Economic Reality Transforms the American Dream

Welcome to the new version of the American Dream.

It may look the same as the old one – personal prosperity and owning your own home – but fewer people are likely to live it, and if they do, it will happen later in life.

The transition Americans are undergoing is not merely recovery from a deep recession with life soon returning to the way it was before 2008.  It is a complete redesign of the American economy.

Two news stories last week prove the point.

“The situation for today's adults in their 30s and younger is particularly gloomy,” reports the nonpartisan Urban Institute.  “When it comes to building wealth -- adding to savings, owning a home, paring down debt, growing a retirement nest egg -- those under age 40 have stagnated,” it says.

Instead of earning more than previous generations, younger people get less pay than what their parents were paid when they were the same age.

We also read that two states – Maine and West Virginia – now see deaths exceeding births each year.  By one measure, Maine is the oldest state in the country with West Virginia coming in third.

They are the bellwethers of the United States as a whole.  In the first nine years of this century, the median age in the country increased by one and a-half years.

Older people have not saved enough for their retirement years, so they cannot be the big-spending consumers they used to be.  In other words, older people are a larger share of the population, and they have less to spend.

American businesses are adjusting to these new realities.  To survive and remain competitive with foreign suppliers in what is now a global marketplace, they must reduce their costs.

And the place where they cut is paying their employees.  Labor costs as a share of total national production are now at record lows. 

High paying jobs have been lost, forcing many to accept new jobs with less income.  Even worse, some have been pushed out of the work force, making the unemployment rate look better than it really is.

Many people have become more realistic about having enough income to afford a new home.  While that means they must wait longer for their dream home, the chances of losing it in foreclosure are less.

There’s some good news.

Jobs that went abroad are coming home.  As wages rise in China and elsewhere in the developing world while they stagnate in the United States, imports are beginning to lose some of their attractiveness.

Taking into account transportation, heavily influenced by the price of fuels, and the narrowing labor cost difference, “Made in the U.S.A.” is staging a comeback.

While people struggle to find decent jobs, American corporations are doing well.  Unemployment may still be too high, but the stock market, which reflects what investors see as the economic future, has broken through to new highs.

U.S. manufacturing, long in decline, seems to be gaining again, thanks to the jobs that are coming home.

In fact, as American-made goods are priced close to world market prices, U.S. exports could improve, which would help promote job growth.

Business is profitable partly because labor costs are down.  Workers – from airline pilots to assembly line labor – have accepted pay reductions in order to keep their employers competitive.  Perhaps as big as government bailouts are the sacrifices made by employees.

Even with this improved outlook for business, the total picture is far from rosy.

Government programs that depend on income-based taxes will have less money to meet the growing financial needs of Social Security and Medicare. 

Rep. Paul Ryan’s proposed Republican budget would keep these programs solvent by sharply reducing benefits.  While these programs might then pay their own way, older people would suffer.

One alternative is higher taxes to help support these essential programs.  In an economy with fewer workers relative to the total population and lower pay scales, those workers might have to pay more to the government.

Another option is for people to save more for retirement.  Like higher taxes, more saving would reduce the amount people could spend.

The new American economy would depend less on consumer spending, now its main driver, as more money went either to taxes or savings.

A rapid increase in the working age population could help slow or reverse this trend.  That’s why immigration reform may turn out to be essential.

Perhaps this new version of the American Dream is not inevitable.  But nobody has yet offered a way to save the old version.

The High Cost of Health Care is Its Biggest Issue

The problem with health care is not Medicare, Medicaid, or Obamacare.

It’s what health care costs.

The United States leads the world in one area of health care – it costs more here than in any developed country. Higher cost does not mean better care.  The United States lags many other countries in length of life and infant mortality.

Most industrialized countries have some version of a single payer system in which the government is the insurer and can influence the prices it pays for various procedures and medications.

In this country, the government, insurers, and individuals all pay for health care.  And, when the government is not paying, health care providers are free to set prices that everybody must pay.

Why are hospital costs so high?  A recent report by Steven Brill in Time magazine provided answers.

He revealed that both non-profit and for-profit hospitals make money, with non-profits doing better.

Where does the money go?  It pays for more sophisticated equipment, whether it is needed or not, advertising to attract more patients, and astronomical salaries for the top officials.  

And for lobbying Congress to keep the system just as it is.  The health care industry spends more on lobbying Washington than the defense, aerospace, and oil and natural gas industries combined.

The industry is rapidly becoming a monopoly.  In most areas, there is no longer any choice among hospitals.  There is one in each area, making the concept of a “market” purely theoretical.

As the number of hospitals is reduced, so is the number of independent doctors’ offices.  In the near future, it is expected that 75 percent of physicians will be on hospital payrolls.

To boost hospital income, these doctors are often required to see more patients each day, resulting in less attention to any individual.  And insurance reimbursement is more profitable for hospitals, Brill says, with doctors in-house.

The hospitals’ big profits are obvious, when the costs charged to the uninsured based on hospitals’ “chargemaster” price lists are compared with Medicare payments.

The chargemaster sets prices well above cost and even levies outlandish charges for simple bandages, which ought to be included in overhead costs.

In one case Brill cites, a hospital bill came to $121,414, but the hospital accepted $16,949 from Medicare.

Hospitals and doctors are not required to participate in Medicare.  If they are not paid enough, they can quit the system.

But they don’t.  In fact, in Florida, where many patients are on Medicare, hospitals advertise for retirees to use their services.

Even Medicare, the largest single customer for health care in the country, is prevented from bargaining to get the lowest prices for drugs.  If one medication is better than another and cheaper, Medicare must still pay the average price of all approved drugs of the same type, which means it must overpay.

The Veterans Administration, which also buys a lot of prescription medicines, does not have such a rule, and its costs are estimated to be 40 percent less than Medicare’s.

Obamacare will not fix the problem.  It can only create competition among insurers, though one of the players in each state will be a non-profit company. 

Opponents of Obamacare see this so-called “exchange” as being able to underprice the private companies so that it ends up as the single payer.

That would have to happen at some point in the indefinite future if the non-profit insurer could ever be powerful enough to force the industry to bring its costs under control. 

Meanwhile, the health care industry is increasingly acts like an unregulated monopoly where, for the time being at least, the insurers have little ability to place a brake on its charges.

Experience shows there are essentially only two ways to deal with the pricing power of “natural” monopolies, those that cannot simply be broken up, because of the type of services they provide.

We can see how such controls work, because both approaches having been applied to electric utilities, which are natural monopolies.

One is regulation, where “just and reasonable” prices are set by independent regulatory bodies, acting like judges.  Those areas where competition is possible – electric generators or equipment manufacturers in the health care sector – are left largely unregulated.

The other solution is government as the single payer.  For electricity, government takes the form of the municipal utility.  It makes no profit and bargains for what it will pay for power.

We seem to be moving toward the point in health care where regulation or the single payer or both will become essential and inevitable.

Cutting government waste better than “sequester”

A few months ago, I helped a municipality deal with a U.S. government agency that wanted to buy services from the town. 

My experience revealed a lot about why the federal budget is out of control.

The amount of the contract was less than $200,000, but I dealt with five federal officials for about two months to get an agreement that should have taken one person about an hour.

The officials questioned the profit margin in the deal, so I had to convince them that the town charges actual cost and makes no profit.

When we received the federal contract, it referred to about a dozen previously unmentioned requirements that were tacked onto it.  The town would have to agree to them before it could supply the federal government with a municipal service that it usually provided to anybody within its borders – without any contract.

It took some effort to find out what these other documents contained.  When I finally saw them, they were mostly irrelevant.  Under one, the town had to promise that its employees would not text while driving.  There was no driving involved in the contract.

At the end of the process, I was convinced that the federal government could have saved thousands of dollars, if it operated more efficiently.

But presidential appointees heading such agencies are unlikely to spend the time and effort to manage agency operations to eliminate such waste. 

With all the talk about cutting government spending, most critics want to slash entire programs, each with its own constituency, rather than really getting serious about efficiency and wasteful spending.

Sen. Tom Coburn, an Oklahoma Republican, is an archconservative who would like to cut back government.  But he has come up with a non-ideological idea that could work.

In 2010, he got Congress to ask the non-partisan Government Accountability Office to draw up a list of all government programs.  The GAO was also to show where they overlapped.

It may amaze some that there was no single list of federal government programs.  Less amazing is the fact that of the hundreds of programs, many overlap.

For example, the GAO found 47 job training and employment programs being carried out by nine different agencies.  These programs had budgets totaling $18 billion a year. 

And the politically neutral agency reported that all but three of the programs overlapped one another.

Without proposing that any of the programs should be eliminated, the report showed that there were many duplicative managerial and administrative offices that could be dropped.

One of the major risks when many programs do the same thing is that outside organizations can apply for and receive grants for the same activity from several different agencies that have no idea what others are funding.

Why can’t such overlap be eliminated?

Many federal programs, including those run by the Defense Department, are supported because they create jobs.  For a member of Congress to bring new jobs to his or her state or district is far more important politically than the tasks performed.

And then there’s turf.  Various programs doing just about the same thing are under the jurisdiction of separate congressional committees.  Each is reluctant to give up control of any subject or agency on its agenda.

Even more serious are the turf empires of the major departments themselves.  Power and influence may be measured in Washington by the number of employees in an agency or the size of its budget.

Each agency lobbies congressional committees to preserve its programs, each of which is “essential.”

Shouldn’t there be one central office responsible for reducing the inefficiency that results from duplication?

That should be the White House Office of Management and Budget, which finally got around to looking at Coburn’s initiative last year, but only selected a few agencies for a pilot program.  Since then, nothing more has been heard from OMB.

At the beginning of March, the first automatic cuts in federal spending – called the sequester – went into effect.  They amount to $85 billion in the remaining seven months of the federal fiscal year.

Eliminating duplication in the government programs found by GAO in just the first two years of its review plus requiring greater efficiency might well produce that amount of saving not only this year but every year.

No activity needs to be eliminated, though jobs would be cut and the size of government reduced by simply making it more efficient.

Sequester?  We can do better.  After all the empty political promises about cutting government waste, Coburn has helped us know just what to do.

Hagel Nomination Process Hides Truth

People often complain that politicians don’t tell them the truth.

They are probably right.  The truth is often painful, and politicians usually want to sound positive.

The nomination of Chuck Hagel to be Secretary of Defense, now being filibustered by Senate Republicans, is a prime example.

The senators refusing, for the time being, to let the nomination come to a vote, are trying to use their leverage to get President Obama to admit that he failed to take the necessary steps to prevent the killing of Ambassador Chris Stevens in Benghazi, Libya.

The GOP tried without success to force that admission during the presidential campaign and later from then Secretary of State Hilary Clinton. 

Whatever Obama may have done, nobody wants to state the obvious.  Stevens, a person extremely knowledgeable about Libya, put himself in harm’s way.

He should not have been in Benghazi without more protection, but the State Department went along with his decision.  Nobody says that the victim had significant responsibility for his fate.

While that’s understandable, it puts Obama in an impossible position, which is right where his opponents want him.

Appointments to the Cabinet almost always are free from the filibuster, and that will ultimately be true for Hagel.  If the GOP were to block him, a later Republican president could face the same tactic.

Yet some senators obviously see the opportunity to try to embarrass Obama, even knowing they will eventually let Hagel be confirmed.  Of course, they won’t say that.

Some Republican senators, apparently including Maine’s Susan Collins, seem to have it right.  They will not support a filibuster no matter what they think of Hagel.

But Collins and others will not support him.  Some will say it’s because of his views on Iraq or Israel.  But Collins has at least hinted at the truth.

Hagel’s confirmation hearing went badly.  He did not generate a sense of confidence about his ability to be a vigorous leader of a large and complex government department. 

Even if his personal policy positions don’t really matter and he must follow Obama’s direction, he did not come across as competent.  Nobody wants to speak that truth directly, because he will finally be confirmed and serve in the job.

The Hagel confirmation has also produce the reverse of the truth – an outright lie.

Sen. Ted Cruz, the Texas Republican newly arrived in Congress, has accused Hagel of taking money from North Korea.  The senator has no evidence to support his claim.

Cruz wants more financial disclosure by Hagel than has normally been demanded of cabinet nominees of either party.  He does not care that his approach could hamstring GOP appointees in the future.

He says that he has made the charge as a way of forcing Hagel to reveal more of his finances.  In other words, Cruz wants Hagel to be forced to disclose more about his income in order to refute his lie.  It does not matter that Hagel is innocent of the charge.

This tactic was used in the 1950s by the infamous GOP Sen. Joe McCarthy, who repeatedly lied when he claimed to have a list of Communists in the State Department. 

Cruz’s position has come in for strong criticism from members of his own party, including some who oppose Hagel.  Many Republican senators are unhappy to see the specter of McCarthy emerge.

In defending Hagel, the Obama administration says he would be ideal for the position because he would be the first Defense Secretary with military experience as an enlisted person.

But Hagel would not be the first enlisted person to head the Defense Department.  Four others served as enlisted men, though three were made officers while on active duty and the fourth later became an officer in the Army Reserve.  Because they became officers, the White House defended its claim by splitting hairs.

Besides, there is no proof that having served in the enlisted ranks rather than as an officer or not at all makes a person better suited to be Secretary of Defense.  Implicit in that claim is the belief that an enlisted person knows better than anybody that “war is hell.” 

In the 2012 presidential election, neither Obama nor Mitt Romney had served in the military, much less been an enlisted person.  Yet no serious claim was made that either was unsuitable to be commander in chief of the Armed Forces for that reason.

The Hagel affair has more than its share of hidden truths, unfounded assertions, and outright lies, which hardly increases public trust in government.