Creating an Insurgent Recovery
Thomas Friedman wrote a very interesting op-ed piece in the New York Times recently entitled “Superbroke, Superfrugal, Superpower?” He hit on all my hot buttons about the profound consequences of America’s diminishing competitiveness in the world and why we must turn that around fast. He talked about the role of America as the world’s sole superpower and why there is no logical replacement for us on the world stage today. He talked about the need to set priorities and make choices that live into our values.
That really is what this election year is all about isn’t it? Setting priorities and making choices about what we want our country to be like for our children. The economy suks and so does our attitude about how it’s going. But this testing of our values and resolve may prove to be just what we needed to wake up to the slow slide we have been on for some time.
This is not a commentary on either the Democrats in power today or the Republicans who were and may be again. We had grown complacent. We bought into a globalization theme that has sapped our strategic strengths and we spent too much time apologizing for America’s successes. We fought wars no one else would fight and we saved—or tried to save—countries that the world might have been better off without.
But something happened to us as a result of this great recession. We woke up! Sat up and said wait a minute, we don’t like what is happening to America. This is not about blaming someone for the problem—it is about fixing it.
That’s where we are now and all of our politicians are rightfully running scared because we want change WE can believe in. And that does not mean going backward either. It means we are ready for a fresh start and are in the midst of defining what that requires and who best to lead us back to competitive advantage. The TEA party movement is the political equivalent of an IED unleashing America’s pent up anger and frustration wreaking havoc when it goes off but causing us to play smarter defense and then take offensive action to deal with our real problems.
Thomas Jefferson would love this volatility and “little bit of rebellion” alive in America today. He saw the ability of the people to shout “Wait a Minute” as the singular best feature of the system of checks and balances embodied in the Constitution.
If what we want as Americans is to ‘get our groove back’ economically, politically, globally we need more than income redistribution through stimulus spending we have today or the Republican alternative of redistribution of essentially shifting America’s economic engine overseas through complex financial transactions and tax manipulation that make Wall Street rich but create little value except in the “flip and churn” of transactions.
This is the Thomas Jefferson rebellion our political class on both sides of the aisles fears. It is that we are coming to take back America seeing its promise as more than the sum of its debts. We are ready for change, but we want it our way this time.
Principles of an Insurgent Recovery
- STOP SPENDING MONEY WE DO NOT HAVE. Calls for additional stimulus spending are landing with a thud because the previous rounds have not produced a satisfying effect. The uncertainty created by the impact of rising spending and deficits has business sitting on its cash and biding time instead of investing, hiring and growing the economy faster.
- SHOW ME THE ROADMAP. Business wants to see where the economy is going and what the government will do—and how much it will cost. When that is known they can decide whether to invest in America or not. What everyone wants is certainty in uncertain times. Not everything can be fixed quickly, we know. But we want as few surprises as possible and we need to know the Government has adult supervision.
- GET OUT OF MY WAY SO I CAN GROW MY BUSINESS. The cumulative costs of ObamaCare, higher tax rates, regulatory costs in finance, energy, environment, health, state taxes to cover deficits and the fear of looming inflation are job killers. The best way to restore confidence is to create an economic and political foundation that encourages economic growth—that rising tide lifts all boats.
How to Get from Here to There
This is the hard part isn’t it? And the added problem is we mistrust both parties with majorities because they tend to revert to their worst instead of looking out for our best interests. So my formula for getting our groove back includes the following:
- VOTERS TO POLITICIANS: A POX ON BOTH PARTIES. WORK TOGETHER OR ELSE! We should elect as many non-incumbents who seem reasonable not ideological as we can this November. Congress needs more Main street people and fewer professional politicians. Throw out the leadership of both parties and start over. Elect a Republican majority in the House but with many insurgent TEA party members to give the old guard fits. Retain Democrat control of the Senate but not 60 votes so they must compromise. The President is entitled to propose his agenda but majority control of both houses by either party just leads to too many opportunities for bad behavior when we want checks and balances to require both parties to work together or face our wrath in 2012.
- VOTERS POLICY ROADMAP FOR WASHINGTON: GET IT DONE OR ELSE! Here is what we want a bipartisan effort to deliver for us by the 2012 election:
WE WANT A FAIR, FLAT TAX SYSTEM. We want it simple, easy to understand, no loopholes, few deductions and no need for an army of accountants and lawyers. We want everyone to pay something. No alternative minimum tax, no double taxation, low capital gains tax, and corporate rates lower than competing countries. The goal is to turn America into an investment magnet for the world to jumpstart investment, entrepreneurship and job creation.
ROLL FEDERAL SPENDING LEVELS BACK TO 2008. Un-appropriate all unspent stimulus money using it to reduce the deficit. Stop spending money we don’t have and reset the budget base to pre-stimulus levels across the board—and we mean it! Force a zero-based competition for available new spending and a public vote on the ranking of priorities. Ban all earmarks. Give the President line item veto authority or impounding authority to manage spending to revenue. We want this done before the 2012 election.
FIX ENTITLEMENT SPENDING. Repeal ObamaCare entirely and substitute reforms aimed at introducing interstate competition into healthcare and lowering costs by the 2012 election. Make individual healthcare premiums tax deductible just as group plan premiums to create a level playing field for coverage. Means test other entitlements so the resources are spent on those most in need and put other cost savings or reform ideas on the table by 2012 election to be decided after that election for long term reforms.
When we get these things back on track we’ll focus on our global leadership role during the 2012 election. Listen up Congress, what part of get this done don’t you understand?
There ends the rant. Damn, that felt good.
Worried about Deflation? Rising Healthcare Costs will Cure it!
But the cure may be worse than the disease!
Health care costs are out of control. In a time when the economy overall faces pressures from deflation healthcare cost increases threaten to fully offset that risk with continued rapid increases.
To get the votes needed to pass ObamaCare, Congressional Democrats “reduced its cost” by delaying the effective date for parts of the program up to four years even while allowing some provisions to expand coverage to go into effect sooner. One consequence of this staging implementation is that health care costs—already rising faster than inflation—are going into warp speed.
The Hunt Family Story of Health Care Costs
My family is covered under my wife’s health care plan at her school district as we have been for the last fifteen years. Her plan for teachers was always better than the one offered by my employer. As parents of a diabetic child we chose Kaiser coverage because of the comprehensiveness of its diabetic management services—and it was cheaper than other options. It has proven a good choice for us.
As Carolyn prepares for another school year, she got a memo from the School District telling teachers that health care premiums were going up—way up for the coming year. Like most employers, the School District offers a range of options from HMO to PPO services.
The District-Union committee working to manage the costs of this benefit program was asking for advice on changes they can make to reduce the cost impacts like raising copays, deductibles on brand named drugs, higher emergency room visit copays, etc.
The bottom line: Kaiser raised premiums 10% but the BlueCross options for HMO and PPO services raised premiums 25%. This brings the monthly premium for those who elect the BlueCross PPO to a staggering $2867 per month or roughly 50% of the salary cost of the average teacher in California.
This has been the trend for the last several years. The result is that more employees each year switch their coverage to Kaiser from the Blue Cross plans. Blue Cross responds by raising premiums even higher to make up the revenue shortfall.
This year the benefits committee has been negotiating to add a third provider, HealthNet, to introduce more competition. HealthNet has offered premiums that represent as little as a 7.6% increase over this year but requires a substantial number of employees to switch to their plan from BlueCross, presumably, to make it work. It has high copays and more limited coverage to get the costs down. But the State of California specifies minimum coverage levels on many items.
This is Russian roulette since BlueCross responded that if subscribers switched in numbers needed to make HealthNet viable BlueCross would consider pulling out all together. This would simply transfer the non-Kaiser market share to HealthNet which would promptly raise premiums like any good monopolist.
Kaiser’s growth in market share is due to several factors and good strategic positioning. It offers the lowest premiums and the fewest benefit administration hassles for subscribers. By maintaining that relative market price position, Kaiser has grown substantially taking share from others who must then raise premiums to achieve their margins. But as an HMO it is managed assertively and you must learn to manage it right back to get the services you need. This is frustrating for those accustomed to a one-to-one doctor relationship, but the savings are serious money.
Why are health care premiums increasing by 25% per year? And even scarier what will the premium increases be when inflation from the growing Federal deficit kicks in? We could get ObamaCare not because we want it, but because there ends up being no alternatives we can afford.
Health Care Change We Should Believe in!
But it does not have to be that way, but it will require some changes we can believe in not those which benefit our politicians. What changes?
- Aggressively expand competition in the health care market by allowing insurance providers to offer a wide variety of plans across state lines including a basic “no frills” universal plan to serve as a floor for coverage and a basis for comparison of both benefits and costs in other plans.
- Make premiums paid by individuals tax deductible just as they are in group plans effectively since they are paid with pre-tax dollars to encourage aggregating customers and making competition work in the private plan market. Allow all individual plan providers to operate across state lines under Federal rules to enable scale.
- Force competition between group plans and individual plans based upon price by giving individuals in existing group plans the option of taking their current employer contribution with them if they move to a private plan by having it added to their salary base.
- Enable competition among aggregators to go after group plans thus allowing the scalable national market to compete for customers not only on an individual plan basis but offering more cost effective options to acquire entire groups.
- The role of the Government is to define fair rules of competition to assure that information is clearly presented and customers are able to reasonably compare the costs and benefits across plan offerings.
These changes would likely stop the out of control price increases by giving captive health care insurance customers options for coverage on a nondiscriminatory basis and forcing insurance companies to compete for customers. Health insurance would likely work as well as life insurance does today. Forcing each of us as health consumers to see competition as our friend rather than seeing health insurance as an entitlement is the fastest way to cure the health care cost spike disease.
Our Hierarchy of Needs as Uncertainty Threatens Recovery
President Obama has scored some impressive legislative victories on his policy priorities, but there is a big ‘be careful what you wish for’ caveat that clouds his success. Because much of the Obama agenda is seen as over-reach by a skeptical public, the success in passing his agenda adds anxiety and uncertainty to a fragile confidence in recovery.
The irony in this is that just when fears of a double dip recession were abating the steam seems to be going out of the slow but steady return to growth just when the President needs that growth most going into the Fall 2010 elections.
Wells Fargo Economics released its latest report on GDP performance in the second quarter calling it ‘less strength than meets the eyes’.[1] Despite real GDP growth at 2.4 percent in Q2 the economic data were revised downward for the past three years meaning the recession was deeper with real GDP declining 4.1 percent over the six quarters of recession compared to estimates of a 3.8 percent drop. Real GDP grew 3.2 percent over the past year, but the economy weakened as Q2 progressed. Fed Chairman Ben Bernanke called the economy unexpectedly fragile sending the Dow down. Durable goods orders fell in June and consumer confidence fell in July, despite solid corporate earnings and rising share prices.
The Piling Up of Doubt
The problem facing President Obama is that the sum of our fears including cost of his new programs, the impact of rising deficits, the loss of confidence in global financial markets about America’s financial strength and leadership (we keep spending while the rest of the work steps hard on the spending brakes) and the looming prospect of higher tax rates at the end of 2010 is sapping confidence and raising doubts about the sustainability of the recovery.
This is the ugly market report card on the President’s economic performance going into the mid-term elections. He still has time to turn it around before the final exam in 2012 but not with business as usual.
The problem is just when we need the President to rally consumer and business confidence that a weak start to recovery will pick up steam if we will only get out there and go about our business. The public increasingly sees the President as an impediment to economic growth not a steady hand on the rudder navigating us through the storm.
Living into our Economic Hierarchy of Needs
It does not have to be this way, except politics appears to be trumping economic common sense. To many it feels like we are watching an impending wreck in slow motion. We see the ditch coming but we just can’t see clearly enough to keep the car on the road.
- Hunker down
- Hoard cash
- Defer spending and hiring
- Push revenue into 2010 to avoid taxes in 2011
- Take profits now even at the expense of growth next year
- VOTE like your economic life depends upon it!
These are not the policies or strategies of sustainable long term growth but they are right out of the Maslow’s hierarchy of needs and they reflect the sum of our fears in an uncertain economy.
[1] www.wellsfargo.com/economicsemail
