides with the centrists. In choosing the party's liberals over the party's moderates, he is repudiating one of the most brilliant campaigns ever seen. I simply don't understand it.

Do we need another fiscal stimulus?

Measures of confidence are indeed beginning to pick up. Most companies now say they expect improving market conditions; six months ago they did not. The stock market is no longer contemplating doom. Credit flows are normalising. Output is flattening off. But the role of fiscal policy is ambiguous.

The stimulus this year and especially next directly injects demand, which is all to the good. But the stunning scale of the intervention adds to growing alarm about an approaching fiscal crunch. On present policies, the public debt is on a path of explosive growth. The danger is that when it comes to confidence, what the stimulus gives, the debt projections take away.

Is health reform on track?

This week's story was the faltering momentum of health reform, tending to contradict the argument I advanced on Monday. Despite the ongoing Congressional tussles, which are exactly what one should expect, I stand by my prediction that health reform will pass this year. There might not be a measure by the August recess--a phony deadline if ever I saw one--but there will be by the end of the year. I have three main reasons for thinking this. 1. So far as substance goes, the differences between the various bills are pretty small, and the financing gaps are bridgeable. A House-Senate deadlock is easily avoidable. 2. Obama has come close to staking his presidency on this. On Friday, reacting to a couple of perceived setbacks, of which more in a moment, he doubled down on that commitment in an unscheduled press conference. 3. Most important, Obama has said he is willing to sign more or less anything and declare victory. If a Democratic Congress cannot oblige him even to the extent of giving him some bill, any bill, to sign, when failing to might sink his presidency, I will be astonished.

Whether it's a good bill is of course an entirely different question, and I would say the odds on that are now  slim. We will get a substantial increase in coverage, which is good, but without meaningful action on cost control, and the necessary revenue will be raised, if at all, in stupid ways.

One thing that surprised me about Obama's statement today was that he continues to emphasize cost control, as opposed to wider access, as the principal driver of reform. It is obvious by now that Congress has no stomach at all for cost control, and is arguing mainly over how to raise the taxes necessary to pay for wider coverage. Obama's selling proposition, so to speak, is therefore beside the point; moreover this rhetorical defect is obvious, which is not like him at all.

Douglas Elmendorf's statement in Congressional testimony on Thursday only underlined the point. The CBO director said the bills barely even try to address costs in a meaningful way--"In the legislation that has been reported, we do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount"--and on the whole push in the opposite direction. This should have surprised nobody: the CBO has been saying the same for weeks in its various efforts to score the bills. Be that as it may, Elmendorf's testimony was widely called "devastating" and was greeted as a crucial new development.

This was the setting for Obama's remarks on Friday. With the CBO critique fresh in people's minds, what did the president say? That we must have health reform to control costs! With the best will in the world, you have to call this strategy puzzling.

What would be so wrong with saying we must have health reform to address economic insecurity--note this is not just about the 40m uninsured; people with insurance are worried about losing it--and that the price in higher taxes is worth paying. It happens to be true, after all. That should count for something. Is it really so hopeless a platform?

Max Baucus, chairman of the Senate Finance Committee seems to get it. He is keen on rolling back the tax deduction for employer-provided insurance, a move that, outside union circles, is universally regarded as a great idea. So far, the White House has said no. Noting that Obama is apparently willing to say yes to everything else, his objection to the most straightforward financing solution is difficult to understand. (Well, he promised not to raise taxes for non-rich Americans, you say. That's true. So he did. But he knows that he will have to break that promise regardless. The payroll tax component in the bills breaks it. The tax penalty on individuals defying the mandate breaks it. Why not start work right now on explaining, um, what the pledge really meant?) The second thing that surprised me this week was Baucus's open criticism of the president. "He is not helping us," Baucus said. My word. Three cheers for Baucus. Obama should listen to him. Three cheers for CBO as well. Where would fiscal policy be without it?

My column for NJ this week looks at France's wonderful healthcare system, and says why it may not be much use as a model for US reformers [link expires in two weeks]. A mandatory read if you follow this subject at all is the piece by the invariably excellent Marilyn Werber Serafini, also in this week's NJ. The real model for what the US is going to do this year is the Massachusetts health reform. "Not an unqualified success," says Marilyn. Do yourself a favor and read her article.

Confirming Sotomayor

Watching the two days of quasi-questions and pseudo-answers I formed conflicting impressions of the Sotomayor confirmation hearing. First of course is the falsity of the process, in the sense that the outcome is more or less pre-ordained. The Democratic senators luxuriate in that; the Republicans try vainly to pretend that their votes matter. At the same time, one thinks, how admirable. How American. British readers, I ask you: can you imagine Britain's Law Lords put through a similar grinder? Despite the bloviating self-importance of the senators (most of them anyway) and the elaborate evasions of the nominee, the process is more than mere theater. It's a chance for the public to see the people who rule them tested, and put in danger of making fools of themselves. That's good.

The nominee was composed and impressive. She gave a convincing show of welcoming the opportunity to explain her thinking. She was more likable than I had expected as well, for what that is worth. But she got off easy, don't you think? It seemed to me she did not so much clarify the liberal-sounding speeches and remarks ("wise Latina woman" and so on) that have so preoccupied her critics as simply retract them. And both sides let her do it. In my mind, these serial disavowals kept raising the question: well, what does she actually believe?

Again and again when substantive issues were posed, her answer was the same: "Congress makes the laws. The job of a judge is to apply the law." Oh please. "The law", as she repeatedly observed, embodies precedent. So when the court laid down those precedents, it was making law on her own definition, was it not? This is not a conservative v liberal thing. Supreme Court justices, conservatives and liberals alike, make law. The worrying thing is that they increasingly strive to make different politically-freighted laws, and have settled into a pattern of closely split decisions along predictable ideological lines. If she was asked about that, I missed it.

Moreover, there are only nine Supreme Court justices and they sit for decades. If confirmed, the unelected and unaccountable Sonia Sotomayor will be a more powerful lawmaker than any of the senators who questioned her. We think we know from her speeches what she thinks about various policies she will be asked to rule on, but this week she wasn't telling, and out of a misguided sense of judicial propriety the senators failed to insist.

On points of substance, almost her entire testimony could have been delivered by John Roberts or Samuel Alito. With names and personal reminiscences redacted, who could tell the difference? It will be interesting to see how often Sotomayor is on the other side of a 5-4 decision from them, despite their purportedly identical "judicial philosophies".

Two cheers for US health reform

After a frazzled week, the politics of US health reform looks messier than ever. Yet the odds on a bill passing in the end are improving. It will be an untidy thing, but if it moves the country close to universal health insurance the administration will call it a success. And on the whole, despite the avoidable mistakes this legislation seems bound to embody, that will be a fair assessment.

At the moment this view may seem unduly optimistic. The Democratic leadership in the House of Representatives had hoped to produce a finished bill last Friday. That plan came to nothing when the party's fiscal conservatives demanded further savings. House Democrats are also divided on revenue-raising measures. Proposals ranging from a fat tax on sugary drinks to a fat-cat surtax on households earning more than $350,000 a year are still being debated.

The Senate is struggling with the same issues: how to contain the cost of expanded insurance coverage, and how to pay for what remains, so that the reform adds nothing to the budget deficit over 10 years. Like the House, the Senate aims to broaden coverage with a mixture of mandates, regulation and subsidies. Those basic elements are decided. But at the end of last week the chairman of the Senate budget committee said that the bill's drafters would have to start all over on key aspects of the proposal.

This apparent lack of progress is misleading, however. A mixture of creative accounting and substantive amendment on both the cost and revenue sides is closing the financing gap. Meanwhile, the already broad consensus that some kind of comprehensive health reform must pass continues to strengthen. Action is now seen as inevitable. Barack Obama has staked his presidency on it. Even those who oppose elements of the bills - including organised interests that felled previous attempts--concede that something must be done. Almost certainly, something will be.

Ending the tax break [on employer-provided health insurance] altogether would pay for universal coverage, with revenue left over to set against the long-term budget deficit. At most, Congress is likely to snip, adding some revenue to other tax increases and cost-side nips and tucks. As a result, the country's labyrinthine tax code will end up even more complicated, the full benefit of ending the US model of employer-provided insurance will be lost and needed reforms in the delivery of services will mostly be ducked. But a law will be signed. Coverage will be widened. Health reform will have happened.

The White House will call it "mission accomplished". In fact, the challenge of long-term cost control will be more urgent than now, because of broader coverage. More than today, if that were possible, the tax system will need radical simplification. And health insurance, regardless of the mandates, will still be less than guaranteed. But there will be no going back - and in politics that is success.

Supreme Court on Ricci

Greetings from Tonopah, Nevada. I am meandering west at the moment en route to join a group hiking in the High Sierras. Soon I shall be lugging my camera and tripod at high altitude.

To get in the mood, my bedtime reading last night was the Supreme Court ruling on the New Haven firemen's case. I wrote a column about the case before the court ruled. A few things about the ruling--and about the case, now the ruling has taught me more about it--surprised me.

The court decided 5-4 (again) for the firemen and against the city, overturning Sonia Sotomayor. As Stuart Taylor says at National Journal, all nine disagreed with Sotomayor's summary judgment upholding the city's decision to void the promotions test. Even the minority wanted the lower court to take another look. But it seems I was mistaken when I said there was no dispute over efforts to ensure the test was fair. This is very much what the minority disputes. In their view, apparently, "disparate impact" remains strong prima facie evidence of "disparate treatment", or discrimination.

Ruth Bader Ginsburg, writing for the minority, seems to find it hard to believe that a fair test could have produced such a lopsided outcome. At first sight, that may seem reasonable enough--except for the evidence, related at length, of the efforts made to assure fairness. I think Ginsburg is grasping at straws somewhat when she talks, for instance, of possibly unequal access to test-prep materials. They are all firemen, after all.

If, without strong proof to the contrary, disparate impact reliably signals discrimination, race-based affirmative action will be with us for an awfully long time. In effect it would remain as a remedy not for racial discrimination in the workplace, but for unequal opportunity due to family circumstances and a failing education system. I cannot see that race-based affirmative action is the right response to those issues. Still less can I see it as the just response.

Happy holiday, and with luck I'll see you in the week begining July 13th.