Category: Government

The College Admissions Scandals

A few weeks ago, Ito and I went to “Admissions,” the very well performed and thought provoking play by Joshua Harmon about affirmative action, at Studio Theater. Several friends had independently attended the play and suggested that we get together for one of Ito’s superb dinners and discuss it.  So we enjoyed an evening discussing the pros and cons of “affirmative action,” the “temporary” suspension of nondiscrimination legislation meant to repair and make up for discrimination against blacks that made them less prepared for college. It is a complex issue without obvious solutions. The play did an excellent job of fairly presenting all perspectives on this issue.

My opinion is that suspending, even temporarily, equal treatment (merit-based college admissions) of applicants to universities and colleges, as is done with affirmative action, is not the best approach to achieving equal treatment of all. It attempts to treat the symptoms of racial discrimination rather than the disease. First of all, private universities (unlike state schools using tax payers’ money) should be free to establish whatever admission policy they want.  Any school I would want to attend will want to include an element of diversity in its student body as an important element of the education they offer and will build that into its admission policy in whatever way it considered sensible.

And now we are confronted with the revelation that some of the rich and famous paid bribes to get their underperforming children into top schools. As stated in the Washington Post: “the scope and sheer shamelessness of an elaborate scheme in which some of the country’s richest people allegedly paid bribes to get their children into top U.S. universities is truly mind-boggling.” https://www.washingtonpost.com/opinions/the-college-admissions-scandal-should-prompt-broader-soul-searching/2019/03/13/f67aa986-45b5-11e9-aaf8-4512a6fe3439_story.html

This is shocking and unacceptable for the same reason I oppose affirmative action. It violates the principle and standard of merit in hiring people or admitting them to college. Our country is one of the wealthiest and most respected in the world because firms and organizations allocate jobs, positions, and resources in general on their merits (i.e. qualifications for the job, etc.). In short, people and other resources are put to their most productive use.  Obviously, this is not always the case. But firms that fall short of this standard suffer lower profits than if they had adhered to it. In short, in the private sector there is an economic incentive to employ the resources (including people) that best fit the needs being filled. Companies that employ their under-qualified relatives suffer lower profits as a result. Hiring or admitting people on the basis of merit is also our standard of fairness that is widely admired throughout the world.

Affirmative action is a deliberate departure from this standard as are the recently revealed bribes and test score cheating for college admission. In the first case it is an effort to overcome the damage of earlier discrimination against a once enslaved people. In the second case it is an effort to overcome the deficiencies of intelligence or character in our own children. A world in which we acquiesce to standards other than merit will always favor the already well off. We will never fully achieve the high standards of merit based appointments we have set, but we should never stop trying. A powerful strength of the private sector in a competitive free market economy is that the economic incentives are in the right direction.

American universities may never achieve a perfect admissions system completely based on merit and devoid of personal bias, but we should encourage them aim for it. The world outside of the academic environment is unfair enough when it comes to race, gender, sexual orientation and religion to name a few. Let us try to instill in the younger generation the understanding that hard work and smarts are what gets you ahead– not money, influence and certainly not the color one’s skin. And let’s promote attitudes and policies that encourage and reward such a reality.

Brett Michael Kavanaugh

The mash up between Christine Blasey Ford and Brett Kavanaugh has produced very strong opinions for and against the claims of each. Our views on the veracity of each are based on our emotional assessments of the testimony of each. Unless the FBI interviews contain new facts, there is no evidence to confirm Prof. Ford’s claim that Kavanaugh sexually assaulted her nor evidence to confirm his claim that he didn’t. This is the horrible fact for acts, or alleged acts, with no witnesses (Ford claims Mark Judge witnessed the events she describes but he denies it).

This is the sad situation of “She said—he said” for which there seems no easy remedy. Actual rape generally produces evidence (semen) if promptly reported. But we have come to understand why many women do not promptly report their assaults. Memories and evidence fade with time. The sworn statements of Prof. Ford and Judge Kavanaugh have holes and inconsistencies and you will believe the one you choose, for whatever reasons, to believe. Prof. Ford can’t remember where or when her assault occurred or how as a 15 year old girl she got there or returned home. Her fear of flying didn’t prevent her from doing a lot of it, etc. Judge Kavanaugh’s choirboy depiction of his youth doesn’t square with the police report of a bar brawl he started in college and testimony of roommates and classmates of his hot temper when drunk, etc.

“Democrats, the left, and various other anti-Kavanaugh persons can thank attorney Michael Avenatti for this outcome, at least in part.

“The spotlight-stealing lawyer, who also represented Stormy Daniels, is responsible for drawing the media’s attention to Julie Swetnick, an alleged victim of Kavanaugh who told an inconsistent and unpersuasive story. Swetnick’s wild accusation provided cover for fence-sitting senators to overlook the more plausible allegation leveled by psychology professor Christine Blasey Ford, and to declare that Kavanaugh was being subjected to false smears.” “Brett Kavanaugh-Michael Avenatti Collins”

The sad consequences for the reputations of Ford and Kavanaugh, tragic as they are, are compounded by the despicable behavior of both the Republican and Democrat parties. The refusal of the Republican controlled Senate to confirm President Obama’s Supreme Court nominee, Merrick Garland, was a shocking breach of protocol. “Even before Obama had named Garland, and in fact only hours after Scalia’s death was announced, Senate Majority Leader Mitch McConnell declared any appointment by the sitting president to be null and void. He said the next Supreme Court justice should be chosen by the next president — to be elected [eight months] later that year.” “What-happened-with-merrick-garland-in-2016”-NPR

The Democrats have behaved as badly: “Sen. Bob Casey and Senate Minority Leader Chuck Schumer also announced that they opposed Trump’s pick without knowing whom the president had selected.” “Democrats-race-to-oppose-trumps-scotus-nominee-even-before-name-announced” Senator Feinstein’s withholding of Prof. Ford’s letter accusing Kavanaugh until the last minute was either stupid or malicious.

Sadly we didn’t have much of the debate we should have had about Kavanaugh’s judicial qualifications and judicial philosophy. He is clearly highly qualified as was Judge Garland who as Chief Judge of the United States Court of Appeals for the District of Columbia Circuit headed the same court on which Kavanaugh has sat for the last 12 years. His job, he says, is to fairly interpret and enforce the law, not make it. Is he an originalist or texturalist and what do those mean?

Since 9/11 and The Patriot Act we have lived in a semi surveillance state that violates our constitutional rights to privacy and due process. As an official in the W Bush White House, Kavanaugh helped write the Patriot Act and later as a Federal judge he ruled to uphold parts of it that many of us consider unconstitutional:

“In a ruling in the U.S. Court of Appeals for the D.C. Circuit, Kavanaugh ruled that ‘the Government’s metadata collection program is entirely consistent with the Fourth Amendment.’ He also later stated ‘that critical national security need outweighs the impact on privacy occasioned by this program.’ Again, a rather odd conclusion for a staunch ‘constitutionalist’ to support.” https://fee.org/articles/the-constitutional-reasons-to-oppose-kavanaugh-for-the-supreme-court/?utm_campaign=FEE%20Weekly&utm_source=hs_email&utm_medium=email&utm_content=66477479&_hsenc=p2ANqtz–ZykcA0d1RgLgdKULIW6mqsBca_Mo6JDsC32-QU_CuMj4Tjcd7zNZA3lLuA0j1VucrH83ejT1Zrte2fKpGKnJS7qGN6w&_hsmi=66477479

But in most areas of protecting constitutionally protected rights or constitutionally mandated restraints on government, Judge Kavanaugh has been on the side of strict constitutionalism. While constitutional scholars are divided over just what a proper adherence to the constitution in the twenty first century should means, there is almost universal agreement that former justice Antonin Scalia helped sharpen the debate around that question.

The left wing historian and activist Howard Zinn puts the issue of judicial philosophy of SC judges in perspective in the following article. https://progressive.org/op-eds/howard-zinn-despair-supreme-court/

I assumed that he was writing about Judge Kavanaugh. After reading it I was surprise to realize that it had been written thirteen years ago. Mr. Zinn died in 2010.

Britt Kavanaugh’s scrutiny by the Senate has been ugly and painful. The Senate’s abandonment of traditional procedures, with their checks and balances, first by the Democrats and now by the Republicans is shortsighted and regrettable. The lack of deference to the President when consenting to his or her choices for her government is recent and regrettable. But most regrettable of all is the divisive lack of commitment to service to the nation as a whole rather than narrow partisan interests by our congressional representatives and our tweeting President.

Feeding the Swamp

During his filibuster leading to last week’s brief government shutdown, Sen. Rand Paul (R-Ky.) stated that: “When Republicans are in power, it seems there is no conservative party…. The hypocrisy hangs in the air and chokes anyone with a sense of decency or intellectual honesty.” He was protesting the compromise two-year budget just passed by the Senate and awaiting passage in the House. This budget, now signed into law by President Trump, adds over $300 billion in additional government spending this year alone on top of the $1 trillion dollar deficit created by the recently passed tax cut. “Why-did-the-GOP-vote-for-a-budget-busting-spending-bill-because-voters-dont-seem-to-care”

A few congressmen reacted with more principle. “’I’m not only a ‘no.’ I’m a ‘hell no,’ ” quipped Rep. Mo Brooks (R-Ala.), one of many members of the Tea Party-aligned Freedom Caucus who left a closed-door meeting of Republicans saying they would vote against the deal.

“It’s a “Christmas tree on steroids,” lamented one of the Freedom Caucus leaders, Rep. Dave Brat (R-Va.).” “Right-revolts-on-budget-deal”

Why should we worry about adding to the public debt? The “deficit” is the shortfall of tax revenue below expenditures in one year. This is now forecast to average about one trillion dollars in each of the next two years. “Bipartisan-budget-act-cements-return-trillion-dollar-deficits”. Each year these annual deficits add to the outstanding U.S. national “debt” currently at $20.6 trillion dollars. Even before the recent tax cuts and last week’s expenditure increases, the Congressional Budget Office projected Federal debt held by the public at $25.5 trillion or 91.5% of GDP by 2027. But that figure omits debt held by the Federal Reserve, Social Security “trust” fund, and other government entities, which must also be serviced and repaid. When these are included as they should be, gross federal debt is projected to be $30.7 trillion or 110% of GDP by 2027 and 150% of GDP in thirty years and climbing. And to repeat, this is before the recent tax cuts and budget increases.

As our economy grows so does the government’s capacity to carry and service (pay the interest on) the debt. But on the basis of existing laws and policies our debt will grow faster than the economy forever. But of course that is impossible. At some point taxes must be increased or expenditures cut, or the government defaults on its debt. In fact the problem is worse than these figures suggest because they fail to include the future taxes or borrowing needed to cover unfunded government liabilities. These are commitments, such as future Social Security pension payments, for which existing financing falls short. For example, Social Security payments already exceed its annual revenue from the wage taxes of current workers and the so-called trust fund will run dry in fifteen years. That will add still more to the deficit and the debt.

Indeed, there are times when deficits are ok and even helpful. When the economy goes into recession the government should allow the deficit that naturally results from falling tax revenue and increasing safety net spending. These are referred to as automatic stabilizers. However, we are currently not now in that phase of the business cycle. We are now at its peak and if the government is to achieve fiscal balance over the cycle it must run budget surpluses at the peak to pay for the deficits during the slumps. The U.S. should now have a budget surplus and not the huge deficit presently experienced and projected. The White House’s announcement today (Monday) that it is giving up on the traditional Republican goal of a balanced budget in ten years is hardly a surprise when we are starting with a large deficit at the peak of the business cycle. https://www.washingtonpost.com/business/economy/white-house-budget-proposes-increase-to-defense-spending-and-cuts-to-safety-net-but-federal-deficit-would-remain/2018/02/12/f2eb00e6-100e-11e8-8ea1-c1d91fcec3fe_story.html?utm_term=.514757e9c8de&wpisrc=al_news__alert-politics–alert-national&wpmk=1

Senator Paul was rightly angry that not only was the need to face and correct this untenable future kicked down the road yet again, but the process of doing so was corrupt. Votes were bought by sticking in special tax and spending breaks for the constituents and friends of individual congressmen—the old earmarks by another name. “Budget-deal-retroactively-extend-several-expired-tax-provisions”. While it is true that the bipartisan budget deal wouldn’t have passed without these bribes, it shouldn’t have passed. Instead of draining the swamp the Republicans have joined with the Democrats to feed it. “In-big-reversal-new-trump-budget-will-give-up-on-longtime-republican-goal-of-eliminating-deficit”. And more repulsive is the fact that these are the same Republicans who rallied against spending during the Obama years. This is the hypocrisy Senator Paul lamented.

Congress has failed yet again to prioritize it’s spending to match the resources that taxpayers are willing to pay. The moral corruption of this way of doing business was reestablished and reinforced. As another example of blatant corruption, Presidents have rewarded (paid off) large contributors with Ambassadorships to nice places like London, Paris, and Rome (to name a few) for decades. This is pure corruption for which the country pays with lower quality representation and diplomacy than would be provided by Foreign Service professionals. Unfortunately we have grown used to it and barely notice it. This is dangerous.

All individual government expenditures and programs look worthwhile to at least some people, but at the expense of what? What do taxpayers or investors or other government programs give up to finance them. These are not easy choices and decisions but it is the job of our representatives to make these judgments in the best interests of the country as a whole. That is probably expecting more than they are capable of delivering, but it is their job. Those of you of Generation X, Y and Z will have to pay for this so you are the ones with an incentive to do something about it. We need more Rand Pauls. “The-5-biggest-losers-from-the-2018-budget-deal-are…”

General Michael Flynn

We all deserve to know whether Donald Trump colluded or cooperated with Putin and Russia in any way to illegally help his presidential campaign. I have full confidence that special counsel Robert Mueller’s investigation will provide us with the truth of that question one-way or the other.

I also strongly support former President Obama’s (Russian restart) and President Trump’s desires to build the closest and most cooperative relationship possible with Mr. Putin’s Russia that is consistent with American interests and values. This means that conversations—many conversations—between the Trump administration and Russian officials are not only proper, but also highly desirable.

The revelations that such conversations occurred tell us nothing about whether the Trump administration has been doing anything improper. Then enter General Michael Flynn.

Sunday’s Washington Post contains an article with the headline “Inside the day that set in motion Michael Flynn’s guilty plea”. The day in question was Dec 29, 2016, well after Trump’s election and four weeks before his inauguration. The day before President Obama had “imposed sanctions against Russia for its alleged interference in the election.” Flynn called Russian Ambassador Sergey Kislyak, “urging Moscow not to retaliate — and Russia later surprisingly agreed.”

On the face of it this is neither appropriate nor inappropriate. We would need additional information to come to such a conclusion. However, Flynn lied to the FBI about having such a conversation, which raises the suspicion that it was inappropriate. Unrelated to his work with the Trump administration, General Flynn failed to get clearance before doing work with foreign governments, nor did he register as their agent, as required by law. Generally Flynn seems to have a habit of lying. Later Flynn pleaded guilty to perjury as part of a deal to fully cooperate with Mueller’s investigation in exchange for not being charged with these other crimes.

So if Flynn was not making improper deals with Russia, why did he lie about it? Hopefully we will know in the course of time, but it could be because he belatedly learned that his “conversations with Kislyak violated the Logan Act, a 1799 law that prohibits private citizens from conducting U.S. foreign affairs without the permission of the government.”

No one has every been convicted of violating the Logan Act and a strong argument could be made that such acts by a President elect and his team are not covered.

I want to know the truth. Trump lies so regularly that he has no trust from anyone who really cares about the truth. But to be fair, Flynn’s conversations with Kislyak is not evidence of anything inappropriate. Let’s not jump to conclusions until we have enough information to do so with some confidence that they are correct.

Our Free Press

A free press is an important pillar of a free society. In addition to reporting what is going on—who said and did what—the hard hitting investigative reporting of The Washington Post and other news outlet has exposed corruption and abuse of power from the Watergate scandal of Richard Nixon to the sexual misconduct of Donald Trump, Bill Clinton, Roy Moore, Harvey Weinstein, Bill O’Reilly, Roger Ailes, Kevin Spacey, Charlie Rose, Mark Halperin, Al Franken, and Representative John Conyers to name a few (more on this later). Such scrutiny of the behavior of those in positions of power is a critical service that is vital to the preservation of the integrity of our government.

One way to undermine the role of our free press is to challenge its integrity—to create doubts about the honesty of news reports—to label news as “fake news.” I am not suggesting for a second that news reports are never wrong or that we should not scrutinize them with some care and skepticism, but if the public comes to believe only those news sources that repeat what they already believe, one of the most important institutions protecting our freedoms (the fourth estate) would be seriously weakened.

We know that Mr. Putin’s Russia has been actively undermining faith in Western institutions by their citizens. In the U.S. and Europe Russia has used social media to plant fake news with both the right and the left in order to fan social divisions. One element of this campaign has been to undermine confidence in news reporting in general.

According to Hedrick Smith, former New York Times Moscow Bureau Chief and author of the global best-seller, The Russians: “Putin has turned to cyber warfare, using his intelligence services and computer hackers rather than military force to disrupt the West – and we can expect more of that in the 2018 elections and beyond…. It’s kind of Putin’s revenge for the fact that we pushed the Russian bear back in the cave by moving the frontiers of NATO into the Baltic states—Lithuania, Estonia and Latvia. And (Putin) sees us as being behind the overthrow of the pro-Russian president in the Ukraine. So he’s hitting back.” (Putin wants new cold war) Putin also needs external enemies—external distractions—to divert the attention of Russians from deficiencies at home.

As part of this attack on American institutions they have called the news media “the enemy of the American people,” and planted statements such as: “It’s frankly disgusting the way the press is able to write whatever they want to write, and people should look into it.” New York Times /2017/10/12/ And in a direct attack on the First Amendment, this: “Why Isn’t the Senate Intel Committee looking into the Fake News Networks in OUR country to see why so much of our news is just made up-FAKE!” Money CNN/2017/10/05/

If you didn’t catch it already, I played a little trick on you in the previous paragraph. Those of you who have been paying attention will have spotted that the above quotes attacking the American press and fake news were not Russian propaganda but from President Trump. He also said in a February White House press conference:

“I’m making this presentation directly to the American people with the media present … because many of our nation’s reporters and folks will not tell you the truth and will not treat the wonderful people of our country with the respect they deserve.

“Unfortunately, much of the media in Washington, D.C., along with New York, Los Angeles, in particular, speaks not for the people, but for the special interests and for those profiting off a very, very obviously broken system.

“The press has become so dishonest that if we don’t talk about it, we are doing a tremendous disservice to the American people, a tremendous disservice. We have to talk about it. We have to find out what’s going on because the press, honestly, is out of control. The level of dishonesty is out of control.”  (Trump: media out of control)

Why does Trump do this? Some think that Trump’s attempt to undermine confidence in the news media is part of a well thought out strategy to raise doubts about the veracity of news reports critical of him. It is all “fake news.” I am more inclined to think that he is simply unable to control his anger whenever his ever present and huge ego is bruised. He and his ego are more important than the health and well being of our country, as when he complained about a lack of gratitude for his helping get the release of three UCLA basketball players caught shoplifting in China. On November 15, Trump tweeted:

“Do you think the three UCLA Basketball Players will say thank you President Trump? They were headed for 10 years in jail!”

A few hours later at a press conference the three did just that, but the father of one of them, LaVar Ball, downplayed Trump’s role in his son’s release precipitating the following Presidential tweet:

“Now that the three basketball players are out of China and saved from years in jail, LaVar Ball, the father of LiAngelo, is unaccepting of what I did for his son and that shoplifting is no big deal. I should have left them in jail!”

Are you shocked or have you acclimated to the new normal? I leave it to you to decide whether Trump is reflecting his concern for the well being of our country or his ego. (Trump-college-basketball-players-helped-free-china-left-jail)

Undermining our faith in our institutions and in particular our news media is a serious matter. It is dangerous whether promoted by Russia or Trump. (Trump’s dangerous attacks on the press.) The press and its supporters, to their credit, are fighting back. (US-press-freedom-tracker-documenting-press-freedom-violations)

As David Ignatius put it: “Amid the slithering mess of problems that emerged in 2017, the one that bothers me most is that people don’t seem to know what’s true anymore. “Facts” this year got put in quotation marks.

“All the other political difficulties of the Donald Trump era are subsumed in this one. If we aren’t sure what’s true, how can we act to make things better? If we don’t know where we are on the map, how do we know which way to move? Democracy assumes a well-informed citizenry that argues about solutions — not about facts.” He suggests the reestablishment of newspaper ombudsmen and would “like to see [Google, Facebook, etc.] using machine learning to interrogate supposed facts to establish where they’ve been — how they first surfaced, and how they were passed from user to user.” (“Getting-back-to-facts/2017/11/23/”)

At the same time, the American press deserves some of the criticism it has received. The following article by Chris Wallace puts the case very well: Trump-is-assaulting-our-free-press-but-he-also-has-a-point The distinction between news and opinion is sometimes blurred.

Here are two quick examples: The-FCC-has-unveiled-its-plan-to-rollback-its-net-neutrality-rules. The Post article linked here provides a reasonably balanced report on those favoring and those opposing the FCC’s proposed return to more or less the legal situation prior to 2015. The problem, as is often the case, is that the article’s headline is not written by the article’s authors and the headline gives a totally misleading impression of what is proposed: “FCC plan would give Internet providers power to choose the sites customers see and use” However, the headline writer probably reflects the better disguised biases of the reporters (to their credit). My own blog on the subject from last May is far more balanced if I may say so myself: https://wcoats.blog/2017/05/17/net-neutrality/

The discussion now underway on Republican tax reform legislation provides another example of press bias. Every morning I read the Wall Street Journal followed by the Washington Post, which should provide a bit of balance. But I have found press reporting (editorials and opinion pieces are free to say whatever they want) on this subject sufficiently biased to provoke me to blog twice on it: https://wcoats.blog/2017/11/12/tax-reform-and-the-press/    https://wcoats.blog/2017/11/18/salt-more-press-nonsense-on-tax-reform/

And finally from my highly selective short list was the recent Post headline: Trump boosts Moore in Ala. Senate race despite sexual misconduct allegations (Trump-boosts-Moore-in-ala-senate-race-despite-sexual-misconduct-allegations)  This is very interesting (and amazing) on several levels.

Trump does not indorse Moore in this article but speaks out against his opponent: “’We don’t need a liberal person in there, a Democrat,’ Trump said about Moore’s opponent, former federal prosecutor Doug Jones, who has led in some recent polls in the state.”

The WSJ version of the same story was titled: “Trump Signals Support for Roy Moore Over Democratic Opponent.” WSJ 11/22/2017 With regard to the multiple sexual misconduct claims against Mr. Moore, “Mr. Trump pointed to the can­di­date’s state­ments: ‘Look, he de­nies it… He to­tally de­nies it. He says it didn’t hap­pen. And, you know, you have to lis­ten to him also.’”

A few hours later this article was updated as follows: “Trump said, ‘He totally denies it.’ Previously, the White House said that Mr. Trump believed Mr. Moore should leave the race if the allegations proved to be true.”

From CNN news: “President Donald Trump on Tuesday defended embattled Alabama Republican Roy Moore, all but endorsing the Senate candidate who has been accused of sexual assault and child sex abuse. “He denies it. Look, he denies it,” Trump said of Moore. “If you look at all the things that have happened over the last 48 hours. He totally denies hit. He says it didn’t happen. And look, you have to look at him also.” But to repeat, Trump did not endorse Moore.

Trump’s tolerance of “questionable” behavior by Republican’s is not extended to Democrats. When he returned from Asia he tweeted on Nov 16 about a picture in which Al Franken is holding his hands above Leeann Tweeden’s breasts, while they were on a 2006 USO tour to entertain U.S. troops.

“The Al Frankenstien picture is really bad, speaks a thousand words. Where do his hands go in pictures 2, 3, 4, 5 & 6 while she sleeps?”

He continued in a second tweet, “And to think that just last week he was lecturing anyone who would listen about sexual harassment and respect for women.”

Trump seems to suggest that we should believe the denials of Republicans and investigate the denials of Democrats. He had wisely kept silent to that point about Moore’s pedophile charges, presumably not to remind the public of his own admitted sexual misdeeds (plus the large number of claims he has denied). Here is the full list: President Trump-and-accusations-of-sexual-misconduct-the-complete-list . The mystery is why when he consulted his advisor on such things (himself, of course) he decided to break silence on the subject—condemning Sen. Franken while giving Moore a pass. I suggest that he change advisors.

We have sadly and dangerously grown used to the routine lying of Trump and others. We live in a world of fake news. There have always been limits on our generally wide-ranging freedom of speech, however. Famously, we may not shout fire in a theater when we know there is none. The balance between the First Amendment’s protection of free speech and protection against willful defamation, for example, can be tricky. The following article provides a useful discussion of this balance in the context of the defamation case against Trump by one of his claimed sexual abuse victims, Summer Zervos, a contestant on Trump’s reality television show, “The Apprentice.” “She accused then-presidential candidate Trump of sexual harassment that purportedly occurred in 2007. Trump denied the allegations, and, in his characteristically understated style, tweeted that those allegations, and similar allegations made by other women, were “nonsense,” lies,” “phony” and “100 percent fabricated.” Zervos then claimed that Trump’s comments amounted to defamation.” (Trump’s attack on Summer Zervos blows hole first amendment) This might prove more damaging to Trump than the Russia investigation.

Sound Money

Philadelphia Society Address on Oct 14, 2017

Introduction

Sound money is a necessary but not a sufficient condition for a healthy economy. How can we best achieve and maintain it?

For almost two hundred years the gold standard did a good job of producing sound money but its weaknesses ultimately led to its abandonment and exchange rates were allowed to float.

The movement in the 1980s to independent central banks with a stable price level mandate, such as an inflation target, delivered several decades of sound money—this was called the great moderation. But is came at the expense of increased exchange rate volatility and asset bubbles.

We need to return to a monetary regime with a hard anchor. But money fixed in price to a single commodity, such as gold, will not provide as stable a value as a price fixed to a larger basket of goods.

The discretion of the central bank to control the supply of money should be replaced with market determination of the money supply. To achieve this money should be issued under currency board rules. Specifically the public should be able to buy all of the currency they want at the currency’s official prices and redeem any of it they no longer want at the same price.

The Gold Standard

The essence of the gold standard was the obligation of the issuer of gold backed money to redeem it for gold at an officially fixed price. This limited the amount of money that could be issued.  The United States set the price of fine gold at $19.49 per ounce in 1791 and raised it to $20.69 in 1834. The Gold Standard Act of 1900 lowered it slightly to $20.67.  In 1934, Congress passed the Gold Reserve Act, which raised the price of gold to $35 an ounce and prohibited private ownership of gold in the United States.  Lyndon Johnson’s guns and butter deficit spending over heated the U.S. economy, which raised doubts about the U.S.’s ability to honor its gold commitments. By late 1971 the U.S. no longer had enough gold to honor its redemption commitment, and President Richard Nixon suspended the U.S. commitment to buy and sell gold at its official price. Yet, an official price remained, and was raised to $38.00 per ounce in 1971 and to $42.22 in 1972. In 1974, President Ford abolished controls on and freed the price of gold, which rose to a high of $1,895 in September 2011 before falling back to $1,304 this morning (October 14, 2017). More importantly, as gold has never been very representative of prices in general, prices of goods and services on average in the U.S. rose 500% over the 45 years since Nixon closed the gold window.

Floating Exchange Rates and Inflation Targets

When Nixon closed the gold window he also imposed wage and price controls, which lasted for three years. The dollar no longer had a “hard” anchor. It was no longer redeemable for anything and new policies were needed to regulate its supply. Over this period the Fed implemented monetary policy via adjustments in the overnight interbank lending rate (the Fed funds rate) in light of, among other things, its objectives for the growth of monetary aggregates. When wage and price controls were finally lifted the CPI increased a staggering 12% in 1974.

In the face of the Fed’s persistent over shooting of its narrow and broad money target ranges and the entrenching of higher and higher inflation expectations in wage and price increases, Federal Reserve Board Chairman Paul Volcker led the Board and the Federal Open Market Committee (FOMC) on October 6, 1979 in a dramatic change in the Fed’s approach to implementing monetary policy by shifting to an intermediate, narrow money target, operationally implemented via a target for non-borrowed reserves. The new approach required the Fed to relax its Fed funds rate targets and it increased the band set by the FOMC for the Fed funds rate from 0.5% to 4%. However, the fed funds rate rose temporarily to over 22% and GDP fell by over 2% in 1982—actual and expected inflation were reversed and fell below 2.5% by 1983. The new approach had defeated inflation but it was not easy to implement and by the end of 1989 the Fed abandoned it for the more traditional fed funds rate targeting.

At about the same time radical innovations in the development of monetary policy rules were launched by the Reserve Bank of New Zealand, which came to be known as explicit inflation targeting. An inflation target provides a clear and explicit rule that permits flexible operational approaches to its achievement. Given Friedman’s long and variable lags in the effect of monetary policy on prices, setting monetary operational targets (almost always the equivalent of a fed funds rate) must be based on the best model assisted forecast of its consistency with the inflation target one to two years in the future. A longer target horizon provided more scope for smoothing any output gap (employment). Full transparency of the policy and the data and reasoning underlying policy settings is required to gain the benefits of the alignment of market inflation expectations with the policy target.

The RBNZ’s development and adoption of inflation targeting was an important development in the pursuit of rule based monetary policy with floating exchange rates that accommodated flexible implementation. It swept the world of central banking. While the Fed did not adopt explicit inflation targets until 2012, it clearly pursued an implicit inflation target long before that.

Monetary stability, defined as price level stability, improved significantly, but exchange rate volatility increased. The Great Moderation of the 1990s and early 2000s that resulted from more stable domestic prices was followed by the Great Recession. The Great Recession of December 2007 to June 2009 highlighted the failure of inflation targeting to take account of asset price bubbles and “inappropriate responses to supply shocks and terms-of trade shocks”.[1]

What followed can only be described as a nightmare (largely because of the over leverage and other weaknesses in the U.S. financial system). After properly and successfully performing its function of a lender of last resort and thus preventing a liquidity-induced collapse of the banking system, the Fed went on to undertake ever more desperate measures to reflate the economy. These Quantitative Easings (QEs)—quasi-fiscal activities—have been widely discussed and have contributed little to economic recovery.[2]

The conclusion from the above history is that monetary policy is being asked to deliver more than it is capable of delivering. Central banks are generally staffed by very capable people, but they can never know all that they need to know to keep the economy at full employment as employers and jobs keep changing. The quality of forecasting models has greatly improved in recent years, but they remain unreliable. The policy strategy and intentions of the Fed and other inflation targeting central banks have become admirably transparent, but given the uncertainty of its next policy actions, markets remain spooked by every new data release and speech by Fed officials. Yet inflation in the U.S. and Europe remain below the 2% targets of the Fed and of the ECB.

Despite the huge increase in the Fed’s balance sheet, which banks are largely holding as excess reserves at the Fed, monetary growth in the U.S. averaged only about 5.5 to 6% over the past four years or about the same as its long run average (for M2). My assessment of the slow pace and modest size of the economic recovery in the U.S. is that regulatory burdens have discouraged investment while many internet related investments continue to drive down costs of many economic activity (a sort of unrecorded productivity increase).  Easy money is once again inflating asset prices (stocks and to a lesser extend again real estate).  But who knows for sure?

The idea that central banks can micro-manage monetary conditions to smooth business cycles is a conceit. In my opinion, central banks have given their price stability mandates their best shot and failed. The successful, countercyclical management of the money supply with floating exchange rates is simply beyond the capacity of mortals.

Return to a Hard Anchor

The Fed should give up its management of the money supply and return to a system of money redeemable for something of fixed value – a so-called hard anchor for monetary policy. This means linking the value of money to something real and managing its supply consistent with that value (exchange rate). Such regimes do not magically overcome an economy’s many and continuous resource allocation and coordination challenges, but by providing a stable unit in which to value goods and services and to evaluate investment options, and sufficient liquidity with which to transact, such regimes facilitate the continuous adjustments private actors need to make for an economy to remain fully employed and to grow.

But fixed exchange rate regimes, including the gold standard in one of its forms or another, have historically had their problems as well. These problems generally reflected one or the other of two factors. The first was the failure of the monetary authorities to play by the rules of a hard anchor, which is to keep the supply of money at the level demanded by the public at money’s fixed value. The pressure to depart from the rules of fixed exchange rates generally came from fiscal imbalances or mistaken Keynesian notions of aggregate demand management. However, even when central banks aimed actively to match the supply of its currency to the market’s demand with stable prices it proved beyond their capacity to do so.

The second source of failure came from fixing the value of money to an inappropriate anchor. When the exchange rate of a currency is fixed to another currency or to a commodity whose value changes in ways that are inappropriate for the economy, domestic price adjustments can become difficult and disruptive. Fixing the exchange rate to a single commodity, as with the gold standard, transmitted changes in the relative price of gold to prices in general, which imposed costly adjustments on the public.

These historical weaknesses of monetary regimes with hard anchors can be overcome by choosing better anchors and by replacing central bank management of the money supply with market control via currency board rules.

Currency board rules give control of the money supply to the market—to the public. As an example, a strict gold standard operated under currency board rules would increase the money supply whenever the public wanted more and was willing to buy it with gold at the fixed gold price of a dollar. If the public found it held more money than it wanted it would redeem the excess for gold at the same price.

I led the IMF teams that established the Central Bank of Bosnia and Herzegovina with currency board rules, and it functions in exactly this way. It has no monetary policy other than issuing or redeeming its currency for Euro at a fixed exchange rate in passive response to market demand. It has worked very well. I was also involved in establishing currency board rules for the Central Bank of Bulgaria, which has also enjoyed stable money ever since.

The hard anchor should not be just one thing. The relative price of any individual good or commodity will vary relative to prices in general. Thus a small representative basket of goods should be chosen for the anchor. Earlier proposals for broader baskets suffered from the assumption that buying and redeeming the currency should be against all of the items in the basket. That would be cumbersome and storage and security would be costly. Currency board rules should provide for indirect redeemability, by which the currency would be purchased with or redeemed for designated AAA securities (e.g., U.S. Treasury bills) at their current market value.

Exchange Rate Volatility or a Global Currency

A major cost of the current system of floating exchange rates with inflation or other targets is the uncertainly and wide swings of exchange rates. Over the last decade the USD/Euro exchange rate varied over 40 percent. The classical gold standard was associated with a flourishing of foreign trade in part because the gold standard was a world currency, which there for eliminated exchange rate risk. There would be considerable benefit to world trade, economic efficiency, and growth if all or most countries adopted the same hard anchor for their currencies. The International Monetary Fund’s SDR already exists for this purpose but would need to be modified in several important ways in order to operate under currency board rules and to change its valuation basket from a basket of currencies to a basket of goods.

Conclusion

Experience with monetary regimes with floating exchange rates has been mixed. Almost all major currencies have become more stable in the last three decades but at the expense of increased exchange rate and asset price volatility. The United State, as well as most other countries, would benefit from a return to a monetary system with a hard anchor, but fixed to the value of a small basket of goods rather than to just one, and whose supply is determined by the public’s demand via issuing and redeeming it indirectly for a liquid asset of comparable value according to currency board rules. The benefits of such a system would be increased the more widely it was adopted. One of the virtues of the gold standard was that it was global.

Reference

Warren Coats, “Real SDR Currency Board”, Central Banking Journal XXII.2 (2011), also available at http://works.bepress.com/warren_coats/25

________________, “What’s Wrong with the International Monetary System and How to Fix it?” April 20, 2017. https://works.bepress.com/warren_coats/38/

Jeffrey Frankel. “The Death of Inflation Targeting”. Project Syndicate, May 16, 2012.

_____________________________________________

[1] Jeffrey Frankel. “The Death of Inflation Targeting”. Project Syndicate, May 16, 2012.

[2] See for example, Warren Coats, “US Monetary Policy–QE3” Cayman Financial Review January 2013.

Paid Family Leave

The view that if something is good or beneficial the government should provide or mandate it is one of the attitudes dividing those who favor limited government from those favoring a more expansive and generous government. The following provides one example.

Ivanka Trump and others make a convincing case for generous paid family leave, Paid-family-leave-is-a-good-national-policy. Stephen A. Schwarzman, Founder, Chairman and CEO Blackstone, explained that Blackstone extended its paid maternity leave from 12 weeks to 16 weeks because it improved Blackstone’s bottom line – Paid-maternity-leave-is-worth-every-penny. But for all of the many reasons that big government should be resisted in general (inappropriate incentives for government bureaucrats and the public, special interest capture of policy—i.e. crony capitalism and other forms of corruption, limitations of individual freedom, inefficiency, etc.), there is not a good case for the government to get involve in mandating or subsidizing paid family leave.

Generous paid family leave programs provided by employers are smart business. Companies that offer them will have a competitive edge and thus free market firms will increasingly adopt them. Employers will be free experiment with what works best (for employees’ and companies’ bottom lines), which may well evolve over time as markets and technology change. Governments’ rarely enjoy such flexibility and are often captured by voters best able to influence government to protect their special interests, and that is never the poor. Those who are unemployed don’t need paid leave as they are already receiving unemployment compensation or welfare support for staying at home.

Maternity or family leave has facilitated bringing women into the labor force and thus increased family and national incomes. Given the importance of education to worker productivity and thus individual and national incomes, the state has also undertaken to finance (and unfortunately in most cases also to supply) education for all children from Kindergarten to 12th grade. While upper income families can easily afford to pay for this education for their children, lower income families generally cannot. Thus public financing of such education helps give all children a more equal start in live and also facilitates two worker families. A gap in such assistance exists for preschool children (age 0-5). Financial assistance should also be considered for day care or nursery schools for such children.

In most cases where a policy or practice is good for the general public, it will be adopted by free market participants and better fulfill its purpose than is possible or likely by government.

Heath Care Reform Fatigue

On average, Americans spend about twice as much on medical care as do Europeans and with poorer results. About half of that cost is paid for by government. If we could get the cost of medical care down to European levels either the government (i.e., tax payers) could stop paying for any of it with no change in the cost to patients, or patients could stop paying anything with no change in the cost to government. Of course it wouldn’t work like that and is much more complicated but it does focus the mind about the issues concerned.

Both the Affordable Care Act of Obama and the current drafts of its replacement by the Republicans are limited to what can be considered budget authorizations so that they can be passed with simple majorities. In June 2015, when the Supreme Court rejected challenges to the constitutionality of parts of the ACA (the insurance mandate), Chief Justice Roberts complained that: “Congress wrote key parts of the Act behind closed doors. . . . Congress passed much of the Act using a complicated budgetary procedure known as ‘reconciliation,’ which limited opportunities for debate and amendment, and bypassed the Senate’s normal 60-vote filibuster requirement. . . . As a result, the Act does not reflect the type of care and deliberation that one might expect of such significant legislation.” Now the Republicans are doing the same thing. Once again George Will is right on target: Why-repeal-and-replace-will-become-tweak-and-move-on/2017/06/27/

This means that the most important elements of health care reform in America—reducing supply side costs—must await other legislation. However, limited market forces are already eating away slowly at the American Medical Association’s (the doctors’ union) self protective strangle hold on the delivery of medical services. The information technology now exists to dramatically improve the quality of service while lowering its cost. Nurse practitioners have already taken over some routine functions previously preserved for MDs. With a growing shortage of doctors, more restrictive practices are likely to be relaxed such as phone consultations, etc.

The focus of the ACA and the current Republic efforts to “repeal and replace” it, has been how best to finance these costs for those financially unable to pay them. The two overriding challenges for this effort should be to adequately target those who need such assistance and in the process to avoid undermining to the extent possible the incentives for both doctors and their patients to provide and to seek the most cost effective care.

There are many small and large details in ACA and proposed Republican replacements that could be changed to improve targeting of financial assistance and the incentives for seeking and delivery cost effective care. See my earlier discussion: A-mistitled-tax-proposal. The largest issues are how best to remove the unfair tax treatment of employer provided health insurance vs. the “private” market and how to insure that the risk pools in the private insurance market include both healthy and sick premium payers.

The point of insurance is to pool the cost of the risk of bad things happening, like breaking a leg or getting sick. Thus the lucky (healthy) share the costs of the unlucky (sick or injured). The group as a whole must pay the total medical costs of all members of the group. It follows that health insurance should be mandatory for every one in a properly defined group. The risk pool of employer provided health insurance consists of the company’s employees, and premiums are set on the basis of the average medical costs of that group. There is no such predefined risk pool for those who buy insurance in the “private” market. The logic of insurance suggests that everyone within each age group should be required to buy insurance at a cost to each that reflects the total medical costs of the full group. The-individual-health-insurance-mandate.

The simplest, cleanest, and most comprehensive way to insure that those unable to pay for whatever medical care they need can do so is to require that all people in their group buy insurance so that those who later don’t need it finance those who do. I have earlier advocated that this approach be integrated as part of a guaranteed minimum income (GMI). A GMI would provide the basis for eliminating most government welfare programs from Social Security and food stamps, to disability and unemployment insurance. But first a brief word about minimum wage laws.

Charles Lane has proposed a sensible approach to balancing the political attraction for legal minimum wages with the economic case against them. He proposes that the issue be removed from the political arena by legislating an automatically adjusting formula for a legal minimum wage that closely matches actual historical wage experience so as to minimize the harm to low skilled and inexperienced (teenagers) workers that would be hurt by higher minimum wages. Forget the $15 minimum wage–here’s what a sensible compromise would look like/2017/06/28

A legal minimum wage does not help the unemployed. A Guaranteed Minimum Income would. It should be paid to every man, woman, and child but the amount might vary with age (but not with income). It could be administered by the Social Security Administration, which it would replace. Saving-social-security. Fixed shares of the GMI would be placed in an individual health insurance account, a pension account, and an education account (school tuition or college fund). The amount deposited to the health savings account would be required to be used to purchase general health insurance and would be sufficient to do so.

The GMI would be paid for from general tax revenue. Clearly our existing, hole riddled income tax laws (both personal and business) are a mess and need to be cleaned up. As I have argued earlier the fairest, least distorting and easiest to administer tax is a consumption tax. I should replace all income taxes, wage taxes and existing sales taxes with one uniform Value Added Tax (VAT). My-political-platform-for-the-nation-2017.

Let’s try for better health care that costs less for both patients and tax payers.

Net Neutrality

The issue of net neutrality is almost as complicated as the Internet (the network of networks) itself. As with so many topics, the debate over how best to maximize the development of and benefits from the Internet (email, World Wide Web, and all of the rest) broadly divides between those who support prescriptive rules to guide and govern its operations and those who support a more permissive role for the government stepping in only to correct actual problems. To overstate it a bit, it divides the statists from the free marketers.

The history of what we now call the Internet is quite amazing. History of the Internet. Though governments provided the seed money that got it going (in the U.S. it was the Department of Defense’s ARPANET and later the National Science Foundation’s CSNET and in the U.K. it was the National Physical Laboratory), the U.S. gradually stepped back and allowed the unregulated development of commercial and private uses of the connectivity that was developing and allowed private Internet Service Providers (ISPs) to develop the gateways (access) for almost all users (both content providers and consumers) to the Internet. This policy was imbedded in the Telecommunications Act of 1996 signed by President Clinton. That legislation, affirmed that the policy of the United States was: “to preserve the vibrant and competitive free market that presently exists for the Internet . . . unfettered by Federal or State regulation.”

From the beginning of its break away from its narrow military and scientific uses, all involved in the Internet’s development were committed to it being free and open. The Federal Communications Commission (FCC) promulgated guidelines to preserve this principle in November 2011. “The FCC’s rules focus on four primary issues:

  • Transparency. Fixed and mobile broadband providers must disclose the network management practices, performance characteristics, and terms and conditions of their broadband services;
  • No blocking. Fixed broadband providers may not block lawful content, applications, services, or non-harmful devices; mobile broadband providers may not block lawful Web sites, or block applications that compete with their voice or video telephony services; and
  • No unreasonable discrimination. Fixed broadband providers may not unreasonably discriminate in transmitting lawful network traffic.
  • Reasonable network management. ISPs may engage in reasonable network management to maintain a high quality of service for broadband Internet access.” FCC Openness Principles

In this permissive environment the Internet flourished, developing in directions and ways no one could have imagined only a few decades earlier. “But two years ago, the federal government’s approach suddenly changed. The FCC, on a party- line vote, decided to impose a set of heavy-handed regulations upon the Internet. It decided to slap an old regulatory framework called “Title II”—originally designed in the 1930s for the Ma Bell telephone monopoly—upon thousands of Internet service providers, big and small. It decided to put the federal government at the center of the Internet.” Ajit Pai’s Newseum Internet Freedom Speech

What happened? Were the principles of an open Internet with fair access to all suddenly being violated or under threat in 2015? Is the proposed return to the status quo before 2015 really a threat to the principles of net neutrality?

Like all other economic activities, every aspect of the Internet costs money that someone has to pay. Those who built and maintain the Internet Backbone (NTT, Cogent, GTT, etc.), the facilities and networks of the ISPs (Verizon, AT&T, Comcast, etc.), and the content providers (Netflix, Facebook, Snapchat, HBO, etc.) did so to make money (or at the very least to cover their costs). We all know about content and service providers who thought first about how to attract users and only later how to get them to pay (e.g., Facebook and Amazon). They gradually developed their business models over time and some worked and others didn’t. What worked best (most cost efficient use of Internet resources, etc.) was not and could not have been foreseen in the beginning of the Internet’s development. Had the regulations imposed in 2015 been imposed two decades earlier, it is very unlikely we would be enjoying the Web we have today. Freezing or constraining the business models of the key players with very prescriptive regulations is neither necessary nor wise. As Mike Montgomery put it in The Hill: “The digital world moves at the speed of light. To slow that growth to the speed of bureaucracy would have serious negative effects on the burgeoning tech industry which is creating jobs faster than almost any other industry out there.” (see the link below)

Markets function best when profits are maximized by providing the best service at the lowest cost. In such cases, which is the general case, incentives are aligned, i.e. what best serves the supplier/producer also best serves the general public/consumers. Two forces operate to insure that the Internet is open to all. The first was a broad public consensus that the Internet should be open to all on fair terms (no discrimination against—filtering out or blocking—any one or any idea or point of view). The second is that discriminating in any way blocks some customers and thus reduced profits. The incentives for ISPs to provide fair access to all aligned with the public’s expectations of and desires to have fair access.

Ideology enters the discussion when people disagree over the meaning of fairness. Some people think that some classes of users (the poor, IT startups, etc.) should have the cost of their use of the Internet paid by someone else (tax payers, cross subsidies from larger, established users/suppliers, etc.). ISPs, the gateways to the Internet, have no profit incentive to provide such subsidies. Fairness for most economists is when each user pays the marginal cost of their use (plus a small profit margin).

The primary legitimate concern with respect to the net neutrality I want to see is that industry consolidation has reduced the number of ISPs to the point that over half of the country has only one (i.e. no) choice. The only competition in some areas comes from your cell phone plan. Thus there is a legitimate concern with the possibility that an ISP might charge different prices for fundamentally the same service and that those ISPs that are beginning to produce their own content might favor it over competitors’ content with faster lanes or worse.

There were indeed a few problems during the long era of light touch regulation prior to 2015. Verizon’s dispute with Netflix over download speeds and AT&T’s blocking Facetime video but not Skype on iPhones (not even an Internet issue), for example. This occurred before and were resolved before the 2015 FCC regulations on the basis of existing legislation. Excessive concentration and abuses of market power can be and have been dealt with via existing anti trust laws and state and individual civil suits.

The United States has generally allowed markets to develop fairly freely, only applying regulations to deal with real problems when they occur. I represented the IMF as an observer at a G10 Deputies Working Group on E-money meeting at the BIS in Basel Switzerland in December of 1996. The G10 Deputies are the Finance Ministers and Central Bank Governors of the ten largest economies in the world. The meeting was chaired by a young Tim Geithner, then the Deputy Assistant Secretary for International Monetary and Fiscal Policy in the U.S. Treasury Department. The meeting was to determine the regulatory approach to the prospective emergence of Electronic Money, now referred to as Cyber money. We considered reports on developments to date and took the wise decision to stand back and watch how things developed before formulating regulatory advice.

More recently the Federal Reserve’s Faster Payments Task Force project and the Federal Reserve’s cautious approach to bitcoin and other digital currencies reflects a similar attitude. That attitude, to repeat, is that no one knows for sure the direction that the development of new technologies will take in the search for maximizing their benefits thus profits. Government can at best play a supportive role of providing a flexible legal and regulatory framework within which new products and services can be explored. If problems arise, the government can review with consumers and producers how best to deal with them. The approach to regulating bitcoin and other digital currencies is still evolving.

A counter example to the above enlightened approach is the U.S. approach to Anti Money Laundering and Combating the Financing of Terrorism (AML/CFT), which has imposed enormous regulatory costs on payments of all sorts with no discernable benefits.

Those who believe that private sector behavior and the development and use of technology can be carefully and successfully regulated by government suffer what I have called hubris in other contexts. See, for example: https://works.bepress.com/warren_coats/38/. Nonetheless, in the case of so called net neutrality greater certainty about the legal and regulatory environment in which the Internet must operate would help further its development and evolution, especially if the light touch regulation under which it has developed is restored. Congress should write net neutrality into law.

An excellent discussion of these issues can be heard in this podcast on the Future of Internet regulation with FCC chairman Ajit Pai

Health Care: Plan B

“Our goal is to give every American access to quality, affordable health care,” Paul Ryan “Health care Obamacare replacement-Paul Ryan”

The above statement by Paul Ryan is the goal of both Republicans and Democrats, so surely there is enough common ground that with a few compromises on each side congress can adopt reforms with broad support. Such fundamental, broad based legislation should always have broad bipartisan support. Failure to fulfill that requirement was one of Obamacare’s flaws.

America’s universal health care costs twice as much as does health care in Europe. Healthcare costs per capital in the United State in 2014 where $9,024, while in Canada they were $4,506 and in Italy $3,207. Our system provides universal care through company group insurance plans, individual insurance plans, government plans (Veterans Administration, Medicaid or Medicare), out of pocket payments for the uninsured who can afford it or charitable clinics and services, or free emergency room medical treatment for those who can’t afford it. “Health-care expenditures rose as a percentage of GDP from 5 percent in 1960 to 17.8 percent in 2015.” “A radical idea for health care reform-listen to the doctors.” While Canadians, Italians and others from around the world who can afford it come to the U.S. for top of the line care, the average result in terms of general health under America’s system is worse than in Europe. Clearly the American system is seriously flawed.

President Trump has promised that everyone would have health insurance and pay less for it. On January 15 he said: ““We’re going to have insurance for everybody. There was a philosophy in some circles that if you can’t pay for it, you don’t get it. That’s not going to happen with us.” “Trump-vows-insurance-for-everybody-in-obamacare-replacement-plan”. It is possible to achieve this ambitious promise.

This note reviews the options for reducing the cost of health care and insuring that everyone gets the care they need whether they can afford it or not.

Costs can be reduced by better aligning incentives of providers and patients for choosing the most cost effective care, by removing government and professional (i.e. union) restrictions on how care is delivered, by increasing competition to reduce the huge price range for the same service in the same market (e.g., stronger incentives for customers to seek out the best deal and the price/quality information needed for them to do so), and by Tort reform that reduces doctor’s risks of being sued that has resulted in wasteful, defensive prescriptions of unnecessary lab tests, etc.

Two broad measures supported by Republicans to reduce the cost of medical services are to free up the regulatory restrictions on how medical service are delivered (computerized diagnoses, telephone consultations, greater use of nurse practitioners, etc.) and stronger incentives for patients to shop for lower prices for the same service. Modern technology is on the threshold of dramatically improving the quality of health services while lowering its cost, if given the chance. Many Democrats would accept these reforms as well in exchange for better protection of the poor.

Health care services are paid for by various mixes of out of pocket payments, insurance, and government assistance. The design of this mix influences the incentives of service providers and patients to make better choices, and the fairness and efficiency of service financing.

Insurance by its nature is a plan for sharing health care costs so that those who are unlucky and have large health costs are helped by those who are lucky and don’t. The cost of insurance is lowest when the insurance pool is largest, mixing the healthy with the sick. Prior to the Affordable Care Act of 2010 (Obamacare), the private medical insurance market suffered from two serious problems. Most people acquire health insurance through their employer. Employers, especially companies with many employees, can negotiate better terms with insurance companies because insurers can be confident that the insured pool of workers has a normal mix of healthy and sick people over which to average the cost of insurance claims. However, they have another, unfair advantage over individually purchased insurance because that part of insurance premiums paid by employers (usually half) are not taxed as they would have been if paid out directly as wages then spent by the employee on health insurance. Furthermore, when an employee leaves the company for whatever reason, she losses the company provided policy and must pay the higher unsubsidized cost of insurance in the private market, plus a still higher premium if she has an existing medical condition and risks being uninsurable all together.

Republicans and Democrats both agree that people should be able to keep their insurance policy if they change employers, retire, or become unemployed and that the private and the company markets should enjoy the same tax treatment (both should have the same tax exemption or both should have no tax exemption for insurance premiums). Both also endorse some form or other of supporting the cost to insurance companies of patients with chronic or catastrophic medical costs. Different states have adopted and are experimenting with different approaches to financing such costs and should be encouraged to continue doing so by converting Federal financial assistance into block grants to the states. Agreement in both parties on the approach to these situations should not be that difficult to reach if the effort is made.

For given health service costs, the lowest possible insurance premiums for insurance policies that cover them would be achieved when everyone is required to pay them. Thus everyone should be required to have health insurance. Many issues arise about the coverage of such insurance (any uncovered health care services would have to be paid for out of the patient’s pocket, by charities, or by tax payers). One issue is whether there should be one insurance pool sharing the costs (healthier young paying for the sicker elderly, men paying for women’s child birth and women paying for uniquely male afflictions, etc.) or several. For example, should premiums reflect age differences as they do now (the more costly elderly pay higher premiums than the less costly young but not enough higher to cover their higher costs)? If insurance pools should be segregated by age, should the segregation be total (no health care financing transferred on average from young to old) or should the higher health costs of the elderly be financed to some extent by the young, and if so to what extent? Keep in mind that the very purpose of insurance is to share costs. As anyone could opt out of the insurance mandate under Obamacare with only a modest penalty, fewer younger people acquired insurance than was expected, leaving an older, sicker, and thus more costly pool to share the costs. This has been one of the factors increasing insurance premiums under Obamacare.

If the government makes purchasing health insurance mandatory, as it should, it will have to set the minimum standards of coverage required to satisfy that mandate. It is really contrary to the whole purpose and philosophy of insurance that each person would choose to insure only those health needs they think they might need (car accident, heart attack, diabetes, broken arm, etc). However, the coverage of all such possibilities can come with a higher or lower deductible and copay or a wider or narrower network of participating medical practitioners etc. Republicans and Democrats can surely come to an agreement over these minimum features. The required features should be carefully designed to maximize the incentives for providers and recipients to make efficient choices. Anyone wishing to and willing to pay for broader services (a doctor outside the network, recovery in the Swiss Alps, etc.) would be, as always, free to do so. The United States already has a government run insurance policy for the elderly called Medicare. Medicare can be purchased in addition to other health insurance policies or in place of them and thus is not a so-called “single payer” system.

With such a minimum coverage policy established by the government, each of us would be free to sign up for an employer offered policy of our choice or buy one from the private market with no difference in price with the policy offered by the employer (incorporating the above recommended elimination of tax discrimination between company and private market policies and allowing policy portability). The bigger challenge is how to cover the cost of insurance for those who cannot afford it. Democrats generally prefer to achieve universal insurance coverage via the government as the single payer and health service provider (our VA system or the British public health service) leaving the better off free to pay more for services outside that system if they wish to. Republicans generally prefer to maximize the choices of the public and to encourage competition among insurance providers.

Health insurance for the poor must be paid for by the government one way or another. Our existing system—Medicaid—is administered by states, which determine eligibility, but is financially supported by the Federal Government if its considerable regulations are adopted by the state. Only American citizens and legal permanent residents are eligible for Medicaid. Obamacare subsidizes up to 90% of state costs for Medicaid. One criticism of Medicaid financing is that when its recipients start working they can loose coverage. This is the so-called financial cliff and can be a deterrent to accepting a job or increasing the number of hours worked. Obamacare has addressed this problem by phasing out the withdrawal of Medicaid financing, ending it at incomes well above the poverty line

Republicans have proposed a refundable tax credit, in effect a guaranteed minimum income, for the poor that must be applied to the purchase of health insurance. This opens the door to competition among multiple insurance providers and would make it easier for low-income families to purchase more expensive policies, if they wanted to, by adding a small amount of their own money to the government’s tax credit. This is close to the minimum guaranteed income proposals I support. “US federal tax policy”. A gradual phasing out of the tax credit as one’s income increased above the poverty level would also reduce the work disincentive of the financial cliff.

The state run insurance exchanges are a useful aid to those looking for an insurance policy and should be retained. Either the Republican tax credit or the Democrat direct subsidy would be applied via the exchanges.

There are many important details to sort out that I have only hinted at. But as Republicans and Democrats both want the more efficient delivery of health care, which would reduce its costs, and humane and effective provision of the financing of such services to everyone, including the poor, it should be possible with only modest give and take to agree on a package that would enjoy broad bipartisan support.