Calm Before The Storm

I don't know if Mike Lux is right and the White House has thrown in with Olympia Snowe and her trigger idea, or if Sam Stein's sources are more credible, and nobody in the White House is pushing this to progressive groups overtly. But you'd have to be blind not to see this as the eventual endgame.

The White House has already pronounced themselves desperate for a bill, any bill. As much as they've talked about reconciliation, it's clear that they don't want to use it and would rather get 60 votes. They are pushing their membership in that direction, but enough of them have expressed reservations with the public option that they would probably reject the whole bill for that reason. Nobody asks them why they'd be willing to deny people health care because of one "sliver" of reform, but no matter. The White House has certainly kept themselves open to a compromise along the lines of triggers or co-ops; Peter Orszag did so again today. Getting Snowe's support means more about the Ben Nelsons and Mary Landrieus of the world signing off on cloture than it does just her vote. So the bill has been hijacked for Snowe's benefit. She's the same person who tried to delay the bill by a couple weeks to move it past the reconciliation window, which is an explicit attempt to kill the public option.

So there's not a lot of mystery here. Whether progressive groups are being sold something or not, the dynamic of the debate necessarily puts us with a trigger. Here's Mike Lux explaining that policy:

Senator Snowe is writing language into an amendment that is literally a Catch-22. The legislative language says that a public option will be set up in a state in which health care is not affordable to 95% of the state's residents, but it defines affordability as after the new tax credits that are written into the bill to make health care affordable. Not only would this be an incredibly weak public option (doing it in one state will mean it can't get the market power to compete with the big insurers), but it would be a public option that is written by its definition to never be triggered. This is a trigger specifically, intentionally designed to kill the public option.

As Lux later says, this will trigger something - not a public option, but a real civil war inside the Democratic Party.

The AFL-CIO, Howard Dean and Democracy for America, bloggers, MoveOn.org, progressive media figures, and the tens of thousands of people coming to Obama rallies and cheering wildly for a public option will figure out quickly that this trigger proposal is a farce specifically written to kill any chance of a public option. The Congressional Progressive Caucus, the Congressional Black Caucus, the Congressional Hispanic Caucus already are angry at having legal immigrants thrown under the bus by Baucus, all will explode.

As someone who spends every single day working hard to build and strengthen the bridge between the progressive community and the White House, I feel like the White House is triggering a bomb to blow the bridge up from under me (pun fully intended).

The trigger is a classic Obama "on the one hand, on the other hand" proposal. I'm afraid that nobody's going to buy that. Too many people have placed their hopes on health reform on a real alternative for competition with the private insurance industry. The White House may not like that it's dominated the debate, but it has. And there's little chance to turn that around.

Economist Slap-Fight

The CBO scored the Obama Administration's plan for a beefed-up MedPAC called IMAC, the Independent Medicare Advisory Council, and didn't fins much to like about it.

For the second time this month, congressional budget analysts have dealt a blow to the Democrat's health reform efforts, this time by saying a plan touted by the White House as crucial to paying for the bill would actually save almost no money over 10 years.

A key House chairman and moderate House Democrats on Tuesday agreed to a White House-backed proposal that would give an outside panel the power to make cuts to government-financed health care programs. White House budget director Peter Orszag declared the plan "probably the most important piece that can be added" to the House's health care reform legislation.

But on Saturday, the Congressional Budget Office said the proposal to give an independent panel the power to keep Medicare spending in check would only save about $2 billion over 10 years- a drop in the bucket compared to the bill's $1 trillion price tag.

"In CBO's judgment, the probability is high that no savings would be realized ... but there is also a chance that substantial savings might be realized. Looking beyond the 10-year budget window, CBO expects that this proposal would generate larger but still modest savings on the same probabilistic basis," CBO Director Douglas Elmendorf wrote in a letter to House Majority Leader Steny Hoyer on Saturday.

Peter Orszag, a former head of the CBO, responded at his blog in muted tones that, were they put into the language of professional wrestling, would approximately translate to "what you gonna do brother, when Orszagamania's running wild on you??!?!?!"

A final note is worth underscoring. As a former CBO director, I can attest that CBO is sometimes accused of a bias toward exaggerating costs and underestimating savings. Unfortunately, parts of today’s analysis from CBO could feed that perception. For example, and without specifying precisely how the various modifications would work, CBO somehow concluded that the council could "eventually achieve annual savings equal to several percent of Medicare spending...[which] would amount to tens of billions of dollars per year after 2019." Such savings are welcome (and rare!), but it is also the case that (for good reason) CBO has restricted itself to qualitative, not quantitative, analyses of long-term effects from legislative proposals. In providing a quantitative estimate of long-term effects without any analytical basis for doing so, CBO seems to have overstepped.

Roughly translated, Orszag is saying that IMAC was never meant to create medium-term savings, because it has a long-term approach to determining cumulative savings over time. This is especially true because IMAC, under the plan, couldn't make recommendations until 2015, and the CBO only scored it through 2019. As to the long-term impact, it's near impossible to figure out what some individual recommendation would be in, say, 2024, let alone how much savings such a recommendation would realize.

That paragraph reads a bit like a very angry Data trying to hurt Spock's feelings. But translated out of Budget Wonk-ese, it's about the gravest charge one CBO director can lob at another: It's an accusation that the CBO has released an estimate that's driven by the desires of Congress (in this case, the desire to have seemingly concrete numbers) rather than actual facts. And as someone who is on record defending CBO against those who want more favorable estimates for health-care reform, I think Orszag has this one right: It's just impossible to say what the experts will want to do with Medicare in 2027, and it's similarly hard to know what the president, and Congress will allow them to do.

The White House is now in a tough spot, wanting to please Congress by pleasing the CBO but also wanting to please the public, when those goals are at cross purposes. They don't have to be. There are ways to produce more reform in ways that both cut costs and increase access. But if the CBO is going to play these kinds of games, it plays into this belief that the Obama plans spend too much and expand too much government. Relentless hits from Republicans and a lack of coordinated defense of the liberal philosophy of government from Democrats facilitated this. At some point, the President must not only defend his health care plan, but defend liberalism. Otherwise he will run into trouble.

Wading Through The Concern Troll Maze

Nobody wants to kill health care reform. OK, I guess Bill Kristol does. But nobody else. They're just very concerned with the speed of the legislation, and some of the provisions and they just want to take the time, do it right, we can do it bay-bee.

You'd expect the RNC to weigh in on the side of the status quo. But Michael Steele is so clueless about the topic of health care that, as you can see from this compilation, he would probably be stumped if you asked him what a doctor does.



Later on, he didn't understand the individual mandate, only the central issue in the most intensely watched primary campaign in American history. He has found his metaphor, though, calling it a reckless and risky "experiment," both in his remarks and in this new ad, which I think makes the point that Barack Obama is experimenting on children.



Not really a new argument, nor is the idea that the new health care plan would "ration" care. Peter Orszag parries that nicely.

ORSZAG: This is the biggest canard that is floating throughout this debate. The fact of the matter is right now politicians and insurance companies are making decisions. We're saying we want doctors to be making decisions, and I think that will lead to a higher-quality, lower-cost system over time.

WALLACE: But when you say they're making decisions, they would be saying, you can have this treatment, you can't have that treatment.

ORSZAG: Do you think that politicians are currently rationing care, are insurance companies currently rationing care? There's no set of decisions that this commission would have that is not currently resting with either members of Congress or insurance companies.

WALLACE: So they would be rationing care.

ORSZAG: No! Because I don't think we're rationing care today, and similarly they would not be in the future. What they would be doing is setting reimbursement rates and moving towards a higher-quality system.

These arguments from the right are both silly and transparent. They are designed not to advance any debate about health care or create some alternative set of proposals. They are, as Orszag said on a different Sunday show, designed simply to kill any bill. They not only want to break health care, but break Obama, as Jim DeMint very clearly stated. Delay equals defeat in this case.

Which is why it's so disconcerting to see Democrats engage in the same tactics. For example, Gov. Brian Schweitzer of Montana criticized the expansion of Medicaid in the bill because it would leave an unfunded mandate for the states, but under the House bill, at least, the federal government picks up ALL of the costs for that expansion, at no cost to the states whatsoever. Schweitzer may consider this a slippery slope, and in that case, he should advocate for taking state participation out of Medicaid entirely. But instead, he's chipping away at Congress' bill, as are other governors of both parties, and eventually that tactic leads not to getting the policy right, but burying it.

If moderate Democrats have legitimate concerns with the bill, they have every opportunity to address them, but they seem more concerned with shooting arrows at it, which will only destroy the bill, and probably their political future as well.

But the question isn't whether Republicans understand the power of successful opposition. It's whether Democrats understand the dangers of failure. And that's most true for the Democrats who are most likely to weaken the effort: The Democrats who are cool to health-care reform because they fear the conservative tilt of their state are the Democrats who will lose their seats if Obama loses his momentum and the Democratic majority begins to lose on its major initiatives. Legislative defeats will not threaten Henry Waxman's seat. But it will imperil Mary Landrieu's. And Ben Nelson's.

Bill Kristol is right that defeating Obama's health-care plan is a first step for Republicans who want to pick off vulnerable Democrats in the 2010 midterms. But the converse is also true: Passing health-care reform is the first step for vulnerable Democrats who want to save their seats.

In the end, I'm not sure that those moderates really want universal health care. So they concern troll it and ask for delays and we eventually spend another couple decades with a broken system and no progress. I'm hopeful that isn't the case this time, as Obama steps to the front of this debate. But at this point, turning away from the sausage-making is probably best for my heart.

Ducking The Debate

I just saw Howard Dean on The Ed Show asked about "taxing health benefits" (which is an oversimplification), and while he corrected Ed Schultz by saying that the reform discussed is capping the employer deduction, he said "I don't want to get into a debate about paying for this." Sigh.

If progressive advocates aren't willing to talk about how the hell we're going to pay in the short term for health reform, it won't happen. Period. The Administration has committed themselves to a fiscally responsible approach that is deficit-neutral in the short term. Peter Orszag talks about "Medicare and Medicaid savings" without explaining that as ending these lunatic Medicare Advantage payments where insurers get to privatize the system. To the average person that rightly sounds like paying for health care by cutting Medicare and Medicaid. That just won't play politically. And nobody agrees on the other revenue raisers. At some point this will all break down.

This belt-and-suspenders approach means we are not just banking on the long-term impact from the game changers to protect the budget. We also are demanding quantifiable cuts, efficiencies, and revenue-raisers so that the budget is not adversely impacted in the medium-term. That is to say, if the long-term savings from the game-changers materialize as expected, we wind up with a more efficient health care system and a better fiscal position. If they don’t, then at worst, we have a deficit-neutral plan that will not worsen our fiscal situation.

Everyone is talking in generalities about those cuts and efficiencies and revenue-raisers, in a way that will surely doom this reform when the specifics arrive. The Council of Economic Advisers report today is great, and it states very clearly the savings to families and the general budget from enacting meaningful health care reform.

We estimate that slowing the annual growth rate of health care costs by 1.5 percentage points would increase real gross domestic product (GDP), relative to the no-reform baseline, by over 2 percent in 2020 and nearly 8 percent in 2030.

For a typical family of four, this implies that income in 2020 would be approximately $2,600 higher than it would have been without reform (in 2009 dollars), and that in 2030 it would be almost $10,000 higher. Under more conservative estimates of the reduction in the growth rate of health care costs, the income gains are smaller, but still substantial.

Slowing the growth rate of health care costs will prevent disastrous increases in the Federal budget deficit.

Slowing cost growth would lower the unemployment rate consistent with steady inflation by approximately one-quarter of a percentage point for a number of years. The beneficial impact on employment in the short and medium run (relative to the no-reform baseline) is estimated to be approximately 500,000 each year that the effect is felt.

Expanding health insurance coverage to the uninsured would increase net economic well-being by roughly $100 billion a year, which is roughly two-thirds of a percent of GDP.

Reform would likely increase labor supply, remove unnecessary barriers to job mobility, and help to “level the playing field” between large and small businesses.

All of this is true, and makes health care pay for itself. One that doesn't appear in the bullet points of the executive summary is that wage growth would likely ensue because your raise is being plowed into paying for unaffordable employer-based health care.

But as long as the commitment to deficit-neutral policies in the short term remains - and there aren't 60 Senate votes for an unfunded mandate, regardless of what the President wants, which is why Orszag is saying this - you're going to have to find the money. And everyone shies from that debate. You see Ed Schultz, who plays a liberal on TV, get all worked up about "taxing health benefits" because the unions, frankly, don't want their hard-bargained health care benefits touched. In truth, capping the tax exclusion makes sense because it's a huge cash windfall ($246 billion in 2007 alone on this subsidy), but it runs into dicey politics. So does capping the charitable deduction. So does a value-added tax. So does any revenue-raiser, and so do cuts to Medicare and Medicaid, especially when they're explained so horribly.

Howard Dean needs to talk about how the hell we're going to pay for this. So do progressives generally. We always shy away from the responsible taxation argument, and it's about to kill health care reform.

Paying For Health Care

The advocacy community has made a lot of headway on forcing a public option as the fulcrum point in the health care debate. They've used a variety of tactics and achieved much success. That's very positive. And it's worth noting that a public option, along with the short-term actions like health IT and comparative effectiveness research, as well as the savings of having everyone inside the system, will reduce the overall bottom line on health care, making reform in some respect pay for itself, over time. Peter Orzsag explains how this works:

...health care reform has two components: cost containment provisions and expanded coverage. In the near term, the impact of expanded coverage will temporarily dominate, and health care reform will therefore temporarily increase government spending. Over time, however, the impact of the cost containment provisions will accumulate, and the net impact will be a reduction – and perhaps a dramatic one – in government spending. Second, while we are waiting for the cost containment provisions to take hold, we are insisting that health care reform be deficit neutral. In other words, the Administration is committed to a health care reform that is at least deficit neutral over 10-years -- and deficit-reducing, potentially to quite a significant degree, over the longer term.

The first part is very valuable. Reducing spending over time and expanding access sounds like a win-win. But two things bother me. First, we HAVE to reduce spending pretty massively to avoid busting the budget entirely. And then there's the commitment to being deficit neutral in the near term. That means that some funding mechanism will have to be approved to pay for health care. You could say that this pays for itself, and the Iraq war and so many other initiatives of the recent past were unfunded, but the Administration committed to paying for it, and there wouldn't be 60 votes for an unfunded mandate besides. So, how do you accomplish this?

Cutting Medicare Advantage payments doesn't get you far enough. The Administration's proposal to cap charitable deductions was immediately rejected in Congress. The unions hate capping the employer deduction. And broader-based taxes, well, nobody's selling that to the public, and so the public demurs:

A new national poll indicates that most Americans are receptive to having more government influence over their health care in return for lower costs and more coverage.

Sixty-three percent of people questioned in a CNN/Opinion Research Corp. survey released Friday said they would favor an increase in the federal government's influence over their own health-care plans in an attempt to lower costs and provide coverage to more Americans; 36 percent were opposed.

The poll also suggests that slightly more than six out of 10 think the government should guarantee health care for all Americans, with 38 percent opposed.

That's pretty encouraging. If more than six out of 10 Americans want government to have more of a role in the health care system -- nice job, insurance companies -- the right will need to change its focus if it hopes to derail efforts to fix the system and expand access.

The poll seems to offer conservatives a hint in this regard. Respondents were asked, "Would you prefer a health care reform plan that raises taxes in order to provide health insurance to all Americans, or a plan that does not provide health insurance to all Americans but keeps taxes at current levels?" The result: 47% would accept the tax cut as a tradeoff, 47% would not.

With that in mind, expect to hear a lot of "reform = tax increases" in the very near future.

I've seen other polls showing that people will accept higher taxes in exchange for a better health care system. But I think the change reflects a shift from the general to the specific. It's one thing when you ask the question with GW Bush in charge, when it's completely hypothetical. It's another when health care's actually happening. We have 30 years of selfishness to break through. Another explanation for the poll slippage is that nobody consistently argues that health care for your family is worth everyone chipping in for.

I think a "health care reform will pay for itself" frame makes sense, alongside an "if we do nothing, everyone will spend more than you can imagine and destroy the budget" frame. But it's just not going to be possible to get 60 votes in the Senate without some funding mechanism, and it will be incredibly easy for enough stakeholders to say No to specific funding for none of them to get approved. And I worry that the above frames can be easily short-circuited by "your taxes will go up $X" (which the right will say no matter what, see their zombie lie on cap and trade costing $3,100 per family). At some point somebody needs to advocate for taxes as worth paying for to provide services for the greater society. The right has gotten away with promising expanded services and low taxes forever - the so-called "Two Santa Claus Theory". We can only sidestep that for so long. We cannot go after tax fairness sideways. Shrinking from the argument means that nobody will ever get a sense of the common good and the need to pay for a free society.

The other problem, of course, is that the cost controls in the current Obama plan are insufficient, and nobody seems to want to be bold enough to increase those controls. So we could end up with a reform that costs a lot up front and does NOT provide enough savings down the road, approximately the worst of all possible worlds.

Health Care Breakthrough?

In what is being pitched as a major announcement, health industry groups are vowing to slow the growth of health care costs over the next decade, to accommodate President Obama's reform strategy.

Reporting from Washington -- Leading health industry groups have agreed to slow the explosive growth of healthcare spending, according to administration officials and others knowledgeable about the agreement.

Hospitals, drug makers and doctors, among others, wrote a letter to President Obama outlining their plan, which estimates $2 trillion in savings over the next decade.

The letter lacks much detail but suggests savings could come from simplified billing, restructuring the way hospitals are paid and using more information technology, among other steps.

Obama plans to promote the letter at a White House event today.

Although the agreement does not outline any industry commitments to accept specific reductions in revenue, it does signal continued engagement by powerful healthcare interests in the Obama administration's effort to overhaul the nation's troubled healthcare system [...]

Signatories include the American Medical Assn.; the American Hospital Assn.; the Pharmaceutical Research and Manufacturers of America; the Advanced Medical Technology Assn., which represents device makers; America's Health Insurance Plans, which represents insurers; and the Service Employees International Union, which shepherded the agreement.

Specifically, they want to reduce the annual spending growth rate by 1.5 percent, which translates into $2 trillion in the next decade. Like the article says, the letter is thin on specifics, preferring to instead talk about "encouraging coordinated care" and "addressing cost drivers" and "reducing over-use and under-use of health care." Some of the reforms, like prevention and dealing with obesity and health IT, are familiar.

The positive development here, as Krugman writes, is that health insurers and the medical industry want to be part of a solution instead of committing themselves to blocking one. They believe that reform will happen with them or without them, and so they'd rather be around to influence the outcome. Another plus: in addition to agreeing to work with the Administration on reform, they appear to have accepted the basic economic arguments about how to bend the cost curve in health care.

How are costs to be contained? There are few details, but the industry has clearly been reading Peter Orszag, the budget director.

In his previous job, as the director of the Congressional Budget Office, Mr. Orszag argued that America spends far too much on some types of health care with little or no medical benefit, even as it spends too little on other types of care, like prevention and treatment of chronic conditions. Putting these together, he concluded that “substantial opportunities exist to reduce costs without harming health over all.”

Sure enough, the health industry letter talks of “reducing over-use and under-use of health care by aligning quality and efficiency incentives.” It also picks up a related favorite Orszag theme, calling for “adherence to evidence-based best practices and therapies.” All in all, it’s just what the doctor, er, budget director ordered.

However, I think there's also reason to be skeptical. By committing themselves to lowering costs, these industry leaders are essentially committing themselves to lower profits, which is illogical unless they see that as a best-case scenario. AHIP and some of these other groups have every incentive to guard their profits while rejecting reforms that would cut into them too heavily. For instance, cost control could be a bargain in exchange for killing the public option. The lack of detail in the letter should not go unmentioned, either, and the Administration must make mandatory some changes to reduce costs rather than relying on these former enemies of reform to voluntarily reduce. Because "reducing over-use" of health care can mean a lot of things - denying care, for example. Specifics like those in this CAP report on health care modernization could be mandated. The White House had better put all this in writing and ensure that the effort is sustained - voluntary efforts in the past have lasted for only a year or so.

I agree that there's an absolute benefit to this, strictly in the sense of optics. Stakeholders are working toward reform rather than pushing against it. The conservative bullshit artists led by the discredited fraud artists Rick Scott, who are trying to demonize the Obama plan, have no friends this time around. But let's verify these changes instead of accepting the industry offer at face value.

See also this potentially bigger breakthrough in financing for the health care plan, potentially a much bigger deal, because these assumed cost controls still don't get the reform out the door, dedicated revenue sources do. Joe Biden recently said "we believe that the committees will come back to our plan for financing." The Administration became the prime mover on finding revenue, and even if the initial efforts were tossed out, the Finance Committee will need that money eventually, and they'll have an off-the-shelf option to return to.

...just got off a call with HHS Secretary Kathleen Sebelius, and she made a few points:

• Everyone understands that the current system is unaffordable, unsustainable, and unacceptable to the American people.
• Health care sits atop the President's domestic agenda.
• Today was not a day for these stakeholders to talk about their specific cost control plans, and legislative specifics have not been addressed either.
• I did appreciate her saying that transforming health care does not equal providing more insurance.
• The stakeholders made a commitment to report back to the President on June 1 with progress on cost containment.

Honest Barack

No President wants to fix the mistakes of the past in such a way that reflects on the present. I think it's honorable for President Obama to make this decision with respect to the federal budget, and with the right framing, he can get a win out of it.

For his first annual budget next week, President Obama has banned four accounting gimmicks that President George W. Bush used to make deficit projections look smaller. The price of more honest bookkeeping: A budget that is $2.7 trillion deeper in the red over the next decade than it would otherwise appear, according to administration officials.

The new accounting involves spending on the wars in Iraq and Afghanistan, Medicare reimbursements to physicians and the cost of disaster responses.

But the biggest adjustment will deal with revenues from the alternative minimum tax, a parallel tax system enacted in 1969 to prevent the wealthy from using tax shelters to avoid paying any income tax [...]

Fiscal sleight of hand has long been a staple of federal budgets, giving rise to phrases like “rosy scenario” and “magic asterisks.”

The $2.7 trillion in additional deficit spending, Mr. Orszag said, is “a huge amount of money that would just be kind of a magic asterisk in previous budgets.”

“The president prefers to tell the truth,” he said, “rather than make the numbers look better by pretending.”

The predictable spin by the right on this is going to be that Barack Obama ballooned the federal deficit with runaway spending. What he did was set a precedent to put a stop to deliberate lying. And it's the only way to realistically deal with our problems so that we don't opt for partial measures that only appear to close the gap. If this paves the way for a more progressive tax code and a real reckoning of the real costs of war and corporate giveaways, I'm all for it.

Blog Fights!

Seems to me there's been a spasm of blog fights lately. First "rational progressive" Nate Silver and "Marxist" David Sirota (I think Silver came out of that one looking really bad, BTW, and he desperately needs a special election to talk about or something). Now Jane Hamsher and Ezra Klein.

Jane has been dogged in her efforts to uncover what's going on at this "fiscal responsibility summit" next week, which may be headlined by billionaire hedge fund manager Pete Peterson. Now fortunately, House and Senate leadership have shut down the trojan horse designed to force an up or down vote on "entitlement reform" that could possibly lead to Social Security benefit cuts. But Jane noticed an interview with Peter Orszag that put "modest" benefit cuts back on the table:

Orszag’s long-running project – something that has made him the Left’s favorite Cabinet member – has been replacing talk of an “entitlement crisis” with his argument that Social Security requires only modest tax hikes and benefit cuts, while Medicare and Medicaid have much more dramatic fiscal woes.

“Social Security faces an actuarial deficit over the next 75-100 years. In the past I’ve resisted the term ‘crisis’ to describe that kind of situation,” he said. “This is not quantitatively as important as getting healthcare done.”

In steps Ezra to say that the important part of the sentence is that there is no entitlement crisis, that is, there is no thing called "entitlements" including Social Security, Medicare and Medicaid that all have the same funding problem. In fact, what Orszag has focused on all along at the CBO and elsewhere is that Medicare and Medicaid spending have the ability to destroy the federal budget, and only comprehensive health care reform can stop that. Social Security should not be in that conversation.

And you know what? They're both right! Orszag has been far more focused on health care spending as it relates to the budget, and he's absolutely right that the fiscally responsible thing to do is reform it to bring down costs (which coincidentally, would be done be eliminating the inefficiencies in delivery, namely the insurance industry). But the Diamond-Orszag plan clearly adds benefit cuts to Social Security, and Ezra's attempt to talk past that doesn't deny that reality, either. Orszag may want to end the fearmongering on Social Security by taking "entitlement reform" off the table, but he wants to do that through cutting. And that's not a liberal position. In fact, benefits ought to be increased given the collapse of the private pension system.

Jane goes after Ezra on this one.

Orszag's not running for prom king here so whether he's "one of the good guys" is not really relevant. He has been presenting his plan to cut Social Security benefits as part of the White House's efforts on "fiscal responsibility," according to people who have directly participated in those presentations. I granted anonymity in this instance in accordance with the rules followed by the New York Times, because I trusted where the information was coming from, I thought it was important to get out, and there was a valid reason (not wanting to jeopardize relationships with the administration) for requesting it.

Now Orszag confirms that reporting by doing an interview where he says he thinks Social Security requires benefit cuts. Ezra says my conclusion is "an effort to read the tea leaves to suggest that the Obama administration has a secret plan to cut Social Security benefits." I don't know what the "secret" part is.

He then goes on to tell us that what Orszag really means is that he has no intention to cut Social Security, what he really wants to do is deal with the broad question of Medicare and Medicaid as part of healthcare reform. Fair enough. But Ezra wrote a post this morning quoting anonymous administration officials on the subject wherein he granted them anonymity for no legitimate journalistic reason I can tell, because they did nothing other than give administration spin. Nobody legitimately speaking on behalf of the administration should fear retribution for doing so. Ezra transcribed this exchange with no pushback or critical scrutiny, something Glenn Greenwald has been taking Mark Ambinder to task for. If Ezra's got great sources in the administration, why is he venturing guesses about what Orszag intends? Why doesn't he go and ask them, point blank -- is cutting Social Security benefits off the table? [...]

It may be that in the wake of the horrified response Orszag got from Congressional leaders at the very thought that "fixing" Social Security has been abandoned -- these things seem to be changing by the minute. But if Ezra has valuable sources within the administration willing to speak to him about what the White House intends, there are a lot of people right now who would like to know. He should be using them to find out solid information on that front rather than float anonymous spin and then speculate about the meaning.

There are two things in conflict here - an effort to decouple Social Security with government health care spending to delegitimize the smears about Social Security, and a desire to cut benefits to put it on a path to stability (even though that's not required and an increase in the spending cap would be all that's necessary). Both of these people have enough sources inside the White House that they could get to the bottom of it. So, work the phones.

On "Fiscal Responsibility."

You know, I'm not knee-jerk opposed to fiscal discipline. There's unquestionably a lot of government waste, expenditures that are unnecessary, and programs that remain due to inertia. Many of these are in the defense sector, but that's another story. The problem is that very rich and well-heeled groups have been using the rhetoric of "fiscal responsibility" to wall off their profits and screw everybody else for decades, if not centuries. The term is no longer used in good faith. Which is why the very idea of a fiscal responsibility summit is terrifying, especially with the news that entitlements may be able to be cut with a majority vote:

Speaking Friday to business leaders at the White House, the president defended the surge of spending in the stimulus plan, but he made sure to add: "It's important for us to think in the midterm and long term. And over that midterm and long term, we're going to have to have fiscal discipline. We are not going to be able to perpetually finance the levels of debt that the federal government is currently carrying."

Along those lines, White House budget director Peter R. Orszag has committed to instituting tougher budget-discipline rules -- once the economy turns around. Those include a mandate that any "nonemergency" spending increases be offset by equal spending cuts or tax increases [...]

Obama aides say they aren't looking for quick action, but a start to the conversation. "We're going to bring some things to the table, but we're going to listen to everybody else," said Christina Romer, chairman of the White House Council of Economic Advisers, in an interview Friday. "It's a giant issue, and it's not one we can solve unilaterally."

The president met with 44 fiscally conservative "Blue Dog" Democrats this week and gave a nod to legislation that would set up commissions to deal with long-term deficit strains. The commissions would then present plans to Congress for an up-or-down vote.

"We feel like we've found a partner in the White House," said Rep. Charlie Melancon (D., La.), a Blue Dog co-chairman.

It sure looks like it.

Jane Hamsher is extremely skeptical of this whole thing, especially Peter Orszag, who she notes is the author of "the Diamond-Orszag plan for reforming Social Security, which calls for raising the retirement age and cutting benefits." I actually like Orszag because he's talked repeatedly about how health care spending is what will torpedo the economy, and that only comprehensive reform that brings down costs will save it. That's the good side of "fiscal responsibility." So is demanding that excellent adventures in Iraq or bailouts to banksters are paid for.

But gutting Social Security during an economic crisis is just outrageous. And progressives won't stand for it. Already Obama appears to be breaking promises by agreeing to this up-or-down vote on entitlements. He will hear from the great mass of Americans on this one. With private pensions going down the drain, if anything we need Social Security benefits INCREASED to a level where people can live off them. And we can easily pay for it by lifting the cap (you can even create a doughnut hole between $100,000 and $300,000 to unburden the upper middle-class). Why any self-respecting Democrat would screw with the most successful program in government history is beyond me.

Health Care Conversations

The science is in, to borrow a phrase, on the US healthcare system. It costs more and treats less, and as a result America is less competitive and far less healthy.

"Our health-care system is fraught with waste," says Gary Kaplan, chairman of Seattle's cutting-edge Virginia Mason Medical Center. As much as half of the $2.3 trillion spent today does nothing to improve health, he says.

Not only is American health care inefficient and wasteful, says Kaiser Permanente chief executive George Halvorson, much of it is dangerous.

Those harsh assessments illustrate the enormousness of the challenge that awaits President-elect Barack Obama, who campaigned on the promise to trim the average American family's health-care bill by $2,500 a year. Delivering on that pledge will not be easy, particularly at a time when the economic picture continues to worsen.

That's a paradoxical final statement. Delivering on the pledge should be as simple as removing the inefficiencies in the system, which can be viewed in working models in every other industrialized nation in the world. But that's not how the political ball bounces here in the greatest country since the dawn of man. While it pains me to say that Newt Gingrich is making a bit of sense on this question, he's ignoring the realities of where that useless spending flows.

A high-performance 21st-century health system, they say, must revolve around the central goal of paying for results. That will entail managing chronic illnesses better, adopting electronic medical records, coordinating care, researching what treatments work best, realigning financial incentives to reward success, encouraging prevention strategies and, most daunting but perhaps most important, saying no to expensive, unproven therapies.

"There is more than enough money in the system," said former House speaker Newt Gingrich, who runs the District-based Center for Health Transformation. "We just are not spending it well." [...]

With those sorts of variations, the Dartmouth team concluded that as much as 30 percent of medical spending -- or $700 billion -- does nothing to improve care.

Even if only a third of that could be invested in critical programs, "imagine the possibilities," said Peter Orszag, head of the Congressional Budget Office, who was nominated last week to be director of the Office of Management and Budget in the Obama administration. "Given the scale of it, I am puzzled as to why we are not doing more to improve the efficiency of the health system."

Of course, when Gingrich talks about "not spending money well," he's talking about keeping treatment from those who need it. But what it means in practice is reflected in this horror story, which shows you where that staggering amount of money goes that doesn't improve care - into drug and insurance company coffers:

The study cost $130,000,000 and included 42,000 patients. It compared the effectiveness of four types of blood pressure drugs: a calcium channel blocker, an alpha blocker, an ACE inhibitor, and a simple diuretic. The diuretic performed best. It was the sort of finding worthy of celebration. Health costs are too high, and rising too quick. Our flabby society gets bad readings when it straps on the blood pressure cuff, and soon enough we'll all be on these drugs. And here were study results saying that the diuretic, a generic drug which sells for pennies, outperformed its pricey, patented competitors. So what happened? Not a whole lot [...]

Diuretics sales jumped, but only by a few percentage points. "[They] should have more than doubled," says Curt Furberg, who chaired the study. And in a world where doctors prescribe medications based on a simple reading of the latest evidence, maybe they would have doubled. But we don't live in that world. We live in a world where pharmaceutical companies have big budgets and sophisticated public relations teams. Pfizer, for instance, put up $40 million to ensure that their Cardura, their alpha blocker, was included in the study. That proved a mistake. Patients on Cardura were more than twice as likely to require hospitalization for heart failure [...]

The basic reality was this: The pharmaceutical companies had a skilled team and a lot of money promoting their drugs. No one was promoting the generic diuretics. Folks looking to things like comparative effectiveness review to save the health care system should take the story seriously. Evidence is only effective if physicians use it. And right now, they have no real reason to use it. Even in a system this expensive, there's no internal incentives to aggressively cut costs. Maybe it's time there were. If doctors were paid by capitation -- if they got a fixed amount of money per patient, and they kept whatever they didn't use, as happens in England -- it's hard to imagine they wouldn't have been more interested in these study results.

I believe Peter Orszag, a very sharp economist, and the Obama team are listening to these complaints about efficiency. They've set up discussion forums on the issue and allowed high-level policymakers like Tom Daschle to respond personally. So let's be clear - the best cure-all for the American health care system would be to remove the rapacious greed at the heart of all this wasted money. Drug companies and insurers spend less on care and more on administrative and PR costs because that's where the profit maximizers are. Until profit can either be driven through providing care, or profit is completely removed from the system, there will not be meaningful progress on health care.

Good Picks

With all the focus and attention on Hillary Clinton, some of the other strongly rumored choices for the Obama Administration are getting less scrutiny. One is pretty big: Eric Holder as the next Attorney General.

President-elect Obama has decided to tap Eric Holder as his attorney general, putting the veteran Washington lawyer in place to become the first African-American to head the Justice Department, according to two legal sources close to the presidential transition.

Holder, who served as deputy attorney general during the Clinton administration, still has to undergo a formal “vetting” review by the Obama transition team before the selection is final and is publicly announced, said one of the sources, who asked not to be identified talking about the transition process. But in the discussions over the past few days, Obama offered Holder the job and he accepted, the source said. The announcement is not likely until after Obama announces his choices to lead the Treasury and State departments.

Holder was #2 at Justice under Janet Reno and the DC US Attorney from 1993-1997. He was an early and enthusiastic Obama supporter. He apparently was involved with signing off on the Marc Rich pardon, but that won't hold up the confirmation process. And he's really good on what we care about:

Holder charged the detention facility at Guantanamo Bay was a "moral hazard," which he compared to the original constitutional flaw that permitted slavery to continue, to President Lincoln's decision to suspend habeas corpus during the Civil War and to the decision by President Franklin Roosevelt to create the Japanese internment camps during World War II.

"We have squandered one of our greatest strengths as a nation," Holder said, taking a partisan swipe at the Bush administration.

He insisted it was disgraceful that the Supreme Court "had to order the president to treat detainees in accord with the Geneva Convention."

In the months and years since 9/11, the Bush administration took many steps that were excessive and unlawful," Holder continued. "We authorized torture and we let fear take precedence over the rule of law, as we overreacted to perceived danger."

In addition to closing Gitmo, Holder insisted the next president should:

* Declare without qualification a policy that the United States will not torture political detainees, engage in forced interrogations or submit people to degrading treatment in prison;

* End all programs, covert or otherwise, to transfer detainees to nations that practice torture;

* Stop domestic search and seizures without warrant and end wiretapping of citizens.

"We have lost our way before," Holder told the 350 attendees at the Friday evening session. "Now we must step back into the shining path envisioned by our founding fathers in such icons of liberty as the Declaration of Independence, the Constitution and the Bill of Rights."

I'm OK with that.

And I'm even more OK with the appointment of Peter Orszag as White House Budget Director.

President-elect Barack Obama is preparing to tap Congressional Budget Office Director Peter Orszag, once a veteran economic adviser in the Clinton White House, to become his budget director, according to several National Journal sources. The Office of Management and Budget job -- seen as a key post to help Obama deliver on his domestic policy agenda amidst the gloom of a $700 billion federal financial rescue, a recession and the prospects of a $1 trillion deficit next year -- carries Cabinet rank. An announcement is expected soon, but could come with other personnel decisions Obama is making to lead the Treasury Department and National Economic Council in his White House.

Orszag is young, smart, and has been fantastic on health care policy (he says reform is desperately needed to stave off a budget nightmare) and climate change. He also happens to be the only Budget Director ever to have been a blogger.

These are Clinton Administration officials, but I would hardly call them "Clintonites." The fact is that finding anyone with relevant experience to lead in the new Administration will ultimately have ties to the only Democratic President of the last 28 years. And besides, a lot of people LIKED the Clinton Administration. It had a lot of diligent employees working in it, and not everyone there was somehow tainted by the missed opportunities at the top.

Now, if Obama would give Eliot Spitzer a second chance and a shot running a regulatory agency, I'd be pretty happy about all this....

Today In The Greatest Transfer Of Wealth In World History

Lots of talk about a deal today in Washington, perhaps with bankruptcy relief, perhaps not, perhaps with less money parceled out in stages, perhaps not, perhaps with executive compensation limits, perhaps not. The big White House photo-op is happening as we speak. I do want to direct you to the very sharp Peter Orzsag, who says that, despite the claims of those involved, this plan won't work:

The director of the Congressional Budget Office said yesterday that the proposed Wall Street bailout could actually worsen the current financial crisis.

During testimony before the House Budget Committee, Peter R. Orszag -- Congress's top bookkeeper -- said the bailout could expose the way companies are stowing toxic assets on their books, leading to greater problems.

"Ironically, the intervention could even trigger additional failures of large institutions, because some institutions may be carrying troubled assets on their books at inflated values," Orszag said in his testimony. "Establishing clearer prices might reveal those institutions to be insolvent."

Yes, that's the whole point. This isn't a liquidity crisis, it's an insolvency crisis. While nobody knows what this toxic paper is worth, that's actually keeping the market afloat in a way. Unless the Treasury wildly overpays for the paper, a scenario like Orzsag's could absolutely play out.

Meanwhile, I have to clear up yet another effort by conservatives to muddy this issue and find a scapegoat. Conservatives keep shooting their mouth off about Fannie Mae and Freddie Mac like they somehow created all these bad loans. They are not responsible for this mess, and are being used as a scapegoat and a stand-in for "shiftless black people getting home loans."

But here's the thing: Fannie and Freddie had nothing to do with the explosion of high-risk lending a few years ago, an explosion that dwarfed the S&L fiasco. In fact, Fannie and Freddie, after growing rapidly in the 1990s, largely faded from the scene during the height of the housing bubble.

Partly that's because regulators, responding to accounting scandals at the companies, placed temporary restraints on both Fannie and Freddie that curtailed their lending just as housing prices were really taking off. Also, they didn't do any subprime lending, because they can't: The definition of a subprime loan is precisely a loan that doesn't meet the requirement, imposed by law, that Fannie and Freddie buy only mortgages issued to borrowers who made substantial down payments and carefully documented their income.

Mark Thoma expands on this today. Fannie and Freddie had capitalization problems, but they were dragged down with the rest of the housing market from the bubble bursting. They didn't cause the problem.

But that's besides the point. American taxpayers are going to be on the hook for a bailout (and the foreign lenders aren't coming to the rescue) and they ought to be seriously pissed off about it. I'm pessimistic about the deal we're going to end up getting.

...Just saw Sen. Dodd and Bennett announce an "agreement in principle" on the bailout, but Bennett is not the ranking member, Richard Shelby is. If this gets pushed through without Congressional conservatives we're toast, maybe not now but in the near future.