What America Really Thinks About Obamacare

When I see discussion of Obamacare in the media and especially on blogs, I often see the impression that Obamcare is a communist scheme to impose socialised medicine in the United States:

Communist

Actually, Obamacare was first dreamt up by the conservative Heritage Foundation, and first implemented at the state level by the Republican former Massachusetts governor Mitt Romney. (And for what it’s worth, I wrongly judged Republican opposition to Obamacare as an immovable obstacle in Romney’s quest to become the Republican Presidential nominee, but I guess Republicans were far more fickle than I thought). So as its origin implies, Obamacare is not exactly a communist, or social democratic idea. A charge of socialism or communism might be more fairly levelled against Obamacare if Obamacare were a law to confiscate all hospitals, drug companies, biotechnology companies and insurance companies from private hands. But it does no such thing. The opposite, in fact. More principled critics of Obamcare might more accurately describe it as corporatist — guaranteeing revenue streams for the insurance industry through the individual mandate — but that has not exactly been the Republican Party’s line of attack.

Given that opposition by the Republican-controled House to Obamacare is the most significant cause of the current government shutdown, it is worthwhile looking over how Americans actually feel about the law, not least to gauge the extent to which Americans may or may not support the Republicans now that their opposition to Obamacare is having real consequences.

It has long been said that Obamacare is unpopular, and the polls bear this out. A September CNN/ORC poll showed that Obamacare was supported by 43% of respondents, and opposed by 51% of respondents. But here’s the catch: 16% of respondents opposed Obamacare for not being liberal enough. Presumably, they would prefer a single payer system, as is the reality throughout most of Europe an Canada. (Of course, a move to such a system might be more fairly described as socialist, but that is another argument for another day). A sizeable number want something more liberal than Obamacare, and so would presumably prefer Obamacare to the status quo, even if they still claim to oppose it. So the consensus is actually against the Republican position by 59% to 35%. And that is why opposing Obamacare in this fight-to-the-death manner will be received negatively by a majority of Americans. Only 35% of Americans are against Obamacare because it is too liberal, and even then a substantial number of those — such as seniors who receive government benefits, or poor rural Republicans receiving food stamps — may be against shutting down the government to fight Obamacare. The Republicans are fighting a losing fight, and as the shutdown grinds on may be doing irreparable damage to their 2014 election prospects.

More generally, I find it rather puzzling that Republicans — convinced Obamacare will fail disastrously — are going to such lengths to oppose it. Like Prohibition once was, it is now law, and if it is destined to precipitate disaster — by increasing unemployment, by increasing healthcare costs, by increasing strain on the healthcare system, or by any other means — then it will be quickly rejected and repealed in the future.

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The Fed Shrugs

Since talk of the taper started, interest rates have been gradually rising. When Bernanke talked about the possibility of tapering QE in mid 2014 so long as growth and unemployment remain on track, rates leapt to their highest level since 2011:

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A simple supply-demand analysis of Treasuries says that if the Fed buys less, ceteris paribus the price will fall and rates will rise. The Fed is implying it will buy less, and lo and behold markets are selling off on expectations that future demand will be lower. The analysis of those who say that quantitative easing is raising interest rates seems increasingly dubious to me.

The alternative analysis is that rates are rising on sentiment that the economy is improving. I wouldn’t rule that out, but the trouble is that the economy is still deeply depressed. GDP is still far below its pre-crisis trend. Broad monetary aggregates are still massively deflated. Lots and lots of working-age people who were working before 2008 still haven’t returned to the labour force:

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So while equities have returned to their pre-crisis heights — unsurprisingly, after all the financial sector is the Fed’s monetary transmission mechanism — the real economy, broadly speaking, hasn’t.

So it’s surprising to me that there is any talk of tapering. Headline unemployment is still 7.5%, and core inflation is just 1%, 1% below the Federal Reserve’s self-imposed target. Bernanke referred to disinflationary and deflationary forces in the economy as “transitory”, but any such diagnosis would seem to be the height of naïveté. The deflation of the shadow money supply and broad monetary aggregates is an ongoing structural transformation in the post-shadow-banking-bubble world. There is nothing “transitory” about it. If inflation was 3% or 4% and unemployment was below 6%, then talk of a taper would be expectable. Right now it just makes it seem like the Fed doesn’t have a clear framework. If QE3 was supposed to target unemployment, why is the Fed considering tapering when unemployment is still so high? Yes, the Fed’s internal DSGE models are saying that unemployment will continue to fall. Of course they do — these models have assumptions of clearing labour markets built into them! But right now inflation is below-mandate and unemployment is above mandate. Assuming away current conditions with the term “transitory” is basically saying that when the storm is long past the ocean is flat again.

Of course, at the zero-bound I think the Fed’s transmission mechanisms are relatively powerless in terms of any ability to stimulate employment or growth. It has taken the horse to water, but the horse hasn’t drunk. What the Fed can control with balance sheet monetary policy is interest rates on assets it buys. By shrugging, the Fed is signalling for a rise in government borrowing costs. That may be extremely premature.

Chinese Treasury Contradictions…

One mistake I may have made in the two years I have been writing publicly is taking the rhetoric of the Chinese and Russian governments a little too seriously, particularly over their relationship with the United States and the dollar.

Back in 2011, both China and Russia made a lot of noise about dumping US debt, or at least investing a lot less in it. Vladimir Putin said:

They are living beyond their means and shifting a part of the weight of their problems to the world economy. They are living like parasites off the global economy and their monopoly of the dollar. If [in America] there is a systemic malfunction, this will affect everyone. Countries like Russia and China hold a significant part of their reserves in American securities. There should be other reserve currencies.

And China were vocally critical too:

China, the largest foreign investor in US government securities, joined Russia in criticising American policymakers for failing to ensure borrowing is reined in after a stopgap deal to raise the nation’s debt limit.

People’s Bank of China governor Zhou Xiaochuan said China‘s central bank would monitor US efforts to tackle its debt, and state-run Xinhua News Agency blasted what it called the “madcap” brinkmanship of American lawmakers.

But just this month — almost two years after China blasted America for failing to cut debt levels — China’s Treasury holdings hit a record level of  $1.223 trillion.  And Russian treasury holdings are $20 billion higher than they were in 2012. So all of those protestations, it seems, were a lot of hot air. While it is true that various growing industrial powers are setting up alternative reserve currency systems, China and Russia aren’t ready to dump the dollar system anytime soon.

Now, the Federal Reserve has to some degree further enticed China into buying treasuries by giving them direct access to the Treasury auctions, allowing them to cut out the Wall Street middlemen. Maybe if that hadn’t happened, Chinese Treasury ownership would be lower.

But ultimately, the present system is very favourable for the BRICs, who have been able to build up massive manufacturing and infrastructural bases as a means to satisfy American and Western demand. In that sense, the post-Bretton Woods globalisation has been as much a free lunch for the developing world as it has been for anyone else. And why would China and Russia want to rock the boat by engaging in things like mass Treasury dumpings, trade war or proxy wars? They are slowly and gradually gaining on the West, without having to engage in war or trade war. As I noted in 2011:

I believe that the current world order suits China very much — their manufacturing exporters (and resource importers) get the stability of the mega-importing Americans spending mega-dollars on a military budget that maintains global stability. Global instability would mean everyone would pay more for imports, due to heightened insurance costs and other overheads.

Of course, a panic in the Chinese mainland — maybe a financial crash, or the bursting of the Chinese property bubble — might result in China’s government doing something rash.

But until then it is unlikely we will see the Eurasian holders of Treasuries engaging in much liquidation anytime soon — however much their leaders complain about American fiscal and monetary policy. Actions speak louder than words.

Judge, Jury & Executioner

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I’ve criticised Rand Paul in the past on a few issues, but none of my previous doubts and nitpicks can dilute the sheer brilliance of his almost-thirteen-hour filibuster.

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The absurdity of the legal framework built up by the Bush and Obama administrations was a house of cards for Paul to poke at and watch crumble. Paul’s key question is does Obama believe he can order the killing of an American citizen, on American soil, based on nothing more than his own judgment that the person is a threat?

Under the Fifth Amendment, suspects are entitled to the due process of law:

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

And how can any President claim that his own judgment, or that of his Attorney General counts as the due process of law? The targeted drone killings that have occurred in foreign lands — and which Holder admits could theoretically occur on American soil — are very simply extrajudicial killings. And extrajudicial killings are utterly barbaric, incompatible with modern civilisation, incompatible with any notion of human rights or due process, and incompatible with the Constitution.

The status quo evolved very much out of post-9/11 paranoia, as exemplified by Dick Durbin’s Cheneyesque questions aimed at Paul toward the end of the Filibuster, and by Eric Holder’s initial written response referencing Pearl Harbour and 9/11:

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Neither Rand Paul nor myself are suggesting that an attempted violent attack should not be stopped using necessary means (although not excessive means). But if an act of terror has not commenced (and even in many cases where an act of terror has commenced) it should be possible to arrest and question a suspect, rather than killing them. If a suspect can be arrested, charged and tried, there should be no reason why that should not happen.  And unless an act of terror has actively commenced, or unless a suspect can be convicted beyond reasonable doubt in a court of law the government’s suspicion is only a suspicion, and the government has absolutely no business detaining or punishing a suspect.

After 9/11, due process was effectively suspended, and for all of Obama’s lip-service to “change”, this mindset prevailed through his first and into his second administration. Rand Paul’s dogged, tireless questioning — as well as the work of questioners in the media such as Glenn Greenwald, Conor Friedersdorf, Spencer Ackerman, and Micah Zenko —  is acting as a catalyst to break the public and governmental mindset that allowed for the suspension of due process. Due process matters. If it hasn’t been proven that someone has broken the law why should they be punished for it? As humans we have inalienable rights. The fear of terrorism does not trump the right to be tried under the presumption of innocence.

The strength of Rand Paul’s argument means that defenders of the status quo have had to resort to spurious or ad hominem arguments to mount a defence of the President’s position — attacking Paul’s positions on other issues, for example. It was encouraging to see Rand Paul questioning the entire notion of targeted killings and signature strikes altogether, and not just worrying about the prospect of such affairs on American soil. Due process is preferable in all circumstances.  I would have preferred to see Osama bin Laden captured and tried, rather than killed.  Due process is not a sign of moral weakness, but a sign of cultural strength, of sanity, of civilisation.

The Obama administration must eventually understand that their position is untenable. Large swathes of the mainstream media are coming around to the idea that Rand Paul is asking important questions and that due process is more important than national security panic and threat inflation. Paul has struck a blow for the Constitution at the right moment, and to a judicial edifice that has become bloated and corrupt, treating too-big-to-fail bankers with impunity, while coming down like a tonne of bricks on minor intellectual property infractions. He has harnessed the image of a lone filibustering Senator standing up to the machine of the establishment to strike a blow to those who are trying to defend the indefensible. At the very least, Rand Paul has made real oversight of the drone program possible. Hopefully, the days of signature strikes and of targeted killings are numbered. Hopefully, the Constitution and Bill of Rights will reign supreme again in Washington D.C.

The Real 2013 Cliff

There’s a much bigger cliff than the so-called fiscal cliff. The absolute worst result of the fiscal cliff would be a moderate uniform tax increase at a bad time, resulting in a moderate contraction. It is an obvious — but ultimately rather cosmetic — stumbling block on the so-called “road to recovery”.

The much bigger cliff stems from the fact that the so-called recovery itself is built on nothing but sand. This is a result of underlying systemic fragilities that have never been allowed to break. I have spent the last year and a half writing about this graph — the total debt in the economy as a proportion of the economy’s output:

This is the bubble that won’t go away. This is the zombified mess that the Federal Reserve won’t let dissolve (as happened regularly in the 19th century and early 20th century each time there was an unsustainable debt bubble). This is the shifting sand — preserved by the massive monetary stimulus programs — that the so-called recovery is built upon. During the 1980s and 1990s and 2000s cheap money pumped up the debt level in America. In 2008, the bubble burst, and the hyper-connective fragile financial system was set to burn. Then central banks around the world stepped in to “stabilise” (or as Nassim Taleb puts it, overstabilise) the financial system. The unsustainable reality of debt vastly exceeding income was put on life support.

A high pre-existing residual debt level makes growth challenging, as consumers and producers remain focussed on paying down the pre-existing debt load, they are drained by pre-existing debt service costs, and they are wary about taking on debt or investing in a weak and depressed environment. It’s a classic Catch-22. The only true panacea for the depression is growth, but the economy cannot grow because it is depressed and zombified. That’s where a crash comes in — the junk is liquidated, clearing the field for new growth. That is what Schumpeter meant when he talked of “the work of depressions”, something that many mainstream economists still fail to grasp. (In fairness, a similar effect can probably be achieved without a depression through a very large scale debt relief program.)

Japan has been stuck in a deleveraging trap for twenty years, to no avail, all that has really occurred is that the private debt load has been transferred onto the central bank balance sheet — there has been very little net deleveraging) and while the Japanese central bank has completed round after round of quantitative easing — sustaining and preserving the past malinvestment and high debt load — the Japanese economy is still depressed.

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That is the road America and most of the West are now on. And just as Japan’s bank stocks did multiple times even after the Japanese housing bubble burst, American banking stocks — even in spite of a year of fraud, abuse, mismanagement and uber-fragility — have been shooting up, up, up and away:

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The zombie financial sector is the real cliff — as interconnective as ever, as corrupt as ever, and most importantly, nearly as leveraged as ever:

Margin Debt November 2012

This is a reinflated bubble built on foundations of sand. I don’t know which straw will break the illusion (middle eastern war? Hostility between China and Japan? Chinese real estate and subprime meltdown? Student debt? Eurozone? Natural disasters? Who knows…) but this bubble poses a far greater threat in 2013 than the fiscal shenanigans and the Boehner-Obama “Boner-Droner” snoozefest.

Weapons of Mass Destruction Redux

Fool me once, shame on you. Fool me twice, shame on me.

That’s what I’d say to the Western governments currently planning an invasion of Syria under the pretense that Bashar al-Assad is readying the use of chemical weapons in the Syrian Civil War.

The Telegraph reports:

NBC News quoted an unnamed US official as saying there was evidence that the bombs, loaded with the chemical weapon, could be dropped on the Syrian people from fighter planes once president Basah al-Assad gives the order.

If it proves to be true, the move would be a dramatic escalation in the conflict in Syria, which could lead to US involvement.

Earlier this week, US officials said the regime had begun mixing the chemicals to make the deadly sarin gas.

Sarin, used in two terrorist attacks in Japan in the 1990s, is a man-made nerve agent which can cause convulsions, respiratory failure and death.

The Syrian regime has never overtly admitted having chemical weapons, though it is believed by western analysts to have the biggest stocks in the Middle East. It has also denied it would ever use chemical weapons against its own people.

Western intelligence agencies never had to publicly display their evidence for the invasion or Iraq — their wrong claims that Saddam Hussein was in possession of weapons of mass destruction which could be deployed against Western countries at 45 minutes notice.

And now they expect us to take it at face value that they have evidence that Syria is ready to use chemical weapons? Talk about the boy that cried wolf.

Want to commit blood and treasure to fight another middle eastern war? (Even though the most recent interventions have all ended in Islamists and even groups affiliated with al-Qaeda coming to power)

To be taken seriously, Western intelligence agencies need to prove these claims with hard evidence open to public scrutiny. If the claims are based on second-hand reports, circumstantial evidence and bad guesswork (as was the case in Iraq) then Western taxpayers deserve to know the truth.

But they won’t. Governments are already massing armies to intervene. The politicians and bureaucrats making these decisions won’t have to pay for it. They will leave that up to taxpayers.

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Bush 3 vs Bush 4

The point of my writing has never been to tell others how to vote, especially not in elections in countries like the USA where I cannot myself vote.

But even if I was a voter in this election, there is no candidate with a chance in hell of winning who I could support. Obama and Romney are standing on the shoulders of George W. Bush.

Obama renewed Bush’s PATRIOT Act, which gutted the Fourth Amendment, Obama signed into place (and went to court to defend) the NDAA Act that creates a legal framework  for the indefinite detention of American citizens, Obama has engaged in six middle eastern wars (two more than Bush), and Obama maintains a kill-list of suspected terrorists including American citizens who — without trial, and alongside their families — are targeted for assassination by drone strike. Romney signs on to all of those initiatives, and boasts the endorsements of both George W. Bush and Dick Cheney. Both candidates promise to strike first against Iran. Neither candidate talks of downsizing the American Empire, that — at huge cost to the taxpayer — maintains bases in over 150 countries, creates huge blowback, and leaves the American military thinly stretched. And this misallocation of capital means that in areas where central government plays a useful role — infrastructure, space exploration, disaster relief and scientific research — too little is left to invest.

On the economy, both candidates are avowed interventionists who endorse bank bailouts and the bailouts of failed and unsustainable industries. Bailouts result in the malinvestment of capital, labour and productivity — giving too-big-to-fail banks and crooked and fraudulent banksters the opportunity to continue profiting from mountains of central bank liquidity, while small businesses and new entrepreneurs starve from a lack of credit. And neither candidate has any intention of implementing a solution — like Glass Steagall, which worked relatively well for over sixty years —  to end the tyranny of public bailouts. Additionally, neither candidate seems aware of the real cause of depressions — excess and unsustainable total debt. Both candidates seem intent to pursue policies of reinflating debt bubbles, only for them to burst again later rather than try to address the underlying problems. This approach is likely to render social spending pledges unsustainable, as the only thing that can pay for Social Security and present welfare commitments is strong organic productive growth, not endless bailouts of crooked banksters, mobility scooters, new social networks and the pointless reinflation of unsustainable businesses.

Both candidates are committed to one-sided free trade deals that end up shipping productive American jobs half way around the world, and rendering Americans dependent on the output of other nations. And while (much like George W. Bush) both candidates have paid lip-service to the idea of energy independence, they also support the idea of a resource-sapping global military empire, which leaves few resources remaining for the task of creating energy independence.

And both candidates promise to continue the expensive, wasteful and liberty-sapping war on drugseven though Obama was a proud and boastful drug user in his youth.

One candidate will be elected today, and their supporters will surely go wild, while the other side will be despondent. But sadly, both sides will have lost. The only winners under Obama-Romney will be crooked too-big-to-fail banksters, and the military-industrial complex.