~ Archive for Commentary ~

The Medical Loss Ratio Debate

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I greatly admire Wendell Potter for his guts in coming forward, and for his contribution to returning the health care debate to some level of sanity.

I do have a quibble about his statement on MSNBC to the effect that it can be hard to get good numbers on medical loss ratios and the ability of insurers to fudge the numbers with accounting tricks. They may certainly try to do that, but if Congress enacts proper standards, it should be possible for even the most naive regulator to find the correct number.

I was able to get a back-of-the-envelope number simply by using publicly available Census Bureau tables. Although the data available to me was out of date — from 2006 — I was able to confirm the general belief that MLR averages 80% or less.

In 2006, according to the Census Bureau, total personal income was a little under eleven trillion dollars. After taxes, they had $9.63 trillion to spend. During the same year, total national expenditures on health care were 2.11 trillion dollars — an amazing 22% of net personal income.

Now, although $2.11 trillion was spent on health care, only $1.97 trillion was spent on actual health care goods and services. The difference, about 140 billion dollars, is presumably the “net cost” incurred by non-health care providers (i.e., insurance companies, HMOs and similar gatekeepers). That figure includes any income not directly spent for health care, such as advertising, marketing, sales commissions, premium taxes, additions to reserves, and profit.

In 2006, $723.4 billion was spent on health insurance premiums. Deducting the $140 billion leaves $583.4 billion spent on health care providers, which works out to a loss ratio of 80.6 percent. Since the providers spent some of that money on their own advertising and marketing, and their profits, the actual amount spent on direct health care is probably quite a bit less. If the providers spent 90% of their income on health care, that would result in a real MLR of 72.5%.

I was a math major in college, but I’m a lawyer, not a statistician. The lesson is that if I could derive these numbers in half an hour using public information, regulators getting detailed figures from each company could easily do a more accurate job. The key is not to add, but to subtract!

Three Financial Myths That Need to Be Changed, Now

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No, it wasn’t 9/11 that changed everything: it was Lehman Brothers.  With that firm’s failure, the plug was pulled from the warm bath that we imagined ourselves to be living in.  Now we’re seeing industries fail faster than Congress can stuff money into them, and our major creditor, China, is warning us about piling up too much debt and threatening to take away our car keys.

We are saving too little and piling up too much debt.  And the rationales voiced by the politicians for their bailout plans are starting to wear thin.  We need to free ourselves of myths that have sustained too much national economic policy.

1. Consumer spending will lift us out of trouble.  Actually, consumer spending is getting us into worse trouble.  It may turn out that Detroit’s problems began before the First World War when Henry Ford raised his employees’ wages generously, correctly calculating that this would not only buy loyalty but also turn them into consumers able to buy their own company’s products.  The trouble is that when you encourage consumer spending, you are diminishing the real value of wage increases.  If we mindlessly pump money into the consumer sector, it may generate business but soon will lead to demands for more wage increases from the same employers who are about to go under now.

2. Consumer and mortgage debt is good.  The subprime loan phenomenon is only a small part of the mortgage balloon that has expanded beyond recognition since 1935.  Federal policy shifted the standard mortgage from 15 or 20 years to 30 years, reducing the monthly payment and enabling house prices to rise.  Federal support of homeownership grew dramatically as a way to boost housing construction for returning veterans of World War II.  Mortgage industry demands led Congress to authorize variable rate mortgages and other exotic products in the 1980s, leading directly to no-money-down financing and “no-documentation” loans in the 1990s.  But when all these policy decisions cause home prices to rise, the amount of house you can afford stays the same — it’s just that the price has gone up, the mortgage payment has gone up, and you have been made able to afford it by deducting the interest and spreading out the payments.

Even apart from the current crisis, these props for the homeownership policy no longer make sense.  No one stays in a home for 30 years anymore, so there is absolutely no pretense that a 30-year mortgage will ever be repaid on schedule.  And allowing a tax deduction for interest makes owned housing more affordable, but does nothing for those who have chosen to rent their housing — either because they cannot afford to buy, or because their jobs require them to move frequently.  What these loan products do is to force consumers to invest a large part of their net worth in a single highly leveraged investment, a home which may rise in value (especially in a bubble) but which may also decline in value, disastrously.

Nor is credit card debt a good way to make consumers more secure.  Thanks to Congress, state usury laws have been wiped out as constraints on the amount of interest credit card issuers can charge.  Much of the debt that winds up on credit cards carries a rate of interest that would be considered loansharking if the banks were not licensed — and recent changes to the bankruptcy laws make it much harder to wipe out credit card debt in bankruptcy.  (Astoundingly, even those giveaways have apparently not rendered credit card issuers immune to the financial crisis.)  Any bailout “solution” that increases the debt load on ordinary consumers should be regarded as suspect.

3. All spending is equal.  We measure our economic health by gross domestic product, consumer spending, and other macro measures that fail to distinguish between buying a new refrigerator or buying a video game system.   There is nothing in our economic policy that encourages people (or businesses, for that matter) to spend money on necessities rather than on discretionary items.  We saw this recently when failing banks continued to fund lavish conferences at exclusive retreats for their executives.  It’s all deductible as a business expense, so why not?

It’s hard to construct a federal policy that encourages saving.  The only real way to do so is to end the federal policies that discourage it, and force lenders through better state and federal regulation to do their job of granting credit only to those who can repay it.

1. Lower Credit, Increase Saving. One first step in countering the pernicious effects of these myths would be immediately to repeal the two most significant federal laws that protect the credit card industry — federal preemption of state usury laws and federal bankruptcy laws that treat credit card debt differently from other types of debt.  This would result in a vast reduction of consumer credit, and in the short run would reduce consumer purchasing.  In the long run it would increase consumer saving as a means of accumulating the money needed to buy things that are truly necessary.

2. Make Mortgages Solid; Make Renting An Option.  Allow a tax deduction for rent paid to a landlord.  Reestablish standards that require a 20% down payment for most mortgages.  Make the “slicing and dicing” of mortgages illegal and force a licensed bank or mortgage lender to keep its money on the line for the entire amount of the loan.  End federal preemption of state laws that regulate the more exotic types of mortgages.  These four measures would reduce the volume of mortgage money available and channel it into loans that really can be paid back, stablizing home prices at a more realistic level while putting the rental option on an equal footing with homeownership.

How to Approach the Car Industry Bailout

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The taxpayer funds being directed to the financial industry are largely being targeted to putting liquidity back into the system — by encouraging banks to lend more, and through mortgage restructuring, allowing consumers to spend more.  (Never mind that these goals are not being achieved by the Paulson plan.)

By contrast, the auto industry is asking for funds to keep the individual firms, and the industry itself, alive in the United States despite evidence that they have made poor decisions over the years in relation to foreign car makers.  The rationale is that (a) we need these firms in the US for security reasons (they make tanks); (b) we need the many good jobs they provide directly and indirectly; and (c) eventually times will get better and they will repay us.

Right now the total value of all the common stock of the Big Three companies is probably about $13 billion (Chrysler’s figures are private).  There are lots of people around who have that kind of money.  The biggest billionaires could raid their cookie jars and buy all three for cash, right now.  But Warren Buffett chose to put his money into Goldman Sachs stock rather than a car company.  Why?  Probably because once the subprime mess passes through the python, the financial companies will do well because they are run efficiently.  By contrast, the GM execs evidently felt that a YTD loss of $21billion did not require them to lose their corporate jets or their bonuses.  They are like ship’s captains who have run out of fuel and have forgotten how to hoist a sail.

That leaves jobs and national security as reasons to put federal money into the car makers.  Both are good reasons.  But what form should taxpayer support take, given that we are not likely to get it back?  Remember that private money is not eager to fund these companies, and their execs have not seemed eager to go through Chapter 11 (even though it would permit them to leave the UAW holding the bag to some extent).  So this moment is somewhat akin to government funding of other programs that private industry is unwilling or unable to finance.

Like the space program, in other words.  That’s a program that the US taxpayers own and finance, contracting out production to private contractors (sometimes with less than optimal results).  It may never turn a profit, but we run it because it is useful.  Or like Amtrak.  That’s a government corporation that we formed to take over the hapless passenger railroads and operate them with a taxpayer subsidy that with any luck will turn into a profit over the years.  Either way, the government controls the operations, the executive pay, the perks, and the company’s priorities.  We can, and do, force them to provide the service that is needed the most, not necessarily the service they can advertise the most.

It may be that despite the ubiquity of automobiles, producing them in the US may be a luxury that we can rationalize only because in wartime we may need to produce tanks.  That may not be true in the long run, but it appears to be true now.  If that’s the case, we should pony up the $13 billion, buy every share, and run them the way we want them run — good jobs, good pensions, good fuel economy.  It’s better than paying twice as much to give the captain sailing lessons.

Agenda for the Generous Trillionaire

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Let’s say you are a trillionaire with a social conscience.  You see the disaster afflicting the US economy, and spreading rapidly throughout the world.  You want to make a difference, but how?

If you’re a trillionaire, you probably have people on your staff who know something about financial markets, business cycles, and tax policy.  And you probably have some experience making deals with strong and weak businesses.

Everyone’s clamoring for help.  The banks say credit will freeze up if you don’t shell out.  The auto makers say millions of jobs are in jeopardy if they don’t get some free money.  But you know that when they get the money, they use it to pay themselves first, and then to fatten their companies by acquiring weaker players.  If there’s anything left, they might just do what they promised to do.

Surely major investors don’t put up with that kind of crap.  Venture capitalists don’t just give money away — they demand a big share of the company, seats on the board of directors, and guarantees of how the recipient of their largesse will behave.  An investment bank like, oh, say, Goldman Sachs doesn’t just drop money in the box either —  it looks at balance sheets, income projections, and detailed evaluations of how the company manages its core business.  You’d think Hank Paulson would remember some of that when he’s investing the taxpayers’ money.

So when our trillionaire gets into the picture, what does it do?  Well, if its chief operating officer is Hank Paulson, it takes the money and ignores the strings attached, and hands out billions without even disclosing where the money went.  If its board of directors is a Congressional committee, it postures, pleads for special favors for the districts of the committee members, and largely fails to understand what it is doing or rein in its rogue manager.

Republicans have long insisted that government should operate like a business, but when they get the chance to do so, they ignore all their business training and throw money into one bad deal after another.  Evidently clearer heads are required.

The first thing to do is to get an accurate picture of what is going on and where the economy is headed if no intervention occurs.  Clearly the financial industry is in trouble, but there are two kinds of trouble:  that which impacts individual companies, and that which impacts society.  It is the latter on which our attention should be focused.  Unregulated greed led to imprudent behavior fueled by the apparent ability to externalize risk to a level approaching 100%.  This was so astonishingly brilliant, it’s no wonder their executives were compensated so handsomely.  They deserved everything that was coming to them, but the nation did not deserve the consequence:  a broken commercial credit system and a system of private homeownership that has left millions destitute and simultaneously laid low thousands of private and public pension plans.

The auto industry’s problems are of a different order entirely; those companies operate on very long timelines and their troubles originated in decisions they made years ago.  Car makers have lost sales for several reasons:  production of gas guzzlers, a distribution network that forces prices up to generate profits for dealers, and of course a drastically reduced ability of consumers either to buy cars or to get car loans.  Although the effects of a depressed auto market will be serious, they are not different in kind from the experience of many other industries that either sell big-ticket items to consumers or supply the basic materials with which those goods used to be made.  If Detroit firms went through Chapter 11, they could cut back on dealerships or even sell direct to consumers at the factory (as they once did, many years ago).

In each of these cases, our trillionaire needs to make hard decisions about what kind of concessions it needs to extract from those it assists.  This is not unfair; people who receive unemployment compensation are required to look for work, and those who receive food stamps are required to spend them on food, not lottery tickets.  Nor is it analogous to government regulation which is imposed on an unwilling industry; these companies are begging for our money.

What’s the best way to unstick the credit system?  We could open our own bank and lend money directly to businesses and individuals, in competition with the private banks.  They’re skittish about lending money right now; our trillionaire sees social value in taking those risks when they are needed most.  If we decide instead to funnel our money through existing banks, it’s entirely legitimate to tell them they have to run the way our state enterprise would run: low executive pay, a requirement to shove money into the credit pipeline, and restructuring of consumer loans to put individuals back on their feet.  And no mergers, dividends, stock buybacks or expensive “conferences” for the duration.

And what do we want from the auto makers?  Most of the above, plus retooling the plants to produce smaller and greener vehicles, or even (heaven forbid) trains.  Big investors follow the “golden rule” — he who has the gold, rules.  That’s how our trillionaire should think.

As a small contributor to the trillion, I have a say too.  My top priority would be to bail out state and local governments before they begin to cut essential services like education, police and fire protection.  The wave of foreclosures is causing a loss of revenue from income, sales and property taxes, which are the backbone of most state governments (other than Alaska, apparently).  And the fall in stock prices is putting retirement pensions in peril.   Before it gets worse, we ought to inject revenue there — say, $300 per inhabitant.  That would cost only $90 billion.  Surely after we’ve helped out the poor investment banks and auto makers, that much should be left over.

Now,  how to get more money into the consumer sector so someone will buy those cars, refrigerators and homes?  One way is to write down their mortgages so they can afford them, and perhaps have the trillionaire take an equity stake in the home in compensation for its generosity.  Another is to create jobs as was done in the New Deal — building roads, bridges, train lines, schools, national parks and water supply systems and forward-funding the future costs of maintenance.

A third priority would be to reward savings and reduce the demand for loans.  Unfortunately, there’s no direct way to do this, although proposals for a consumption tax have their appeal.  The best way, short of that, is to force a tightening of credit standards and terms.  Here are three ways to do that:  Bring back state usury laws (which are now outlawed by federal preemption) to shrink the credit card tumor.  Have Fannie and Freddie change the basic home mortgage term from 30 years to 20.  Change the tax law that excludes gain on the sale of a home, to exclude from taxation only the gain that is attributable to the cash investment of the homeowner.

How could Hank Paulson say no to that?

My Plan for the First Hundred Days

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Now that the Masters of the Universe have been proven not merely venal but completely wrong, we need an agenda for the First Hundred Days that truly “puts people first.”  Will John McCain endorse even one of these?

1.    End mortgage derivatives.  There is no reason to have this toxic form of securitization (which has only been in existence for 25 years) – except that the mortgage and investment banking industries wanted yet another way to generate huge profits.  The bankers proved incapable of valuing these mortgages but forged on in the hope of saddling unsuspecting foreign investors with the risk.  We need to decide as a nation that the freebooter ideology that supports these funny-money tricks, which produce no useful goods or services, is not worth the damage it has caused.

2.    End naked short selling.  Short selling – which was a major factor in the 1929 crash – was supposed to be regulated by the SEC, but the SEC has deliberately (and arguably corruptly) looked the other way.  There is no constitutional right to sell what you do not own, and no useful purpose to be served by allowing people to sell what they do not have in their portfolios.  Brokers should be subjected to heavy penalties for processing naked short sales.

3.    Reestablish the firewalls.  The New Deal’s separation of banking from brokerage and from insurance had a simple goal:  to focus banks on protecting their depositors and insurance firms on maintaining reserves with which to pay claims.  Removing those firewalls made those companies “globally competitive” without providing an ounce of added value to their U.S. depositors; in fact, the only way for them to earn the profits they hoped for was precisely to put their depositors and policyholders at risk, to the maximum extent the SEC will allow; now that they’re all in the same business, it is impossible to wall off temporary risk.  Paradoxically, the attempt of self-interested businesses to avoid inherent risk has multiplied that risk across the entire economy.

4.    End stock option compensation.  Here’s a radical thought on executive compensation: pay them in cash like everyone else.  As with wedding and holiday gifts, cash is always appropriate.  Not to deny that it’s a useful policy for executives to own stock in their companies.  The proper way to implement such a policy is for the company’s board to require top executives to buy a stated number of shares every year – with their own money, like everyone else.

5.    End taxpayer subsidies to hedge funds and CEOs.  There is no economic justification for taxing hedge fund compensation as though it were capital gains.  And in the tax policy context, where nearly every individual deduction is limited in some way, there is no reason to allow an unlimited deduction for executive compensation.  Someone has to step in and say that the duty management owes to shareholders – always invoked to justify unlimited profit – also requires that company funds be spent making whatever product the company makes, not providing free buffet tables for the execs.

6.    End tax favoritism for homeownership mania.  The mortgage interest deduction is an irresistible carrot for most Americans, and led many to overinvest in housing they could not afford.  If this deduction must be enshrined in tax policy, at the very least renters should get a similar deduction for rent payments.

7.    End taxation of debt forgiveness on primary homes.  Homeowners who cannot afford their current mortgages may win renegotiation of their loan terms, only to find that the debt forgiveness is taxable income.  That may prove to be the unkindest cut of all.  Congress enacted a limited, temporary suspension of this awful rule in 2007, but it has been extended to 2013 – will it be made permanent?

8.    End affirmative action for the rich.  Criticism of the estate tax has focused on its effect on owners of small businesses and family farms which have significant value but low liquidity, but the Bush administration’s wholesale cuts in the tax rate chiefly benefit those who inherit publicly traded securities.  Buying shares of existing companies does not inject capital into the economy, and the heirs of deceased owners have not put an ounce of work into the wealth they now own.  The current Bush estate tax regime must be allowed to “sunset” in 2010; in fact, considering our desperate straits, estate and income tax rates could use a return to the progressive levels in effect during the Eisenhower years.

9.    Bail out state and local governments.  In the next few years, the mortgage and real estate meltdown will nearly bankrupt local governments that rely on property taxes in poor areas where the reduced tax base no longer supports the level of taxation needed to run basic programs.  This is on  top of revenues that will be lost through failed investments.  We will soon need to consider bailing out those governments to avoid creating ghost towns across America.

10.   End “too big to fail” blackmail. The management of every public company should be required to answer this question annually:  “Is your company too big to fail?”  If the answer is yes, the company should be broken up immediately.  If the answer is no, they should be held to their answer.

Sarah Palin: Bring Back the Bucket of Warm Piss

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Although he was a Democrat, John Nance Garner has become the patron saint of Republican Vice-Presidents.  Garner, who served as Vice-President from 1933 to 1941, referred to the exalted office to which he was elected as “not worth a bucket of warm piss.”  Republicans have made that phrase their mantra, nominating such gems as William Miller, Spiro Agnew, Dan Quayle, and now the eminently qualified Ms. Palin.

They haven’t done it consistently.  In between were people who were actually qualified for the office — Richard Nixon, George Bush, and Jack Kemp. And of course Dick Cheney, the stealth Veep, who is in a class by himself, having installed himself as Caudillo of a shadow government, all under the constitutional radar.

The selection of Sarah Palin by the Republicans is only the latest bit of evidence that the office of Vice-President in modern times has been useful only as a political device and as proof that our electoral mechanism has descended to a level somewhere between a soap opera and a joke.

The modern Vice-Presidency originated in 1800 with the passage of the Twelfth Amendment to the Constitution, requiring candidates to run separately for each office.  Its purpose was to correct the results of the 1800 election, in which two eminently qualified candidates, Jefferson and Burr, ran for President and received equal numbers of electoral votes despite their political antagonism; only a vote of Congress made Jefferson President and Burr Vice-President.

In our time, we would be lucky to have a Vice-President truly considered by the public to be qualified to step into the Presidency.  Instead, we are forced to vote for two people, one of whom is a comparative unknown and may turn out to be either a nonentity or an uncrowned monarch.

Yes, we ought to abolish the Electoral College and bring government “by the people” to the highest offices in the land. And we ought to restore the role of Congress in the constitutional system — not just by electing strong personalities, but by institutionalizing Congress as the body that initiates legislation, declares war, and ratifies treaties (and by reminding the President that his job is to execute the laws Congress has enacted).

But we ought to go beyond that and reconsider why we have a Vice-President at all, and to what purpose. The job description is simple:  come to the office every day, go to the Senate to break tie votes, and take office as President when the President dies or resigns.  None of these are critical to the welfare of the nation.  And the Cheney example is clear:  we don’t need an unvetted loose cannon running policy inside the Pentagon, planning wars and domestic detention camps.

It no longer takes months for news of the President’s death to spread to remote regions of the Republic.  The line of succession can be filled by appointed officials (as happened when Gerald Ford and Nelson Rockefeller were nominated by the President and confirmed by Congress). And the Senate doesn’t need a presiding officer who also has an office in the White House — if we really need a tiebreaker in the Senate, let’s give the District of Columbia one Senator and have a full-time tiebreaker working on the floor of the Senate.

If we must have a Vice-President, we ought to consider repealing the Twelfth Amendment and awarding the runner-up the second prize.  Contrary to Jefferson’s fears, the potential conflict between the two offices could work to the nation’s advantage, and the effect it would have on third party candidates would make our elections truly interesting.  After all, there really would be something to gain by coming in second.

Want to make things even more interesting?  Instead of awarding the Vice-Presidency to the runner-up, stagger elections so that the Vice-President is elected two years after the President.  The Vice-Presidential elections would be a referendum on the Presidency and the lame-duck period would be reduced from four years to two.

The Top Ten Issues That Won’t Be Covered in 2008

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It is good that the bald eagle, the symbol of American democracy, has made it off the Endangered Species list. It frees up needed space on that list for American democracy itself. The time is short within which to put democracy on life support and begin emergency treatment.

Democracy has been under attack for years. Perhaps it originated with the “selling of the president” in the Nixon years, perhaps in the Reagan-era penchant to make heroes out of brigands who aided our enemy, Iran, in order to finance their off-the-books effort to overthrow the elected government of Nicaragua. It manifested itself in well-planned and well-financed campaigns to reduce the image of dedicated public servants like Edmund Muskie, Mike Dukakis and Howard Dean to schoolyard taunts. The apotheosis of this trend is the vile spew that emerges from Ann Coulter more regularly than Old Faithful, but it is by no means certain that the limit has been reached.

Whatever the source, it has come to this: the Washington press corps has been bullied to the point that the main issues covered by reporters and pundits alike are the financial condition of the campaigns and the hair styles of the candidates. Every issue of actual importance to the American people, save perhaps (if we are lucky) the Iraq war and health care, is marginalized as the exclusive province of extreme leftists, crackpots, and Beltway insiders. And the range of potential solutions is consistently narrowed to allow only those acceptable to the corporate heavy hitters that finance the campaigns.

It has been a long while since Franklin Roosevelt, in accepting the Democratic nomination in 1932, said, “This is more than a political campaign; it is a call to arms. Give me your help not to win votes alone, but to win in this crusade to restore America to its own people.”

In 1936 Roosevelt went further: “For twelve years this Nation was afflicted with hear-nothing, see-nothing, do-nothing Government. The Nation looked to Government but the Government looked away. … They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.”

It cannot be too late to have that spirit again. Certainly we are at a crossroads in our national history every bit as vital to democracy itself as we faced in 1932, or for that matter in 1776.

It cannot do to protest that certain issues are either too controversial or too boring to command public attention. We, the people, need to free ourselves from the tyranny that smirks at us daily. We need to identify the simple, real issues – the consistent abrogation of democracy, personal liberty and the promise of a better life that have been planned and executed with the billions in profits that were generated just for the purpose of cementing this plutocratic control over our nation.

I have identified a “top ten” list of issues that all form a part of this juggernaut. All of them involve the use of law – tax law, election law, and the Constitution itself – to guarantee that dollars, not votes, will determine national policies. None of these issues will be covered by the press in 2008. It would be foolish to imagine that any presidential candidate will take up all of them, but even one or two would change the center of debate and put a real agenda on the table.

Without further ado, and in Letterman order, they are:

10. Corporate “Free Speech”

Corporations are fictitious persons in the eyes of the law, and as such are entitled to do what people do in business – own property, make contracts and so forth. But corporations live forever and their wealth and influence can grow exponentially, while people die and to some extent their interests and concerns die with them. When corporations first came upon the scene, they were viewed as creations of the sovereign (the state or, before the Revolution, the King) that chartered them, and could be subjected to whatever restrictions that sovereign chose to impose. Corporate existence and powers were a privilege, not a right. Their existence was viewed as intertwined with the public good, since the combination of the capital of individual investors made possible such public necessities as canals, bridges and railroads.

One of the great ironies of American history is that the majestic Fourteenth Amendment, adopted after the Civil War to ensure the right of all persons to due process of law and equal protection, was first applied by the Supreme Court to give corporations the right to be free of state regulation in the public interest. While that principle was eroded during the New Deal, corporate entitlement to constitutional rights remained unchecked. Another irony is that this view to some extent was piggy-backed upon the move for recognition of labor unions, which are associations of individuals, and the growing sense that unions were entitled to use their group power to advocate for their members.

The culmination of this folly was in the doctrine that corporations, which are organized to engage in business, can spend as much of their wealth as they wish on advocacy of causes of their choice. All they need is the agreement of management – since shareholders have virtually no power to control the spending of corporate funds. This power far exceeds what unions enjoy – union members have the right to stop the use of their dues money for advocacy of which they disapprove, as do lawyers and university students, but no such right exists for shareholders whose capital fuels the corporation. Corporations are no longer bound by the idea that their operations are limited to those activities which further a public purpose and that they may be confined to that purpose by regulation.

9. Copyright

Patents and copyrights were originally viewed as necessary to promote cultural and scientific progress by giving authors and inventors the right to exclusive use of their creations for a limited time. Copyright protection now lasts for 70 years or more, and patent protection has been abused by trivial modifications that extend patent life, as well as by filing patent claims on obvious ideas, genetically modified bacteria and plants. Intellectual property is now a “squatting” device to prevent competitors from producing cheap generic drugs or improvements on existing technology. We need to reform this system to give creative works back to the people – the “public domain” – after a more reasonable period of protection.

8. Wealth Taxation and Capital Gains

The decrease in estate taxation – the only form of wealth taxation we currently have –together with favorable capital gains rates has concentrated 99% of all wealth gains in the hands of the top 1% of Americans. Extreme wealth has become the way to avoid having to earn income by producing goods or services. Even Switzerland, no enemy of wealth, has a wealth tax on the living as well as on inheritances.

When top estate tax rates were at their highest from 1940 to 1976, American businesses were the engine of productivity for the entire world. Apparently the notion of losing a significant part of their wealth upon death did not deter those hardy entrepreneurs. Now their descendants find it easier to build portfolios than factories.

The same people who now assail the estate tax as a “death tax” also claim that people ought to be able to keep the wealth that represents the fruits of their efforts. The fly in that ointment is that upon death, their wealth passes to people who didn’t lift a finger to earn it. Let’s call that bluff – it’s not the supposedly hard-working decedent who pays the estate tax, but the ne’er-do-well heirs who are very much alive. Whatever part of that pinata the government takes in taxation they can make up by working for a bit.

Every economic argument that is made for lowering the tax rate on capital gains could also be made for lowering the tax rate on wages. Yet tax rates on wages are the highest of all, and workers have to pay an additional, regressive tax on wages (but not on unearned income) in order to support the Social Security system. Capital gains advocates have a point — that those gains were realized over a period of years, during which the cost of living also rose. The equitable solution is to index the basis (purchase price) of the capital asset for the cost of living during the time it was owned, which will reduce the taxable gain somewhat, but then apply the same tax rate that everyone else pays.

7. Executive Compensation

Most people are offended by the idea of a CEO making as much as 300 skilled workers do, but corporate boards routinely approve it and say it is needed to attract highly qualified executives, who presumably are the only people motivated not by a desire to make a contribution to the world but only by money. Corporations should be able to spend their money as they choose, but there is no reason for the government to encourage it. We now permit corporations to deduct from their taxable income everything they spend on salaries and stock options, but there is no reason why this has to continue. The simple solution is to say that everything up to 40 times a worker’s pay is deductible, and the rest is not.

6. Repeal the Presidential Dollar Coin Act of 2005

Under legislation actually enacted in 2005, four one-dollar coins are being issued each year with the intent of honoring every deceased president regardless of merit or length of service. William Henry Harrison, who served for only a month, will get his coin in 2009; Rutherford Hayes, who squeaked into office thanks to election fraud, will get his in 2011. Grover Cleveland, who was lucky enough to be elected in nonconsecutive terms, will get two coins – both in 2012 – making him the first president after Washington to get two coins.. Warren Harding will get his turn in 2014, and Richard Nixon in 2016. (The series will not include ex-presidents who are now alive unless they hurry up and die before 2014. Long life to you, George.)

There is also a parallel gold coin series honoring all the First Ladies – er, make that Spouses – which may give us the chance to decide whether having an Eleanor Roosevelt dollar is a fair trade for Pat Nixon. As of now, Warren Harding’s extramarital paramours do not count as spouses, nor does Sally Hemings.

Democracy requires a respect for ideas and institutions, not of people unless they contribute to our institutions and earn our respect. In an inspired 2004 New Yorker cover, Eric Palma proposed Ray Charles for the ten-dollar bill. This coin program is the opposite – a mindless, though perhaps premeditated, affirmative action program for the banal, the corrupt and the incompetent who have managed to grasp high office.

5. Election Reform

Voter participation levels have long been scandalously low. The media constantly reinforce the idea that the most important factor in elections is the level of contributions, not the level of popular support. Apart from spending limits, we need to give the electoral process back to the people. The easiest and cheapest way to increase voter participation is to schedule Election Day on a Sunday when fewer people are at work.

Primaries have turned into a media circus in which the voters of Iowa and New Hampshire control which candidate becomes a front-runner. The campaign season should be shortened by having all primaries in May or June.

We currently allow taxpayers to allocate $3 of their taxes to the public campaign fund. In a presidential election year, let’s let them allocate their $3 to a declared candidate or party, regardless of whether that candidate or party has accepted spending limits.

4. The Vice-Presidency

The office of Vice President, formerly a harmless joke, has become an expensive joke. Every President in recent times has pledged to make his Vice President a sort of “co-President” with important but unspecified responsibilities. The consequence of this is Dick Cheney, whose responsibilities, in addition to being unspecified, are carried out in total secrecy and entirely without accountability. The idea of the Vice-President serving as a tie-breaker in the Senate is an anachronism left over from the days when there were only 30 Senators. A better way to break ties would be to allow the District of Columbia to elect one Senator.

We ought to get rid of the Vice-Presidency as an elected office, instead permitting the President, following the election, to nominate a Vice-President (as the 25th Amendment now provides in cases of vacancy), whose sole duty would be to take over in case the President dies or is incapacitated. The Senate should elect its presiding officer, just as the House elects its own Speaker.

3. Pardon Power

Now it turns out that the President of the United States thinks a sentence for perjury before a Federal grand jury should not exceed the time served by Paris Hilton. Only partisans, of course, would think it unseemly for a President to commute the sentence of someone whose silence might keep his bosses out of jail. The constitutional pardon power should be limited so that it cannot be exercised on behalf of the President or Vice President or anyone who has worked for either of them or contributed to them or to their campaigns.

2. Oath

There is little more disheartening than the claim that the President has the right to lie repeatedly to the American people and to Congress. Impeachment is an illusory remedy, since it requires a majority of each house of Congress to be in the hands of the opposing party. Clearly, the oath the President takes – to support and defend the Constitution – has become inadequate to the task of reining in this epidemic of duplicity. Let’s add another oath for the President to take on Inauguration Day – to “tell the truth, the whole truth, and nothing but the truth.”

And finally we come to …

1. Electoral College

It all boils down to this. We claim to be the greatest democracy in the world, but the Electoral College is the mote in the eye of that claim. Frustration of the will of the majority appears to be the main goal of electoral strategists, and obviously it has already occurred, with disastrous consequences. The cause of this is the nonsensical requirement that the President be elected by shadowy Electors, not by the people. Since electoral votes are counted by state, campaigning is directed entirely to those states with a chance of tipping to one party or the other, discouraging voting by anyone else. And the weighting of those votes is distorted to an enormous degree by adding two votes to each state’s count of representatives, thus tripling the influence of small states that get only one vote in the House. The election of a President should be a national affair, not an occasion for sectionalism or parochialism. Our goal should be to have the President elected by the people, period.

It is a paradox that we expect a president to have the strength of leadership to stand up to America’s adversaries while at the same kowtowing to the punditocracy that trivializes the concerns of ordinary people. Restoring the balance of American democracy should be the single most important theme of the next election. If it isn’t, we can expect the outrages of the present to surface in the years and decades to come.

Repeal the Twelfth!

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A new group called Unity08.com is proposing to create a moderate force to run candidates for President and Vice-President from different parties in order to break the stalemate and posturing that characterize the two-party system.

Back in 1796, that’s how the system worked. The candidate who finished second became Vice-President. The winners were John Adams (Federalist) and Thomas Jefferson (Democratic-Republican). They happened to be the two best qualified, even though they were from opposing parties and significant disputes occured during Adams’ term.

The system broke down in 1800 when both Democratic candidates (Jefferson and Aaron Burr) received equal numbers of votes (the Federalist, John Adams, finished third). The solution was the Twelfth Amendment — requiring members of the Electoral College to cast two votes. That cleared up the problem of who would be President and who would be Vice-President. But it forced the nation into a system where the President and Vice-President were nearly always from the same party (Lincoln’s second Vice-President, Andrew Johnson, succeeded to the presidency on Lincoln’s death and survived impeachment by only one vote).

The vast aggrandizement of presidential power in the 20th and 21st centuries should lead to a reexamination of this system. The Vice-President’s primary constitutional role is to preside over the Senate, a position which fits nicely with the idea of the Vice-President as the leader of the electoral minority. Wouldn’t we be better off today if George Bush’s Vice-President were … Al Gore? A LOT better off?

We need to get rid of the Electoral College and provide for direct popular election of the President on a nationwide basis. And we ought to think about ditching the Twelfth Amendment while we’re at it. Instead of “may the best person win,” why not “may the best two candidates win?” (Political scientists have been pushing variants on this for some time.)

A system of this kind would get every voter, in every state, passionately interested in the election. And it would get people thinking about not just who their first choice for President would be. They would have to think: of the remaining candidates, who my favorite considers to be bozos, which one would I want leading the opposition and potentially becoming President? That would add a great deal of civility and wisdom to the electoral debate without a great deal of effort. It might help centrist candidates win office. And all it takes is a constitutional amendment.

(We’d also need to modify the 22nd Amendment to give anyone a maximum of eight years as President and a maximum of, say, twelve years combined as President and Vice-President.)

A Free Market Solution to the Immigration Dilemma

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With all the talk among Kerry supporters about leaving the country, it occurred to me that there might be a market-based win-win solution here. After all, illegal immigrants cross our borders each day, often paying thousands of dollars to criminal gangs to smuggle them in under horrendous conditions.

Why not let people sell their American citizenship to the highest bidder? After all, we let corporations buy tax credits and pollution rights. Letting individuals sell what they own is just plain old-fashioned free enterprise.

Immigrants taking advantage of this approach would (a) avoid risking their lives to enter the country, (b) avoid the constant fear of being deported, and (c) not take any net jobs or other benefits from Americans, because the economy would lose one existing worker for every new one. And the people selling their citizenship could use the money to establish financial independence, which usually improves the chances of achieving citizenship in one’s new home country.

Naturally, known terrorists would be ineligible to participate in this scheme. But for the rest of the world — what’s wrong with trying it?

Since I’m a natural born citizen over the age of 35, if this goes through I’m going to wait for my call from Arnold Schwartzenegger. Arnold baby, you want something; I’ve got it; let’s talk.

Just one more pessimistic take on current events …

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In the last century, there has been an arc of political movement that brought us from a country of Babbitts and nativists to a symbol of progress and civility, and now back again. You can measure it in three elections: In 1928, with evolution one of the hot issues, the nation rejected an urban Catholic Northeasterner, largely with the votes of rural evangelical Protestants bolstered by the anti-Catholic Ku Klux Klan, who felt that no Protestant should ever vote for a liberal Catholic. In 1960, with civil rights one of the hot issues, the nation elected an urban Catholic Northeasterner who pledged that his faith would never guide his decisions. And in 2004, with evolution once again a hot issue, the nation rejected an urban Catholic Northeasterner, largely with the votes of rural evangelical Protestants, bolstered this time by leaders of the Catholic Church, who felt that no Catholic should ever vote for a liberal Catholic, especially one who pledged that his faith would never guide his decisions.

The only thing worse than no progress at all is the reversal of progress. In terms of the moral state of our civilization, are we better off now than we were in 1928?

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