Economics And Democracy

            Jamie Dimon’s Chase bank will be letting go over 400 workers in the Columbus area. Less than ten years ago the business was championed (and received public subsidies) for bringing jobs to the Columbus area. The folks out of work might say what so many others have said before them, “All my life I’ve played by the rules, gone to school, served my country, got a job and now I find myself out of work, on the verge of losing my house (if not already), without health insurance and scrapping to just get by.” We’ve heard the same over, and over, and over for how many years now? Jamie, of course, has not only survived the London Whale debacle (over $2 Bil loss plus $920 Mil fine), the Wall Street meltdown 5 years ago, and the illegal robo-signing and marketing of toxic mortgages (and the resultant foreclosures which earned Chase even greater profits through derivative credit default swaps) but Jamie also received a bonus. American Microsoft is buying Finnish Nokia. According to many economists, inevitable! Microsoft is sitting on a pile of cash. As long as it is spent overseas (and not brought home), no tax is due. All of this is in perfect accord with “the rules” that the workers without a job played by so assiduously. How is this possible?


            Bill Moyers had Robert Reich on over the weekend. No judgmental good guy/ bad guy for his tenure as treasury secretary under the Clinton presidency will be pursued here (a digression that would NOT contribute to what is at stake today). Mr. Reich was on to promote his new movie (of all things!), Inequality For All, a didactic documentary. The film is a primer on the interface of “economics” (the great inscrutable mystery that determines all our lives) and “democracy” (our government, or at least what we’d like to believe is how we govern ourselves). Put simplistically, according to the current University of California public policy professor the economy IS the rules put into play by society through its own governance. In our case, unlike a monarchy or totalitarian regime, it is the rules formulated through the determinations of the democratic process. What we have today is the outcome of laws, rules and regulations implemented before, during and after Reich’s service to the president and country in the 1990’s. Chase, Dimon, Microsoft, etc. all are doing what is allowed, even promoted, by the “rules” put into play over the last 40 years. It would be “irrational” for them to do otherwise. Through all the gloom and doom Mr. Reich is upbeat, positive, downright hopeful. This is because he believes that, in a democracy, we can likewise change the rules and thereby change the economy.  How does this work?


            Two recent news articles cut to the chase. They are current, relevant, and interface precisely with contemporary efforts to deal with the economy through the democratic process. Prior to passage of the Patient Protection and Affordable Care Act, there were numerous television and film documentaries regarding health care in the US, other countries in the world, and the economics involved. There were images of long lines of infirm people in North Carolina, Tennessee, etc. for donated health care who hadn’t been to a doctor. We had accounts of hospitals, and physician organizations saying something must be done as health care cost are rising at (some years) double the inflation rate. The cost of health care is making it unavailable, where in other countries it is less costly and accessible, etc. Suffice to say, all this was a motivating factor for passage of the ACA. The ACA has been in place now for going on three years, and has passed constitutional muster. In an article entitled “CBO: We Have a Tax Problem, Not a Spending Problem” Nicole Woo of the Wall Street Cheat Sheet (9-23-13) reports: “The non-partisan Congressional Budget Office has released its 2013 Long-Term Budget Outlook, and it has some great news. Specifically, CBO is predicting substantially lower healthcare spending this year and 25 years into the future. While last year CBO estimated that, “Federal spending for those [health care] programs would grow to 9.6 percent of GDP in 2037; in that year, 6.0 percent of GDP would be devoted to Medicare, and 3.6 percent would be spent on Medicaid, CHIP, and the exchange subsidies.”” In online Forbes (9-24-13) “Health spending slows as Obamacare sign-up looms” by contributor Bruce Japsen “Health care spending continues to slow as more medical care moves to less costly outpatient settings, consumers choose cheaper generic drugs and insurance companies alter plan designs to increase out-of-pocket costs on workers, a new Health Care Cost Institute study shows.

The Health Care Cost Institute, which analyzes claims from major U.S. health plans, said the growth rate of health care spending in 2012 “remained low” for the third straight year for nearly 156 million Americans 65 years old and under with employer-sponsored coverage, growing just four percent. The health spending rate grew 4.1 percent in 2011, the institute said.

The institute’s report is the latest to show spending on medical care slowing. A report last week from the Centers for Medicare & Medicaid Services that was published in the journal Health Affairs said low rates of health care spending would continue through 2013. Both studies come as states and the federal government prepare to rollout broader coverage for uninsured individuals under the Affordable Care Act.” The article ends with, “ The independent nonprofit institute [the Health Care Cost Institute], which bills itself as nonpartisan, is supported by investor-owned health insurers Aetna, Humana, and UnitedHealth Group and the California-based nonprofit health insurer, Kaiser Permanente.” Nicole Woo adds this contextual insight: “CBO specifies that The American Taxpayer Relief Act of 2012 (which made permanent most of the Bush tax cuts and indexed the Alternative Minimum Tax to inflation) as the cause for the bulk of the decrease in taxes. As a result, it lowers its estimates of federal revenues a portion of our economy. ”Federal revenues are now expected to be substantially lower in coming decades. By 2023, revenues are projected to be 2.8 percent of GDP lower than projected in the 2012 analysis: 18.5 percent of GDP rather than 21.3 percent. Revenues are now projected to equal 19.7 percent of GDP in 2038, 4.2 percentage points lower than the 23.9 percent figure projected last year.”

By lowering its projections of future spending levels as well, CBO shows that we have a tax problem, not a spending problem. “Non-interest spending in 2038 is projected to be 1.4 percent of GDP lower than in the 2012 analysis. Total federal spending on everything other than major health care programs, Social Security, and net interest is now projected to equal a smaller share of GDP throughout the next 25 years than CBO projected last year.”

In addition, CBO quantifies how high unemployment rates do damage to the economy (and, by extension, future debt levels). “CBO raised its projection of the unemployment rate over the long term from 5.0 percent to 5.3 percent. That change in the long-term unemployment rate reduced CBO’s projection of the level of GDP by about 0.6 percent after 2027.”” This is the same Budget Office that our “democratically” elected representatives pay to inform them regarding economic policy decisions.


Robert Reich is right to be hopeful about the economy. Of course, Bill Moyers never asked the public policy professor how he felt about democracy in America.



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