Kevin Drum - July 2010

Donald Berwick (Temporarily) Appointed CMS Head

| Wed Jul. 7, 2010 9:23 AM PDT

Yesterday Barack Obama decided that the Center for Medicaid and Medicare Services really couldn't go leaderless any longer, so instead of waiting fruitlessly for Senate Republicans while they obstructed his nominee for another few months he made a recess appointment. Donald Berwick is now the head of CMS.

And what do I think of Berwick? Who cares? I mean, what do I know about the guy? He seems to be a serious, well-respected wonk who's an expert on healthcare delivery and eminently qualified to run CMS, and I don't think the Senate should be wasting its time confirming positions like this anyway. It should just be a straight presidential appointment. But via Ezra Klein, Berwick wins my heart forever by making this #2 on his list of proposed hospital reforms:

Patients would determine what food they eat and what clothes they wear in hospitals

The rest of his reforms are pretty good too — though I guess I'm not sure how practical #5 is. In any case, sign me up as a Berwick fan!

And on a less lighthearted note, I repeat that he appears to be a serious, well-respected wonk who's an expert on healthcare delivery and eminently qualified to run CMS. It's way past time to put an end to the farcical regime of Senate confirmation that prevents the president from appointing a guy like this. Ezra:

If Berwick cannot find a smooth confirmation, then no industry leaders who are nominated in a time of political polarization can. And that'll mean, in the long run, that the best people will hang up the phone when they get that call from the White House, as they don't want to see their past quotes pulled out of context and picked apart, and they don't want to spend a year in limbo only to settle for a recess appointment, and they won't be under any illusions that respect from both sides of the aisle and an unimpeachable record will be armor enough.

Roger that.

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Quote of the Day: Arizona's Legislature

| Wed Jul. 7, 2010 8:56 AM PDT

From Ken Silverstein, describing a state that was effectively taken over by the Tea Party years ago:

The general unsightliness of the capitol makes it a fitting home for today's Arizona legislature, which is composed almost entirely of dimwits, racists, and cranks.

C'mon Ken, don't hold back. Tell us what you really think.

The Problem with GPOs

| Tue Jul. 6, 2010 10:32 PM PDT

Controlling healthcare costs is hardly a new concern. In the 90s the hot topic was HMOs. In 80s it was capitation and vertical integration. And in the 70s it was GPOs, or group purchasing organizations. In the current issue of the Washington Monthly, Mariah Blake explains:

The underlying idea was simple: because suppliers generally give price breaks to customers who buy large quantities, hospitals could get better deals on, say, gauze or gloves, if a group of them came together and bargained for ten cases, rather than each hospital buying a case on its own.

A good idea! But then things changed: hospital collectives started spinning off GPOs as standalone for-profit subsidiaries that other hospitals could join by paying dues. By the end of the 70s, virtually every hospital in America belonged to a GPO — which might still have been a positive development if it weren't for one further thing:

In 1986 Congress passed a bill exempting GPOs from the anti-kickback provisions embedded in Medicare law. This meant that instead of collecting membership dues, GPOs could collect “fees” — in other industries they might be called kickbacks or bribes — from suppliers in the form of a share of sales revenue. (For example, in exchange for signing a contract with a given gauze maker, a GPO might get a percentage of whatever the company made selling gauze to members.) The idea was to help struggling hospitals by shifting the burden of funding GPOs’ operations to vendors. To prevent abuse, “fees” of more than 3 percent of sales were supposed to be reported to member hospitals and (upon request) the secretary of health and human services.

But, as with many well-intended laws, the shift had some ground-shaking unintended consequences. Most importantly, it turned the incentives for GPOs upside down. Instead of being tied to the dues paid by members, GPOs’ revenues were now tied to the profits of the suppliers they were supposed to be pressing for lower prices. This created an incentive to cater to the sellers rather than to the buyers....This situation only grew thornier in 1996, when the Justice Department and the Federal Trade Commission overhauled antitrust rules and granted the organizations protection from antitrust actions, except under “extraordinary circumstances.” Once again, the idea was to help struggling hospitals, this time by allowing the buying groups to grow big enough to negotiate the best deals for their members. But the decision led to a frenzy of consolidation. Within a few years, five GPOs controlled purchasing for 90 percent of the nation’s hospitals, which only amplified the clout of big suppliers.

The net result, Mariah reports, is that today GPOs sign exclusive sweetheart deals with huge suppliers, and these deals prevent smaller, more innovative companies from breaking into the healthcare market. The exemption from the anti-kickback law was passed with the best of intentions — but then, that's what the road to hell is paved with, isn't it?

Via email, Mariah adds: "Interestingly, despite all the focus on health care costs in the run up to health care reform, GPOs never entered the conversation." But they probably should. The whole piece is worth a read.

How To Pass a Temporary Stimulus

| Tue Jul. 6, 2010 2:04 PM PDT

Matt Yglesias on the problem of credibly committing to a "temporary" stimulus:

If we paid tons of people to dig ditches and then fill them in, I think it would be easy to convince people that we intended to stop doing that once unemployment fell. But conservatives recognize that, in general, liberals think the government should be spending more money on infrastructure projects and public services. So if we get to pass some spending increases at a time when the case for temporary stimulus is strong, who believes we’ll really give the spending up? And the same thing applies to conservatives and tax cuts.

Actually, I think there's an easy solution to this quite aside from automatic stabilizers like extended unemployment insurance, which will automatically come down as the recession eases. And that solution is: a temporary payroll tax holiday paid out of the general fund. At this point, if we're going to pass a second stimulus I think it needs to be something that takes effect quickly, and a payroll tax holiday is about the fastest possible stimulus you could ask for. What's more, it's pretty effective, since the benefits primarily go to middle and working class families, who are more likely to spend it than rich families. And making it credibly temporary isn't hard either. Just set it on autopilot with a gradual phaseout: maybe a full holiday for two quarters, followed by a 75% holiday, a 50% holiday, and finally a 25% holiday. Or something like that. That would be easy to stick to and would avoid the problem of withdrawing all the stimulus at once just as the economy was starting to seriously pick up steam.

Would Republicans agree to this? Probably not. But some of them might, and public opinion would probably be pretty favorable even among the tea partiers, who prefer tax cuts to deficit reduction by a margin of 49%-42%.

Even if you think federal spending is the first best solution to stimulate the economy, a payroll tax holiday is a pretty good second best solution. It's faster, easier, and more likely to get some Republican support. Liberals could do worse than to start putting their weight behind something like this.

How Dangerous is al-Qaeda in Afghanistan?

| Tue Jul. 6, 2010 12:37 PM PDT

Via Glenn Greenwald, here is Newsweek's Michael Isikoff interviewing Michael Leiter, director of the National Counterterrorism Center, about the current threat from al-Qaeda in the AfPak region:

Isikoff: Let’s get a sense of what the overall threat picture looks like right now. [White House chief of staff] Rahm Emanuel said [recently] that about half of Al Qaeda has been eliminated in the last 18 months. How many people is that, and how many people are left in the other half?

Leiter: I think [CIA director] Leon Panetta said on Sunday, and I agree with him, that in Afghanistan, you have a certain number, a relatively small number, 50 to 100. I think we have in Pakistan a larger number.

How many?

Upwards — more than 300, I would say.

When I wrote about Panetta's estimate a week ago, I cautioned that he had only talked about Afghanistan, not Pakistan. But now Leiter has given us an estimate for Pakistan, and it looks like there's no more than 400-500 al-Qaeda members in the entire AfPak region. This is, obviously, not the only consideration for assessing the continued U.S. presence in Afghanistan, but it's sure a mighty big one. (And the others don't necessarily point in the direction of staying either. See Matt Yglesias here, for example.)

At this point there's not a lot left to say about this that hasn't been said a hundred times before, but just to restate the obvious, it's getting harder every day to justify the continued loss of life and continued multi-billion dollar expense of a full-out counterinsurgency campaign there if it's truly aimed at no more than a few hundred extremists living in caves. Maybe Joe Biden had this one right.

World Cup Thread

| Tue Jul. 6, 2010 11:14 AM PDT

I'll be rooting for the Netherlands for the rest of the World Cup. Why? Because I like tulips and windmills and the kid with his finger in the dike. Because I think it's remarkable that such a small country has such a successful soccer history, and I think it's about time for them to finally get their hands on the top trophy. Because they have such a good healthcare system. Because — at least in my experience — they seem to combine friendliness with a surprisingly robust sense of rationality. Because Switzerland and Denmark didn't make it out of group play. Because I've liked the Netherlands since the first time I visited.

So in honor of the Netherlands, here's a snapshot taken during that first visit in 1967. This is Madurodam, a miniature city in The Hague that my brother and sister and I were all pretty captivated by at the time. Beat that, Legoland. Judging from their website, Madurodam has been considerably spruced up since our visit, and I suppose that means I should take a trip over to Europe one of these days and check it out. In the meantime, though, I'll settle for rooting for their soccer team.

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The Future of Oil

| Tue Jul. 6, 2010 10:11 AM PDT

Mike Konczal notes the startling news that U.S. investment in resource extraction (primarily oil and gas exploration) has now overtaken investment in manufacturing. But I think he goes astray here:

In 2001 we decided to lift a lot of rules and a massive amount of resource extraction went into place in a very short time span. This was done with the privatization of regulation (deregulation). We thought that the capital markets would be enough to oversee this massive change in our resources and handle the risk appropriately, and we did it in a really short amount of time. Instead of an eternal problem facing human society, it’s about a small group getting power in the White House and shredding the laws, oversight and process concerning how our environment and private companies interact, no doubt making themselves rich in the process. Less Icarus, more Cheney. What does this hold for the future? Notice that the regulators were put into crony sleep mode exactly at the moment where they were most needed.

Obviously some of that happened. But the primary shape of this story is pretty obvious. When oil prices skyrocketed following the OPEC embargoes of the 70s, investment in oil exploration went up. When oil prices crashed in the 80s, investment went down. When they skyrocketed again in the aughts, investment went up. Bush/Cheney policies obviously helped, but this is mostly a pretty simple market reaction to high prices.

And the future? I'd count on that blue line continuing to rise. It will certainly have rattles and bumps along the way, but the era of cheap oil is over, and permanently high prices make even expensive investment in hard-to-extract oil worthwhile. The final fate of American manufacturing is still unclear, but I doubt that it will ever match resource extraction again.

David Brooks on Fiscal Stimulus

| Tue Jul. 6, 2010 9:13 AM PDT

David Brooks has one of his patented "arguing with myself" columns in the Times today, and this one is about whether fiscal stimulus is a good idea. Here's where he ends:

These days, debt-fueled government spending doesn’t increase confidence. It destroys it. Only 6 percent of Americans believe the last stimulus created jobs, according to a New York Times/CBS News survey. Consumers are recovering from a debt-fueled bubble and have a moral aversion to more debt.

You can’t read models, but you do talk to entrepreneurs in Racine and Yakima. Higher deficits will make them more insecure and more risk-averse, not less. They’re afraid of a fiscal crisis. They’re afraid of future tax increases. They don’t believe government-stimulated growth is real and lasting. Maybe they are wrong to feel this way, but they do. And they are the ones who invest and hire, not the theorists.

The Demand Siders are brilliant, but they write as if changing fiscal policy were as easy as adjusting the knob on your stove. In fact, it’s very hard to get money out the door and impossible to do it quickly. It’s hard to find worthwhile programs to pour money into. Once programs exist, it’s nearly impossible to kill them. Spending now creates debt forever and ever.

....But the overall message is: Don’t be arrogant. This year, don’t engage in reckless new borrowing or reckless new cutting. Focus on the fundamentals. Cut programs that don’t enhance productivity. Spend more on those that do.

Two things occur to me. The first is that a columnist like Brooks doesn't have to pander to public opinion. He should leave that to politicians. If he thinks more debt is dangerous, he should say so and explain why. If he doesn't, he should say that. What he shouldn't do is throw up his hands and say that since the public feels X, then we must do X. After all, part of the reason the public feels X is because people like David Brooks keep telling them that.

Beyond that, though, I guess my question is what he thinks the downsides are here. That is, what's the downside of more stimulus vs. less stimulus? The downside of less stimulus, I think, is obvious: if the Krugmanites are right, it will mean years and years of grinding unemployment and slow growth. It means pain and destitution for millions.

But what's the downside of more stimulus? No one can say, really. The best answer is that it might lead to future interest rate hikes or future inflation or future tax increases. But there's very little evidence to support this, and Brad DeLong, among others, makes an excellent case that even a trillion dollar stimulus would have only a tiny effect on the federal government's future solvency. So even if a big stimulus has little positive effect — which seems unlikely given current circumstances — it doesn't create much danger either. So why not try it? The fiscal purists sure don't seem to have much in the way of better ideas.

On Opposing Torture

| Tue Jul. 6, 2010 8:47 AM PDT

Jay Nordlinger is outraged:

I’ve discussed North Korea and torture. But bear in mind that the Chinese Communists are no slouch in this department. We wouldn’t want to leave them out, would we? Especially when they’re torturing Americans. Here is an article from the Associated Press: “An American geologist held and tortured by China’s state security agents was sentenced to eight years in prison Monday for gathering data on the Chinese oil industry.”

[A bit of outrage over an Obama official criticizing Arizona's immigration law during talks with the Chinese.]

There is a sickness in our society, ladies and gentlemen — a sickness of what, back in Cold War days, we called “moral equivalence.” Let’s debate that.

I'll leave to another day the burning question of whether assistant secretary of state Michael Posner should have discussed Arizona's law with the Chinese. But did Nordlinger seriously write about Chinese torture and "moral equivalence" without mentioning the fact that it was official U.S. policy to do exactly the same thing during the Bush era? According to the AP report he links to, the Chinese torture consisted of "stubbing lit cigarettes into his arms in the early days of his detention." Glenn Greenwald remarks sarcastically:

A few cigarette stubs into a forearm for a handful of days? That's it? That's "torture"? Not according to the official definition of that term adopted by the U.S. Government, as explained by John Yoo....Placing a lit cigarette on someone's arm is unquestionably painful, but clearly does not rise to the level of pain "accompanying serious physical injury, such as organ failure, impairment of bodily function, or even death."

Here's some moral equivalence for you: how about if we oppose torture everywhere, no matter who does it? That would be the mark of a healthy society.

Why Are Businesses Hoarding Cash?

| Mon Jul. 5, 2010 8:47 PM PDT

Fareed Zakaria, after noting that America's 500 biggest nonfinancial companies are sitting on $1.8 trillion of cash, wonders why they aren't spending it on new plants or expansion into new product lines:

I put this question to a series of business leaders, all of whom were expansive on the topic yet did not want to be quoted by name, for fear of offending people in Washington.

Economic uncertainty was the primary cause of their caution. "We've just been through a tsunami and that produces caution," one told me. But in addition to economics, they kept talking about politics, about the uncertainty surrounding regulations and taxes. Some have even begun to speak out publicly. Jeffrey Immelt, chief executive of General Electric, complained Friday that government was not in sync with entrepreneurs. The Business Roundtable, which had supported the Obama administration, has begun to complain about the myriad laws and regulations being cooked up in Washington.

I really have to call BS on this. Fortune 500 CEOs probably do have some genuine uncertainty about the tax and regulatory environment going forward, but big companies work with that kind of uncertainty all the time. It doesn't stop them in their tracks. What's more, most of the current uncertainty revolves around financial regs — which aren't a big deal to nonfinancial companies — and healthcare regs, which aren't a big deal to most non-healthcare companies. In other words, this stuff just doesn't have an enormous effect on the vast majority of the companies we're talking about here.

So what is keeping them from spending their cash? Why aren't they expanding? Could this question possibly be any simpler? They aren't expanding because the economy is weak and they don't see consumer demand picking up any time soon. They'll start spending as soon as they believe that's going to change. It's too bad that CEOs, even Democratic-leaning ones, tend to be so ideologically invested in regulatory issues, because they ought to be the biggest boosters out there of action to stimulate the economy. Enlightened self-interest, if nothing else, should have them marching on Congress demanding action.