Can I Mandate That Someone Makes Me A Stiff Drink?

The endless - and endlessly boring - court cases against the individual mandate continue.

We've stayed out of the recent debate (actually, we've stayed out of all recent debates, if our Blogger activity is anything to go by). The "will they, won't they" media vultures circling around SCOTUS are all very tiring - though not as exhausting as several hundred million uninformed plebs in this country suddenly deciding that they are qualified constitutional scholars.

But watching the proceedings has caused us to reflect on everything that has brought us to this point. Curiously, we aren't too worried about losing the fight over the individual mandate. Call us fickle, but after two long years spent defending a health care plan crafted by the Republicans, only to be called fascist murdering commie goat rapists, our enthusiasm has soured.

It is, we admit, a bit odd that no one on the right has kenned to the fact that defeating the individual mandate makes reforming employer health care impossible, on the margins rather increasing the chances for Medicare-for-all. And, one imagines they'll say, for jackbooted socialists to goose-step through the National Mall, if we consider the in-no-way-totally-unreasonable reaction this is likely to excite in Republicans.

Goose-stepping socialists? There we go mixing our metaphors.

But such is life. It's a thankless business. We've yet to get so much as a tip of the hat from Senate Republicans, who've had the enjoyable experience of watching the Democrats pass their health care bill while slandering them every step of the way. I have yet to find a single Republican willing to engage with me on this point. You really should try it sometime. Say, "Isn't this plan the one Bob Dole suggested in the early 90s, and indeed passed by Mitt Romney in Massachusetts?" and they'll wander off on a hazy tangent. I am ever amazed by the human capacity to simply ignore facts that are inconvenient to the argument they're trying to make.

You want to know what the last two years have been like? It's like paying for a fabulously expensive buffet with a friend and having this exchange:

US: Let's have Thai food.

Republicans: No. Thai food is too spicy for us.

Us: Ok. How about Indian?

Republicans: Indian food didn't work for Britain. We want peanut-butter and jelly sandwiches.

Us: Really? We just spent $50 to get in here. Peanut butter and jelly sandwiches sounds like a pretty serious misallocation of resources. Can't we eat something better?

Republicans (crossly): No.

Us: For the love of . . . Please.

Republicans: NO!

Us (defeated): Fine. Have it your way. We'll have sandwiches.

Republicans: Sandwiches are socialist.

But of course, it's even worse than that. Because before you can eat your sandwich, you have to attend town hall meetings to defend your sandwich-eating plan while Republicans tell the press that grape jelly creates death panels for old people, and that sandwiches take longer to make in Canada, and of course it's not enough to want a peanut butter and jelly sandwich, because first you have to convince a supermajority of your friends to drive down to the buffet so they can help you overturn a Republican filibuster of a procedural motion that would finally allow you to order it from the waiter.

American politics, people. So horrible you really couldn't make it up.

A Twilight Script? Truly, We Are Touched By Genius

So through a curious chain of events, the Strawman Blogger found himself at the premier of the new Twilight film. Truly, it was a seminal event in our life. After watching it, a few people came up and asked about our opinions about the movie, and if they should see it. It was a difficult question to answer. So instead, we've written our review in the only medium we can - in our very own Twilight script.

Enjoy.

SCENE I

BELLA and EDWARD are in a field full of flowers. BELLA is resting her head on EDWARD'S lap. They are talking.

EDWARD: Marry me.

BELLA: No.

EDWARD: Marry me.

BELLA: No.

EDWARD: Marry me.

BELLA: No.

EDWARD (frustrated): Why not? Is it because you’re a strong character with deep personal convictions and that marrying a man immediately after high school is a nearly ambitiously stupid cliché that most women have learned to avoid since the late 1960s?

BELLA: No. It is because I am afflicted with Teenage Angst.

EDWARD: Oh

EDWARD and BELLA TALK. At one point, BELLA makes a fairly funny joke that causes several people to audibly chuckle. Rational members of the audience feel a glimmer of hope that the movie might not be utterly without merit.

EDWARD: I love you, Bella.

BELLA: I love you, Edward.

EDWARD makes another joke, but this one is almost terminally unfunny. The glimmer of hope slowly turns to a feeling of mounting dread. EDWARD and BELLA walk off together.

END SCENE

SCENE II

EDWARD and BELLA walk into the school parking lot. JACOB is waiting for them. JACOB looks angry and also full of teen angst. He is not wearing a shirt. Throughout this entire movie, he will never wear a shirt, as though wearing shirts were against some old-time NATIVE AMERICAN tradition. Also, even though he has been cast as a NATIVE AMERICAN, audience members are pretty sure he’s actually HISPANIC. Or some type of CENTRAL or SOUTH AMERICAN. Or something.

JACOB: I’m Jacob. I’m a werewolf, and I love Bella. Also, whenever I walk on-screen, teenage girls in the audience will scream in prepubescent joy, in spite of the fact that anyone with a reasonable amount of human experience will instantly recognize me as THE LEAST HETEROSEXUAL MAN ALIVE.

BELLA: Hi Jacob.

EDWARD: I hate you, Jacob.

JACOB: Hi Bella. Hi Edward. Edward, have you been working out?

BELLA: What?

JACOB: I hate all vampires. This will be a re-occurring them throughout the film, but it will mostly be told through the medium of angry glares. (He glares angrily at EDWARD, then looks him up and down appreciatively). Bella, you’re with the wrong man.

EDWARD: I know what’s right for her. Stay away.

END SCENE

SCENE III

BELLA, EDWARD, and JACOB are at the top of a mountain in the forest. It is dark and it is snowing outside. Bella is wrapped in a blanket and is shivering.

BELLA: Can you believe I was in Into The Wild, which was actually a pretty promising movie?

EDWARD: That does seem difficult to fathom.

BELLA: I am very cold. Someone should hold me for warmth. Jacob, will you come over here?

JACOB: Sure. Is Edward cold, too?

EDWARD: I do not get cold, because I am a vampire.

JACOB (softly): Damn.

JACOB warms BELLA. JACOB and EDWARD have a conversation that causes most teenage girls in the audience to giggle and squirm, which is weird, because it will go down in history as the finest ten minutes of homoeroticism ever produced by Hollywood. Eventually, it is morning. JACOB and BELLA walk outside.

JACOB: I have to go fight the vampires. But first, I love you.

BELLA: Kiss me. It has been at least fifteen minutes since I agreed to marry Edward, and I have a shaky grasp on the notion of fidelity.

BELLA and JACOB kiss. EDWARD walks onscreen.

EDWARD: You think this would make me angry, but unbelievably, I’m not. After watching my fiancee mug down with another man, I will forgive her instantly, and then never mention it again throughout the rest of the film, even though I’m supposed to loathe him. It will be totally believable.

END SCENE

SCENE IV

The VAMPIRES are getting ready for their fight with the WEREWOLVES against SOME MORE VAMPIRES. It is all very confusing, but that is mostly because the majority of the audience fell asleep thirty or forty minutes earlier.

VAMPIRES: Aarrrgghghh!

The VAMPIRES fight SOME MORE VAMPIRES. The werewolves join in.

JACOB: Wow! I am pretty poorly animated. I should look threatening and dark, but instead I look like a cuddly ball of pixels bounced onto the screen. You would think that they would have made more of an effort with that.

VAMPIRES: Actually, no. This film has a cult following among adolescents. Most individuals in the target demographic are still developing cognitively. That lack of judgment, paired with the surge of hormones created during the onset of puberty, will render them unable to make an accurate appraisal of the quality of this film. And anyone who can identify its appalling lack of taste will be persuaded to keep silent due to immense cultural pressures to conform.

JACOB: So this is just a judgment call by the producers, who understand that they are working in a zero-arbitrage situation where the value of the end product is totally disconnected to the hundred of millions it will produce in ticket sales?

VAMPIRES: Exactly.

JACOB: That would explain what happens when I kill a vampire. It’s supposed to be the showpiece special effect of the film, but mostly it just looks like I’m crushing a department store mannequin.

The VAMPIRES and WEREWOLVES proceed to kill the DEPARTMENT STORE MANNEQUINS. Disturbingly, the MANNEQUINS continue to display a greater emotional range.

JACOB: We’ve won!

END SCENE

SCENE IV

BELLA and EDWARD are back in the field. EDWARD is stroking her hair.

BELLA: I’m glad you survived. What happened to Jacob?

EDWARD: He was hurt by a vampire. He will live, but a vampire broke half of the bones in his body.

JACOB (in the distance): Hey! I’ve still got a bone for you.

EDWARD (confused): Whatever. Anyway, Bella, how do you feel about this movie? Do you feel you’ve demonstrated that you can carry yourself as a role model for the young women it’s intended to appeal to?

BELLA: I think that girls everywhere will recognize me as a worthy member of the pantheon of great female characters. Why venerate people like Elizabeth I, Dorothy Parker, or Eleanor Roosevelt? Why not choose me? I gave up my college education for a man I barely know, a man who is locked in a personal struggle against physically harming me, even though it means I will be cut off from any contact with my family, friends, or people who care about me. I will make this decision at a time in my life where I am not quite capable of making good judgments, but will justify it in the name of teenage love. Even though I know that adolescent love rarely survives to adulthood, and that my decision will lock me irrevocably into a life that’s barely more than a cage, I’ll do it willingly, even passionately. In many ways, I will become an unintentional allegory for battered women, a heartbreaking representation of a woman who falls victim to, fights against, and eventually succumbs to an abuser.

EDWARD (sitting up): Yes. You’re a regular fucking Helen Mirren.

JACOB: Who cares? Spike would still kick all of your asses.

MOVIE CREDITS

Austerity Doesn't Work! Long Live Austerity!

Via Megan McCardle, we learn that things just aren't that bad for Ireland. In spite of massive unemployment and crippling budget cuts, they just might be pulling out of their recession.

A bit of background. Ireland was hit hard by the recession, and headline unemployment is currently topping 15%. Perceptive readers take note: This is a bad thing.

In response, Ireland enacted a crushing austerity plan, slashing government payroll and instituting draconian spending cuts. According to the methodology favoured by the right and the ever charming Germans, this should have helped stabilize the economy. Markets would be reassured by Ireland's commitment to tackling it's debt issues, money would be invested, and liquidity would flow.

Alas, such is not the case. Things did not get terribly worse for Ireland, but they didn't get much better, either. Their bonds still trade at rates much higher than Spain, which is in a similar grim situation but didn't care to cut much from the budget at all.

Now, according to cognoscenti like Paul Krugman, there's a simple explanation for this. Savage fiscal austerity only works when you can slash interests rates or devalue your currency. Of course, this isn't much help: interest rates are effectively zero, and not everyone can devalue at once.

McCardle thinks different:

Though meager, they're real. On the same day that the Times was presenting a dire picture of austerity budgets, the Wall Street Journal was running an article suggesting that Ireland may end up a big beneficiary of the cheaper euro . . . a healthy growth rate does seem to at least call into question the notion that failing to do massive stimulus automatically dooms your economy to a tragic combination of stagnation and decay.

We rather like McCardle - she's a healthy dose of sanity in a conservative world that's wandered just a bit far into stark foaming madness for our tastes. But on the face of this, it's just bizarre. Krugman says austerity only works if you devalue your currency, and McCardle retorts that it worked perfectly well for Ireland . . . once they devalued their currency?

And, of course, it's worse than that, because Ireland has no control over their currency at all. They're a member over the Eurozone. If McCardle can prove that the austerity plan has some impact on the trading rate of the Euro, then she's got a leg to stand on. Until then, she's just trawling for Krugman's dataset.

Pah!

Obviously, it's been quiet times at the SMB. Again.

We'll kick things off in short order, but until then, play with this. It's a budget calculator that let's you tackle the intractable problem of America's debt.

To make it more interesting, the SMB lays down a challenge - respond by posting your best effort in the comments section. We won't burden you with any rules, but we do suggest you be realistic. If, for example, you decide to take the axe to Medicare, kindly explain how you'll convince Congress to cut a program that's supported by 70% of the population.

It should be instructive, if nothing else.

HT: Matt Yglesias

A Brief Note On Climate Change

Earth Magazine, via Tyler Cowen:

“China alone loses between 100 million and 200 million tons of coal each year to mine fires . . . Second to China is India, where 10 million tons of coal burns annually in mine fires.”

Why is it that reasonable people recognize that pouring 200,000 gallons of oil a day into the Gulf of Mexico is an environmental tragedy, but can also think that releasing 28 billion tons of carbon into the atmosphere each year has no effect at all? Where on earth do they think this stuff goes? Does the law of conservation of mass no longer have any meaning?

I suppose science only works on stuff you can see. So much for radio, the atom, and the germ theory of medicine.

The Greece Crisis, Redux

After a long blogging hiatus, we’d planned on bringing you a startling, insightful, and typically lyrically written expose into the Greek crisis. But not for the first time, the bloody Germans have ruined our plans.

For those of you not yet aware, the European Central Bank and the IMF have joined hands to inject a cool trillion of liquidity into the Eurozone. Even in these dark times, that’s not a number to be sneezed at. Markets around the world perked up at the news, ending a rather turbulent two week slide. Happy times for all. Break out the bubbly and the bitter.

The SMB is a little amazed by this turn of events. The Germans run the ECB, in fact if not name, and your typical German is about as fond of your typical Greek as they are of venereal disease. The idea that a group of staid, humorless German bankers would ride to the rescue of the freewheeling Aegeans over the objections of the German public was, if not impossible to imagine, at least a little bit farfetched.

But they did, and they deserve some credit for that. In Germany, children are still told scary bedtime stories of Weimar hyperinflation and that, if they’re not gute kleine jungen und mädchen, a devaluing Reichmark will get them in their sleep. They’re a happy bunch, these German bankers.

As a result, you’ve an ECB that’s terrified of any action that might be seen to encourage inflation or underwrite the fiscal irresponsibility of others. When they first announced a rather underwhelming rescue package of a mere 140 billion euros, the SMB was both unsurprised and nervous. The euro project still looked like it was going to crater in a fairly spectacular fashion, taking a big chunk of the world economy with it.

Since then, the ECB has gotten its act together. But what then, for the future?

First, make no mistake – the can has been simply kicked down the road. The liquidity injections will be used to purchase bonds in distressed countries, allowing Greece to roll over her debt for the foreseeable future. It does nothing to address the long-term potential of Greek default, nor does it change the structural imbalances that have driven Greece debt and deficit to the astronomic levels of 140% and 13% of GDP, respectively.

The first lesson, then, is to not read too much into the rescue. Just as the rescue package hasn’t answered the question of Greece, it hasn’t answered the growing doubt about the viability of the Eurozone. The inquiry has simply been rescheduled to a more favourable time, when the European economy has returned to ruder health and the possibility of contagion is mitigated. But rescued? Hardly. Scratch the skin of the major players, and beneath the surface you’ll see nothing has changed.

Secondly, commentators should resist the urge to view Greece as a moral tale. True, the Greeks were almost comically irresponsible. The idea that an incoming president can discover that his deficit is double the official estimates is stupidity on a breathtaking scale.

But while the Greeks have been a partner to their own downfall, the Spanish haven’t. And in Spain lies the more cautionary tale. Fiscal responsibility didn’t protect Spain from large capital inflows, which drove a bubble economy, a rise in asset prices and wages, and an unsustainable housing binge. And fiscal responsibility hasn’t helped Spain deal with the euro straitjacket on the downside, which makes it impossible to devalue their currency as they’d like.

Perhaps Greece can be saved. Perhaps it simply fails at a time more convenient for its currency partners. The question of the euro, though, is as pertinent, and as unanswered, as ever.

ADDENDUM: It’s now clear to us that the ECB has said that the liquidity operations will be sterilized – even as they purchase bonds, they’ll withdraw an offsetting amount of money from elsewhere in the system. If this all sounds like sewing up someone’s chest wound before stabbing them in the throat, then it’s probably because it is. Hopefully, they aren't serious.

ADDENDUM 2: They’ve also tied up a majority of the funds in a special vehicle that requires parliamentary approval. It’s like they’re actually afraid of doing anything that might result in a degree of measurable success.

Special thanks to John for the German.

Things We Really Meant to Blog About At The Time, But Are Just Now Getting Around To

"My rule of thumb for thinking about the global recession is that whenever you hear claims that some country has weathered it unusually well because of Favored Policy Initiative A, you ought to first ask yourself if it’s not really just an exchange rate issue."

So sayeth the wise Matt Yglesias! Quite awhile ago, actually. We'd really meant to say something about it at the time, but we're busy and important, and also we spent the first week of April clutching a can of Boddingtons on our couch.

But it's a pretty brilliant insight. We wish we'd thought of it. People tend to underestimate the impact of exchange rates on economic performance. And, because we like strong things in America, we're wedded to the concept of a strong dollar, which means we don't properly ken devaluation as a policy choice.

We should. A floating exchange rate would help Greece along quite nicely, just as a fairly valued RMB would ease our current-account deficit. More than that, it cuts through some of the Ron Paul insanity that's lately gripped the nation. A floating currency isn't bad. It's just flexible. These days, flexible isn't a bad thing.

Lessons In Public Relations From The Vampire Squid

If you haven't yet read up on the SEC filing against Goldman Sachs, visit Felix Salmon's blog. Brilliant stuff.

A shorter version for our regular readers: You may remember Goldman Sachs, star of popular public relations moments such as The Great Vampire Squid And You, We Really Didn't Need $18b In Government Handouts (But Please Don't Check), and Doing God's Work.

Yes, they're a likeable bunch over at Wall Street. The type of people you'd like to sit down and have a drink with, so long as they were paying, and you kept an eye on your wallet, and never under any circumstance allowed them to structure a synthetic collaterallized debt obligation for you.

In their filing, the SEC accuses Goldman Sachs of being very naughty boys indeed. And it all began in the halycon days of 2007:

Back then, two companies, IKB and ACA, hired Goldman Sachs to help structure a synthetic CDO. The details are all very complicated, but it's enough to understand that a synthetic CDO uses swaps to create credit exposure on mortgage-backed securities. By assuming a long position, IKB and ACA stood to earn money if the securities gained in value.

Goldman turned to Paulson & Co. Paulson assisted ACA Management in creating the CDO - selecting the underlying securities on which it was based. Trouble is, Paulson was assuming the short position – they were betting that the CDO would decline in value. Because of that involvement, they were able to cheat. In the words of the SEC, they "identified over 100 bonds . . . expected to experience credit events in the near future."

Goldman knew this. They knew Paulson was short mortgage securities and, according to the SEC, intentionally misled their clients into thinking he was a purchaser of the equity tranche.

It's absolutely mind-blowing. Goldman raked in $15 million in fees from the deal and IKB and ACA suffered huge losses. A big deal indeed.

In Which We Follow Up From Yesterday

Each happy marriage is alike
Each unhappy marriage is unhappy in its own way.
- Tolstoy, Anna Karenina
Yesterday, dear readers, we failed you. We went and wrote a long, charming, cutting, and utterly enlightening post about the too-big-to-fail banks, but completely forgot to explain a key point: Why makes these banks too-big-to-fail in the first place?

See, not everyone has bought into this particular bit of dogma. Quite a few smart and well-intentioned people have argued that the best thing to do is leave the banking sector to its dirty fate. Damn the torpedoes! Full speed ahead, and all that.

Here at the Strawman Blogger, we aren’t too fond of that plan. But don’t take our word for it. Instead, let’s have a serious talk about financial crisis, what it means for you, and why we probably don’t want to go and irresponsibly let banks crash down willy-nilly.

Financial Crises – A Case Study

Recessions can be wildly different. They’re a bit like bacteria – there’s one in every shape and form. So Volcker’s recession, brought on as the Federal Reserve crushed inflation with staggering interest rates, was structurally from the dotcom crash, which was a much more conventional asset bubble.

But financial crises are all a little alike. It starts with a liquidity mismatch between someone’s assets and their liabilities, moves to a funding gap, and eventually ends up as systemic contagion. Follow us? Don’t worry. We’ll get you there.

To understand the financial crisis of September 2008, it actually helps to visualize a classic bank run. A typical bank earns money in a simple way. It takes in money through the form of deposits and sends it out in the form of loans. The difference between what it pays on deposits and earns on loans is its profit spread.

Of course, that model poses a few problems for the bank. Most notably, its liabilities are very liquid – people can withdraw their deposits at any time. But its loans are highly illiquid, locked up for anywhere between five and thirty years. Generally, this isn’t a problem. Banks are always careful to keep enough cash on hand to meet the needs of their depositors. But if something changes – if something spooks depositors into withdrawing a lot of money at once – a funding gap appears. Banks can’t redeem their assets quickly enough to meet their liabilities. A bank fails.

And what if the bank failed in such a way that people start to doubt the stability of other banks? They’d respond pretty rationally, by attempting to withdraw their money from similar institutions, which only creates the same problem writ large. A crisis at a single bank becomes a crisis for all banks. A bank run.

Of course, we don’t have bank runs anymore. Largely, that’s down to the FDIC. If a bank fails, the FDIC insures their deposits. More than that, it winds down the bank in an orderly fashion, sell its deposits to another institution, and pays out any bad liabilities from the insurance fund. People no longer have any reasons to withdraw their money because they know their money is protected.

Flash Forward

So we’ve solved the problem of bank runs. Why the Great Recession?

Ah, but it’s a brilliant interesting story. It all started with the rise of the shadow banking system.

A shadow bank is an intermediary. It doesn’t take deposits like a traditional bank. Instead, it channels money from institutional investors to regular businesses – among them, large financial institutions. Big banks.

Now, shadow banks have a peculiar asset and liability mismatch. Each day, they raise a substantial amount of money through the repo market and associated other forms of short-term financing.

This money goes to fund their day-to-day operations. But while their funding is liquid, the investments of a shadow bank tend be highly illiquid – long-term positions in the securities market that are difficult to unwind quickly. Not unlike the deposit versus loan mismatch we detailed above.

When significant questions are raised about a shadow bank’s viability, short-term lenders and the repo market react. Funding becomes more expensive or dries up completely. Investors demand a haircut. If doubts are severe enough, it can affect a shadow bank's ability to continue as a going concern.

And what if investors have similar concerns about other institutions? In unison, they start to get antsy about the repo market. That’s largely what happened after Lehmann collapsed in September of 2008. TED and LIBOR rates shot through the roof, investors panicked, and market liquidity vanished. We remember those days. They weren’t terribly fun.

Further, the liquidity mismatch has systemic implications. A shadow bank can’t passively sit by as its core capital is eroded. Instead, it will attempt to sell its long-term securities position to offset its losses. But when the market is crowded with sellers, it’s forced to discount these assets further, which makes its capital ratios look even worse, which scares even more investors away. And we haven’t even started on mark-to-market rules. It’s all quite a mess.

And size matters. If a shadow bank is large enough, its asset positions can be huge – to the tune of billions and billions of dollars. When this happens, it depresses prices across the system as whole. A large enough institution can set off a panic on its own.

From Wall Street To You

But what does that mean to you? Everything. The trouble doesn’t stay in the shadow banking sector. Since the repeal of Glass-Steagal, the biggest banks in the country also have investment operations. Shadow banking and commercial banking are two sides of the same coin. Pinched between their inability to finance their operations and the pressures placed on their own investment banks, these companies aren’t able to perform their traditional functions.

A bank without liquidity can’t extend new loans. That means that consumer credit collapses, which in turn affects the real market. Auto lenders can’t sell inventory, homes sit unsold. And many businesses, small and large, depend on short-term credit to meet their daily needs. Businesses, too, can have asset-liability mismatches. Invoices take months to redeem; payroll is due every two weeks.

From a shadow bank to a loan to your very own paycheck. Too-big-to-fail matters.

What Is To Be Done

As we said yesterday, it would be quite nice to cut the banking sector down to size. We don’t need reasons for this. We’re powered by our own sense of smugness.

But that’s not enough. As smarter men have mentioned, many small shadow banks can still pose systemic risks. So we’ll need to regulate them better. In the end, we’ll need a resolution authority that looks a lot like the FDIC, with the power to insure transactions on the repo market and wind down failed institutions.

It also might help to re-instate the traditional division between investment and commercial banking. Like Hamlet and his mother, they just don’t belong together.

Cutting the world’s problems down to size. That’s how we roll.

In Which We Ridicule Too-Big-To-Fail

Meet the new boss
Same as the old boss
- The Who
Over the next few weeks, the Strawman Blogger is going to try to bury the hatchet when it comes to healthcare reform. The headlines have moved on, and the Strawman Blogger doesn't want to get left behind. Frankly, we need the page hits.

Instead, we're going to transition back into the world of finance. No more individual mandate in this blog; the SMB is all about leverage limits and the crisis in Greece. Get with the times, people.

To kick it all off, we're going to talk about the thing that's on everyone's mind: Too-big-to-fail. These are the bailout banks, the institutions large enough that, when the financial crisis rolled around, the government stepped in to keep them afloat. No one likes them very much, but they're here to stay.

So today we'll talk about the common solutions for the too-big-to-fail problem. We'll discuss their merits and we'll tell you what needs to be done.

Solutions you can use. That's what were about at the SMB.

The Contenders

There are quite a few suggestions to the too-big-too-fail problem, but they mostly fall into three discrete themes. Let's jump right in:

The first theme, as the old quote goes, is that too-big-too-fail is too big to exist. Got a big bank? Break 'em up. Either redraw the old line between investment banks and commercial deposit-takers or find another way to take them to pieces. But they gotta go.

We have sympathy for this position.

The second theme - championed by the likes of Paul Krugman - is that too big to fail isn't the problem. Or at least, not the problem worth focusing on. Krugman in particular has commented that a widespread series of small bank failures would pose the same risk to the financial system as the collapse of one or two large institutions. In his mind, it's the resolution powers of the FDIC that protect us from this risk. When a small bank collapses, the FDIC steps in to mop up the mess. Deposits are protected, assets are stripped and sold.

There is no similar protection for large institutions that have significant operations in the shadow banking sector, relying heavily on short-term borrowing. As these uninsured operations fall outside the purview of the FDIC, there is no mechanism that allows for an orderly collapse.

In this school of thought, something similar to the FDIC is needed for the shadow too-big-to-fail banks. If a capable resolution authority is able to dismantle big firms, protect their deposits, and impoverish their shareholders, the problem goes away. The too-big-to-fail fails.

Thirdly and lastly, there's the package of financial reforms preferred by the administration and congress. They don't do much more than nod in the direction of the too big to fail phenomena. Instead, they believe that a better regulatory structure - in particular, investing the Federal Reserve with oversight of important financial firms, bringing over-the-counter financial products like derivatives onto traded exchanges, and (maybe) creating a consumer protection board will prevent those nefarious and negligent practices that so nearly destroyed the world economy.

That's it. Better regulators? Consider us under-fucking-whelmed. In case you haven't noticed, our current crop of barely competent, functionally handicapped, practically illiterate regulators managed to miss the biggest financial crisis in the last eighty years until it was steamrollering over their fucking legs. It is unclear how they can be trusted to catch the next one.

Not that they would bother to look in the first place. Most regulators are too busy maneuvering for cushy exit jobs in the same companies they're supposed to be policing. Enforcing cuts in your future employer's leverage ratio is unlikely to endear you to Human Resources. It's called regulatory capture: See examples here and here. And here.

But honestly? All of that doesn't even matter. Here's the dirty little secret of the Great Recession: They didn't see it coming. There was no small army of brave regulators railroaded by the power of the Street. There was no corrupt cabal of crooked public servants, turning a blind eye to excess in return for their thirty pieces of silver. No one was outgunned or corrupt. They were just stupid. They drank the Kool-Aid, same as everyone else, and they thought the good times would last and last.

So the next time a financial crisis rolls around, new rules won't help. Caution is temporary. Stupidity is forever.

Our Estimable Opinion

So where does that leave us? Should we break up the big banks, create a resolution authority, or just cross our fingers and hope for the best?

Far be it for us to disagree with a Nobel Laureate, but we think Krugman has it wrong. Or at least, he's right in the wrong way. See, we weren't entirely fair to Congress in the description above. Chris Dodd's bill does include a resolution authority, and it forces big firms to pay into an insurance fund for that purpose. Congress has even bandied about the idea of strict leverage limits. The truth is muddled between our extremes. We lied to you. We're very sorry.

But we did it for a reason. There's a problem with resolving a big, failed firm. No one's ever done it before. Big firms fails during big crisis, and a big crisis is an unlikely time to grow a pair of testicles. We're unconvinced that, faced with a climate like that of September '08, the Federal Reserve would take a cool look around, let out a whistle, and take the axe to a bank like Citigroup. That requires a supreme level of cold badass. Cold badass is not what public servants are known for.

So we take a resolution authority with a grain of salt, for the same reasons we don't believe in better regulation. They both take someone smart, capable, and ballsy in the drivers seat. That combination doesn't come around too often.

Our Estimable Solutions

Break them up. So Krugman disagrees with us. Who cares? Cordon off investment banks from commercial deposit takers, impose strict leverage limits, impose capital ceilings, and then hell, regulate whatever's left if it makes you feel better.

We think this for two reasons. First, the collapse of many small firms can endanger the financial sector, but that's ok. The collapse of a broad number of small firms tends to happen because of a market failure, and market failures may just be unpreventable.

The failure of single-institutions, on the other hand, can be an isolated phenomenon. Long-Term Capital Management didn't fail because the broader economy stopped functioning. It just made a spectacularly ill-timed arbitrage and watched the world play hell with its spreads while its capital drained away. But because it was large enough, and interconnected enough, LCTM was saved anyway.

We don't actually mind saving banks during a market failure. We do mind having to clean up the mess of the rich kids during the not-so-bad times. Too-big-to-exist clears this up nicely.

And lastly, we'll level with you. Why do we really want to break up Wall Street and the big banks? Because we can. Because it's not clear that Wall Street isn't just full of rent-seekers who add nothing to productive society. Because it's not clear that Wall Street today is any more efficient at allocating capital than they were forty years ago. Because there are no real efficiencies of scale for a bank that holds ten percent of America's deposited assets, and a hell of a lot of drawbacks. Because together they drain talent from areas of American industry that could actually use it. Because. We. Bloody. Well. Can.

Maybe, as Krugman says, there will be market failures and global panics and financial catastrophes long after the big banks are dead and buried. Why not? There were before. But given a choice between a world of panics with big banks and panics without, we'll opt for the latter. We'd rather spend our money on people we like.

The Heritage Foundation Loves Healthcare Reform! The Heritage Foundation Hates Healthcare Reform!

There's nothing more blissfully entertaining than watching the ongoing contortions of the educated right as they attempt to rationalize why they loved healthcare back when it was Mitt Romney's conservative reform bill, but hate it now that it's Obama's, virtually identical, reform bill.

ThinkProgress has the goods.

– Heritage On Romney’s Individual Mandate: “Not an unreasonable position, and one that is clearly consistent with conservative values.” [Heritage, 1/28/06]

– Heritage On President Obama’s Individual Mandate: “Both unprecedented and unconstitutional.” [Heritage, 12/9/09]

– Heritage On Romney’s Insurance Exchange: An “innovative mechanism to promote real consumer choice.” [Heritage, 4/20/06]

– Heritage On President Obama’s Insurance Exchange: Creates a “de facto public option” by “grow[ing]” government control over healthcare.” [Heritage, 3/30/10]

– Heritage On Romney’s Medicaid Expansion: Reduced “the total cost to taxpayers” by taking people out of the “uncompensated care pool.” [Heritage, 1/28/06]

– Heritage On President Obama’s Medicaid Expansion: Expands a “broken entitlement program,” providing a “low-quality, poorly functioning program.” [Heritage, 3/30/10]

- Lee Fang

Poor Heritage Foundation's a-hurt! An about face like that is liable to give you whiplash.

But then, that's the trouble with this debate. Obama compromised so sharply on this bill that there's really no standing room to his right. You can criticize this bill for not being liberal enough. You could contend that it's not big enough. You could probably argue that it's not necessary, but inasmuch as that involves shackling yourself to the bloated monstrous landfill that is our current healthcare system, conservatives have been understandably reluctant to embrace this form of ritual suicide.

Which pretty much leaves lying like hell. Here's hoping no one notices.

Fun With The Budget #3

With a great sense of unease, we're going to quote a conservative.

This brings us no pleasure at all:

I appeared on Larry Kudlow’s show last night and we had a bit of a tussle about how much deficit reduction could be achieved by cutting federal salaries. Larry argued that a 5-10% pay cut for federal civilian employees like that imposed by Ireland could have a major impact on the federal budget deficit.

...

The total annual cost of all federal civilian pay and benefits can be estimated at about $260 billion. A 5% across the board pay cut would save no more than $13 billion , and in fact much less: remember, federal pay is unusually benefits-heavy. To put it another way: even if we fired every single federal civil servant and shuttered the entire non-defense federal government, three-fourths of the budget deficit would still be with us.

- David Frum

Well done, Frum! Well done, intelligent conservatism! For he makes an excellent point. As nice as it would be to balance the budget on the backs of these greedy bastards, it's not going to work.

But what would? The Big Three: Medicare, Social Security, and Defense. As Paul Krugman so delightfully puts it, it's best to think of the federal government as a huge insurance company with an army.

Fun With The Budget #2

As the old saying goes: Check it to wreck it.

Very often, the Strawman Blogger is treated to lengthy speeches about how easy it would be to bring our budget under control, if only we could cut out all of that nasty government waste.

And well we should! The Strawman Blogger is no fan of waste. But when we think about shrinking the government down to size, we like to think of the Parable of The Flatscreen.

The Parable of The Flatscreen

Once, a friend of the SMB was serving in the military. And yeah, it came to pass that his unit commander was sad. He was under budget for the year. And he was filled with great foreboding, for coming in under budget is an invitation to have your budget cut.

And there was a great wailing and gnashing of teeth! But then the unit commander alighted on an idea. Why not spend that money on a new TV for the break room? For all men need breaks, lest they decide that careerism is not all it's cracked up to be, and seeks well-remunerated jobs in the private security sector. The bastards.

And yeah, he did, and he became happy, and the men became happy. But some among them were full of wroth, for they understood that this was Manifest Government Waste.

The Lesson

When we hear stories like this, we like perform the following thought-exercise:

Cost of flatscreen TV: $3,000.
Men in unit: 50.
Average Salary: $35,000.
Total unit salary: $1,750,000.
Waste as percentage of salary costs: 0.17%.

Of course, none of these numbers are real (The story is, unfortunately. We've heard it fifteen bloody times). But it's a useful trick.

We hate waste because it's visible, and visible things make us angry. But lurking in the background is an ocean of government spending that doesn't bothered us at all. Hell. Who doesn't like paying soldiers?

Outside of this narrow parallel, it's best to remember that isolated, even shocking, incidents of waste are likely to a very small component of a larger system.

Fun With The Budget #1

We never tire of this, you know:



The blue bars in the graph above represents the popularity of various budget cuts. The red bar indicates how much of the budget those items take up.

Reduce the deficit! you say. Shrink the government! But not through Social Security. Or Medicare. Or defense. Daddy likes his aircraft carriers.

Pretty much the only thing polite society can agree on is that we should spend less money on those dirty cheating filthy foreigners. Total savings? Somewhat less than 1% of our budget.

In Which We Discuss The Vagaries Of Climate Modeling

There are many things the Strawman Blogger enjoys about the blogging life. The freedom. The wealth. The perfectly chilled Brut served to us daily by our Peruvian housemaid.

But arguing with various irritable conservatives isn't all fun. Especially when that conservative is our father.

Now, if the SMB has one talent, it's trading pointed verbal barbs with our eminent paterfamilias. But sometimes our conversations are just plain stressful. Yesterday's was a case in point:

"Look at all this rain," he said. "Global warming in action?"

"Well," we reply mildly, "It was a very warm winter."

"Yes," he shot back. "But wasn't it cold in DC?"

Next time, we will take a cab.

Now, the Strawman Blogger doesn't claim to be an expert on climate modeling¹. But we feel there's a lesson in this particular argument. So let's follow it to a hypothetical extreme. My father names a city that enjoyed an unusually cold winter. I name a city that had a very warm one. He names another, and I reply.

Given enough time, we'd exhaust all of America's largest municipalities. What then? Perhaps we'll go international. What was Paris like last February? Perhaps ocean currents hold the key - drop a few sensors in the Atlantic and we'll clear that up nicely. And so on and so forth.

Eventually, we'd have a more or less complete set of datapoints of temperature changes across the globe. Sound familiar? It's called a climate model. Scientists have been making them for quite awhile. And, in a not-unexpected victory for our world-view, they overwhelming support the concept of man-made global warming.

We've lost count of the number of times a cold snap has discredited the entire science of climate change. But no one has properly explained how a single data point is more relevant than half a century of research. So do us a favor! Stop trying. Or we really will have to call for a taxi.

¹Who the hell cares? Seriously. If you can't be an irreverent jackass with a poor grasp of actual issues, than frankly there's just no point in blogging at all.

The Idiocy Of The Common Man

If you are something
don't ask for nothing!
If you are nothing,
don't ask for something!
- Arcade Fire, Neighborhood
As regular readers of this blog will note, the SMB has always tried to be the voice of reason in the noisy debate about the American deficit.

We're very fond of this role. It's not terribly difficult, doesn't involve a great deal of strenous research, and allows us frequent use of the term "dangerous idiots" along with plenty of time to drink red wine.

So we found this survey interesting. Follow along as we quote Ryan Avent, quoting Matthew Yglesias, paraphrasing the survey in question:

In this economy, voters are wary of raising taxes, even if the revenue raised goes to something they deem important, like paying down the deficit. A majority (51 percent) say that even though the deficit is a big problem, we should not raise taxes to bring it down, while only 43 percent say that we might have to raise taxes to reduce the deficit. This rejection is even more acute among the least educated and lowest income voters, who are being disproportionately hurt by the recession and as such are even more strident in their rejection of a new tax to pay down the deficit.

And by an even wider 2:1 margin, voters reject cuts in Social Security, Medicare or defense spending to bring the deficit down (61 to 30 percent). With nearly three-quarters of the federal budget devoted to these items, exempting them from cuts leaves little room to make realistic progress on deficit reduction...

Nearly half of voters think the deficit can be reduced without real cost to entitlements, with 48 percent believing there is enough waste and inefficiency in government spending for the deficit to be reduced through spending cuts while keeping health care, Social Security, unemployment benefits and other services from being hurt.

SweetfancyfuckingMoses. Pull yourselves together, people. Even in a country with the level of taste necessary to embrace James Patterson, William Kristol, and the musical stylings of Wham!, this is embarrassing. You can raise taxes. You can cut entitlement programs. But you cannot tightly shut your eyes, click your heels together, and wish aloud for the Magical Government Waste Fairy to alight on the CBO Projections with the gift of $1.4 trillion dollars of government waste a year.

Grow. Up.

Meager Thoughts On The Constitutionality of Health Reform

In which we use this blog as a notepad to ourselves (now, with added Wikipedia!).
Lately, the web has been all atwitter with questions about the constitutionality of health reform. And why not? Surely the Founders of this great country did not intend for the government to go mucking about with health care delivery. Dammit, they intended America to look much more like this. Or this. Or this.

But all of that aside, it's not entirely clear there was ever a Constitutional problem with health reform until it's opponents woke up one day and declared, "I'd sure like to see some Constitutional problems with health reform." And lo, they did, because the Constitution is a bit unclear on certain points and barely anyone ever bothers to check, and when you look at it facts are actually kinda fungible and confirmation bias is a wonderful thing. And presto! A constitutional problem with health reform.

We blame this on the entirely unclear tenth amendment to the Constitution of the United States¹. Catchy? Of course. Clear as crystal? Hell yes. Point proven? Do not make us laugh.

There are two problems with this tenth-amendment-specifically-mud-wrestles-health-reform-into-submission theory. First, it's pretty clear that the Tenth Amendment was written in much the same spirit as a husband promises to mow the lawn next weekend. It's not meant to do anything. It's just there to reassure people.

Doubt us? You poor fool. The Supreme Court has largely held that the Tenth Amendment is a truism - an amendment that restates powers already granted in the Constitution. In fact, only twice over twenty years or so have laws fallen afoul of Amendment X, in both cases for fairly esoteric reasons involving states enforcing federal mandates.

And that's the problem with the Tenth Amendment - the powers already granted to the federal government are really, really large. They include the powers to regulate interstate commerce and the sweeping clause. They involve powers vast enough to create taxation, treaties, prisons, the FBI, the CIA, the NSA, wars, welfare, the Pentagon, the Army, Navy, and Air Force, Medicare, Medicaid, Social Security, national debt, housing subsidies, farm subsidies, and the Federal Reserve. Yet you think the powers-that-be are going to balk at an incremental, budget reducing reform that affects a measly 4% of U.S. health care spending?

It's pretty fucking doubtful. Social Security and Medicare acquire a hell of a lot more money from your paycheck and the federal government doesn't generally ask for permission.

But then, to paraphrase Brad DeLong, we do have four certifiably crazy judges on the Supreme Court. You never can tell with these things.

¹"The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."

In Which We Ask A Few Questions

We're the ones in the ring. The ones who floored your pal Heaton . . . and last time I checked, he was still on the canvas.
- Ian Rankin, The Complaints
It’s desperate times here at the SMB. Over the past week, we’ve searched for something – anything – that could be labeled a coherent conservative argument against the healthcare bill. It has not gone well. Instead of vigorous, manly debate, we’ve heard nothing but an empty desolate silence, broken by the faint, fading whisper of “you socialist . . .”

It didn’t used to be like this. Once upon a time, the Strawman Blogger delighted in crossing intellectual sabers with his witty conservative opponents. But those halcyon days are long gone. It appears the crème of intellectual conservatism has died, been excommunicated, or fired in disgrace. And some have just gone plain fucking crazy.

So the Strawman Blogger needs your help. We’re looking for smart, conservative arguments to healthcare reform, and we want you post them below.

But, of course, we have some ground rules.

The Ground Rules

Here’s the deal. It would never do to have you scampering about this blog, shouting “filthy liberal!” until you go hoarse. You can criticize the bill, but with one special caveat: You have to criticize something actually in the bill.

Now, we have a sneaking suspicion that you may not actually be terribly familiar with the innumerable nuances of this legislation. So to make things easy for you, we’ve prepared a list of questions for you to ponder.

We can’t cover everything, but we’ve tried to capture the essence of the new law. So go ahead, my conservative friends! Select your most hated amendment, the foulest part of this legislation, and amaze us with your flawless logic. Post your answers in the comments below. This is your time to shine.

We won’t be holding our breath.

The Questions

1. A Republican Bill – This bill is nearly identical to RomneyCare, the popular conservative reform passed by Republican Governor Mitt Romney in Massachusetts. It is almost exactly like the conservative reforms suggested by Bob Dole. The basic plan was approvingly suggested by the ultra-conservative Heritage Foundation early in the last decade. It is further to the right than the healthcare deal suggested by Richard Nixon. How can a bill be considered a deeply Republican reform in 1974, 1992, 2002, and 2006, but is a socialist takeover in 2010?

2. 4% – A common Republican argument against healthcare reform is limiting the size of government. This bill will amount to around 4% of total healthcare spending. The government will not employ a single doctor. It will not write a single insurance plan on the exchanges. 96% of healthcare spending will continue to be administered by the existing market. If you have health insurance from your current employer, nothing changes. In what way is this a government takeover, and what is a credible Republican alternative?

3. The Exchanges – This bill creates a system of healthcare exchanges. They function as a simple marketplace, where people who are uninsured can purchase a policy from a private insurer. People save money by purchasing insurance as a group, much like we do through employers. Since the exchanges match private insurers with private citizens, how can this be considered an assault on the private market?

4. Public Ratings – This bill allows you to rate your insurance provider based on their performance, and that rating can be seen by the public. When you shop for a new insurer on the exchange, you’ll be able to research how well they’ve served people like you – rather like the product ratings on Amazon.com. How would the market benefit from preventing individuals from speaking their minds about the behavior of their insurer?

5. Pre-existing conditions – Starting today, children can no longer be denied insurance based on pre-existing conditions - and they can no longer cancel your coverage if you get too sick. In 2014, that protection will be extended to adults. People will be able to stay on their parents plan until the age of 26. Would individuals benefit if insurers retained the right to deny coverage to children and adults based on conditions like cancer, AIDS, and hereditable disease?

6. Cost controls – The health care bill reduces the deficit by $1.3 trillion dollars over 20 years – and much more beyond that. It experiments with cost controls like bundling payments to hospitals, so that they’re paid by how quickly you get well, not how many treatments they perform. It researches comparative effectiveness, to see what treatments work better. It creates an independent board to evaluate waste in Medicare. How can a bill that reduces the deficit, cuts costs, and involves less than 4% of total healthcare spending be considered budget busting?

7. Insurance spending – Starting immediately, insurers will have to spend at least 80 cents out of every dollar on medical care. If an insurer spends less than that on care, they’ll have to rebate the difference to its customers. Should less insurance dollars be directed to actual care?

8. Medicare Expansion – This bill leaves our current system of private insurers alone. If you’re currently insured by your employer, nothing changes. If you’re insured as an individual, you’ll still be able to choose your policy – you’ll just be given more information and cheaper premiums. If we went with a liberal option, we would extend the popular Medicare program to all Americans, either directly, or by allowing people under the age of 65 to buy-in. This bill prevents that. How can a bill be credibly considered as advocating big government, when the most likely alternative involves enrolling every single American in a massive government program?

9. Premiums – According to the CBO, premiums on the employer-provided market will become slightly less expensive. Premiums on the individual market, on the other hand, will go down by 7-10%. Why is it bad if existing policies from private insurers become more affordable?

10. Subsidies – Currently, we give the poor insurance through Medicaid. We give the uninsured free emergency care through hospitals, at great expense to responsible adults with insurance coverage. But we had no mechanism to help out middle-class families struggling with insurance premiums that grow at rates in excess of 7% a year. This bill assists middle-class families in affording insurance by providing scalable subsidies to families earning up to $88,000 a year, helping them purchase private insurance for themselves and their children. Why do the poor deserve free care, and the rich the capacity to afford it, but the middle-class has to shoulder the burden on their own?

That should give you something to chew over. We could go on, but ten is a nice round number - and we're getting just a little bit bored. Comments below - do your best.

The Morning After

And that’s it, then. With much fanfare and an acceptable amount of self-congratulation, on Sunday night Congress passed health care reform.

We are relieved.

So what now, you ask? Where, if you’ll pardon the expression, is the beef? What does our future look like in this fresher, newer, health-reformier world?

Beats the hell out of us. We’re a humble blogger, for God’s sake, and while the light of our brilliance may have swept away the cobwebs of your ignorance from time to time, our talents don’t extend to fortune telling. But we’ll promise you this: It’s gonna be a bit of an anticlimax.

See, that’s the trouble with telling the future. Throughout this process, there have been so many lies, so much dishonesty and deliberate misrepresentation, such fear-mongering and obfuscation, that it’s impossible to figure out what the opponents of the bill expect to happen. An immediate tripling of the federal budget? Babies thrown to lions? Stalin’s jackbooted thugs to march through the hallowed halls of Premera Blue-Cross while the ghost of Lenin angrily unplugs grandfather’s ventilator?

Probably not. In spite of the agreeable furor on the Republican right, the Constitution remains relatively intact. The sun will rise tomorrow. And, for the 90% of Americans enrolled on the employer-insurance market, absolutely nothing will change about your health insurance.

Absolutely. Nothing.

. . .

That thought may take some getting used to.

If you’re a part of the majority, the bill isn’t designed to affect you. That’s not how it rolls. It’s been written to alleviate the deep and real suffering of uninsured Americans, slap a bit of sense into our dysfunctional individual market and, maybe, introduce some small steps to taking control of our rising healthcare costs. We could have done more, but quite frankly you lost your shit when we wanted to introduce a fucking research panel, so forgive us if we aren’t tripping over ourselves to fix the rest of your innumerable problems.

Still, as you know, this blog likes to consider itself an armchair expert on health care, the economy, and politics in general. Silence just won’t do. So against our better judgment, we’ll take a quick look into the future and see what changes are wrought from this most unexpected bill.

On Healthcare

First, let’s make a bold claim: This bill is not going to be repealed.

Over the next few weeks, you’ll hear noises on the Republican right that they’ll stake their campaigns on the repeal of this bill. That is not going to happen. The very second a Republican majority advances the repeal of healthcare the Democrats will filibuster the hell out of it, and the Republicans are not going to get near enough seats to ram it through. That would mean weeks of painful political haggling followed by eventual defeat, and the Republicans are not idiots. Even weasels have a certain base cunning.

Secondly, it’s a lot easier to scare people with the unknown. In six months, insurers will no longer be able to deny coverage for pre-existing conditions. 80 cents of every dollar they earn will have to pay for care, or be rebated to individuals. Children up to the age of 26 will be able to ride on their parent’s policy.

After the midterms, in 2014, individuals without insurance will start receiving subsidies to help them purchase it. They’ll have access to insurance exchanges, where private policies can be purchased, and where insurers can’t jack their rates up without giving reasonable cause. And they’ll be able to read community ratings, from people like them, talking about how good or bad an insurer is at doing their job.

People are going to like these things. They’ll become popular. In other words, “Vote GOP: Taking Insurance Away From Children” is not going to gain traction as a campaign slogan.

But for most of us, nothing changes. And that is a pretty big problem. Our system of employer-sponsored insurance is still expensive, dysfunctional, and getting worse. This bill doesn’t fix that. There will be even bigger changes to health care in the years to come.

This bill, though, gives us a structure. First, by requiring people to purchase health insurance, it makes us stakeholders in a system that desperately needs reform. Secondly, employer-sponsored health insurance is going to continue to fail – and as it fails, we’ll have the chance to bring these people into the exchanges. The Strawman Blogger loves a backup plan.

On The Budget

Our budget problem is a health care problem. You could cut every bit of waste, stop every dollar in discretionary spending, fix Social Security and the Pentagon, dismantle welfare, gut the federal prison system, and annihilate the FBI, and healthcare would still bankrupt America. It’s just a matter of timing.

Healthcare continues to grow at rates in excess of 7% a year. Our economy will be lucky to manage half of that. Fixing the budget means controlling rate of growth in healthcare spending.

The healthcare bill starts the messy process of cost-control. Ezra Klein has the dirt here.

It won’t, however, be enough. It’s easy to bend the cost curve in health care. Trouble is, it means reducing payments to doctors or cutting back on unnecessary care.¹Our budget problem is still largely unsolved.²

On Politics

Conventional wisdom says that health care has canonized the culture of “No”. In other words, it’s better for a minority party to block legislation than compromise on it, better to defeat a bill than make it better, better to misinform than to mediate. In other words, make the other guy look bad, and you’ll probably be a winner when the next election rolls around.

It’s a pretty good strategy, politically speaking. Let’s be perfectly clear - Republicans are going to win in the midterm election, and they’re likely to win big. That’s just how these things work.

But it’s not much of a strategy for governing a country. The Republicans will ride back into power, and it will be the Democrats turn to filibuster every bill in sight. And so on and so forth, and the only legislation we’ll be able to pass will go through reconciliation.

So if you oppose the bill, think about this: Over 130 amendments were accepted by Republicans in committee. The public option was dropped and a Medicare buy-in was never truly considered. This is a conservative bill, and not a single conservative voted for it.

Next time around, how willing do you think the Democrats are going to be to compromise? How many days are they going to waste in committee or compromise when they know the minority party is just waiting to stab them in the back?

Fighting legislation in this way makes it more likely you’ll see legislation you hate. The next time a Democratic congress considers health care, they won’t bargain with you. They won’t invite you to sit on a committee or offer an amendment. They’ll craft a liberal bill to suit the rules of reconciliation, and they’ll ram it through. Why not? They know that nothing they do will buy your vote, so they might as well use theirs.

Or maybe not. They’re still Democrats, after all, and they aren’t bright species. But it’s still a crap way to govern a country.

¹In case you have not been paying attention: Neither of these are likely to be popular.
²Tort reform, you say? Don’t make us laugh. $11 billion a year. Come up with something new – and try not to embarrass yourself this time.

Bah!

Today, while driving to work, the Strawman Blogger was able to engage in a time-honoured past-time: family gossip.

Truly, no one can gossip like the SMB family can gossip. Family events are nefarious, shifting affairs, a roiling morass of juicy rumours, traded in an every-shifting series of petty allegiences. The cousins gather to gossip about the aunts, before breaking apart to trade trivialities about the grandparents, only to divide into splinter cells to monger about the nephews. What they say about us, we can only guess.

Wine helps.

Today the subject centered around an ailing British family member. "Good luck to him," someone spat. "He has to survive that awful health service."

We couldn't agree more! Good luck to the poor man! The poor, down-trodden wretch. Not only is he forced to recieve health care at no charge whatsoever, but he suffers the horror, the indignity, of having his care provided by the NHS.

Bloody socialists.

What sane person, after all, would elect to receive free health care from an agency with a 92% approval rating among seniors that assures health outcomes that rank a meager 19 places above America!

Truly, with a table like this, it's amazing anyone bothers to be European at all:

WHO Health Rankings (By Outcomes)

1 France
2 Italy
3 San Marino
4 Andorra
5 Malta
6 Singapore
7 Spain
8 Oman
9 Austria
10 Japan
11 Norway
12 Portugal
13 Monaco
14 Greece
15 Iceland
16 Luxembourg
17 Netherlands
18 United Kingdom
19 Ireland
20 Switzerland
21 Belgium
22 Colombia
23 Sweden
24 Cyprus
25 Germany
26 Saudi Arabia
27 United Arab Emirates
28 Israel
29 Morocco
30 Canada
31 Finland
32 Australia
33 Chile
34 Denmark
35 Dominica
36 Costa Rica
37 United States of America

Alternatives

The Setting

Paul Ryan is my hero.

For months, the health care debate has been a pathetic little pantomime of back-and-forth bickering. The Democrats advance a plan; the Republicans rebuke it. The Democrats make changes; the Republicans are unmoved. All of which has prompted the Democratic majority to stamp their tiny feet in frustration. “Show us the money!” they cry, pathetically, “Tell us how you would fix healthcare!”

Rep. Paul Ryan, finally, did just that. He wrote a reasoned, sensible plan that sketches an entirely different plan for healthcare from the Democrats. Then he took it a step further, and had it scored by the Congressional Budget Office. The CBO, staring at the bill from beneath the grey bushy eyebrows of wisdom, declared its opinion: Paul Ryan’s proposal would save money.

Shedloads of it.

“Begorrah!” you cry in shock. “What a turn of events? Could it be that the Strawman Blogger, an inveterate, unapologetic liberal, a nasty little mean intellect who delights in tweaking the nose of all things conservative, has finally changed his stripes? Has he come to support a conservative health care plan?”

You poor idiot. Of course not. Paul Ryan has suggested a shitty plan and, much worse, a shitty plan that is political suicide. Paul Ryan’s conservative brethren are scrambling away from his leprous proposal so quickly they are in danger of smashing through the walls of the Senate, leaving only comical congress person shaped holes behind, Looney Toons-style.

But that’s not Paul Ryan’s fault. The only thing Paul Ryan has done, the thing that is causing all sorts of conservative noses to crinkle, is clearly, intelligently, and lucidly write down a Republican health care alternative.

And just what is this alternative, you ask?

The Alternative

The alternative is pretty simple. Paul Ryan gets rid of Medicare. Instead of Medicare enrollment, seniors are given a voucher to purchase insurance on the existing private market. To save money, the voucher grows much, much more slowly than health care costs.

That’s the power of the proposal. Don’t want seniors spending money on medical care? Just don’t give them any. People will purchase fewer treatments because they won’t be able to afford them.

This is so awesome it has our gonads tingling. Balance the budget on the back of grandma. No wonder the CBO loves it.

Seniors, maybe less so.

The Smackdown

Because if there’s one thing guaranteed to lose you the support of the most powerful voting block in America, it’s asking them to balance the budget by skimping on the chemo. So, much like the Titanic should have done when sailing toward the world’s largest ice cube, Republicans are backing the hell away.

It’s not that seniors shouldn’t sacrifice, they say. But first we might want to try offering consumer protections. Make premiums more affordable. Bring competition to the individual market. All good ideas. Someone should really write a bill like that.

And that’s the lesson of Paul Ryan’s proposal. Sure, you can balance the budget without changing a single atom of our current system. You can leave insurance companies alone, you can ignore our staggering medical unit costs, and you can continue shoveling so much money to doctors that they have to carry their paychecks home in a wheelbarrow.

But that option has costs. It means that we offer less care and we annihilate the single most popular public program in living memory.

Still, Paul Ryan is a hero. He told people the truth. It may be an unpopular truth but, warts and all, we love it. We could use a lot more politicians like him.

Housekeeping

Regular visitors to this blog will notice it’s lost a bit of weight. Most notably, we’ve removed a few old posts from the archive.

Rest assured, you aren’t missing anything. We’re new to this blogging lark, and recently we’ve realized that a number of our musings did not live up our exacting personal standards.

Some were rambling, others were promising but incomplete. Some, we whisper in horror, were not even very funny. And that is not something the SMB is willing to tolerate.

So enjoy! What is left is the crème of our outstanding intellect. In the future, we will try to be more discriminating in what we publish. As should you.

Good day.

In Which We Take A Break From Partisan Bashing

No one particularly likes government. How can we disagree? It's expensive, instrusive, and bloated, and from a distance appears to be populated only by venal public servants who can't process our passport request on time.

So we can all agree that government would be best served by getting a great deal smaller. Of course, that's a tricky thing to do:



The world would be a much nicer place if government were smaller. But people like their government services. And, as we've previously pointed out, that covers a lot of ground.

Europe Redux

Sometimes, the Strawman Blogger wonders: Why think at all when others can do it for you?

For a much more detailed and intellectual take on the mess in Europe, read Krugman. It's clear, informative, and adds quite a lot to our previous protestations that little Europe is thoroughly screwed.

An additional note: Krugman points out the impossibility of deconstructing the Eurozone. But given the fractured political nature of Europe, I don't see how any meaningful integration can be achieved at all.

Tricky.

In Which We Wonder Why Corporations Are So Levereged

And outsource the task to Felix Salom here.

Click the link - it's instructive. Corporations that finance operations through debt pay a negative six percent tax rate. They simply raise enough debts that they pay more in interest than they earn in income. The tax deductibility of interest payments takes care of the rest.

In a world where everyone would like to return to some semblance of thrift, subsidizing companies to take on debt and taxing equity at rates in excess of thirty percent, can politely be called "a large misalignment of priorities."

Healthcare Redux: In Which We Declare Victory In The Blogosphere

A mere four days after we pointed out the conservative ideas already included in the healthcare bill, venerable blogger Ezra Klein points out the conservative ideas already included in the health care bill.

Of course, this would all hang together better if we hadn't gotten the idea from him in the first place. But we feel that this could be considered points on the board.

Objectively speaking, though, he writes better than we do. Bastard.

The (New) Most Important Graphic I've Seen

If you want to discuss America's deficit problem, you need to be familiar with this graph:



More info at the New York Times. It's created in part to show how little you accomplish with a non-defense discretionary spending freeze, but it's also instructive on the nature of government.

There's a pervasive myth that big government it some sort of mistake, and we can reduce is spending while still receiving the services we like. It's not: Government spends most of it's money on services we ask for.

My Big Fat Greek Monetary Crisis

I don't have much to say about the ongoing crisis in Greece - Eurozone monetary policy is not my area of expertise.

It does bear to mention, though, that this highlights the dangers of giving up control of your money supply without getting any political clout in return. It also raises some pretty significant questions about the viability of the European Union, at least for smaller member countries.

Back in the heady days of aught-five, I started to have my doubts about the EU. At that time, Ireland was being held up as the conservative European model: low regulation, low wages, and low taxes was spurring a rage of economic growth. It was, as I recall, something of a favoured son for the new conservative movement.

Since then, things have gone badly off the rails. Ireland is a telling case study. They had a great policy in the boom times, but when the bust came, they had no way of responding to the sudden drop in global demand.

What Ireland's export-heavy economy could use is a fair to drastic devaluation of their currency, to help float demand and keep them above water. But the European Central Bank has no intention of devaluing the Euro - generally speaking, the ECB does what it's largest member states, like France and Germany, tell it to do.

It was a bit of a horse-before-the-cart problem: joining the Eurozone has always meant that the ECB takes control of your monetary policy, while the Union promises political unification at some undetermined point in the future.

That doesn't work. We tried something similar once (sans central banking) back in the days of the Second Continental Congress. What we ended up with was a loose confederation of states that didn't pay much heed to a central political authority.

At some point, the EU is going to have to press for more control over the economic behavior of it's member states. Either that, or countries like Greece and Ireland should start to question why they signed up for the union in the first place.

A Note On Incentives

The Strawman Blogger is quite the fan of the dismal science - because of this, we find it stimulating to look at the world as a system of incentives. For example:

As we've discussed previously, you have no reference point about the cost of your insurance. Because of that, the only feedback you can provide is based on quality. Did you see you favourite doctor? Did you get your treatment? Was your copay too large?

If you don't get want you want, you complain. And insurance companies have every incentive to respond to your complaint. They can make preferred provider plans more expansive, provide better access to treatment, and reduce your copay.

This, of course, costs money. Your employer, certainly, can shop for more affordable policies, and they do. But in the war between quality and price, there's really only one thing you respond to.

If that doesn't sound crazy, it should. Think about it - Everything else you purchase is a balance between quality and price. The Strawman Blogger does not drive a Subaru Impreza because it suits his bloody image. We make decisions about food, clothing, shelter, and transportation, all based on the premium we're willing to pay for the product we get. Everything except healthcare.

Boggles the bloody mind.

In Which We Interact

Over the weekend, someone raised a laudable point in our comment thread: "Why?" they ask. Why healthcare, why the expense? In other word: Why worry?

Life isn't perfect. If 10% of the population lacks health care - well, 10% of the population should try harder. It's America, dammit.

And we can see their point. The Strawman Blogger is no friend of the lower classes. We were born with the silver spoon so far up our mouth that it seriously impaired our gag reflex. Our trust fund is so large it exerts a significant gravitational pull. In our minds, poor people should only be seen at charity events, or when we happen to drive past a bus stop.

But the problem of health care is not a problem of the poor. It is a problem for all of us. And the Strawman Blogger has perfectly selfish reasons to extend health care to the underclass.

Our Perfectly Selfish Reasons

The Strawman Blogger is a man of almost unlimited patience. But even we are beginning to tire of repeating the same, basic refrain: In America, healthcare is broken.

This is a very important point. Let's repeat it:

American healthcare is broken
American healthcare is broken
American healthcare is @$^*% broken

We feel better.

Somewhere Along The Way, Life Happened

But why is it broken? you ask. My healthcare is just fine. I can see any doctor. Get any surgery. All without coughing a single bloody cent.

That's the trouble with American healthcare. It feels free. But it's not. And it's designed in such a way to screw over exactly one person, and screw them so thoroughly and deeply that they may never walk the same again.

You.

Getting Screwed By American Healthcare: A Reference Guide

Part 1 - Costs are Out Of Control

Each year, health care costs rise. Usually, somewhere between 5-12%. By comparison, a vibrant economy grows about 4-6%. Middle-class wages average a terrible 0% - over the past ten years, they haven't grown at all.

Given these rates, health care will consume 50% of government spending by 2082. That's money required for transportation, law enforcement, debt payments and Social Security.

It would be bad enough if health care were pretty cheap already. But it's not. Health care in America is more expensive than any other industrial country in the world:



This is a graph of our health care costs and our health care outcomes. On the left is how much we pay for health insurance - on the right, how long we live. America doesn't just pay more for health care. We pay a LOT more, over 40% more than anyone else. Maybe this would be a good deal if we lived longer, but we don't: our outcomes are rated 37th in the world.

Wondering where that money comes from? The Strawman Blogger is glad you asked.



This graph comes from the eminitable Ezra Klein. Click on it: he has a lot more like it. It's about unit costs - the cost of a procedure in America versus a procedure in other countries. They are not comparable, and they are not cheap. Unit costs are killing us.

Part 2 - You Don't Feel It

Surely you exaggerate, you say. If things were that bad, I would know.

But you wouldn't, you poor simpleton. And here's why: For godawful reasons practically lost in the midst of time, your insurance is provided to you by your employer. Why this should be the case defies all belief. The Strawman Blogger cannot imagine a world were his employer provided his auto, home, or renters insurance.

As long as you're employed, you don't feel health care getting more expensive. Your employer simply soaks up the excess cost behind your back. Whenever health care costs rise, your company absorbs the difference, then hands out any money left over as wages. If costs rise too much, you just get a smaller raise that year.

Skeptical? You probably shouldn't be.

Of course, if you're unlucky enough to be fired, or if you happen to be on the individual market, the pain is very real. Insurance companies don't care how broke you are, or how hard you've worked. They'll simply calculate how much your illness could cost them, and they'll make you pay it. And if it gets too expensive, they'll stop insuring you. You've just been the victim of recission, and it happens every day.


Part 3 - The System Screws You

So that's our situation: We have out-of-control costs, hidden from you by your employer, that you'll rarely see but will be quite the nuisance if you ever lose your job. Perversly, people are quite happy with this situation.

Employers love it because it gives them power. Sure, they're loving it less and less over time, because power is ungodly expensive. But as long as they provide health care, you can't change jobs or quit without risking the individual market. They get to make you unhappy, and you get to take it.

Insurers love it because they don't have to bargain prices down. In a normal world, insurers would have to negotiate with doctors over their fees. The companies that were better at it would be able to offer cheaper policies, and thus would get more customers. The free market in action. But because the costs are hidden by your employer, they don't have to bother. They can pay your doctor whatever he asks for and pass the bill on to you.

Doctors love it because they get paid a lot. Much, much more than doctors in any other industrial country. Remember that unit cost graph? That's what you're paying so your doctor can buy another yacht. It's no coincidence that Medicare, the one insurer who can be ballsed to negotiate with it's doctors, controls costs better than it's private counterparts.


Part 4 - It's About To Get Much Worse

So we've set up a system that doesn't just allow costs to get out-of-control: it encourages it. And if everyone is having second thoughts, if insurers and employees are thinking, "Slow down, we might have underestimated the size of this particular fucking problem," it's too late.

The individual market is already a mess, but it's going to get much worse. The only way insurers can control costs is through recission - they just stop insuring people who are too expensive. As costs rise, more and more people simply won't have access to insurance. It will be too expensive, and insurers aren't a bloody charity.

Employers don't have that option. So healthcare costs will continue to exert downward pressure on American wages. Eventually, they'll stop offering health care all together, or they'll ratchet down the quality of your policy until it makes no difference. Either way, you'll have to get something on the individual market. Good luck.


Final Lesson - There Are Other Options

Let's not kid ourselves. The current system isn't free market. There's nothing free about it. You have no choice - your employer chooses for you. You have no information - if you're an individual, insurance companies are required to tell you $%*# all.

It can be fixed, though. You can have a public option, like Medicare, that uses it's size and market position to bargain aggressively with providers. You can have government owned hospitals, like the VA, that simply sets the wages of their staff. Or you can try reform through a mix of subsidies, regulation, and oversight of the existing private market, and hope that incremental policy changes and public awareness will begin to move prices downward.

That last bit is the administration's plan. And it does a fair job of it: It shaves over 100 billion off the deficit over the next ten years. Of course, you say, that's not near enough to rein in costs - and I agree with you. But given how hard you fought the most conservative piece of healthcare legislation in history, you'll forgive us if we don't sing the praises of the public option quite yet. The Strawman Blogger will take what he can get, thank you very much.


And if all this isn't enough? Well, we can always make a moral argument. Over 45,000 people die a year from underinsurance. That's not 45,000 car accidents, 45,000 random murders, or 45,000 people who died because they were just too fucking lazy to go to the hospital. It's 45,000 preventable, treatable illnesses that went untreated, simply because we chosen an asinine, jackass way of running a health care system. And it's a number that's only going to get larger.