More than a year after the US financial emergency went critical and threatened the global economy with its worst reverse since the 1930s, the underlying causes have yet to be addressed. When it comes to improving financial regulation, the crux of the matter, there has been a lot of talk – usually about the wrong things – and next to no action.

Last week, a committee of the House of Representatives, which has been co-operating with the Obama administration on this front, released a draft bill. It has some good ideas, such as creating an early resolution regime for non-bank financial institutions. It has some crazy ideas, such as aiming to keep secret a list of institutions subject to special oversight. Above all, it has plenty of material to get Congress riled up – especially the proposals to enlarge the supervisory role of the Federal Reserve.

Nothing matters to Capitol Hill so much as apportioning responsibilities and the power that goes with them. But who makes the rules is less important than what the rules say. Here the bill mostly opts out, granting discretion to regulators left and right. On issues of substance as opposed to form, it is vague to the point of silence.

The remainder of this article can be read here. Please post comments below.

In a new column for National Journal I ask what needs to happen before this problem is taken seriously.

The public debt stands at nearly $8 trillion and within 10 years, according to Congressional Budget Office projections, it will be more than $14 trillion. Getting to that second figure in one piece depends on two things. Some optimistic economic assumptions need to hold, and investors need to be willing to lend the government another $6 trillion. Taking either of these things for granted would be foolish.

Almost everybody in Washington agrees that the fiscal outlook is scary. Almost everybody says that something must be done. But the options for confronting the problem come down to spending cuts or tax increases, and as soon as you mention either, an embarrassed silence descends.

The politicians are not as worried as they say they are. And the same is true of the public. If you believe the polls, voters are more anxious about public borrowing than their politicians are — but not so worried as to welcome a rise in taxes (their own taxes, I mean) or cuts in Social Security or Medicare. They may be nervous about policies that would add to the fiscal problem — hence their hesitation over health care reform — but meaningful subtractions from the problem are a different matter.

Can anything be done? We have been here before. Washington has a time-honored procedure for such cases. Rather than thinking about entitlement reform or tax reform, it thinks about process reform.

And I go on to argue that process reform–despite the risk that it will degenerate into mere displacement activity–is not to be despised. In the past it has been a qualified success. Better that than having to deal with an otherwise unavoidable train wreck. You can read the whole column here.

The idea of a public option in healthcare reform is not dead yet. A lot of Democrats believe you need it to hold down costs. A lot also see it as a first stride towards Medicare-for-all, which is where they want the system to end up. Obama has signalled he is ready to drop the idea, but has given no strong steer one way or the other. The party, especially in the House, is not willing to give up on it just yet.

One of the things keeping the notion afloat is the belief that voters, too, are pretty keen. I’ve blogged before about this (here and here), noting that the polling results are actually all over the place. The answer depends on the way the question is framed. The variation also suggests confusion–which is warranted, given the complexity of these proposals, with or without the option.

The excellent Jay Cost at Real Clear Politics has taken a much more careful look at the question. Framing is everything, he finds, and questions which draw attention to possible consequences of the option elicit less support.

Cost draws attention to some Rasmussen polling. When asked,

“Would you favor or oppose the creation of a government-sponsored non-profit health insurance option that people could choose instead of a private health insurance plan?”

the answer is strong approval. Then comes a follow-up question.

“Suppose that the creation of a government-sponsored non-profit health insurance option encouraged companies to drop private health insurance coverage for their workers. Workers would then be covered by the government option. Would you favor or oppose the creation of a government-sponsored non-profit health insurance option if it encouraged companies to drop private health insurance coverage for their workers?”

A clear majority is now opposed.

So, does this mean that the public is actually against the public option? I’d say no. Instead, I would suggest that the public lacks sufficient information about that specific item to deliver a firm opinion. Accordingly, its opinion varies depending upon question wording, priming effects, the ebbs and flows of the news cycle, and so on.

Sounds right to me.

Further to the previous post, this column by Ross Douthat is on the same page regarding the financial consequences of health reform. He advocates a more limited form of universal access–to coverage with a very high, income-related deductible, or so-called catastrophic insurance. As he says, this has been proposed by Martin Feldstein and Brad DeLong, conservative and liberal respectively, so the idea has cross-party appeal.

There’s certainly a lot to be said for this approach. Feldstein and DeLong differ in important ways (DeLong wants to shut down private health insurance altogether) but they agree that the taxpayer should pay for healthcare expenses above a high threshold, and that the tax deduction for employer-provided insurance (which costs more than $200 billion a year) should be abolished to pay for it. Either of their plans would strengthen the individual incentives to economise up to the threshold. I only wonder if a deductible as high as they envisage (15% of gross income; DeLong favors an income-tax increase of 5 percentage points on top of that) could be made to stick.

Charles Krauthammer and Bill Schneider offer contrasting takes. Krauthammer as always makes some powerful points. His catalogue of Obama’s failures to date is correct, isn’t it? In particular, Russia’s lack of response to the administration’s multi-track overtures has received too little attention.

And what’s come from Obama’s single most dramatic foreign policy stroke — the sudden abrogation of missile defense arrangements with Poland and the Czech Republic that Russia had virulently opposed? For the East Europeans it was a crushing blow, a gratuitous restoration of Russian influence over a region that thought it had regained independence under American protection.

But maybe not gratuitous. Surely we got something in return for selling out our friends. Some brilliant secret trade-off to get strong Russian support for stopping Iran from going nuclear before it’s too late? Just wait and see, said administration officials, who then gleefully played up an oblique statement by President Dmitry Medvedev a week later as vindication of the missile defense betrayal.

The Russian statement was so equivocal that such a claim seemed a ridiculous stretch at the time. Well, Clinton went to Moscow this week to nail down the deal. What did she get?

“Russia Not Budging On Iran Sanctions: Clinton Unable to Sway Counterpart.” Such was The Washington Post headline’s succinct summary of the debacle.

You can make a better case than Krauthammer allows for changing the missile-shield policy, but the fact that Russia hasn’t budged on Iran is indeed a notable failure.

Krauthammer goes much further, of course, and says that calling Obama’s Nobel merely “premature” is absurd. He thinks we can already write off the administration’s whole approach. There he loses me. Such certainty, less than a year in, seems as daft as saying it’s all going great.

Continue reading "More on the Nobel"

I thought last night’s PBS Frontline documentary on Afghanistan was excellent, if depressing. If you didn’t see it you can watch it here. The scene where the US marine starts to lose his temper with the people he is trying to protect makes you wince. Talking through a translator who spoke neither the local dialect nor English all that well–”I’m asking you for the fifth time”–the marine’s posture is impatient throughout and increasingly exasperated. He eventually resorts to an outright threat. The villagers’ not unreasonable response: What do want us to do? You have tanks and planes. If you can’t beat the Taliban, how do you expect us to?

This is counter-insurgency? Impossible to say, of course, how representative an encounter it was, but the situation looked all too plausible. You could not help but think that what we are asking of our forces–with little training and no aptitude for this kind of work–is just impossible.

If that isn’t enough to make you gloomy, this WashPo piece today might do the trick.

An excellent column by Henry Aaron and Isabel Sawhill.

So here is what we propose: Congress should enact a value-added tax, the equivalent of a broad-based sales tax on all goods and services. It should take effect only after unemployment has fallen to a predetermined level or in, say, five years, whichever comes first. Congress should link revenue from the new tax and other sources directly to public health-care spending through a newly created health-care trust fund. The trust fund would pay for all federal health-care spending. This framework would mean that Americans would get the health care they are willing to pay for. If spending outpaces projections, Congress will have to choose between raising taxes and finding ways to slow the growth of spending.

By balancing revenue and health-care spending, such a reform would help solve America’s long-term fiscal problems. In the near term, it would also support and sustain the economic recovery. Consumers would be encouraged to buy now, before the tax takes effect. And by showing financial markets that Congress is determined to put our fiscal household in order, it would help keep interest rates low and encourage investment. The trust fund mechanism would strengthen incentives to institute reforms that will actually bend the health-care cost curve, because measures to slow the growth of health-care spending would avoid unpopular future tax increases that would otherwise be necessary.

This is a good idea.

Last year, by the way, I praised a book by Zeke Emanuel which makes the same points while laying out a basic blueprint for healthcare reform. Healthcare, Guaranteed is still the best thing I’ve read on the conjoined issues of tax reform and healthcare reform. The policy in the works is not going to be like this, needless to say, but the country might get there in the end. For the reasons Aaron and Sawhill say, it had better. Unfortunately Emanuel has been silent on the subject since going on to the White House payroll (where he has faced a lot of brainless criticism on the “death panels” issue). I think he would be more valuable educating the public than advising the president.

My new column for National Journal looks at the Senate’s climate-change bill [the link to the article expires in two weeks].

Carol Browner, the top White House adviser on energy and the environment, recently told a conference hosted by our sister magazine The Atlantic that the president was unlikely to sign a climate-change law before the next big international meeting on the subject, in Copenhagen in December. “That’s not going to happen,” she said. The American negotiators should have a bill to work from — quite likely more than one — but no new law. This will be an embarrassment. It will hamper the Obama administration’s efforts to claim global leadership on the issue.

But for those who seek effective curbs on carbon emissions, the news is not all bad. It matters more to get the right kind of agreement — one around which global cooperation on carbon abatement can work — than it does to meet the December deadline. And it may be that the United States is inching, after all, toward the kind of measure that could serve this purpose.

Later I refer to a paper for Brookings by Adele Morris, Warwick McKibbin and Peter Wilcoxen. This advocates a “carbon price collar”–a very good idea that Kerry-Boxer has now taken up. If you follow this issue, the paper by Morris et al is essential reading. You can find it here.