Saturday, March 25, 2017

Health Care Reform Collapses

It was one of the most central arguments made by Republicans for seven years. They said over and over again that Obamacare needed to be repealed and replaced. It was a winning issue with the American people, who gave the GOP victories in the two recent midterm elections before finally handing them the presidency in 2016. The moment to reform health care finally arrived.

Unfortunately, the best moment has been wasted. A proposal was put forward, but it sunk after being revealed in a few weeks. It sort of makes me feel that all those years of winning elections was useless.

In my opinion, no one bares more blame than members of the House Freedom Caucus. Contrary to their arguments, this was a market plan that would that had many improvements from the Affordable Care Act. However, this grand health care plan was destroyed by eighteen members of the House of Representatives because they claimed it was too liberal, while 199 (six Republicans and 193 Democrats) opposed it for being too conservative. The consequences are massive. Any new Republican proposal would require support from Democrats because moving further to the right would lead to a lack of support among GOP moderates (the so-called Tuesday Group).

I don't think this is the end for reform, but a new bill in 2018 is likely to have less meaningful changes. It is now even more likely that Obamacare will stay in place. President Obama is smiling because his policy is maintained and any concessions made by Nancy Pelosi would be embarrassing to them. They want to prove that the Affordable Care Act is working and that means ensuring that there are no chances. As you'd expect, Democrats were ecstatic with the results.

The biggest loser of the American Health Care Act's failure is the American people. Some Republicans, including CNN contributor Jeffrey Lord, just want Obamacare to crash. I think this is a mistake because more people will get hurt from the existing law and they can blame the GOP for doing nothing. A 2013 report from eHealth, Inc found that Obamacare regulations like the essential health benefits requirement raises premiums by 47 percent for individual insurance plans. A study from the Brookings Institution in the fall of 2014 covered a state by state impact. It concluded that the Affordable Care Act has only been more costly. The whole point of handing them the keys to Congress and the White House was because they supported change.

As for the Republicans in Congress, they have decided to move on to other issues like tax reform and immigration policy. There's no real reason to waste extra political capital on health care if it is just going to stall things. I'm worried that some Republicans might continue trying to stay pure, rather than go with the advise of Reagan (example: "A flat tax or we're voting no.") which could really endanger the GOP in the 2018 midterms and 2020.

Monday, March 6, 2017

How to Destroy a Political Party (Jeremy Corbyn Edition)

Jeremy Corbyn speaking after the Copeland defeat - Getty Images
When David Cameron resigned as prime minister following the British membership referendum in the European Union, he was replaced by a very capable leader in Theresa May. The new Conservative prime minister has proven become very popular as she pushes through with the Brexit agenda. She also enjoys a strong economy, thanks to the policies of the Conservative government since 2010 and is a skilled debater.

As a testament to her popularity, the Conservatives scored a shocking by-election win in Copeland. New MP Trudy Harrison has defied the odds. She won a constituency that was controlled by the Labour Party since the 1930s. This only proves how popular May is in the eyes of the public. In fact, if she were to call for a general election this year (the next is suppose to occur in 2020) the Conservatives would win by landslide over Labour. A projection shows May's party with a majority of over 100 seats!

Not all of this, of course, can be attributed to the prime minister. Following Labour's 2015 general election defeat, their party went further to the left by making Jeremy Corbyn their leader..They took the Bernie Sanders route and it has been a complete disaster. In fact, it sort of reminds of me of the general election in 1983, when Margaret Thatcher decimated the older Labour leader Michael Foot.

Corbyn, who has no problem praising Karl Marx, is miles away from the British mainstream. His power base comes from older socialist who want to return to the glory days of Britain before 1979 and young people (much like Sanders here), but I honestly wonder at times if his supporters realize how out-of-touch they are. During the leadership election, a poll from YouGov revealed the following:

It's about as far to the left as you can get in British politics. Though a lot can change until the next general election, it is obvious that the Labour Party is in a crisis. Rather than move to the center, as was successful with Tony Blair in 1997 (and British lefties can complain all the way, but he did win three elections), they're basically looking to become irrelevant to the national conversation.

Some in the Labour Party have started to realize the problem. Watch this video by Owen Jones, columnist for The Guardian:

Jones is correct to recognize that Labour is in a pickle, but he made a misdiagnosis. The British people don't want a move to the left, as can be obversed by the YouGov poll. That's a drag on them. Voters aren't interested in socialism anymore, they're interested in pro-growth free market policies and they are concerned with the refugee crisis. Labour doesn't seem to be listening.

Labour MP Rebecca Long-Bailey is worried that there might not be any safe constituencies anymore for her party. The Conservative win in Copeland only proves that. There won't be any safe Labour seats in the age of Corbyn.

Wednesday, March 1, 2017

Europe's Woes

While the American economy hasn't grown adequately for the last eight years, the Europeans are suffering even worse. Plagued with terrible growth and logistical challenge of supporting refugees from the Middle East, European nations need to make the necessary reforms to guarantee their safety. If that means leaving the European Union and the Eurozone, then so be it.

Not only are the British doing the right thing, but they also have the benefits of a flexible economy.  Advantages put into place during Margaret Thatcher's tenure will assist the United Kingdom if the Brexit road gets bumpy. Her deregulation of the City of London's financial sector and opening up the stock exchange to international firms have built an infrastructure that many bankers and investors will find difficult to leave. Most of the rest of Europe doesn't have the kind of market economy that the Brits have.

There have been periods in which some countries did follow the best route to enhance their economies. Despite all fawning that Bernie Sanders did during the campaign trail, Scandinavian countries like Sweden only propelled growth when they engaged in reforms that were market-oriented.

Economists Stefan Folster and Johan Kreicbergs explained Sweden's boom years in a 2014 paper published by the Reform Institute. During the 1980s, the country suffered from a weak economy while the British and the Americans enjoyed boom eras. During the late seventies and the eighties, GDP growth was only at 1.6 percent compared to substantially higher growth in other nations.

The reforms of the 1990s gave Sweden their boom. A supply-side strategy was implemented in 1990 and 1991. Before the tax cut, the top marginal income tax rate was 80 percent, but it would be reduced to 30 percent after the reforms were implemented. The size of the state was greatly reduced with the slashing of public spending.

Labor reforms ensured that workers wouldn't go on strike and demand skyrocketing higher nominal wages. Businesses suffered from these high demands, leading to little growth in the economy. A simplified mediation system for employers and employees has lowered the growth in nominal wages, but increased it in the growth real wages.

Lastly, deregulation played a massive role. This led to the collapse of many natural monopolies and the spurring of competition. The result has been higher GDP growth, higher labor productivity growth, higher private sector employment, a smaller tax burden, and a lower national debt. Sweden isn't as free as the United States and the United Kingdom, but it is not as socialist as people think.

Unfortunately, few European nations provide a free economic environment. Greece is an obvious choice, but Italy is posing major problems. The Italians are facing a multitude of problems. As resident fellow David Lachman of the American Enterprise Institute points out, the economy has stagnated and has a public debt of $2.5 trillion. Its economy is larger than Greece's which means a crisis coming out of Italy could be catastrophic. The populist Five Star Movement could pounce on a default and eliminate membership in the Eurozone and the European Union.

In France, I believe the ideal reform candidate is Francois Fillon, but it's increasingly difficult for the former prime minister to enter the second round. One of the problems I'm also finding with him is that he's pro-Russia, which could weaken western opposition to Vladimir Putin.

Fillon's main rival, the centrist candidate Emmanuel Macron, is set to enter it against Marine Le Pen. Macron, who is popular among younger voters with college degrees, is simply more of the same for France. While Macron opposes Russia, I don't think he can solve France's financial problems. He could do policies that provide small incentives for businesses,  but there isn't much to expect in terms of market reforms. He campaigns as an outsider because he formed a new political party, but he was an economic minister in Francois Hollande's administration for years.

Le Pen is someone who can genuinely shake up the establishment in her country and I don't have a problem with her departing from the failing European Union. I do have a problem with her wanting to leave NATO, which threatens global security in the west. Like Fillon, she also strengthens Russia.

In Brussels, Secretary of Defense James Mattis rightfully advised all members of NATO to raise military spending. Currently, only five of the twenty-eight meet the 2 percent of GDP requirement. It is worth asking many of these nations whether they care about defending the west anymore or would just prefer to spend more on their bloated welfare states.

The time to choose is now. Europe can change and regain lost strength or continue to plunge into the abyss of bad economics and bad international security.