Market show us the magic hand!

This early critique of the Republican Obamacare replacement by Dean Baker at the Center for Economic and Policy research takes a dim view of the outcome. That is looking to return to more than 50 million unisured before the Affordable Care Act. As we know, currently “only” 28 million Americans are without health insurance. Baker did not go into depth about the macro economic implications of this situation but stuck to the healthcare implications. He points out, and later reports support him that with the increase in the limit on contributions to the Medical Savings Account, more affluent people will be buying low premium, high deductible health insurance plans that will provide only catastrophic benefits. The market for such a plan will likely be among younger, “professional” types. On the other hand, as was revealed in this article published in the LA Times March 8, older poorer Americans will be the biggest losers in the overhaul. The article I read in the Arizona Daily Star this morning pointed out that the vast majority of counties that supported Pres. Trump in the election will lose big under the new plan. I cannot find a link because the tucson.com website is dreadfully loaded with pop ups in every click and a poor search engine.

Paul Ryan, in this interview on CBS laughed when he was asked how many people would lose the health insurance under the new GOP plan. “We don’t know”, he said. He wants the American people to be so relieved that people will not be insured under “some government mandate” that they won’t care if they are going without. He sees  the magic marketplace that will produce just the right plan for everybody and for some, none at all. Later in the same CBS Face the Nation segment, Sen. Bernie Sanders pointed out that the real thrust of this change is to relieve the very richest Americans of the taxes that were imposed upon them to fund the ACA in part. I am of the opinion that the enormous effort to drag Congress into a very mild private-insurance based, privately delivered healthcare plan was primarily due to the pressure brought to bear by this class of Americans upon the GOP in Congress.

The macro-economics of available healthcare is on display right here in Arizona. Mounting uncompensated care was causing great financial stress upon hospitals and clinics in Arizona; particularly rural Arizona. The GOP-led State Legislature did not heed the pleas and cries of the Arizona healthcare providers to help them recover some of that uncompensated care and accept the Medicaid expansion offered by the ACA. It was not until great pressure was brought to bear upon these Legislative “leaders” by the Gov. of Arizona, Jan Brewer. Brewer, a Republican was able to bring to the table a plan to fund the Arizona premium of the expansion through a levy worked out with the healthcare providers on patient-occupied beds. Brewer was able to gain media support for this plan, got it passed over GOP leadership dissention and that by 2015 had enrolled 1.6 million Arizonans, according to this Arizona Daily Star article.

“Somebody else’s baby” is how one GOP Congressman characterized his view of the people who are helped under the Affordable Care Act. This is not only inhumane and selfish but it betrays a fundamental mindset common among these GOP leaders, including Paul Ryan that people who struggle in our society; or any society for that matter should not be the burden of those who are more fortunate. This is anathema to civil, developed societies who understand that widespread disease and want among large numbers of their society weakens and makes vulnerable the entire society.

The magic hand of the marketplace was given its chance. It resulted in skyrocketing healthcare costs, millions dying needlessly, financial ruin for millions; bloated, topheavy insurance companies and a shrinking number of enrollees. It’s time to move on to universal coverage. And no, it will not come from the magic marketplace. It will have to be demanded.

Fed Vice Chairman sees “hailing range”

Dean Baker correctly alerts us to the ominous statements made by the Federal Reserve Board Vice-Chairman, Stanley

Stanley Fisher VP FRB
FRB Vice Chairman Stanley Fischer

Fischer. Baker points out that 2% is a inflation target average; not a ceiling. It would be economically counterproductive to raise the Fed Funds Rate when the US economy is in the 8th year of recovery from the worst recession in US history since the Great Depression. Wall St. banks have resisted easing credit since they were unable to establish values for themselves and their cohorts in October of 2008. Yes, students of the economy remember the meeting Treasury Secretary Paulson had with 9 of the biggest banks in the USA. At that meeting the values of each of the banks was assigned to them via a dollar amount he had written on a slip of paper. Each received a portion of $125B of Treasury funds in the form of purchase of preferred stock.

 

The Federal Reserve’s control of the money big banks can access is used to encourage economic expansion or cool off an economy that is expanding too rapidly. If it hikes the rates, banks can charge higher loan interest rates such as mortgages and they can pay depositors higher rates.

The Fed’s monetary actions have not had much effect on the lending of big banks. Several years of 0% to .25% failed to produce the loans necessary to cause business expansion. Failing this, the Fed resorted to “quantitative easing”…twice also with little effect. The QE, as it is called forces banks to sell government bonds to the Federal Reserve thereby reducing the securities on their books and increasing their cash. The theory of QE is that without interest producing securities, banks are forced to find a market for this cash; hopefully retail borrowers.

A big part of the problem of bank lending is the domination of Wall St. banks in the banking industry. Wall St. banks have centralized credit policies that limit the lending of local bank managers. Businesses without hard collateral cannot meet the risk avoidance criteria of their local Wall St. bank branches. With slack lending through their thousands of retail branches, the Wall St. banks must look to businesses with a national presence. Here, they may be finding slack demand for credit. This slack demand is due to the fact that these businesses have excess productive capacity. That is, they are capable of producing more product but have no market for it. Currently, producers in the aggregate have almost 25% excess capacity; a full 5% below the average capacity utilization between 1972 and 2015. If you can produce more with what you already have, you have no need to expand, nor to borrow to finance that expansion.

This dilemma; having too much capital concentrated within centralized lending institutions while too little capital is in the hands of consumers is driving bizarre proposals such as Vice Chairman Fischer’s. The Federal Reserve cannot force the banks to lend and the banks can’t force these national corporations to borrow. If he has his way, this tepid economic recovery will slip into another recession a concern expressed by Baker and his colleagues at the Center for Economic and Policy Research.