| Wednesday,
May 25, 2011 The unanticipated loss of what was thought to be
a safe Republican House seat in upstate New York has thrilled Democrats
across the country, and caused a considerable stir among Republican
strategists. The election was complicated: there was a "Tea Party" candidate
who got 8% of the vote, enough to have changed the election result had they
gone to the Republican. Oddly enough, the "Tea Party" candidate had formerly
run for the seat as a Democrat. Democrats spent a lot of money in the
campaign. So far as I can tell the principal issue in the campaign was
Medicare, with the Democrat running adds showing the Republicans pushing
Grandma off a cliff.
I didn't follow that election, and there isn't enough known --
certainly not by me, but I suspect not by anyone -- about the distribution
of the votes, turnout by precincts, and the rest of it to allow any real
analysis of why the Republicans lost what was thought to be a safe seat in
what is thought to be a Republican year. I'll wait for more data.
One thing we can do is look at the Medicare issue. It's going to come
up again and again.
One of the long term trends in modern America is the increasing Federal
transfer of funds from the younger generation to the older. At one time
that was primarily through pensions -- younger workers are taxed to make
payments to older retired -- but lately health care has become more
prominent. Another long term trend is the cost of health care, which has
risen steadily as a percentage of national income to exceed 1/6 and is
approaching 1/4. Since most health care expenditures go to older patients,
this dramatically increases the transfer of income from younger to older.
Note that it is also a transfer from productive to non-productive, and
since the taxes do not fall so heavily on the less productive, the burden
concentrates on the middle class -- middle in both age and income. This is
more or less inevitable.
The Medicare program works quite well. Most of those involved in
Medicare are happy to have it and unwilling to vote for any reduction. The
election in the New York 26th seems to have been largely a referendum on
Medicare, and the Democratic advertisements seem to have largely presented
the message that the Republican health care plan would end Medicare.
This is why a precinct by precinct analysis of the vote is important:
if that vote shows that people in retirement homes, and in precincts with
aging populations, had a dramatic change from Republican to Democrat in
this election, it is likely that the Medicare question was the deciding
factor: in which case we ought to conclude that the Republicans are not
getting their message across.
The Ryan Medicare plan does in fact abolish Medicare as we know it --
but it does not affect anyone 55 years of age or older. Those already on
Medicare and those over 54 years old headed for it will get what we
already have. The Ryan plan does not change anything; what it does is to
try to save enough money in health care costs to allow those entitled to
Medicare to get it. In the present situation and in this economy they
won't get it because the money isn't there.
Medicare is going broke. We can't afford it any longer. To keep it
going we'd have to raise taxes just for that purpose.
This isn't really news. It has been discussed since before the election
of Barrack Obama, and not all the discussions were bereft of facts. See,
for example, Robert Samuelson, Newsweek (Newspeak?) journalist in
September 2008:
http://www.newsweek.com/2008/09/05/
getting-real-about-health-care.html
It has long been known that we can't afford Medicare as
presently structured. The only argument is over when it will collapse, and
as health care costs go up and up the day when Medicare is out of funds
comes closer and closer.
The question is, what does Obamacare do to save Medicare? If
voters are rejecting the Republican plan as expressed in Ryan's bill because
it abolishes Medicare for all those under 55 years of age, what do they
expect they will get in return? What does the Obama health care plan
deliver?
The 26th was designed to be a Republican district. The
main lesson I get from the 26th NY District election is that the issue was
Medicare and the Republicans didn't make their case; and they had better
learn how, because a good part of the Republican base consists of elderly
middle class voters, and if they are voting Democrat out of fear of losing
Medicare, Republican strategists had better develop an answer to this fast.
===============
"The Myth of Killer Mercury" by Willie Soon and Paul
Driessen (link)
in today's Wall Street Journal makes a number of critical points, and is
worth your time. It also should come to the attention of the House committee
that authorizes EPA budgets. The EPA apparently pays more attention to
ideology than science, to the advantage of China and the detriment of the
United States. Soon and Driessen present data that I have no way of
checking, but presuming its accuracy are quite enlightening: US power plants
emit perhaps 50 tons of mercury per year. Contrast that to 44 tons from
forest fires; 26 tons from human cremations; 400 tons from Chinese power
plant -- and 9,000 tons annually from vulcanism. Mother Nature accounts for
99%, and if we got rid of all the rest the result would hardly be noticed.
If the economy were booming, with plentiful energy, it would make sense to
debate the cost/effectiveness of phasing in even more efficient stack
scrubbers for power plants. Until that time, this new regulation makes no
sense.
Dr.
Cochran disagrees. See mail.
==========
If you are curious about the effects of the Bond Market in
these odd financial times, see "Know Thy Bond Vigilante" by Holman Jenkins
in today's Wall Street Journal (link).
What's really illustrated here is the problem of
collective action. Unable to act coherently, politicians are buying time
by doing whatever is politically possible to avoid default, while avoiding
any politically unpopular action to change the underlying conditions
producing the debt crisis.
This extends even to presidential outlier Newt
Gingrich, whose eagerness to distance himself from any GOP effort to
disturb the Medicare status quo has been so evident lately. Or take Mr.
Obama. He's made it clear he will not countenance major reforms to
entitlements but will use any "crisis" to extract more taxes from "the
rich." He's betting implicitly on a calculation by economist Henning Bohn
showing that, in future elections, the median-age voter will support
higher taxes as the lesser evil if she believes it means preserving the
value of her Social Security and Medicare benefits.
This approach has already failed in Europe. The
thing to notice is that Europe's bond markets aren't appeased by the
politicians' apparent devotion to creditor interests—because bond
investors realize politicians can't keep it up. They realize that default
only becomes more inevitable as countries are pushed into depression in
order to meet current commitments.
Will the U.S. get to this point? Mr.
Obama may be right—the U.S. economy will support a rise in the federal share
of GDP to 25% or 30% from today's 20%, while avoiding inflation and rescuing
America's credit standing in the process. But it would be a very different
America—a more heavily taxed America to meet the demands of the elderly. A
slower-growing, less dynamic America, unable to afford a role as the world's
military arbiter. All that might be fine with the bond vigilantes as long as
bonds hold their value. Stock vigilantes are a different story.
It will be a different America.
============
The President thought a toast to the Queen would be a good
opportunity to make a speech without a teleprompter. He's always nervous
without his teleprompter, and one presumes that being at a British State
Dinner is not without stress. Americans have never been comfortable with
court etiquette. It's not something we study. Mr. Obama is not always the
embodiment of what I would call dignitas, but he is the President of the
United States.
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