Ben Smith got a fairly long response from Jonathan Gruber on why he hasn’t disclosed the $392,600 contracts he has had with HHS during the period when he was the chief spokesperson for the Administration’s health care plan. He lays out his qualifications and points to some studies addressing the questions I have asked (I’ll return to them shortly). The bulk of his response is spent insisting that everything he has said was completely consistent with his beliefs (which, if I remember correctly, is just what Armstrong Williams had to say).

Moreover, at no time have I publicly advocated a position that I did not firmly believe – indeed, I have been completely consistent with my academic track record. On the two issues this article raises:

But that, of course, wasn’t the point. I don’t doubt he believes all this stuff. But why didn’t he disclose it? Here’s what he says about that.

Gruber told POLITICO that he has told reporters of the contract “whenever they asked” and noted that he formally disclosed that “I am a paid consultant to the Obama Administration” in a form attached to his most recent, December 24 article in the New England Journal of Medicine, though it wasn’t widely known by reporters on the beat.

So, nine months after he first gets a contract with HHS, he starts disclosing the relationship, and only to the organization that can totally discredit him professionally, not to those that will more directly affect the health care debate? Gruber was first put under contract in March of last year–$95,000 to promote “the President’s” plan–and the received another $297,600 in June. Why no disclosure then? And why–after he decided he ought to start disclosing this stuff–did he not disclose it in a December 28 op-ed in the WaPo?

MIT health economist Jonathan Gruber has been the go-to source that all the health care bill apologists point to to defend otherwise dubious arguments.  But he has consistently failed to disclose that he has had a sole-source contract with the Department of Health and Human Services since June 19, 2009 to consult on the “President’s health reform proposal.”

He is one source for the claim that the excise tax will result in raises for workers (though his underlying study is in-apt to the excise tax question). He is the basis for the argument that the Senate bill reduces families’ risk–even if it remains totally unaffordable. Even Politico stenographer Mike Allen points to Gruber’s research.

But none of the references to Gruber I’ve seen have revealed that Gruber has a $297,600 contract with HHS to produce,

a technical memorandum on the estimated changes in health insurance coverage and associated costs and impacts to the government under alternative specifications of health system reform. The requirement includes developing estimates of various health reform proposals on health insurance coverage and cost. The alternative specifications to be considered will be derived from the President’s health reform proposal. [my emphasis]

(h/t Mote Dai)

The President’s health reform proposal? But I thought this was the Senate’s health reform proposal?!?!? (wink!)

Now, HHS says they had to put Dr. Gruber in charge of evaluating health care reform proposals because he’s got,

a proven micro-simulation model with the flexibility to ascertain the distribution of changes in health care spending and public and private sector health care costs due to a large variety of changes in health insurance benefit design, public program eligibility criteria, and tax policy.

Even assuming that Gruber is the only one in the world who can run these simulations, don’t you think it’s rather, um, dubious that the guy evaluating the heath care reform–for $300,000–is also the package’s single biggest champion?

And no one has been transparent about this contract?

Update: Actually, Gruber failed to disclose his $392,600 contracts with HSS. The reference to ongoing work in the bigger, second one refers to a $95,000 contract he had from March 25, 2009 to July 25, 2009.

In an article lacking some pretty important follow-up questions, Jodi Kantor tucks in this judgment, from C Street member Bart Stupak.

He is trying to pass the health care overhaul, he insists, not sabotage it, and predicts that the legislation will ultimately collapse for reasons apart from abortion. But he will be blamed anyway, he is sure.

“I get the distinct impression that I’m the last guy the president wants to see,” he said. [my emphasis]

Now, at one level, I think Stupak is right on. The women in both the House and Senate have proven themselves willing to allow Stupak and Ben Nelson to use health care as a means to restrict access to reproductive care in this country; there’s no reason to believe that that will change.

But I am curious why, then, Stupak believes health care will fail.

There are, IMO, two possible reasons. The most obvious would be if the House refused to accept the Senate’s Hocus Pocus Excise tax. A couple of the corporatist Democrats in the Senate, having refused other, more effective cost control measures (like drug reimportation and a public option) insist on the Hocus Pocus Excise tax, claiming they need to do something to control cost. So if the House were to refuse to accept that as is, it might well scotch the bill.

But there’s another possibility: that those same corporatist Democrats refuse to accept ways (probably subsidies) to make the bill remotely affordable to the middle class. That would be news. Because it would mean that Stupak, who is not himself a Blue Dog but who may know their mood on this, may have reason to believe we’ll actually lose conservatives in the House (or those same obstructionists in the Senate) if this bill becomes anything but a plan to turn the American middle class into serfs handing over chunks of their income away to the health care industry.

As Brian Beutler reports, Nancy Pelosi’s snippy comment about Obama’s campaign promises was a reference to the White House’s demand that the House accept the Senate excise tax.

[Pelosi] aides say she’s particularly steamed that the White House wants her to largely adopt the Senate bill in its entirety. And she’s particularly unhappy that the White House has thrown its weight behind the Senate bill’s chief funding mechanism: an excise tax on so-called “Cadillac” insurance policies, which she and many in her caucus have long believed violates President Obama’s pledge not to raise taxes on the middle class. According to one aide, that–not the public option–was likely the reason she ribbed Obama at her press conference yesterday, quipping, “there were a number of things he was for on the campaign trail.”

The House proposes paying for its bill by imposing a surtax on high-income Americans. And though there’s been speculation for months that the final reform package will include a combination of both sources of revenue, Pelosi, who’s already had to accept the demise of the public option, wants the excise tax gone.

Yet, the White House has not revisited any of the assumptions it has made about the excise tax that seem to be increasingly dubious–such as that it will end up giving workers a raise.

Interestingly, the EPI has just released a paper debunking the claim.

There is logic to [the argument that cutting health care costs leads to wage growth], but it is only skin-deep and deeper examination will show it to be simply not true. The logic can be seen looking at trends in health care premiums and wages—wage growth fared better in the late 1990s when health care premiums grew more slowly than in the early 1990s and wages performed poorly in the 2000s, a period when health premiums grew strongly again.

However, digging just a bit beneath the surface reveals the following:

1. Health care costs are not large enough to substantially move wages as these proponents claim;
2. Examination of actual wage and benefit trends confirms that changes in the trajectory of health care costs did not materially affect wage trends over the last 20 years; and
3. The wage behavior described—accelerating in the late 1990s and more slowly thereafter—actually best characterizes wage growth for low-wage workers who have minimal access to employer-based health care. Conversely, this pattern of wage-growth over time is least pronounced for higher paid workers with the most health coverage.

Clearly, this “health care theory of wage determination” is wrong, and other factors explain these overall wage trends. The simple explanation is that productivity accelerated in the mid-1990s, and the low unemployment (and hikes in the minimum wage) facilitated faster wage growth. That this wage growth disappeared entirely in the 2002-07 recovery is not due to faster health care cost increases but to weak employment growth and employers’ ability to achieve increased profitability rather than pass on productivity gains to workers. This reveals a fundamental flaw in our economy: productivity gains are not passed on to higher living standards for workers.

Now, it should surprise no one that EPI is taking this on. After all, if I can debunk this myth, than surely real economists can, too.

But I find it interesting in that the paper itself cites an earlier paper co-authored by Jared Bernstein.

About half of all workers don’t even receive employer-provided coverage. According to the U.S. Bureau of Labor Statistics (BLS), 47% of workers did not participate in employer-provided health care benefit plans in 2005. Thus, there is no health care squeeze that would explain the wage losses of nearly half the workforce. In addition, the BLS data show that among workers whose average wage was less than $15 per hour last year, only 39% participated in employer-provided health plans….. low-wage workers also lost the most ground in terms of real wages. Thus, those least likely to get health care experienced the greatest loss in real wages, the opposite of what the trade-off explanation would predict.

Bernstein, of course, has gone on to a new job: working in the White House (albeit advising Biden, not Obama directly).

In other words, they’ve got to know that their earlier claims are–at the least–potentially flawed. Yet still they push it.

Of course, there’s a reason for that. It’s that the White House has promised some kind of cost controls. There were a number of cost controls discussed which used the power of the market to bring costs down: things like drug reimportation and a public option. But the White House chose, instead, to pursue this stinker. And now it has to invent some myths–the wage increase myth debunked here–to try to get around the fact that this does amount to a middle class tax hike.

Just before the holiday, Democratic leaders forced Senator Byron Dorgan to forgo a key policy initiative–drug reimportation–so as to push through a stinker of a health care reform bill. And while he says his decision “does not relate to any dissatisfaction that I have about serving in the Senate,” over the holiday he decided not to run for re-election.

Although I still have a passion for public service and enjoy my work in the Senate, I have other interests and I have other things I would like to pursue outside of public life. I have written two books and have an invitation from a publisher to write two more books. I would like to do some teaching and would also like to work on energy policy in the private sector.

So, over this holiday season, I have come to the conclusion, with the support of my family, that I will not be seeking another term in the U.S. Senate in 2010. It is a hard decision to make after thirty years in the Congress, but I believe it is the right time for me to pursue these other interests.

Let me be clear that this decision does not relate to any dissatisfaction that I have about serving in the Senate. Yes, I wish there was less rancor and more bipartisanship in the U.S. Senate these days. But still, it is a great privilege to serve and I have the utmost respect for all of the men and women with whom I serve.

It has been a special privilege to serve with Senator Conrad and Congressman Pomeroy, who do an outstanding job for our state. And although he inherited an economy in serious trouble, I remain confident that President Obama is making the right decisions to put our country back on track. Further, my decision has no relationship to the prospect of a difficult election contest this year. Frankly, I think if I had decided to run for another term in the Senate I would be reelected.

But I feel that after serving 30 years, I want to make time for some other priorities. And making a commitment to serve in the Senate for the next seven years does not seem like the right decision for me.

This is a huge loss for Democrats–first and foremost because Dorgan is one of the good guys, largely uncorrupted by the nastiness of DC. In addition, it is almost sure to be a loss for Democrats, as Republican Governor John Hoeven would win this election in a landslide, if he chooses to enter it.

Senator Dorgan, thank you for your service. But you will be missed.

There’s a lot I object to in Hendrik Hertzberg’s judgment of those opposed to the Senate health bill as “pathetic.” His entire piece revolves around the claim that bill critics are committing a pathetic fallacy: attributing to an inanimate object–Congress–animate actions–passing the bill.

The pathetic fallacy is a category mistake. It’s the false attribution of human feelings, thoughts, or intentions to inanimate objects, or to living entities that cannot possibly have such feelings, thoughts, or intentions—cruel seas, dancing leaves, hot air that “wants” to rise.

Yet most critics have been very specific about the people (Harry Reid for his inability to enforce party discipline, Rahm and others for prioritizing deals with the industry over cost containment, Joe Lieberman for being Joe Lieberman) who have made this bill what it is. It is Hertzberg’s fallacy, not critics’, to suggest that this bill got so bad because of an inanimate object called “the system.” Indeed, suggesting the end result of the actions of a small group of fully deliberate beings is not the product of human will serves as a neat excuse for those who want to obscure the process and decisions that resulted in this bill.

Hertzberg also curiously invokes the defeat of Kennedy’s Medicare efforts in the Senate (after which, two years later, the bill passed) to argue we are faced with a choice between the status quo or this bill. The history of prior reforms can and has been used as a double edged sword in this debate, so I’m not arguing that the lesson offers us any real insight into the fate of health care if we do or don’t pass this bill. But used as he is doing, doesn’t it suggest the possibility that, if this bill were to fail, it might not be several generations until we tried again, it might be passed in the near future? (Not that I necessarily believe this would get easier in two years, I just think it is a very inapt use of the example.)

But reading the piece finally got me to read another piece that bill champions have repeatedly pointed to to celebrate the bill: a post by University of Chicago Health Policy Professor Harold Pollack, comparing the subsidies included in this program with the subsidies offered in just about all other support for the poor.

By 2019 when the reforms are fully implemented, the Senate bill would provide about $196 billion per year down the income scale in subsidies to low-income and working Americans.

Even policy wonks have trouble getting their heads around such a big number. With due allowance for the back-of-the-envelope nature of this calculation, $196 billion exceeds the combined total of federal spending on Food Stamps and other nutrition assistance programs, the Earned Income Tax Credit, Head Start, TANF cash payments to single mothers and their children, all the National Institutes of Health, and the Department of Housing and Urban Development. (I admit to some uncertainty about that last one. We may have to leave HUD behind…)

(Pollack has a worthwhile, thoughtful expansion of his stance on the bill here.)

Now, I don’t contest Pollack’s numbers. Nor do I underestimate the magnitude of this amount of subsidies.

But there’s a flip side to that magnitude, one which, IMO, is not worth celebrating.

First, a significant number of the recipients of these very generous subsidies aren’t going to see them in tangible form. For those getting subsidized premiums, the biggest immediate benefit will be yearly check-ups, if they have access to a doctor (experts expect there will be access issues in the years after the subsidies start). If MA is any indication, though, many won’t actually be getting health care beyond that check-up; they still won’t be able to afford it. And for those who will go into debt before they get any out-of-pocket subsidies, I suspect those subsidies won’t feel all that generous.

Now compare that to the other tangible things the subsidies Pollack lists give people: real cash for single mothers, tax credits for the working poor, and food stamps that function as cash in many stores (which, shockingly, serve as the sole source of income for 6 million Americans). These other subsidies give people income, cash to spend on food, affordable housing. Real, tangible benefits. The thing they lack.

Shouldn’t the program be measured by what tangible benefits it provides–how many get health care–rather than how many subsidies the insurance companies get?

Then there’s the issue of scale that Pollack’s post displays. We are providing the poor food, shelter, and income. All for less money than it is taking to provide an admittedly much larger group of people insurance (but not necessarily care). Do we have our priorities in order? Doesn’t the sheer scale of these subsidies constitute a flashing warning sign about the relative cost of health insurance (but not care) that this reform institutionalizes?

And therein lies the real risk. As many many people have pointed out, subsidies–particularly subsidies to the poor–often fall prey to political pressure. Particularly given the number of conservative Democrats who are itching to cut back on other programs supporting the needy, should we really be crowing about the success of this program by how dependent it is on subsidies–by how big a target it establishes for deficit hawks to go after?

I’m sympathetic to both Hertzberg’s and Pollack’s argument that we have an opportunity to get millions care that they don’t have, even as they acknowledge the imperfections of the bill.

But isn’t it a sign of the bill’s problems that bill champions have to point to the subsidies the bill will provide, rather than the actual health care it gives?

This post from Nate is just weird.

As you recall, in my last post on affordability issues, I basically accepted Nate’s selected source for family expenses–BLS data–and showed that even still this plan was unaffordable for a middle class family with child care costs.

But what’s remarkable is that, even assuming Nate’s numbers are correct and mine are high, those numbers still show that this plan is unaffordable for a family of three paying some child care.

Nate’s post completely ignored that part of my post, completely ignored that I had used BLS data for housing, completely ignored that I had eliminated all income taxes for this family, completely ignored that I specifically backed out BLS data for health care and replaced it with an unrealistic 7.9% charge (indeed, that was one of the big mistakes he had made in adopting the BLS data in the first place, as I pointed out in my post) and still shown the program to be unaffordable.

Either Nate has now decided that the BLS data is no longer valid, or he doesn’t want to engage with that part of my post.

But on his other costs, here are some points.

Taxes

Nate argues that my original estimate for taxes was too high (which, of course, I accepted in the second post). But then he has calculated those taxes making them less than the FICA taxes (7.65%) for this family. And he does that even while hypothesizing that one of these family members might be self-employed, which means the family would face FICA taxes of 15.3%. Note also, Nate assumes that this family owns their house and calculates mortgage deductions accordingly, which is probably an unsafe assumption for all middle class families in this day and age; 27% in the BLS data, for example, are renters. So while I’m happy to use the BLS numbers (which, after I got rid of all income taxes became basically just FICA), let it be said that Nate ignores two possibilities that would make those taxes go much higher.

Housing

Here’s what Nate says about housing:

Housing: This is still the most significant difference — I had figured housing costs at about $10,000 based on BLS data, versus Marcy’s estimate of $19,275. Marcy points out that the a higher propotion of people in the BLS dataset I used will have paid off their mortgage, but that’s still just one-fifth of the BLS’s sample, so it’s not going to make a huge difference. But let’s bump up my estimate to $12,000 — or an even $1,000 per month — to account for this, as well as for the fact that a family with two children might want some extra square footage.

Now, if you just figured out what the BLS numbers gave you without the people in the sample who owned their own home outright, it would show that the remaining 80% would pay $12,577, already higher than Nate’s estimates. And that’s assuming the 4-person families are living in the same size housing that all the singles in the BLS sample are living in, so on that basis, the number is still likely higher.

But let’s do this another way. I live in a house that was–when I bought it in 2002–almost exactly the average price of a house in this country. After losing value over the last several years, it is now worth somewhere between the average national price and average price for a midwestern house. I have not refinanced since I bought it, but when I bought it I put 20% down and had near perfect credit–almost certainly far better off than the middle class families we’re talking about. Admittedly, Ann Arbor’s property taxes are crazy, which adds a lot to monthly payments. So assume my better-than-average mortgage cancels out Ann Arbor’s exorbitant tax rates. And yet I still pay a few thousand more than the $12,577 you’d get off of the BLS numbers. And my house is average or below average in other ways, too–it’s 50 years old, in average condition, just 1,000 square feet, has just one bathroom, and the third bedroom makes a much better office than a bedroom. All three families who lived in this house before I did were just like the middle class families I’m talking about (though one was a single mother). In other words, this almost perfectly average house, with higher property taxes but lower credit costs, costs several thousand more than Nate has calculated.

Child Care

Here’s what Nate says about child care:

Child Care: Marcy’s data says that pre-school care costs $6,216 per year, and infant and toddler care costs $7,936 per year. Assume that each child needs three years of infant care and three years of pre-school care out of an 18-year childhood. If that’s the case, the family will spend $2,358.50 per year per child on average, or $4,717 on average for two children. Also, while Marcy asserts that her estimates are high, not all families will have to pay for day care. Even if both parents are working, some families may be fortunate enough to have a free or discounted child care program available to them via a church, employer, or municipality, or may have older relatives living nearby to take care of the children during the daytime. Or, if one or more of the parents works from home — which will be the case fairly often for someone in the individual market — they may be able to take care of the toddlers themselves and still earn a paycheck.

Now aside from the fact that Nate strains to average this out–ignoring that if both these kids are in child care in a year the costs will be at least $12,432, meaning this family would have to find a way to pay for much higher rates in several years of that average, there are several other bizarre assumptions Nate makes to bring child care costs down. He assumes that a family that doesn’t get health care through an employer might get child care through that same employer. He assumes that several discounted child care options aren’t included in the child care averages I used. Most curiously, he assumes that children don’t need after school care between the time they go into kindergarten and the time they turn 13, when most states consider them capable of watching themselves (after school care for two in Ann Arbor’s school system would cost at least $100 a week, or about $3,900 for the school year, and that doesn’t account for summers). He has basically chosen to just eliminate many of the realities that working families face when trying to care for their children and in so doing uses an estimate several thousand lower than it probably is.

Also note what Nate has done with the BLS data. He has ignored all the other costs included in it. I guess that means he has ceded my point–that these middle class families aren’t spending the $2,936 BLS says they would on entertainment (not even on cable TV). But that also means he is dismissing the $2,343 BLS says a family of 2.7 (with just .7 kids) would use on housekeeping and clothing, as well as the $1,322 BLS says this family would spend on personal care products, reading, and education.

Finally, one outright error in Nate’s post that would impact affordability. Nate suggests the government is subsidizing insurance that has an actuarial value of 80-85%:

There’s simply no way that you can provide $6,000 or $7,000 per year in subidies to a family like this one, for insurance that has an actuarial value of 80-85%, and leave them worse off — not unless the family has better genes than Brett Favre.

It’s not. If it did, it’d be a whole lot more affordable and I might not be harping repeatedly on affordability, because it’d mean families would use up out-of-pocket expenses more slowly, and could afford to actually use the care they had paid for in premiums. Instead, the Senate bill bases subsidies on silver plans, which have an actuarial value of 70%, which means families will have to pay a lot more for actually using the care they had paid for than Nate envisions.

Now, these quibbles about data would be meaningless except for one thing. Setting aside differences on taxes, setting aside the $6,601 in costs for a family of just 2.7 that BLS includes that Nate ignores, and just focusing on the two biggest differences between us–housing costs (using my own costs) and child care, which together amount to about $4,000–and this family would still be required to spend more in out-of-pocket charges then they had left over after their other expenses under the Senate bill. So even assuming (as Nate appears to have) that this family would live in a one-bedroom house and have kids watch themselves after school, this family is still going into debt with a significant medical event. Add in the $6,601 in charges that Nate ignores but BLS includes, and this family quite literally has almost no money with which to pay any 30% out-of-pocket costs.

Now, just two final points on this passage in Nate’s post.

I don’t want to get drawn into a sematic debate about what is “affordable” — particularly when I agree with Marcy that the health insurance for working families should be made more affordable before President Obama signs this bill.

Nate appears to want to retreat into the question of whether this is “better” than the status quo (as I said in my last post, we’re addressing different issues). But that allows him to avoid a very big question. We are mandating that this family pay for premiums. But–even according to BLS data–this family would simply not be able to fully use the service they had paid a significant amount of money for. That means we are asking them to use up their remaining discretionary cash but not ensuring they’ll get the care they need in return, because the plain math of it (assuming they’re not relegated to a one-bedroom house with young kids taking care of themselves after school) shows they will have little money left over to pay the 30% out-of-pocket expenses. Sure, they’d use the health care in catastrophic events, they’d get yearly check-ups in exchange for their premiums, but they simply would have to forgo care that wasn’t emergency care, because actually getting much care would put the family into debt. In MA’s similar program (PPT), 21% (about 19% of whom must have insurance) forgo care, and over 16% of families are struggling with medical bills. Where have we come as a society when we are taking away $5,000 dollars from a family that can ill-afford it (and allowing insurance companies to use 20% of it on profit and marketing) with the understanding that they won’t actually be able to use what they’re supposed to be getting in exchange?

Then, finally, there’s Nate’s claim this bill should be made more affordable for working families before it becomes law. How does he propose doing that, after having spent the last couple weeks pushing the Senate bill? The House bill is actually worse for people at this income level than the Senate bill, and Nate has spent a lot of time explaining that the Nelsons of the world won’t accept substantive changes. At the very least, improving on affordability requires discussing it as such, rather than dismissing it as semantics.

Previously, Marcy Wheeler noted the unsavory blending of the private interests of health insurance companies with the power and hand of the US government:

It’s one thing to require a citizen to pay taxes–to pay into the commons. It’s another thing to require taxpayers to pay a private corporation, and to have up to 25% of that go to paying for luxuries like private jets and gyms for the company CEOs.

It’s the same kind of deal peasants made under feudalism: some proportion of their labor in exchange for protection (in this case, from bankruptcy from health problems, though the bill doesn’t actually require the private corporations to deliver that much protection).In this case, the federal government becomes an appendage to do collections for the corporations.
…
The reason this matters, though, is the power it gives the health care corporations. We can’t ditch Halliburton or Blackwater because they have become the sole primary contractor providing precisely the services they do. And so, like it or not, we’re dependent on them. And if we were to try to exercise oversight over them, we’d ultimately face the reality that we have no leverage over them, so we’d have to accept whatever they chose to provide. This bill gives the health care industry the leverage we’ve already given Halliburton and Blackwater.

Marcy termed this being “On The Road To Neo-feudalism” and then followed up with a subsequent post noting how much the concept was applicable to so much of the American life and economy, especially through the security/military/industial complex so intertwined with the US government.

Marcy Wheeler is not the only one recently noting the striking rise in power of corporate interests via the forceful hand of US governmental decree (usually at the direct behest of the corporate interests). Glenn Greenwald, expanding on previous work by Ed Kilgore, penned a dynamic description of the dirty little secret (only it is not little by any means) afoot in modern American socio-political existence:

But the most significant underlying division identified by Kilgore is the divergent views over the rapidly growing corporatism that defines our political system.

Kilgore doesn’t call it “corporatism” — the virtually complete dominance of government by large corporations, even a merger between the two — but that’s what he’s talking about. He puts it in slightly more palatable terms:

To put it simply, and perhaps over-simply, on a variety of fronts (most notably financial restructuring and health care reform, but arguably on climate change as well), the Obama administration has chosen the strategy of deploying regulated and subsidized private sector entities to achieve progressive policy results. This approach was a hallmark of the so-called Clintonian, “New Democrat” movement, and the broader international movement sometimes referred to as “the Third Way,” which often defended the use of private means for public ends.

As I’ve written for quite some time, I’ve honestly never understood how anyone could think that Obama was going to bring about some sort of “new” political approach or governing method when, as Kilgore notes, what he practices — politically and substantively — is the Third Way, DLC, triangulating corporatism of the Clinton era, just re-packaged with some sleeker and more updated marketing. At its core, it seeks to use government power not to regulate, but to benefit and even merge with, large corporate interests, both for political power (those corporate interests, in return, then fund the Party and its campaigns) and for policy ends. It’s devoted to empowering large corporations, letting them always get what they want from government, and extracting, at best, some very modest concessions in return. This is the same point Taibbi made about the Democratic Party in the context of economic policy:

The significance of all of these appointments isn’t that the Wall Street types are now in a position to provide direct favors to their former employers. It’s that, with one or two exceptions, they collectively offer a microcosm of what the Democratic Party has come to stand for in the 21st century. Virtually all of the Rubinites brought in to manage the economy under Obama share the same fundamental political philosophy carefully articulated for years by the Hamilton Project: Expand the safety net to protect the poor, but let Wall Street do whatever it wants.

One finds this in far more than just economic policy, and it’s about more than just letting corporations do what they want. It’s about affirmatively harnessing government power in order to benefit and strengthen those corporate interests and even merging government and the private sector.

Ms. Wheeler and Mr. Greenwald are correct, and the phenomenon is not just limited to the healthcare and military/industrial complex either; it is even more alarming in the ever more dominant and pervasive financial sector, home of the “too big to fail”. The phrase itself should terrify citizens, yet the country seems blithely oblivious to the implications. If there was even a vein of common sense among the people and leadership of this country, there would be immediate realization that an entity too big to fail is so big that it controls the government as much as the other way around. But the people are asleep, distracted by their own despair and desensitized over the years. The leadership, as both Wheeler and Greenwald describe have become symbiotic with the cause and, thus, are the part of problem not a source of solution.

Marcy Wheeler describes the concentration of power and wealth in corporations married to the hand of government as neo-feudalism; Glenn Greenwald and Kilgore posit it as corporatism. Both are worthy and descriptive terms, but the real ill goes a bit deeper if you also consider the accompanying rise in income inequality and transfer of wealth to the privileged and powerful few individuals that has paralleled what Marcy and Glenn describe. When you put it all together, the result is a situation that eerily duplicates the era of the robber barons existing in the United States 100 years ago.

The New Robber Barons

Robber Barons as a descriptor for the modern overlords came to me during a conversation with several colleagues a week or two ago on how to term the healthcare companies and their owners and executives. In writing this article, however, I have found I am far from the first person to realize how the old is new again in this regard to the rapacious class. Over a decade ago, Brad DeLong hit on the same precise thought, and he hit it hard and big:

“Robber Barons”: that was what U.S. political and economic commentator Matthew Josephson (1934) called the economic princes of his own day. Today we call them “billionaires.” Our capitalist economy–any capitalist economy–throws up such enormous concentrations of wealth: those lucky enough to be in the right place at the right time, driven and smart enough to see particular economic opportunities and seize them, foresighted enough to have gathered a large share of the equity of a highly-profitable enterprise into their hands, and well-connected enough to fend off political attempts to curb their wealth (or well-connected enough to make political favors the foundation of their wealth).

Matthew Josephson called them “Robber Barons”. He wanted readers to think back to their European history classes, back to thugs with spears on horses who did nothing save fight each other and loot merchant caravans that passed under the walls of their castles. He judged that their wealth was in no sense of their own creation, but was like a tax levied upon the productive workers and craftsmen of the American economy. Many others agreed: President Theodore Roosevelt–the Republican Roosevelt, president in the first decade of this century–spoke of the “malefactors of great wealth” and embraced a public, political role for the government in “anti-trust”: controlling, curbing, and breaking up large private concentrations of economic power.
…
And whatever the causes, the period since the mid-1970s has seen wealth concentration in the United States increase more rapidly than ever before–even during the heyday of industrialization in the last decades of the nineteenth century. Aggregate measures of wealth concentration today are greater than at any time since the election of Franklin D. Roosevelt in the Great Depression, and are within striking distance of the peak in wealth concentration reached during the Gilded Age (see Wolff, 1994).
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It is striking how closely numbers of “billionaire” match shifts in aggregate wealth inequality: when the frequency of billionaires in the labor force is high, wealth concentration is high. A simple linear regression predicts that the frequency of billionaires would drop to zero should the share of wealth held by the top one percent drop to twenty percent or so–and, indeed, we find no billionaires back when wealth concentration was so low.
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These causes of immense wealth have nothing to do with the determinants of the relative supplies of skilled and unskilled workers, or with the technological requirements of production. It makes me think that the overall level of wealth concentration is much more a “political” and a “cultural” phenomenon than an “economic” one: that we through our political systems and our attitudes have much more to do with the concentration of wealth than does the dance of factor supplies and technology-driven factor demands.

DeLong’s piece is a comprehensive thesis that describes both the history of the earlier American robber barons and modern day versions, at least as of the time he penned his work in 1997-98. Brad noted disturbing trends at the time, but did not reach hard conclusions as to the overall effect of the phenomenon on the health of American society.

So if there is a lesson, it is roughly as follows: Politics can put curbs on the accumulation of extraordinary amounts of wealth. And there is a very strong sense in which an unequal society is an ugly society. I like the distribution of wealth in the United States as it stood in 1975 much more than I like the relative contribution of wealth today. But would breaking up Microsoft five years ago have increased the pace of technological development in software? Probably not. And diminishing subsidies for railroad construction would not have given the United States a nation-spanning railroad network more quickly.

So there are still a lot of questions and few answers. At what level does corruption become intolerable and undermine the legitimacy of democracy? How large are the entrepreneurial benefits from the finance-industrial development nexus through which the truly astonishing fortunes are developed? To what extent are the Jay Goulds and Leland Stanfords embarrassing but tolerable side-effects of successful and broad economic development?

DeLong knew what the issues were, but did not have firm conclusions and answers as to the potential detriment or benefit of such unequal wealth distribution. However, the decade plus that has elapsed since Brad wrote his version of the robber barons, and especially the last two, has put a far different patina on the situation. It is not just the difference between the rich man and poor man, it is the vanishing middle class coupled with the ever grosser arrogance, recklessness and impunity which makes the New Robber Barons such a dangerous and destructive force. There is no longer need to describe what the downside of the insanity could be; we know, we are living it as we speak and have been over the past two years.

The question is where we go from here with respect to the New Robber Baron overlords. Just mosey along status quo as the Obama Administration appears to envision, not looking back with anger, accountability and real change; or do we plow the harder, but ultimately more fertile ground of curbing the irrational and destructive accumulation of wealth and power through Teddy Rooseveltian anti-trust programs, return of Glass-Steagall protections separation of banking and investment functions and tax and social programs to rebuild the evaporating middle class.

Healthcare is the current flashpoint, and it is rightfully a big one. There is no question but that the US needs “reform”; but there is a real question, still to be answered, whether there will be something produced which benefits the masses of citizens both now and in the future or just an illusory pile of junk that benefits the ruling classes of politicians and health industry robber barons.

As Marcy Wheeler and Glenn Greenwald have persuasively argued, however, it goes much, much deeper than merely healthcare; the battle is over the root ethos of what this country is and is going to be. The incontrovertible trend is toward an unholy blending of the robber barons with the government itself. Not just the usual influencing of government policies through lobbying and monetary control of individual politicians to seek favorable policies, but where the federal government becomes an appendage to do collections, enforcement and expansion for the corporations. The best time to rethink and reverse this trend is now, it will not get easier as the trend becomes more ingrained and pervasive with time.

As long as this post is, the surface of this topic has barely been scratched. It is my hope to peg this phenomenon with a term simple, descriptive and instantly understandable by all, and to start a discussion both in comments to this post and in subsequent posts here and by others across the spectrum. Time is wasting at an alarming rate.

(graphic courtesy of Southern Labor Archives, Georgia State University)

Like Nate, I appreciate having a discussion based in facts and details. And Nate says several of the cost estimates I used to show why the health care bill is unaffordable for middle class families “are on the high side.” I appreciate him checking my numbers–as I have said on several versions of the post I have done on affordability, I’d like to have a real discussion about these costs.

Nate’s numbers are too low

Nate uses a different method than me; rather than building costs up from individual estimates as I did (indeed, Nate never shows what my hypothetical family’s budget would look like), he looks at BLS data, and argues that either, “this is significantly more than most two-child families will be spending on these services — probably by a margin of $10,000 or so,” and/or my hypothetical family, “does not have a reasonable and responsible gameplan to begin with.”

Now, Nate hasn’t actually shown that. Instead, his primary source of numbers shows what the average family in this income bracket ($50,000 to 69,999) would spend. And that family is older (average adult age of 47) and smaller (2.7 people, with just .7 kids) than the family I was discussing. That’s significant in ways that make his costs too low on several counts. For example, over a fifth of the people in the BLS estimate own their home outright. A significant portion are single or couples. Adding older home-owners and singles needing smaller homes into his consideration almost certainly means Nate’s housing costs are too low for a family of four or even three. Similarly, Nate’s figures for food expenses are low by $1,324 (and his average family eats out, which USDA assumes my average family of 4 does not for its calculations).

Plus, Nate doesn’t point to the places where my estimates (based on real expenditures) are quite low, according to the numbers Nate uses. I said this family spent $1,500 a year on heat, electricity, and water; his numbers say the average 2.7 member family would spend $2,823. I said this family would spend $1,200 for all telecom services; Nate’s data says this 2.7 member family would spend $1,253 on telephone services alone, with cable, at least, presumably included in the $1,141 of audio and visual equipment and service. So, accepting Nate’s numbers for these services would mean both my costs and probably his, too, for utilities and telecom are still too low for a 4-person family.

And the BLS data Nate uses appears to not account for child care at all (please correct me if I’m wrong here). Nate points out rightly that, “not all families will have a pre-school aged child. The typical child spends 3-4 years in pre-school, but then 12-13 years in the public school system,” but doesn’t account for the fact that I used costs for just one kid in child care, and not the more expensive infant or toddler rates. Also, if these kids were school aged, it would mean the family would spend $1,353 more on food because of the growing kids’ higher calorie requirements. Also, note these costs don’t necessarily have to include child care. Unmanageable college loan debt, unplanned major house repairs, existing medical debt, or credit card debt could all get my middle class family into the same plight without any child care costs and without, necessarily, making this family at all unusual or frivolous.

And then there’s the most ironic place where Nate’s calculations–finding my estimates $10,000 too high–are themselves too low: health care. The BLS data Nate uses shows this family of 2.7 spends $3,229 yearly on health care. Yet, the majority of this pool would get health care through work, a significant number are single, and some (though not many) are on Medicare.

Even Nate’s numbers show this plan is unaffordable for a middle class family

But what’s remarkable is that, even assuming Nate’s numbers are correct and mine are high, those numbers still show that this plan is unaffordable for a family of three paying some child care.

Nate’s numbers show the average income in this bracket is $59,319, with $58,610 left after taxes (note, a family of 3 at 301% of poverty would make $55,131, so this hypothetical 2.7-member family would still fall into the same income bracket I used in my original post). This average family would spend $50,465 a year. So to show what happens when this average family has to pay child care and spend 7.9% of its income on mandated insurance, I’m going to take out the BLS health care costs and add in the 7.9% this family would have to spend under the mandate. And because I argued earlier that these families aren’t spending all that much on entertainment (and therefore couldn’t save money by cutting entertainment expenses), I’m going to back out entertainment costs too. And because Nate said my estimates for taxes were too high, I’m going to take out those, too (though not FICA, which this family would have to pay).

$50,465 (total expenditures)

-$3,229 (less health care expenses)

-$2,936 (less all entertainment costs)

-$709 (less income taxes)

$43,591 (Nate’s numbers less health care, entertainment, income taxes)

+$4,686 (7.9% of $59,319 in income–or the amount paid before opt-out became possible)

+$6,216 (child care for just one four year old in MI)

$54,493

$4,826 (total income less total expenses)

In other words, this family would have just $4,826 left to spend on entertainment (what Nate originally said this family could cut back on) and out-of-pocket health care expenses.

That says a family expected to pay 30% of out-of-pocket health care expenses would blow their entire discretionary budget after $16,086 in medical costs. More than what my other hypothetical family might spend, but still not a catastrophic medical event. And this hypothetical family would have to go $3,147 in debt before government subsidies would pick up the rest of their out-of-pocket expenses. And that’s assuming the family just misses the ability to opt-out. Supposing this family pays the 9.8% the government asks them to pay before subsidizing premiums, the family would spend $5,813 on premiums, blow through their discretionary funds after $12,330 in medical costs, and go $4,274 into debt before out-of-pocket subsidies kicked in. And even if this family got a tax credit of $1,243 for child care rather than paid nothing in income taxes (as I’ve figured here), this family would still go into debt under this plan.

Note, the biggest differences between Nate’s numbers and my earlier scenario are 1) his doesn’t account for all the people in my average family, and 2) his doesn’t account for child care costs.

So let’s look at child care costs. I used data from an industry group–which, since it pushes for tax breaks, may have an incentive to push those costs higher (though mothers in threads say those costs were realistic some years ago). But calculate those costs another way: while this number came from costs for day care for one four-year old in 2005, assuming this family had two children, it would mean a family would spend less than $60/week per child care per child ($120 total). Which even assuming some of them were school age and just needed after school care, wouldn’t be unreasonable amounts.

So even using Nate’s amounts, this family would go into debt because of a significant, though not catastrophic health event; in addition, this family would go into debt before the government subsidies for out-of-pocket expenses kicked in.

Now, Nate says my analysis is “painting an incomplete picture — and somewhat missing the forest for the trees.” You might say of his that he misses the struggling individual middle class families for aggregate data that includes singles and seniors not facing some of the challenges that middle class families are facing. Or you might more charitably say that Nate and I are just talking about totally different things.

But there is one thing that Nate still doesn’t address: affordability of care. He doesn’t use the word “affordable” in his entire post. He does suggest this family–which would go into debt to pay for care–would avoid the problems of such middle class families now.

Marcy is basically treating the $5,243 per year as though it’s a tax hike. That’s not what it is — at all. It’s a deeply discounted — albeit mandatory — service that they’re purchasing. And it’s saving them a lot of money: it either saves them a lot of money every year if they’re already buying insurance, or a lot of money on average if they’re not buying insurance.

And in either case, because of the caps in out-of-pocket expenditures — it also provides them with a lot more certainty in forecasting their income stream. It allows them to come up with a reasonable gameplan.

But he still assumes something that–the MA experience shows–is not true in all cases: that this family will be getting a service in exchange for the 7.9% or 9.8% of its income spent on insurance premiums. 21% of those surveyed in MA said they still couldn’t get the health care they needed because they couldn’t afford it–precisely the situation this hypothetical family would be in. That is, they would have paid for a service–health insurance, but not health care–but still face the choice between going into debt or forgoing necessary care, even with the insurance.

And that’s the complaint. It’s one thing for the IRS to serve as the insurance industry’s collection agency (still allowing the insurance companies 20% in profit and marketing expenses) if, in exchange, you guarantee that health care won’t continue to put middle class families into debt. But for middle class families that have any of a range of fairly typical middle class challenges (like child care costs or leaky roofs or exploding ARMs or college debt), this plan doesn’t do that.

I’m grateful that Nate is beginning to look at how this plan will interact with other middle class expenses. I’m happy to revise these numbers if he or someone else provides more detailed costs for such a middle class family. Perhaps the next conversation we should have is what happens to middle class families like these who–predictably, given the costs involved–will opt out because the plans are too expensive.

But the point I’m trying to make is that this plan does not solve the health care debt problem middle class families are experiencing now–and will still experience under the Senate plan. This plan is not affordable for the middle class. And since we’re talking about mandating these costs, we ought to be having a discussion about what is affordable.

I’ve been seeing a bunch of single, relatively young men with comfortable incomes argue that the health care reform is “affordable.” But seeing Nate argue that the high costs the middle class is still being asked to bear under the Senate health care bill is just a matter of  “having to cut back on vacations, entertainment and meals out versus filing for bankruptcy or losing one’s home,” I wanted to hit the question of affordability one more time, to show that this isn’t a matter of eating home more often, but rather of precisely the debt problems that Nate says reform will prevent.

Here’s a version of one family’s total household costs under the plan: a middle class family with two cars and some child care costs. Note, in this scenario, I’m assuming the middle class family will pay 7.9% of its income for health insurance premium, significantly less than the 9.8% the plan assumes that family could pay to get the subsidies available. This, then, shows what a family would be required to pay (or incur a penalty) under the 8% opt-out rule.

301% of Poverty Level: $66,370

Federal Taxes (estimate from this page, includes FICA): $8,628 (13% of income)

State Taxes (using MI rates on $30,000 of income): $1,305 (2% of income)

Food (using “low-cost USDA plan” for family of four): $7,712 (12% of income)

Home (assume a straight 30% of income): $19,275 (30% of income)

Child care (average cost for just one pre-school child in MI): $6,216

Health insurance premium: $5,243 (7.9% of income, max amount before opt-out w/o penalty allowed)

Transportation (assume 2 cars, 12,000 miles each, @IRS deductible cost of $.55/mile): $13,200*

Heat, electricity, water: $1,500

Phone, cable, internet: $1,200

Total: $64,276 (97% of income)

Remainder (for health care out-of-pocket, debt, clothing, etc.): $2,091

In other words, assuming this family had no debt (except for that related to the two cars), no clothing costs, and no other necessary costs–all completely unrealistic assumptions–it would be able to incur just $6,970 of medical care out-of-pocket costs before spending all that $2,091 and going into debt (the opt-out is based on an insurance plan that provides 70% of costs, so this assumes the family will pay 30% of health care costs). Yet that family would be expected to spend up to $5,882 more out of pocket before the “subsidies” started picking up its out-of-pocket expenses. (If the family paid the full 9.8% of its income on premiums–at which point it would become eligible for subsidies under the plan–it would have just $825 left to spend on all other expenses, including health care out-of-pocket expenses.)

This family couldn’t even go through a normal childbirth without going into debt.

Now, a few words about these costs. The transportation costs, while based on official numbers, seem high. But since I’ve used MI numbers–which are cheap compared to other states–for state income tax and child care, I thought it fair to assume this family had two fully average car mileages with associated costs.

The utilities costs are based on my own costs for a 1000 square foot, very well-insulated home, with the winter thermostat set at 64 degrees, and with no air conditioning use.

The one expense in here that might be high are the telecom costs–which I figured at $100/month. That amount would pay either a Comcast phone/basic cable/internet package, or a land line plus a family cell phone package with no internet or cable. So if a family did without any cable package, used dial-up internet access, and had only an emergency cell phone, the family might get by paying $45/month instead of the $100/month I’ve calculated.

Note what these calculations don’t include: First, there’s no budget line in here for vacations, and while the mileage probably would allow for visits to family, it would not otherwise allow for vacations. It also doesn’t allow for any meals out–the low cost food basket used to generate this cost assumes “all meals and snacks are prepared at home.” It also assumes the family doesn’t spend as much money on some more expensive food items–like sweets–that most Americans eat more of (the low cost food basket includes 58% fewer sweets calories than actually consumed). Admittedly, by assuming the family might have basic cable, it includes some entertainment costs, but even if it cut that expense, it would only save $360/year, not enough to pay the out-of-pocket costs expected under the plan.

In other words, this family is not doing without vacations or meals out to pay for health care: it is driving an unsafe car; it is eating less than even the USDA says it would spend; it is not paying off its existing debts. All of those things are ways for the middle class to fall out of the middle class. And this is all before it incurs any significant health care costs!

This is why the experience from MA is so critical: 21% of people surveyed had forgone necessary medical care in the previous year because of cost. That’s presumably what would happen with this family. It would pay almost 8% of its income for insurance premiums, already taxing its budget, but it would be unable to get any care aside from what did not incur any out-of-pocket care. This family would basically spend over $5,000 a year for yearly check-ups.

Obviously, this does not take away from the fact that the poor will get health care, with subsidies more realistically set to income levels. It does not take away from the biggest group of uninsured will get some kind of coverage. For those, reform is a vast improvement.

But for the middle class–those above 300% of poverty–this remains unaffordable, and the mandate threatens to put those families into debt without giving them health care in exchange.

*As dagoril pointed out in comments, the IRS is lowering the mileage deduction for next year from $.55 to $.50.  So as of next week, these calculations would change, suggesting this family would spend $12,000 on transportation, giving them another $1,200 to spend.