"What Can I Do?"

Someone recently approached me at the cheese counter of a local supermarket, asking "what can I do?" At first I thought the person was seeking advice about a choice of cheese. But I soon realized the question was larger than that. It was: what can I do about the way things are going in Washington?

People who voted for Barack Obama tend to fall into one of two camps: Trusters, who believe he's a good man with the right values and he's doing everything he can; and cynics, who have become disillusioned with his bailouts of Wall Street, flimsy proposals for taming the Street, willingness to give away 85 percent of cap-and-trade pollution permits, seeming reversals on eavesdropping and torture, and squishiness on a public option for health care.

In my view, both positions are wrong. A new president -- even one as talented and well-motivated as Obama -- can't get a thing done in Washington unless the public is actively behind him. As FDR said in the reelection campaign of 1936 when a lady insisted that if she were to vote for him he must commit to a long list of objectives, "Maam, I want to do those things, but you must make me."

We must make Obama do the right things. Email, write, and phone the White House. Do the same with your members of Congress. Round up others to do so. Also: Find friends and family members in red states who agree with you, and get them fired up to do the same. For example, if you happen to have a good friend or family member in Montana, you might ask him or her to write Max Baucus and tell him they want a public option included in any healthcare bill.

(I'm back here July 10.)

Why the Critics of a Public Option for Health Care Are Wrong

Without a public option, the other parties that comprise America's non-system of health care -- private insurers, doctors, hospitals, drug companies, and medical suppliers -- have little or no incentive to supply high-quality care at a lower cost than they do now.

Which is precisely why the public option has become such a lightening rod. The American Medical Association is dead-set against it, Big Pharma rejects it out of hand, and the biggest insurance companies won't consider it. No other issue in the current health-care debate is as fiercely opposed by the medical establishment and their lobbies now swarming over Capitol Hill. Of course, they don't want it. A public option would squeeze their profits and force them to undertake major reforms. That's the whole point.

Critics say the public option is really a Trojan horse for a government takeover of all of health insurance. But nothing could be further from the truth. It's an option. No one has to choose it. Individuals and families will merely be invited to compare costs and outcomes. Presumably they will choose the public plan only if it offers them and their families the best deal -- more and better health care for less.

Private insurers say a public option would have an unfair advantage in achieving this goal. Being the one public plan, it will have large economies of scale that will enable it to negotiate more favorable terms with pharmaceutical companies and other providers. But why, exactly, is this unfair? Isn't the whole point of cost containment to provide the public with health care on more favorable terms? If the public plan negotiates better terms -- thereby demonstrating that drug companies and other providers can meet them -- private plans could seek similar deals.

But, say the critics, the public plan starts off with an unfair advantage because it's likely to have lower administrative costs. That may be true -- Medicare's administrative costs per enrollee are a small fraction of typical private insurance costs -- but here again, why exactly is this unfair? Isn't one of the goals of health-care cost containment to lower administrative costs? If the public option pushes private plans to trim their bureaucracies and become more efficient, that's fine.

Critics complain that a public plan has an inherent advantage over private plans because the public won't have to show profits. But plenty of private plans are already not-for-profit. And if nonprofit plans can offer high-quality health care more cheaply than for-profit plans, why should for-profit plans be coddled? The public plan would merely force profit-making private plans to take whatever steps were necessary to become more competitive. Once again, that's a plus.

Critics charge that the public plan will be subsidized by the government. Here they have their facts wrong. Under every plan that's being discussed on Capitol Hill, subsidies go to individuals and families who need them in order to afford health care, not to a public plan. Individuals and families use the subsidies to shop for the best care they can find. They're free to choose the public plan, but that's only one option. They could take their subsidy and buy a private plan just as easily. Legislation should also make crystal clear that the public plan, for its part, may not dip into general revenues to cover its costs. It must pay for itself. And any government entity that oversees the health-insurance pool or acts as referee in setting ground rules for all plans must not favor the public plan.

Finally, critics say that because of its breadth and national reach, the public plan will be able to collect and analyze patient information on a large scale to discover the best ways to improve care. The public plan might even allow clinicians who form accountable-care organizations to keep a portion of the savings they generate. Those opposed to a public option ask how private plans can ever compete with all this. The answer is they can and should. It's the only way we have a prayer of taming health-care costs. But here's some good news for the private plans. The information gleaned by the public plan about best practices will be made available to the private plans as they try to achieve the same or better outputs.

As a practical matter, the choice people make between private plans and a public one is likely to function as a check on both. Such competition will encourage private plans to do better -- offering more value at less cost. At the same time, it will encourage the public plan to be as flexible as possible. In this way, private and public plans will offer one other benchmarks of what's possible and desirable.

Mr. Obama says he wants a public plan. But the strength of the opposition to it, along with his own commitment to making the emerging bill "bipartisan," is leading toward some oddball compromises. One would substitute nonprofit health insurance cooperatives for a public plan. But such cooperatives would lack the scale and authority to negotiate lower rates with drug companies and other providers, collect wide data on outcomes, or effect major change in the system.

Another emerging compromise is to hold off on a public option altogether unless or until private insurers fail to meet some targets for expanding coverage and lowering health-care costs years from now. But without a public option from the start, private insurers won't have the incentives or system-wide model they need to reach these targets. And in politics, years from now usually means never.

To get health care moving again in Congress, the president will have to be clear about how to deal with its costs and whether and how a public plan is to be included as an option. The two are intimately related. Enough talk. He should come out swinging for the public option.

Memo to the President: What You Must Do To Save Universal Health Care

Mr. President:

Momentum for universal health care is slowing dramatically on Capitol Hill. Moderates are worried, Republicans are digging in, and the medical-industrial complex is firing up its lobbying and propaganda machine.

But, as you know, the worst news came days ago when the Congressional Budget Office weighed in with awful projections about how much the leading healthcare plans would cost and how many Americans would still be left out in the cold. Yet these projections didn't include the savings that a public option would generate by negotiating lower drug prices, doctor fees, and hospital costs, and forcing private insurers to be more competitive. Projecting the future costs of universal health care without including the public option is like predicting the number of people who will get sunburns this summer if nobody is allowed to buy sun lotion. Of course the costs of universal health care will be huge if the most important way of controlling them is left out of the calculation.

If you want to save universal health care, you must do several things, and soon:

1. Go to the nation. You must build public support by forcefully making the case for universal health care everywhere around the country. The latest Wall Street Journal/NBC poll shows that three out of four Americans want universal health care. But the vast majority don't know what's happening on the Hill, don't know how much money the medical-industrial lobbies are spending to defeat it, and have no idea how much demagoguery they're about to be exposed to. You must tell them. And don't be reluctant to take on those vested interests directly. Name names. They've decided to fight you. You must fight them.

2. Be LBJ. So far, Lyndon Johnson has been the only president to defeat American Medical Association and the rest of the medical-industrial complex. He got Medicare and Medicaid enacted despite their cries of "socialized medicine" because he knocked heads on the Hill. He told Congress exactly what he wanted, cajoled and threatened those who resisted, and counted noses every hour until he had the votes he needed. When you're not on the road, you need to be twisting congressional arms and drawing a line in the sand. Be tough.

3. Forget the Republicans. Forget bipartisanship. Universal health care can pass with 51 votes. You can get 51 votes if you give up on trying to persuade a handful of Republicans to cross over. Eight year ago George W. Bush passed his huge tax cut, mostly for the wealthy, by wrapping it in an all-or-nothing reconciliation measure and daring Democrats to vote against it. You should do the same with health care.

4. Insist on a real public option. It's the lynchpin of universal health care. Don't accept Kent Conrad's ersatz public option masquerading as a "healthcare cooperative." Cooperatives won't have the authority, scale, or leverage to negotiate low prices and keep private insurers honest.

5. Demand that taxes be raised on the wealthy to ensure that all Americans get affordable health care. At the rate healthcare costs are rising, not even a real public option will hold down costs enough to make health care affordable to most American families in years to come. So you'll need to tax the wealthy. Don't back down on your original proposal to limit their deductions. And support a cap on how much employee-provided health care can be provided tax free. (Yes, you opposed this during your campaign. But you have no choice but to reverse yourself on this.) These are the only two big pots of money.

6. Put everything else on hold. As important as they are, your other agenda items -- financial reform, home mortgage mitigation, cap-and-trade legislation -- pale in significance relative to universal health care. By pushing everything at once, you take the public's mind off the biggest goal, diffuse your energies, blur your public message, and fuel the demagogues who say you're trying to take over the private sector.

You have to win this.

Your obedient servant, RBR

Does the Obama Plan for Reforming Wall Street Measure Up?

In a word: No.

The plan doesn't stop stop bankers from making huge, risky bets with other peoples’ money. It does increase capital requirements and oversight, but it doesn't require bankers to take their pay in long-term stock options or warrants, and it doesn't even hint that banks should go back to being partnerships instead of publicly-held corporations.

All this means traders still have very incentive to place big and often wildly risky bets as long as the potential winnings are big enough, and top executives have very little incentive to monitor what traders are up to as long as the traders are collecting large commissions on the bets.

Nor does the plan do anything to prevent banks from becoming too big to fail. It doesn't hint at a return to the days before the late 1990s when commercial banks were separate entities from investment banks -- before mammoth bank supermarkets like Citigroup came to be so tied up with so many other commercial and investment vehicles that they couldn't be allowed to go under. And there's not the slightest mention of antitrust, to break up the largest banks.

The plan does focus on a few conflicts of interest, such as how credit rating agencies are paid. And it does establish a new agency to oversee all forms of consumer loans -- thereby helping make sure borrowers know what they're getting into, and can comparison shop. But these are small potatoes relative to the size of the overall problem. The Fed is given new oversight powers, but there's no suggestion that regional Fed bank presidents, who already have a substantial oversight role, should be recruited from the ranks of people who are not bankers and don't have a big financial stake in keeping oversight to a minimum.

In short: It's a mere filigree of reform, a sheer gossamer of government. Wall Street must be toasting its good fortune. Unless Congress shows some spine, the great Wall Street meltdown of 2007 and 2008 -- which lead to the biggest taxpayer bailout in history, very likely the largest taxpayer losses on record, and the largest investor losses since 1929 -- will repeat itself within a decade, if not sooner.

In fact, the banks that have repaid their TARP money are already planning to resume supersize bonuses, even though many of them are still awash in toxic assets and their non-performing loans are up. Bad credit-card and commercial property debts are mounting. Foreclosures are soaring. Yet several of the big banks are showing profits. How are they pulling this off? First, they strong-armed the Financial Accounting Standards Board into allowing them to assign whatever value they wanted to all the junk on their balance sheets. Then they played hardball with the Treasury staffers whose so-called "stress tests" lapsed into little more than negotiations over numbers and probabilities. (The national unemployment rate is already approaching the highest unemployment rate in the stress tests.) Then they convinced investors that financials have hit bottom and were now good bets. Presto!

Watch your wallets. The Street is up to its old tricks. And the White House's so-called reform is little more than a whitewash.

The Three Essentials of Financial Reform

As the White House unveils its long-awaited proposals to prevent another Wall Street meltdown in the future, keep a lookout for three essentials. Without them the Street will revert to its old ways as soon as the coast clears. In fact, now that the government has bailed out the Street, the biggest banks will take even larger and more irresponsible risks because they’re officially too big to fail. So these three reforms are critical.

1. Stop bankers from making huge, risky bets with other peoples’ money. At the least, require they back their bets with a large percentage of their own capital, and bar them from raising money off their balance sheets through derivative trades. Also require they take their pay in stock options or warrants that can’t be cashed in for at least three years, so they’ll take a longer-term view. Best of all would be a requirement that investment banks return to being partnerships and the capital on their books be their own, not yours or your pension fund’s. When investment banks were partnerships, every partner took an active interest in what every other partner and trader was doing. The real mischief started once they started selling shares to the public.

2. Prevent any bank from becoming too big to fail. Separate commercial from investment banking, as they were before the late 1990s. Commercial banks should return to their basic function of linking savers with borrowers. Investment bankers should return to their casino function of placing bets in the stock market and advising you and others about where to place your own own bets. Combining the basic utility with the casino only made bankers far richer and subjected you and me to risks we didn’t bargain for. If separating commercial from investment banking isn’t enough to bring all banks down to reasonable size, use antitrust laws to break them up.

3. Root out three major conflicts of interest. (1) Credit-rating agencies should no longer be paid by the companies whose issues are being rated; they should be paid by those who use their ratings. (2) Institutional investors like pension funds and mutual funds should not be getting investment advice from the same banks that profit off their investments; the advice should come from sources without a financial stake; (3) the regional Feds that are responsible for much bank oversight should no longer be headed by presidents appointed by the region’s bankers; non-bankers should have the major say, and the regional presidents should have to be confirmed by the Senate.

These three reforms will reduce the possibility that you and I and other taxpayers will ever again have to spend billions bailing out bankers who robbed us blind while amassing fortunes. But because that would make it next to impossible to make such fortunes in the future, the big bankers will fight every one of these with all guns blazing, and their lobbyists in full force. They’ll try to inundate you in a blizzard of buzz words. They want your eyes to gaze over, but don’t let them. Keep focused on these three issues. Congress, for its part, may not be much help. It’s awash in money from Wall Street. Big Finance is second only to the health-industrial complex in owning a large portion of the Hill. Barney Frank at House Banking can be relied on to try his best but others in the House and Senate may well roll over. The President wants to do the right thing but he’s spread thin and spending political capital on health care. Tim Geithner doesn’t have the stomach to take on the Street; the plan he announced a few days ago to regulate pay is a bad joke. Expect lots of blather about rearranging boxes on the regulatory organization chart.

Bottom line: Genuine financial reform will be almost as difficult to achieve as real universal health care. Immense private interests are amassed against the public interest in both cases because staggering amounts of money are at stake. But they are the two most important domestic issues right now. Keep careful watch, and weigh in.

The Healthcare War is Now Official

Yesterday the American Medical Association came out against a public option for health care. And yesterday the President reaffirmed his support for it. The next weeks will show what Obama is made of -- whether he's willing and able to take on the most formidable lobbying coalition he has faced so far on an issue that will define his presidency.

And make no mistake: A public option large enough to have bargaining leverage to drive down drug prices and private-insurance premiums is the defining issue of universal health care. It's the only way to make health care affordable. It's the only way to prevent Medicare and Medicaid from eating up future federal budgets. An ersatz public option -- whether Kent Conrad's non-profit cooperatives, Olympia Snowe's "trigger," or regulated state-run plans -- won't do squat.

The last president to successfully take on the giant health care lobbies was LBJ. He got Medicare and Medicaid enacted because he weighed into the details, twisted congressional arms, threatened and cajoled, drew lines in the sand, and went to war against the AMA and the other giant lobbyists standing in the way. The question now is how much LBJ is in Barack Obama.

The big guns are out and they're firing. All major lobbying firms in Washington -- many of them brimming with ex-members of Congress -- are now crawling all over the Hill. Lots of money is on the table. AMA's political action committee has contributed $9.8 million to congressional candidates since 2000, and its lobbying arm is one of the most formidable on the Hill. Meanwhile, Big Insurance and Big Pharma are increasing their firepower. The five largest private insurers and their trade group America's Health Insurance Plans spent a total of $6.4 million on lobbying in the first quarter of this year, up more than $1 million from the first quarter last year, and are spending even more now. United Health Group spent $1.5 million in the first quarter, up 34 percent from the $1.1 million it spent in the first quarter last year. Aetna spent $809,793 between January and the end of March, up 41 percent from last year. Pfizer, the world's biggest drugmaker, spent more than $6.1 million on lobbying between January and March, more than double what it spent last year. It also spent nearly $3.3 million lobbying in the fourth quarter of 2008. Every one of them is upping their spending.

Some congressional Democrats are willing and able to stand up to this barrage. Many are not. They need cover from the White House.

The President can't do this alone. You must weigh in and get everyone you know to weigh in, too. Bombard your senators and representatives. Organize and mobilize others. And let the White House know how strongly you feel. This is one of those battles that define a presidency. But more importantly, it's one of those battles that define the state of American democracy.

The Latest Public Option Bamboozle, and How to Recognize the Real Thing

Here's the latest contortion from Senate Dems trying to win over a few Republicans to a "public option:" Let nonprofits create health-care cooperatives, and call them the public option. Kent Conrad came up with this bamboozle. Finance chair Baucus is impressed, and some Republicans -- even Grassley -- seem interested. Watch your wallets.

Nonprofit health-care cooperatives won't have any real bargaining leverage to get lower prices because they'll be too small and too numerous. Pharma and Insurance know they can roll them. That's why the Conrad compromise is getting a good reception from across the aisle, just as Olympia Snowe's "trigger" (whereby no public option until some time down the pike, and only if Pharma and Insurance don't bring down and extend coverage a tad) is also gaining traction.

The truth is that there's only one "public option" that will truly bring down costs and premiums -- one that's national in scale and combines its bargaining power with Medicare, and is allowed to negotiate lower drug prices and lower doctor and hospital fees. And that's precisely what Pharma and Insurance detest, for exactly the same reason.

Whatever it's called -- public option or chopped liver -- it has to be able to squeeze Pharma, Insurance, and the rest of the medical-industrial complex. And the more likely it is to squeeze them, the more they'll fight it. And the greater the opposition from Republicans, and from Dems who either believe any bill has to have some Republican support or who have sold themselves out to the medical biggies.

As long as single payer is off the table, then we need a real public option. Don't be fooled by labels. Demand the real thing.

The Great Debt Scare: Why Has It Returned?

It’s the kind of thing I expect to hear from deficit hawks and chicken littles -- from the self-described "fiscally responsible" right, from the scolds Ross Perot and Pete Peterson, from my former cabinet colleague Bob Rubin. But yesterday I was shown slides developed by the putatively liberal Center for American Progress intended to make the point. And today’s front page story in the New York Times, by the eminent David Leonhardt, entitled "Sea of Red Ink: How It Spread From A Puddle," puts the issue right before our progressive noses, so to speak.

The Great Debt Scare is back.

Odd that it would return right now, when the economy is still mired in the worst depression since the Great one. After all, consumers are still deep in debt and incapable of buying. Unemployment continues to soar. Businesses still are not purchasing or investing, for lack of customers. Exports are still dead, because much of the global economy continues to shrink. So the purchaser of last resort -- the government -- has to create larger deficits if the economy is to get anywhere near full capacity, and start to grow again.

Odder still that the Debt Scare returns at the precise moment that bills are emerging from Congress on universal health care, which, by almost everyone’s reckoning, will not increase the long-term debt one bit because universal health care has to be paid for in the budget. In fact, universal health care will reduce the deficit and cumulative debt -- especially if it includes a public option capable of negotiating lower costs from drug makers, doctors, and insurers, and thereby reducing the future costs of Medicare and Medicaid.

Even odder that the Debt Scare rears its frightening head just as the President’s stimulus is moving into high gear with more spending on infrastructure. Every expert who has looked closely at the nation’s crumbling infrastructure knows how badly it suffers from decades of deferred maintenance -- bridges collapsing, water pipes bursting, sewers backed up, highways impassable, public transit in disrepair. The stimulus, along with the President’s long-term budget, also focus on the nation’s schools, as well as America’s capacity to reduce emissions of greenhouse gases. These public investments are as important to the nation’s future as are private investments.

First, some background: Deficit and debt numbers mean nothing in and of themselves. They take on meaning only in relation to something else. And the most important something else, in terms of deciding whether the nation can afford such deficits or debts, is the size of the national economy.

Pay close attention, in particular, to the debt/GDP ratio. True, that ratio is heading in the wrong direction right now. It may reach 70 percent by the end of 2010. That’s high, but it’s not high compared to the 120 percent it was in 1946, after the ravages of Depression and war.

Over time, the basic way America has reduced the debt/GDP ratio is by growing the U.S. economy. GDP growth makes even large debts manageable. When the economy is cooking, more people have jobs and better wages. So they pay more taxes. And they require less unemployment assistance and other social insurance. That’s why it’s so important now, in the depths of depression, that government, as purchaser of last resort, steps in and runs large deficits. Without large deficits this year and next, and perhaps the year after, the economy doesn’t have a prayer of getting back on a growth path, and the debt/GDP ratio could really get ugly.

That growth path, by the way, will be faster and stronger if the nation invests in our infrastructure, our schools, and our environment -- which is exactly what Obama aims to do. In this respect, national budgets are like family budgets. It’s dumb for an indebted family to borrow more money to take a world cruise. But it’s smart even for an indebted family to borrow money to send their kids to college. So too with the Obama budget. Public investments, just like family investments, build future wealth. They allow faster growth. They make the debt/GDP ratio even lower and more manageable over time.

Don't get me wrong. I'm not saying there's nothing to worry about when it comes to long-term deficit and debt projections. I'm just saying now's not the time to worry, and we ought to temper our worries by understanding the larger context.

Not every expert agrees that a deficit-driven stimulus is the best and fastest way to get the economy back on a growth track, or that public investments can speed growth. Conservative economists, Republicans, and many Wall Streeters are skeptical because they don’t think government can do anything well. But look at the record of the last seventy-five years -- look at how the nation got out of the Great Depression, and consider the critical role public investments have played since then in speeding the nation’s growth, investments such as the interstate highway system -- and you have ample evidence that the deficit hawks are wrong. They were wrong when they convinced Bill Clinton to chuck a large part of his investment agenda (the nation is now paying the price) and they're wrong now.

So, back to the mystery. Why are the ostensibly liberal Center for American Progress and New York Times participating in the Debt Scare right now? Is it possible that among the President’s top economic advisors and top ranking members the Fed are people who agree more with conservative Republicans and Wall Streeters on this issue than with the President? Is it conceivable that they are quietly encouraging the Debt Scare even in traditionally liberal precincts, in order to reduce support in the Democratic base for what Obama wants to accomplish? Hmmm.