Oblivious to reason or even practical political considerations, President Obama and the Democratic Leadership in Congress are on a jihad. They are blowing up all of their own political capital in a narrow-minded, quixotic, and ultimately ideological drive for a single-payer healthcare system. Since the goal itself is politically unpalatable to a majority of Americans, the Democratic leadership is further making themselves noxious to the voters by disguising their aims and using dishonest arguments along the way. Now, on the verge of their final kamikaze-like assault through Congress, is as good a time as any to examine how we got here, what could have been, and what still might be.

That Barack Obama’s real goal has always been a single-payer healthcare system seems obvious when his history on the issue is tracked before and during his campaign for President. Here is a video the Hillary Clinton campaign dug up during the election in which Obama clearly indicates he favors a single-payer system. He also notes that it might be a long process, saying “we may not get there immediately”. When confronted with the video during the campaign, Obama claimed that he favored a single-payer system if the United States were “starting from scratch,” but since the country already has an employer-based system, he actually favored building upon it.

However, at a candidates’ forum Obama admitted that preservation of the employer-based system was only a transition to something else.

But I don’t think we’re going to be able to eliminate employer coverage immediately. There’s going to be potentially some transition process. I can envision a decade out or 15 years out or 20 years out where we’ve got a much more portable system. Employers still have the option of providing coverage, but many people may find that they get better coverage, or at least coverage that gives them more for health care dollars than they spend outside of their employer. And I think we’ve got to facilitate that and let individuals make that choice to transition out of employer coverage.

The transition would be to a “public option,” through which the United States would finally adopt a single-payer system. Obama unconvincingly denied that the public option was a “Trojan horse” for a single-payer system. Even though the President vigorously campaigned behind the scenes for the public option, the US Senate was having no part of it and left the public option out of its final bill.

A few weeks ago, with the public option dead, President Obama finally came out with an outline for his own plan, as distinct from the House and Senate bills. Interestingly, the one new dimension he added was a measure permitting the government to regulate insurance-premium prices. Health insurance companies would become like utilities, quasi-public entities. Or, with new and expensive mandates on one side and price controls on the other, private health insurance could be squeezed out of existence entirely.

Most troubling is President Obama’s less-than-candid approach throughout the debate. The Democratic leadership claims that their aim is to give consumers more choices, but really the goal appears to be only one government-controlled option.

During the campaign candidate Obama hammered Hillary Clinton for her insistence that there must be a universal mandate that everyone buy insurance who can afford it. He made Hillary’s plan sound coercive. But since becoming President, Obama has adopted Clinton’s position. He knows now, as he must have known then, that everyone must be compelled to carry insurance in order to make it illegal for insurance companies to deny coverage for pre-existing conditions. Otherwise, many people would simply wait until they got sick before buying insurance.

Today the President insists that his healthcare bill pays for itself, when clearly it does not. It robs Medicare of $500 billion dollars and collects taxes and makes cuts for ten years while paying out for only six years in the new program. Controlling healthcare costs is what most voters mean when they say they want healthcare reform, but the Democrats are offering healthcare expansion without much if any cost control.

Ideologically pushing unpopular policies is politically foolish. Pushing them in an obviously dishonest way heightens the political consequences even more. It did not have to be like this. And we can insist that our government do better in the future.

Progressives have long held that every American should be guaranteed health insurance. It is a noble and worthy goal. Policies of insurance companies denying coverage or boosting premiums to unaffordable levels due to pre-existing conditions strike almost every American as inherently unfair. This practice must end. The problem with the Democrats’ approach is not the ends, but the means.

From a policy point of view, they have shunned the market approaches to comprehensive healthcare in favor of their single-payer dream. Only market-based reform realistically holds out the promise of maintaining the quality of American medicine while cutting costs.

From a political point of view, the Democratic Leadership has made no meaningful compromises at all. The most important compromise is to abandon the state-centered approach to healthcare reform in exchange for demanding universal medical-insurance coverage. Here is the grand bargain: Republicans and moderate Democrats get market-based reforms while Progressives get universal coverage.

Progressives are pretending that such a bargain was not possible. They are wrong. Most of the Republican bills claim to aim at universal coverage. They may not all realistically get there, but in conceding the goal, they signal a readiness to make a deal. A number of Senate Republicans jumped on board the bipartisan Wyden-Bennett bill, which embodies many of the necessary compromises and reforms. If progressives could accept market means to progressive ends, a large coalition could be assembled ranging from the left wing of the Democratic Party all the way over into the center of the Republican Party.

Here is a list of the sort of actions that might comprise a market-based approach to healthcare reform without sacrificing universality:

· Eliminate the tax-free status of the most expensive “Cadillac” employee healthcare plans. It’s regressive and drives up healthcare costs.

· Eliminate the tax-free status of all employee healthcare plans in order to pay for universal healthcare insurance and move away from the employer-based system.

· Require employers to offer their employees the cash equivalent of what the employers spend for them on healthcare so that the employees can purchase their own insurance in an open market.

· Make insurance companies subject to the anti-trust laws.

· Allow people to purchase insurance across state lines.

· Reform tort law by capping award damages for pain and suffering and creating specialized courts where expert judges rule on medical-malpractice cases.

· Encourage the use of high-deductible plans with health-savings accounts so that healthcare consumers will have incentives to demand reasonable healthcare costs.

· Provide tax credits to help the middle class pay for healthcare insurance.

· Provide vouchers for healthcare insurance to the working poor.
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The great healthcare bargain is out there waiting to be made if voters insist upon it: universal coverage in exchange for the kind of market-based and legal reforms listed above. It won’t happen in the near term. President Obama and the Democratic Congressional Leadership have their jihad in full throttle. Republicans smell blood in the water and are now in no mood to compromise.

Perhaps the greatest myth being peddled as truth is that it is now or never for healthcare reform.

If the Democratic state-centered healthcare bill somehow passes, the political system will be doomed to three more years of intense partisan warfare as Republicans campaign to repeal it. It won’t be pretty. Republicans will be especially furious and unyielding if they get rolled in the “Reconciliation Process.” On the other hand, if the Democratic bill fails there may again be a chance for compromise and consensus on healthcare. Republicans will have more power in Congress. President Obama will still be in the White House. The great bargain will still be possible. Citizens of goodwill should insist upon it.

MINIMUM WAGES
In May of 2007, during the Bush 43 Administration, Congress passed legislation that raised America’s hourly minimum wage in three stages from $5.15 to $7.25 – an increase of more than 31% in slightly over two years. The stated purpose of minimum-wage requirements is laudable: it’s to give every worker a living wage.

“How nice,” good-hearted readers may respond; “it’s hard enough to get by on $7.25 an hour, but making due with $5.15 is nearly impossible these days. And imagine trying to feed yourself, much less clothe and shelter yourself, if some fat-cat boss could get away with paying you even less!” They’re right. And low-skilled individuals who keep their jobs are decidedly better off with the higher minimum wages.

The problem is the unintended consequences. Not everyone gets to keep his or her job when the rules change. Because the government cannot force private enterprises to hire new workers or continue employing existing labor when the cost of doing so goes up, raising the minimum wage prices people with unexceptional skills out of the market. For all their good intentions, minimum wages accordingly create more unemployment and more poverty for society as a whole.

The third increase in the minimal wage, the one that raised the rate from $6.55 to $7.25, took effect in July of 2009. The timing was terrible. In the midst of high and rising unemployment, and halfway through a year where cost-of-living indices actually declined, we made old jobs and new hires even less affordable to companies that were already losing sales and cutting back their workforces.

It’s much harder to get by with $0.00 an hour than with a market-determined wage. But the consequences for the future may be even worse than the poverty of the present. When the starting wage gets too high, not only do some workers get laid off, but others can’t even join the workforce in the first place. Their entry-level job skills simply aren’t worth $7.25/hour. Educating one’s way out of poverty occurs just as much in the office as it does in the classroom. When people fail to find employment, they don’t just lose wage income today, they also lose the on-the-job training that makes future advancement to better jobs possible – all this on top of the destructive effect unemployment has on existing skills and attitude.

This problem is particularly acute for individuals seeking their first jobs. The Wall Street Journal’s lead editorial on March 5 is entitled “The Lost Wages of Youth” and has some stern and startling unemployment statistics for teenagers in general and teenagers of color in particular. The situation is so bad that the Journal condemns in no uncertain terms going through with last summer’s last step in 2007’s three-stage wage legislation:

To raise the cost of unskilled labor precisely when the jobless rate is heading towards 10% is an act of almost willful economic stupidity. A Congress that has spent $862 billion to create jobs thus managed to harm tens of thousands of entry-level job seekers. And it did so in the name of “compassion” and a “living wage.”

The WSJ could have said much more. Because it’s a national standard, the wage floor is even more destructive for teenagers in parts of the country with low costs of living than the averages indicate for the United States as a whole. Teenagers living in rural Mississippi, for example, have a much harder time finding employment when the starting wage is $7.25 than their counterparts in Anchorage, Alaska, where the cost of living is so high that the minimum wage may be below market rates and therefore irrelevant. Mississippi itself suffers even more than loss of employment and associated production. It also loses some of the competitive advantage it would otherwise gain from lower labor costs. In a sense, minimum-wage legislation is a subsidy to the pricier states and cities in our nation.

PAYROLL TAXES
The Wall Street Journal also could have, and should have, extended its critique to payroll taxes and the disincentives they add to an already ugly picture of market distortion and unintended consequences. The omission is surprising for a newspaper of its conservative nature and caliber. Each of the five taxes has a raison d’etre, but none of the benefits at this time is worth the associated costs.

All wages up to a ceiling of $106,800 are taxed to “fund” Social Security and Medicare. The idea is to “smooth” consumption and make people “save” for the days when they’re too old or too sick to work. But the revenues are not in fact saved, and they aggravate unemployment and poverty issues.

Employers pay half these payroll taxes themselves and withhold the other half from the checks they cut for their employees’ take-home pay. When markets set wages, it’s highly likely that companies shift some of their payroll-tax burden to their employees by reducing their pre-tax wages. When workers are paid minimum wage, none of this shifting is possible. While shifting at first glance seems morally opprobrious, it’s a heckuva lot less heinous than firing.

Social Security payroll tax rates are currently 6.2% for both employer and employee, and Medicare adds another 1.45% to both sides. The $106,800 ceiling is irrelevant for minimum-wage workers, and there’s no exemption for low incomes. The result is to increase employers’ hourly-wage cost for each of their lowest-skilled workers to more than $7.80, while reducing take-home pay to less than $6.70.

Fortunately, low-paid employees with a certain savvy can file an Earned Income Credit (EIC) form with the IRS and, depending on their income and number of dependents,then restore part, if not most or all, of their gross earned income. Sometimes they can even get more money from the government than was withheld from their paychecks. Unfortunately, there’s no such program to reduce taxes on the employers’ side, where heightened labor costs continue to cause layoffs and deter job creation.

Add to this business burden Workmen’s Comp taxes, paid by employers, with rates based on how many previously employed workers have filed for injury claims. Keep going with Federal and State Unemployment Tax Acts (FUTA and SUTA). FUTA levies another 6.2% employer tax on the first $7000 each employee earned. Although much of this “unemployment insurance funding” can be offset by a refund if paid in a timely fashion, it still remains regressive because of the salary ceilings. And isn’t it ironic in all times, but particularly these, that companies creating and maintaining employment are also penalized through payroll taxes that make them fund unemployment programs?

Could there be more obvious deterrents to new hires in precarious economic times than the chaotic array of legislation we’ve now discussed? Actually, yes: continuing to make health insurance a required, regressive, and tax-subsidized perk of employment for businesses over a certain size. But that’s step three in addressing economic reforms to reduce unemployment, deficits and debt, and the purview of another piece.

CONCLUSION
Minimum-wage legislation is an abomination for society as a whole. While it benefits some low-skilled workers, it does so at the expense of the even more vulnerable, whose poverty it only deepens. Minimum wages should be abolished.

Five different payroll taxes add to the damage. They further discourage employment, and for some workers they also take away sizeable chunks of incomes that are already perilously low. The good-hearted readers who – at least initially – applauded the concept of the “living wage” as achieved through minimum-wage legislation should now rise up in outrage over policies that take money back from those who keep their jobs but either don’t qualify for full refunds through EIC or don’t know enough to file. Payroll taxes should be suspended for both sides, at all wage levels, at least while unemployment rates are so high.

The goals for all six of these wage and tax policies are admirable. But the best of intentions often create the worst of programs. They do so because of unintended consequences. They do so because we cannot overturn the laws of economics, we can only work with them.

The problem that holds back reform is that we must also work with the laws of politics. Unions, for example, love minimum wages: they keep some nonunion labor competition at bay. And the majority of politicians in power today – the Democrats — are deeply indebted to unions. How else to explain the government bailout-takeovers of Chrysler and General Motors?

If there is ever a time when we can overcome the political power of vested interests and eliminate minimum-wage laws and suspend payroll taxes, that time is now. Rates of unemployment that all of us find ethically and economically unacceptable demand solutions, and alternative approaches are not working well. A lot of the “stimulus” programs have yet to be implemented, well over a year into recession. For those that have, it looks as if each job “saved” has cost six-figure sums of added deficits. These results are appalling at all times, but particularly when soaring deficits and debt undermine confidence and credit ratings.

Eliminating minimum-wage laws is fast and free. Suspending payroll taxes is a quicker, more equitable, and arguably much cheaper approach to reducing unemployment than the government spending the Administration has endorsed and pursued so far. And let’s be clear: EIC has already nullified, reduced or reversed half of the biggest payroll taxes — those associated with Social Security and Medicare — for many with low income. Let’s give the same break to businesses for all of the payroll taxes they pay. Suspension would have to be fairly long term to generate results, and it also provides an opening wedge to eliminating these highly regressive taxes altogether.

For a man who admires speed, pledges fiscal sobriety, and talks the populist line as much as President Obama now does, the obstacles to these suggested reform are political, not economic. Each government program, whether it be taxing, spending or regulating, creates its own protective constituency. If our President can bring to Washington the change we once believed in, we can emerge from recession in better – stronger, more equitable – shape than ever before. The time to act, Mr. President, is now.

Evan Bayh and Barack Obama in an awkward dance

American politics are in a state of upheaval not seen for generations. While most of the energy is on the Right, centrist Democrats are not standing idly by. Whether they are quietly critical of the Democratic leadership, modeling bipartisanship or suggesting an outright rebellion, centrist Democrats are challenging the big-government ideologues who are steering their party and the country in the wrong direction.

On CBS’s Face the Nation last Sunday Senate Budget Committee Chairman Kent Conrad flatly stated, “Reconciliation cannot be used to pass comprehensive health care reform.” The impossibility of using reconciliation to pass the healthcare bill must have come as news to the President and Democratic Congressional Leadership, who openly threaten to use this drastic procedure. Conrad surely knows that the Vice President, in his role as “President of the Senate,” can overrule the Senate Parliamentarian. Using raw unconstrained political power, the Democrats can do whatever they want. Should it ever come down to reconciliation, Conrad seems to be signaling that he for one will stand in the way.

Conrad has also been critical of the Administration’s long- term budget planning, saying that “we are on an unsustainable course by any measure.” Democrats like Conrad, who don’t wish to be seen as disloyal, are finding ways to couch their criticism and also take principled stands.

In another instance, Democratic Senator Ron Wyden has been modeling the kind of reasonable bipartisan governance many voters want. Wyden defies partisanship, obstinately reaching out to Republicans in order to serve his country rather than narrow interests or ideology. He is the author of the consumer- and market-driven Wyden – Bennett Healthy Americans Act, the place where this past year’s healthcare debate should have begun. More recently, Wyden joined with another non-partisan Senator, Republican Judd Gregg of New Hampshire, to sponsor a bill that would vastly simply the tax code It is a sad sign of the times when Democrats and Republicans simply working together can be considered a sort of rebellion against the status quo.

And finally there is Senator Evan Bayh’s decision not to run for re-election to the United States Senate. At first glance Bayh’s announcement seems almost routine. He appears as one in a long line of Senators who have quit Washington frustrated by the partisanship and gridlock. But look deeper, and centrist Bayh’s departure may actually be a shot across the bow of the entire Democrat political establishment. Or, more dramatically, perhaps Bayh is aiming right at the bridge from where the ship of state is steered. Consider the following.

At the Press Conference announcing his retirement from the US Senate, Evan Bayh declared in a prepared statement:

After all these years, my passion for service to our fellow citizens is undiminished, but my desire to do so by serving in Congress has waned.

And:

I am an executive at heart. I value my independence. I am not motivated by strident partisanship or ideology.

“Executive?” What might we infer from this?

The NY Post concludes that Bayh is planning to run for President as an Independent.

A columnist forThe Huffington Post says the same thing.

That he took no questions at his news conference suggests that Bayh is keenly focused on the political message he is trying to send. This kind of control is more customary for a candidate than someone retiring from public life.

Here in an interview at MSNBC Bayh made one of several Shermanesque statements declaring that he will not be running for President under any circumstances. But William Tecumseh Sherman is so 19th Century, a time when words were less flexible than they are today.

Bayh is careful not to criticize the President too harshly, but he is not reticent about condemning Congress. “If I could create one job in the private sector,” said Bayh, “that would be one more than Congress has created in the last six months.” He described Republican Scott Brown’s election in Massachusetts as a possible “ultimate cure” in which ” the vast majority of moderates and independents rose up and said enough already.”

Bayh was not content to give his news conference and head off to the golf course. He made the rounds to about every television show that would have him. Here he is on The View , and Charlie Rose.

On February 20 he published “Why I am Leaving the Senate” in the New York Times. The piece is more than an explanation of Bayh’s decision to leave the Senate; it is also a “manifesto of the center,” and a very good one at that. In it Bayh not only emphasizes the need for the two parties to work together to solve pressing national problems, but he also stresses the need for various reforms necessary to change the perverse incentives that corrupt our political system.

Equally intriguing is the piece, “Goodbye to All That,” written by moderate Republican and former Senator Lincoln Chafee, and published right alongside Bayh’s article. Chafee’s words are worth quoting at length:

So I can certainly understand Senator Bayh’s remarkable decision to leave, but I also suspect that he’s not willing to give up on Washington. When he suggested recently that a third party could be a viable contender for the White House in 2012, my first thought was that he was focused on a future as an independent — and the exciting new avenues for public service it offers.

With our hopes for a post-partisan era still unmet, I say to Senator Bayh: Welcome to the club of independents who are looking for a better way to serve. Before long, we centrists may even come together to define the third party that Mr. Zogby foresaw in 2001.

Surely the publication of Chafee’s op/ed with Bayh’s is no accident. It appears that Evan Bayh is – to mix earth and water metaphors – laying the groundwork and testing the waters. If the Democrats keep to their big government jihad, and the Republicans nominate a bomb-throwing conservative for President, there will be plenty of room in the center for a reformer with common sense. Then enter Evan Bayh.

Health Care Reform was supposed to be on the operating table for all 7.5 hours of last week’s bipartisan Health Summit. But was it? And how many of the Congressional surgeons were practicing economics and how many were specializing in politics?

Some came to the table quite skeptical of any purpose beyond the PR, useful for themselves as well as for their President in this widely televised event. Obama was widely criticized for releasing the Obama-Biden “Plan To Lower Health Care Costs and Ensure Affordable, Accessible Health Coverage for All” 3 days before, not after, this big event. “How,” his detractors queried, “could we believe that he really wants to listen to us, that he’s really open to change, if he already has another plan in his pocket?” These are the same people who were complaining that the President had put nothing himself on the table and had left all the work to Congress. At last the President has something of his own in hand.

As for the economics, Douglass Elmendorf, Director of the Congressional Budget Office (CBO), politely reported that he needed much more than 3 days to estimate the 10-year costs of the new plan and accordingly would have no figures to share with participants in the Health Summit. He, like us, had just received the plan on February 22, and the summit was scheduled – and held – on the 25th.

Not only did Elmendorf need more time, he needed more details. On his “Director’s Blog” the man Nancy Pelosi promoted noted that “preparing a cost estimate requires very detailed specifications of numerous provisions, and the materials that were released this morning do not provide sufficient detail on all of the provisions.” (For more, see Elmendorf .) Widely described as 11 pages of bullets, when viewed in the normal font size of 12, the plan is in fact a mere 7.5 pages of text with 1.5 pages of footnotes.

There’s a refreshing honestly in the cautionary note about how much the Obama-Biden Plan costs that’s sorely absent in assessing the House and Senate health-care reform packages. The CBO can’t accurately estimate their true costs either. Even though they weigh in at 1990 and 2074 pages, respectively – and before adjusting for over-sized font size and margins, these plans still lack the specificity of detail necessary for the CBO to make good forecasts. CBO scores are only as good as the data and the assumptions the office is given.

Perfect predictions about the net-cost consequences of changing 1/5 of any economy, much less one as large and complicated as this one, are beyond our reach. A program as ambitious as the House and Senate bills and the White House plan would have unintended as well as intended consequences. When one variable is changed deliberately through legislation, several others will change responsively through masses of private and individual choices made in the context of new incentives and disincentives. The further out the data are projected, the less accurate any estimates are likely to be.

This problem is compounded by chicanery, a willful manipulation of the facts. Perhaps, given the nature of politics, it too is unavoidable.

At the Health Summit, Paul Ryan, R-Wisconsin and Ranking Member – Committee on the Budget, said he shared the President’s goals of containing health-care costs and was going to analyze the Senate Bill’s alleged cost savings because it is the closest to the Obama-Biden Plan, for which, as earlier noted, we have insufficient detail. Ryan praised the CBO, but not the score it gave the Senate Bill. “They do their jobs well. But their job is to score what is placed in front of them. And what has been placed in front of them is a bill that is full of gimmicks and smoke-and-mirrors.”

And then Ryan proceeded to “unpack the Senate score a little bit.” The result of “strip[ping] out the double-counting and …gimmicks” is to replace an estimate of $131 billion in budget surpluses for the first 10 years (as far out as the CBO was instructed to go) with one of $460 billion in losses. Projecting only 10 years into the future is itself sneaky, because it captures only 6 years of program expenses while collecting revenue and paring Medicare taxes for the whole decade. Extending the formulae out a second 10 years adds $1.4 trillion to the Senate Bill deficit. (See “Hiding Costs Doesn’t Reduce Costs” for details and a video of Ryan’s remarks.)

Throughout the Health Summit, President Obama supported “discussion” and scorned and even shut down “talking points” and detailed analysis that he thought had more to do with campaigning than with governing. He did, however, accord ample time to the wrenching and highly politicized stories of Americans denied medical treatment and even life itself because they were denied insurance coverage.

To Ryan, Obama accordingly responded thusly: “I’m going to call on Xavier Becerra, but I just want to follow up on a couple points. There are some strong disagreements on the numbers here, Paul, and, you know, but I don’t want to get too bogged down in — the first question I have is whether your side thinks Medicare Advantage is working well.” He then talked about closing doughnut holes in Medicare Advantage. The President didn’t debate or discuss any of the financial details Ryan critiqued, nor did he address the budget assumptions that Ryan exposed as so ridiculous. Rather, he gave Xavier Becerra, D-California, the floor.

Becerra began by accusing Ryan of distrusting the CBO, which he repeatedly referred to as the “referee”. He seemed incapable or unwilling to acknowledge the distinction between the quality of the people who work at the CBO and the quality of the assumptions and facts they are given to analyze. Perhaps Ryan should have reminded him of the acronym GIGO – Garbage In, Garbage Out. Bad data entered into even the best of computers yield faulty results. “If the referee’s on the field,” Becerra said, “we have to accept what the referee says.” And then he went on to explain how the government is going to save millions by cutting Medicare waste. “Doughnut holes” reappeared as a second metaphor. Just like Obama, Becerra appears to have missed Ryan’s big point: “You can’t say that you’re using this money to … extend Medicare solvency and also offset the cost of this new program. That’s double counting.”

Perhaps Health Care Reform can’t really go on the operating table until its doctors are themselves healed. Until then, we’re stuck with an anonymous old joke about accountants applying for jobs and an old poem by the old A.E. Housman about arithmetic.

“What does 2 + 2 equal?”
”What number did you have in mind, sir?”

–To think that two and two are four
And neither five nor three
The heart of man has long been sore
And long ‘tis like to be.

The first and most visible conservatism is a populist conservatism embodied by former Alaska Governor Sarah Palin and television-talk-show host Glenn Beck. Each was a keynote speaker at a recent gathering of conservatives, with Palin at the Tea Party Convention in Nashville and Beck at the C-Pac meeting in Washington.

Maybe no one on the planet deserves simultaneously less scorn and less adulation than Sarah Palin. The former Governor of Alaska, who quit before finishing her one and only term, is inexplicably seen by many as Presidential timber. At a time when extremely well-educated politicians and bankers seem to be leading the nation to ruin, it is perhaps not surprising that many ordinary people should hold up one of their own. Still, if well-seasoned and educated people are wrecking the country, surely the antidote is not merely to replace them with ordinary hockey moms (and dads) without sufficient education or experience. Here is Sarah Palin’s keynote address given at the Tea Party Convention.

While Sarah Palin lacks the background to craft legislation or negotiate foreign policy, at least she seems mostly without guile or malice. The same cannot be said of the various conservative talk-show hosts, including Glenn Beck, who make their livings spewing demagogic vitriol. Here is Beck’s keynote speech at C-Pac.

For many reasonably well-educated citizens, Palin and Beck are so inarticulate, demagogic and / or self-satisfied that they are excruciating to watch, yet each is obviously considered an exceptional leader of the current conservative movement. Beck claims to stand for something different from the Republicanism of the Bush years. He refers to favoring less spending and less government than the Republicans delivered when they held power. But the simple-minded and awkward populist tone of Glenn Beck and Sarah Palin is entirely consistent with that of George W. Bush.

Here is just one illustration. During the 2000 Republican Primary, George W. Bush was asked who was his favorite political philosopher. Bush named Jesus Christ. Jesus was not a political philosopher. Jesus said, “Render unto Caesar the things which are Caesar’s and unto God the things that are God’s,” which was Jesus’ way of explicitly separating himself from politics. Not only did Bush seem unfamiliar with his own faith, but his answer suggested that he could not name a single real political philosopher. Instead, he fell back on his instinct to pander to religious conservatives. Even with this awkward answer, and many others, conservatives elevated him to the Presidency.

Bush, Palin and Beck are all part of the recent trend of dumbing down American conservatism. At the C-Pac meeting, however, there was a reminder of what American conservatism once was. No one today carries the banner of traditional Barry Goldwater and William F. Buckley conservatism like George Will, who represents a second, more respectable and intellectually vigorous conservatism of the past.

Here is Will’s speech. Hard-hitting and gentle, ironic and true, almost every paragraph is packed with meaty ideas, steeped in American history, and punctuated with hilarity. Who knew George Will could be this funny?

During the George W. Bush years George Will fought an insurgent battle within the conservative movement for a more cautious foreign policy, more prudent fiscal policies, and he resisted the general trend toward simple-minded conservatism. In his C-Pac speech, unlike Beck’s, he did not turn on his fellow conservatives but instead he modeled effective conservative discourse. In many ways, Will offers of a powerful condemnation of the Obama Administration and the Democratic Congress and ably represents traditional conservatism.

In representing the conservatism of the past, however, Will implicitly promotes a dichotomy no longer acceptable to modern Americans. Will suggests we must choose between “dependence” on government and individual “independence.” These are themes that go back to the very founding of the nation. But today most Americans want their government to provide a reasonable safety net for themselves and their neighbors. While traditional conservatives are loath to embrace the necessity of various and expensive social programs, modern Americans expect their government both to protect them from criminals and hostile foreign nations, and to help them in the event of personal calamities beyond their individual control. For example, Americans insist that they not be denied insurance coverage for a pre-existing medical condition. Similarly they believe that no one should go broke paying medical bills. George Will rails against the “entitlement” mentality, and though the term may be poorly chosen, Americans like Medicare and Social Security. And today they’re rightly worried that these programs may go bankrupt.

Now comes the new third strain in American conservatism, represented by Congressman Paul Ryan of Wisconsin. Ryan was singled out for his bold ideas by President Obama at the last meeting he had with Congressional Republicans. As it turns out, Obama was only teeing up Ryan for his fellow Democrats so that they could take swings at him, part of cynical partisan bipartisan strategy (the idea is to pretend to be bipartisan while making the Republicans look bad) . The Democrats may come to regret giving Ryan a platform. Here is Ryan being interviewed about healthcare on CNBC. And here he describes his plan to attack the national debt through comprehensive entitlement reform.

Ryan is young, handsome, intelligent and quick on his feet. His fresh brand of conservatism embraces progressive goals on healthcare reform with free-market tools. Along with other Republicans, Ryan has come to back universal healthcare coverage, something unthinkable for conservatives a generation ago. Such a development should have the liberals doing victory laps, but most of them have rigidly and uncompromisingly insisted on state-centered healthcare. It is entirely possible that Republicans, under the leadership of Ryan and other like-minded innovative legislators, will have another “Nixon Goes to China” moment, and eventually deliver on universal healthcare instead of the Democrats. How ironic it would be for Republicans to achieve something they have historically opposed, and for Democrats to fail to get credit for an important social welfare goal generations in the making.

If the Republicans create a fiscally responsible market-based universal healthcare plan, and likewise propose similarly creative entitlement reform, this third centrist strain of Conservatism, one that weds market solutions to progressive goals, will become a powerful force in American politics. But first the Glenn Beck / Sara Palin wing of the conservative movement will have to be marginalized in favor of new conservatives / centrists like Ryan. Make no mistake, these are momentous times in American politics.

On February 18, shortly after submitting a $3.8 trillion budget with a $1.6 trillion deficit for 2010, President Obama officially created the bipartisan National Commission on Fiscal Responsibility and Reform. Co-Chairs of the commission are Democrat Erskine Bowles and Republican Alan Simpson. “Everything,” President Obama said, “is on the table.” Nothing is apparently out of bounds – not even increasing taxes, tackling and taming entitlements.

Here’s what Mr. Simpson had to say about Social Security: “[Y]ou have two choices with Social Security. You either – you either raise the payroll tax or decrease the benefits, or start affluence-testing, try that one on.”

Mr. Simpson is courageous to take on the Social Security constituency. But he is neither skilled in basic arithmetic (unless “affluence-testing” is a subcategory of “decreasing benefits”) nor very creative in his problem solving.

In his willingness to increase taxes on earned income, however, Simpson does appear to have Conservative Icon Ronald Reagan on his side. During Reagan’s presidency, the employee side of Social Security payroll tax rates increased 7.5%, from 6.65% to 7.15%, and the ceiling for taxable wages rose more than 41%, from $29,700 to $42,000. For workers earning $42,000, the result was a jump in payroll taxes of more than 52%.

Mr. Simpson is still operating in the 20th Century. His suggestions may follow Reagan in surprising ways, but they merely tweak a program that’s riddled with inefficiency and inequity. In the 21st Century Social Security must instead be reformed. As two CenterMovement.org columns on this topic have already noted, the current program attempting to bring financial security to seniors is not even itself financially secure. And there are other problems, too. Social Security saves nothing. Both its benefits and its costs are unattractively regressive. Social Security benefits help many people who don’t need help with their retirement years: they already have sufficient savings. Social Security benefits also help many people who do need help when they retire, but in this case the payroll taxes that finance them make their working years even more difficult. (See “Addressing National Debt by Reforming Social Security” and “National Debt Part III: Radical Reform of Social Security”.)

Many so-called reformers advocate increasing the age of eligibility for retirement benefits, taxing the benefits as part of income, and raising both payroll tax rates and the ceiling of wages subject to this taxation. These changes can reduce the size of unfunded liabilities, but “reform” they are not. They fail to address both the ugly nature of our pay-as-we-go system and the inequities and inefficiencies of payroll taxes.

Deeper change comes from advocates like George W. Bush of Private Retirement Accounts (PRAs). Defined-contribution accounts with income-tax benefits, PRAs would join the already crowded field of IRAs, KEOGHs, 401Ks, HSAs, and 529s. The idea behind this privatization was particularly appealing before the stock market tanked. Not only would individuals take ownership of and responsibility for their accounts, with the possibility of higher returns, but there would be real savings, not the pay-as-we-go reality of Social Security. Perhaps the highest-profile advocate of this change today is Paul Ryan (R-Wisconsin). Ryan proposes “protecting” Social Security for all current or future beneficiaries aged 55 or older, but letting anyone younger than 55 invest 1/3 of his or her payroll taxes in a PRA, private property managed by the Social Security Administration (SSA). “Every single dollar you contribute to your account,” he promises, “is guaranteed even after inflation.”

It’s not clear, particularly in these times of heightened risk awareness, how PRAs help make Social Security solvent. Is Ryan counting on great returns in the stock market? Having them managed by the SSA is not a great confidence booster. It’s convenient to blame bankers these days for high fees as well as high unemployment, but eliminating these financial middlemen and replacing them with government bureaucrats should give us as much pause here as it does in the case of student loans, as advocated by President Obama.

A better approach to PRAs, and one quite like what Bush 43 had begun to outline, is to allow individuals to pick their own management from a list of licensed professionals but to restrict the composition of their portfolios to government bonds, T-bills, and index funds for both equities and corporate fixed income. The proportion of fixed income in their portfolio should be no lower than their age. (A 70 year old, for example, would have at least 70% out of the stock market.) And with the exemption of terminal illness, PRA funds should be accessible only at a retirement age of 67 or so. Being profligate with retirement savings before retirement creates the social problem of poverty our good-hearted nation is forced to address. We don’t want to reward this behavior with government handouts, we want to prevent it. Hence, the higher administrative costs associated with setting up separate accounts for retirement, health, and college expenses are probably worth the benefits of additional control.

The more significant shortcoming in the traditional PRA approach is its failure to address the problems of payroll taxes. Taxing only earned income and only up to a limit is regressive. With no exemptions, it makes the working poor even more poor today in hopes of being less poor tomorrow. Not only does it lower their already low income, but it deters employment and therefore their ability to gain on-the-job training and better jobs in the future. These unintended but predictable consequences are should be unacceptable in good times. They are insufferable in periods of high unemployment. Obama cannot be serious about making job creation a focal point of his presidency unless payroll taxes are also on the table. If there’s anything positive in our intractably high rates of unemployment today it will be that they might finally bring to an end this recessive taxation that hurts international competitiveness as well as labor. Its elimination is one of the best ways to make labor markets more efficient, decrease unemployment, and increase labor productivity and national advantage.

Social Security, Medicare, Workmen’s Comp, federal and state unemployment programs are all financed through payroll taxes. Along with the Minimum Wage Law, on the employers’ side, these taxes raise the cost of labor and discourage employment. They make it harder for the poor to work their way out of poverty. Even though they are by far the highest of these five taxes on wage income, Social Security withholdings don’t even generate enough revenue to keep this retirement program statistically solvent

Real reform would eliminate payroll taxes – all of them. In the case of Social Security, it would give everyone, not just wage earners, the opportunity to save for retirement. It would use the income-tax code for incentives, making retirement-account contributions tax-deductible, with the deductions phased out with higher income, as is already the case for other tax deductions. People with incomes too low to pay income taxes would receive non-transferable vouchers that could be used only to set up PRAs. During the transition, as our government phased out the current system of defined benefits and payroll taxes, to the greatest degree possible, it would give participants Treasury Inflation-Protected Securities (TIPs) in equal exchange for their future benefits from the old program. This transfer does not create debt, it recognizes debt that already exists in Social Security. It keeps some national debt from going abroad, thus lessening the risk of mixing domestic fiscal policy with international politics. Real savings are valuable per se and for the “skin in the game” it gives their owners. Finally, a political constituency would be built around fiscal responsibility.

The National Commission on Fiscal Responsibility and Reform needs more than bipartisanship. It needs to think creatively, practically, and radically. Just as SSA has abandoned the old filing systems for fast and sleek computers, it should join the 21st Century and take advantage of new developments in finance to promote true savings. Tweaking a rotten system is not enough. Eliminating payroll taxes and encouraging savings for retirement through vouchers and the income-tax code can make poor working Americans less poor and retired seniors more secure. This reform takes advantage of modern but well established financial tools, removes some of the shackles Social Security has inadvertently placed on society, and creates a better environment for private innovation and growth in GDP. That’s the best way to bring the debt-to-GDP ratio down to acceptable levels.

Afghanistan / Pakistan, on the one hand, and Iran on the other, are the binary-epicenters from which US interests are most threatened. It is on these focal points and the related areas spreading outward that the Obama Administration has wisely concentrated its attention. President Obama deserves high marks for creating a foreign policy that moves in a concerted diplomatic fashion, deploys American military power appropriately, and focuses on the objectives most critical to US interests.

The prudence and coherence of the Obama Administration’s foreign policy stand in sharp contrast to that of its predecessor. The sorry state of American diplomacy during the Bush years cannot be over-emphasized. It was a time, perhaps like no other in American history, in which arrogance was perceived as the principle characteristic of US foreign policy. This was diplomatically debilitating, and with US military spread thin in Iraq and Afghanistan, the foreign-policy tool chest was left just about empty.

The mere election of Barack Obama re-inflated American prestige in many parts of the world, especially in Europe, where American political campaigns are followed closely and where Obama’s professorial style and rhetorical skills are highly appreciated. And of course his message for a more cooperative and less confrontational United States resonated with the European public.

Obama surprisingly won the Nobel Peace Prize for doing nothing except win an election with a political message welcomed by Europeans. Many have argued that the award was a political gesture, which of course it was and always is. Yes, there are individuals more deserving than Barack Obama, a point the President emphasized in his bully acceptance speech at Oslo. The prize might better be seen as one awarded to the American people for turning away from a foreign policy too often based on unilateral action, or inaction as the case may be.

The foreign policy of the new administration began with what conservatives derisively called Obama’s international “apology tour.” While the tour can be nit-picked for some unnecessary contrition (before Venezuelan strong man Hugo Chavez for example), it was imperative to demonstrate that the United States is now a country willing to listen, negotiate and compromise.

The Obama Administration understood from the outset that a reservoir of international goodwill based on public relations, as well as on traditional deal making, would have to be built up in order to eventually achieve American strategic objectives. President Obama obviously appreciates the need for meaningful help against our Islamist enemies in Afghanistan and Pakistan. On Iran, the Administration has been maneuvering to establish effective international sanctions.

The President deserves credit for his deliberative decision to send 30,000 additional troops to Afghanistan. European goodwill toward the new administration in Washington paid immediate dividends with the announcement that an additional 7000 non-US NATO forces would be sent to Afghanistan. To command NATO forces in Afghanistan Obama chose General Stanley McCrystal to lead a surge-like campaign based on the anti-insurgency doctrine developed since the Viet Nam war, with an emphasis on protecting and serving Afghanistan’s major population centers. Like the surge in Iraq, the Afghanistan surge seems to be working.

The courting of Pakistan by the Obama Administration is an especially important aspect of the struggle to root out Al Qaeda and its allies. The Administration has vigorously pursued high-level negotiations and relationship-building with Pakistan’s political and military establishments. Secretary of State Clinton made a high-profile visit to Pakistan last fall. From this fascinating piece in the New Republic, it is clear that US Chairman of the Joint Chiefs of Staff Michael Mullen has formed a important bond with Pakistan’s most important military figure, Army Chief of Staff, Ashfaq Parvez Kayani. This week’s capture of the Taliban is almost certainly a product of the full-court US diplomatic press on Pakistan.

In related effort, the Administration’s only State dinner was served for Indian Prime Minister Manmohan Singh, signaling the importance of India in the scheme of US foreign policy. India must show a peaceful face to Pakistan, in order to encourage the Pakistani’s to use military resources against the Islamists within their borders. India is also an important democratic counterweight to China.

In the case of Iran, the world needed to see that the United States was completely open to negotiating with the regime in Tehran. Before sanctions could have any hope of being established, the Islamic regime’s intransigence needed to be established beyond any reasonable doubt.

In the meantime, the Obama Administration made concessions to Russia on strategic defense in Eastern Europe. As suggested here, setting the “reset button” with Russia and winning its support against Iran is no easy task, but clearly there will be no Russian cooperation against Iran at all without concessions to perceived Russian interests. It now seems that Russia may go along with sanctions, though China will be another and still more difficult matter. Russian cooperation is crucial in the case of Iran, and helpful in addressing the challenges in the Afghanistan / Pakistan theater.

As the diplomacy unfolded about Iran, the formidable domestic unrest within Iran caught the outside world by surprise. The Obama Administration was criticized for not speaking out forcefully enough, or taking some action, in support of the protesters. But in fact there was very little the US could do. Associating too closely with the dissident movement inside Iran would only give credence to the regime’s charges that the opposition was manipulated from abroad by the US, the UK and Israel. To limit the harm that sanctions may do to ordinary Iranians, the Administration is designing punitive economic weapons targeting the Iranian Revolutionary Guard’s substantial business interests.

The US relationship with China rises to the level of importance of the challenges the United States faces in the Middle East. With China however, there is a certain predictability with regards to the divisive status quo issues that exist from one US Administration to the next: the inflated Chinese currency pegged to the dollar, inaction over North Korea, human rights, Tibet and Taiwan. Added to these, the Obama Administration has tried to convince the Chinese, who hold vast amounts of US debt, that the US is serious about getting its fiscal house in order. It is not an easy sell. In this case, domestic fiscal policy spills over into foreign policy, and threatens American credibility.

Beyond the epicenters of US foreign policy in Afghanistan / Pakistan and Iran, a sideshow opened in Latin America, where the Obama Administration placed the United States on the wrong side of the so-called coup in Honduras. The Honduran legislative and judicial branches were clearly trying to protect themselves against leftist dictatorship of the sort found in Cuba and festering in Venezuela when they ordered the removal of President Zelaya. In the end, official scholars at the Law Library of the US Congress found the actions of the Honduran military consistent with the Honduran Constitution. The US ultimately backed a compromise endorsing this past autumn’s elections, and the crisis was resolved with no harm done, except maybe to US democratic principles. As if to acknowledge that the US Administration really does appreciate who its true friends are in Latin America, the President singled out Columbia and Panama in his State of the Union speech in January.

The enormous complexity of the questions facing US foreign policy makers would boggle the minds of Bismark, Metternich and Grotius. There is danger in expecting too much from any American administration. Fortunately, President Obama has had the wisdom to rely on former rival Hillary Clinton at State, the shrewd Bush-era holdover Robert Gates at Defense, former Marine General James Jones at National Security, and many other competent and even-tempered officials. In the face of multiple difficulties, President Obama and his Administration are gamely pursuing a realistic foreign policy in pursuit of American interests. On foreign policy, President Obama has earned high marks, and the overall grade of A-.

* * *

Author’s Note:

This is the last in CenterMovement.org’s series grading President Obama’s first year in office (see “Obama’s Foreign Policy and Defense Report Card, Part I: Terrorism” and “Taking Stock: Grading Obama’s Domestic Economic Policies His First Year in Office”). Adele Wick suggested a grade of C- for the President’s performance domestically. I would have been even tougher and given him a D.

Why the large gap between Obama’s domestic and foreign policy performance?

President Obama’s mode of operation for foreign policy is everything his domestic policy is not: deliberative, non-partisan, open-minded, far-sighted, flexible and mostly non-ideological, deferential to policy expertise and not politics, well-coordinated and well led. These qualities have made and are making all of the difference.

Radical Reform of Social Security requires starting at the root, and that root is its real purpose and goals today, in 2010. What are we really trying to accomplish with this program? What are the basic problems for which we should supply social safety nets, and how do we best supply and sustain them?

2010 is more like the 1935 of Social Security’s birth during the Great Depression than any other time in American history so far. It is a time of Great Recession, when macroeconomic events have created new poverty and exacerbated old. Unemployment has destroyed wage income, and plummeting stock markets have devastated savings from earlier and other incomes. Nonetheless, asking this root question of purpose yields distinctly different appropriate approaches from those we’ve been following, only slightly tweaked, for almost 75 years.

In 1935, FDR was responding to the ruination of nest eggs through collapse of the stock market. He was particularly interested in the suffering of people who were too old to replace these losses through years of extra work and saving. They had become poor too late to help themselves, and Society stepped in to provide this help.

Today, even as FDR’s Social Security system approaches bankruptcy, it does only a mediocre job providing financial ease in old age. Even worse, the very structure of social security causes harmful effects to the economy in general and the working poor in particular.

According to the Social Security Administration, Social Security checks only provide 39% of a retiree’s income. American workers must not only pay their Social Security taxes, but put money away at the same time if they want to avoid poverty in old age. Needless to say, there is not much “security” in such a system. Most people will not be able to survive on $1100 or $1200 per month. The current Social Security System does not successfully protect against poverty in old age.

Furthermore, Social Security has a number of negative indirect effects. The program may actually make a substantial number of people poorer in many of the years before retirement. “Contributory financing” is attractive to Americans who like to think that other people have paid for what they’re getting from the government. But in the case of Social Security, this translates into the practice of early forced “saving” through payroll taxes to replace earned income for the elderly after retirement. The result is more poverty, less employment, and higher underemployment.

Payroll taxes are a noxious form of taxation at all times, but particularly when high rates of unemployment are a national concern, as they are today. These taxes discourage employment by creating a wedge between what businesses have to pay to hire or keep workers and what workers get to keep. From 1937 to 1948, this difference was relatively small. To finance Social Security benefits, employers and employees were each taxed 1.0% of the wages they paid out or took home. Medicare had yet to be invented, so its payroll taxes didn’t add to the total. Social Security now taxes all workers at a rate of 6.2% of all their earned income up to $106,800, and employers have to match withholding with another 6.2% of their own. (Medicare adds another 1.45% to each side, for a total burden of 15.3%.)

The poor, it is often said, don’t pay income taxes. But everyone with a job pays at least 7.65% of his or her earned income, which may be his or her total income. “At least” because “writing the check” is different from “paying in a true economic sense.” If businesses can get away with lowering wages in response to payroll taxes, they will. Their total costs (wages plus their share of taxes) then go up by less than the taxes, and labor’s income (wages minus their share of taxes) go down by more. Business has then shifted some of the tax burden to Labor.

The situation gets even more deplorable. Social Security may be part of what traps the poor in an even deeper sense. The payroll tax not only causes poor people to lose income today by reducing employment and after-tax income. It also causes losses in future income. Entry-level jobs don’t just provide current income. Part of their rewards are hidden and deferred — on-the-job training, investment in human capital that can lead to better jobs and entry into the middle class. Investing in human capital doesn’t just occur through formal education. And it’s every bit as important a source of economic growth and prosperity as investing in machinery.

Growing the economy requires getting out of this Great Recession and increasing investment in equipment as well as in people. Investment in extra capital tends to increase labor productivity even when the new equipment is just like the old. The effect is even more positive when new capital embodies new technology. Unfortunately, Social Security is probably holding back recovery and holding back growth.

To hire new workers, employers have to be very optimistic about economic recovery and not too concerned about future tax increases and other changes in the rules. Reverse Keynesianism may actually be taking hold today. Deficit spending may actually be holding back private spending. Businesses may be cutting back as all that “job creation spending” previously known as “stimulus spending” raises anxiety about exploding deficits and debt and how they’ll be financed. Social Security plays a negative role here, too. Not only does it require current taxes that discourage employment, it has future unfounded liabilities that reduce entrepreneurial confidence and optimism as we all anticipate future tax hikes.

Few, if any of these negatives are offset by the salutary effect of all the forced “saving” driven by payroll taxes. More saving, absent recession, means more investment, and more investment means more growth. But none of that payroll revenue has actually been saved. Our government is saving nothing for the elderly. It has never saved anything for the elderly.

What we have is a pay-as-we-go program, with a pledge to support today’s and tomorrow’s elderly by imposing payroll taxes on today’s and tomorrow’s workers. Demographic change has put us on a frightening trajectory of massive and accelerating unfounded liabilities. In 1950, 16.5 workers supported each retiree. Because of the baby-boomer bulge and increased life expectancy, this number has fallen to 3.1 today, and within 20 years it’s expected to drop to a mere 2.1.

The horror story of unfunded promises has received a lot of publicity of late. Less acknowledged is what has happened to earlier surpluses in the system: they were diverted to the payment of other government programs. In 2008 alone, the Social Security surplus was $180 million, with a cumulative total of $2.4 trillion. No wonder Mark Brandly urges us to “[t]hink of it as an exponentially larger version of Bernie Madoff’s Ponzi scheme.” (See “The Social Security Scam”) Trillions of dollars of regressive payroll taxes can’t even be justified as “contributory financing”. This is shameful diversion and warrants more exposure from the press.

While Social Security has done nothing directly to increase savings, the program has at least two indirect consequences for private savings. On the one hand, people with jobs and therefore mandatory contributions to Social Security are likely to save less because this program “guarantees” defined benefits for their retirement years. On the other hand, they may not believe this guarantee and increase savings not just because Social Security is insolvent but also because most efforts to improve its balance sheet are likely to include increased income taxes. Small solace, this, because the extra savings will go ultimately to debt and deficit reduction, not to new ideas and the equipment that embodies them.

Poverty at all ages is our real problem, and the Social Security program as it exists today should accordingly itself be retired. It’s certainly old enough, it’s not properly structured, and its goals are insufficiently wide. Created in a crisis, it’s worsening today’s crisis. Even in times of prosperity, it has created poverty in efforts to avoid poverty. Well intentioned, Social Security deserves a proper memorial service, but buried it definitely should be.

The next column will discuss alternatives to the current social security system.

One particularly attractive technological advance is the ability to replace paper patient files with electronic health records (EHRs). Over the past several years US political leaders have espoused the efficiencies and subsequent savings that could be achieved in the US healthcare system through the adoption of this technology. One study suggests that savings from such systems could average more than $77 billion per year. Given the magnitude of these savings together with national debt concerns, then Senator from New York Hillary Clinton and former Speaker of the House Newt Gingrich, in a surprising example of bipartisanship, held a joint press conference in May 2005 calling for more federal efforts to spark the use of such tools. Four years later, President Obama signed The American Recovery and Reinvestment Act of 2009 which, among other things, allocated $59 billion for health care. Approximately $20 billion of this sum was designated for EHR adoption (see Obama’s Assumptions Related to Healthcare IT Investment).

But with such significant savings at stake, why is any need for government funding of this technology? Or, in other words, why is it that adoption rates are so low? For example, according to a report published in April 2009, only about 8% of 3,000 hospitals studied by researchers used even a basic electronic medical record (EMR) that included nurse or physician notes. And only 1.5% of non-federal U.S. facilities use a comprehensive EMR (see EMR Adoptions at Hospitals). And only 33% of medical offices with four or more physicians use EMR software (see EMR Adoption in Outpatient Practices). The several reasons hypothesized for these low rates include concerns over privacy, cost, and resistance to change. Yet the banking industry, which is faced with the same issues, figured out how to conduct transactions worldwide and still protect consumers’ privacy and address issues related to cost and resistance to change.

The difference is that banking consumers found value in the ability to use their credit card, ATM card, etc. anywhere in the world and to transact banking activities online. Banking officials, for their part, found the means to deliver these services in a cost-effective manner. In contrast, healthcare consumers do not see any direct benefits in going to a provider that uses an EMR versus one that does not. Providers do not see any significant time or cost savings for them in adopting a costly (up to $350,000 per physician – see AAFP 2007 Survey) system that may take over a year to implement and often times requires changes to the practices’ workflow. The reality is that the projected savings are savings to payers (including the US Government) not to consumers or providers (see EHR Success and Failure).

So, what will a $20 billion infusion do to bolster the use of EMRs? Most believe that the government’s sponsorship will not do much in terms of getting providers to adopt an EMR/EHR. The reason is that the program will only reimburse $44,000 of the cost to adopt a system that 1) has been approved by the Certification Commission for Healthcare Technology (CCHIT) and 2) has demonstrated “meaningful use” of the system. Further, the $44,000 is spread over five years and assumes early adoption (2011 or 2012). What will get providers to adopt a system is not the $40,000 carrot – it is the stick that is proposed for those providers that do not adopt a system. Hospitals that do not adopt and show meaningful use by 2015 will have a 33% reduction in Medicare market basket reimbursement. (“Market Basket” refers to the methodology used by CMS to determine reimbursement rates for different services in defined markets.) Physicians will have their Medicare fee schedule cut by 1% if they fail to adopt and show meaningful use (for more details, see bricker.com). “Meaningful use” is critical as it is believed that universal adoption of EMR technology will reduce medical errors.

The alleged value of adopting this technology is based on belief, not factual results from appropriate scientific studies. Yes, there are numerous case studies that document the mistakes hospitals and physicians have made without offices armed with EMRs, but for the most part they focus exclusively on a small set of defined errors and omissions. Not a single documented and systematic study has analyzed whether or not EMRs will actually reduce medical mistakes for the heathcare industry as a whole. In other words, no studies exist that could lend themselves to developing a road map as to the necessary and sufficient functional aspects of an EMR that will truly reduce medical errors. A system that works in Hospital A could be disastrous in Hospital B. Furthermore, there remains considerable debate regarding the enforcement of consensus guidelines in improving the quality of care delivered. Last, the use of EMRs still has a human component that cannot be removed and will continue to lend itself to imperfect practice.

So what will a $20 billion infusion do? It will excite the Health Information Technology (HIT) community. According to Gartner, this was a $27 billion industry in the US in 2007, and one spread across over 300 vendors. Such a large number of vendors indicates the nascent state of the HIT industry, yet the government is pressuring providers to adopt these products to better run their medical practices or hospital systems. The satisfaction rates for the functionality of existing products ranges from 45% – 80% (see AAFP 2007 Survey again). In some respects, putting an additional $20 billion into the HIT industry may facilitate product development, increase competition, and decrease the price to the provider. However, if the vendor selected by the provider goes out of business or is acquired by another, the provider will have to reinvest and implement another system. Not only is this expensive in both time and money, but it is contrary to the key cost-saving tenet of the EMR: that their universal adoption will help reduce medical errors.

Between 1912 and 1918 the number of auto manufacturers was nearly halved. The same was true of internet search-engines between 1998 and 2002 (see searchenginewatch.com). In five years there will not be 300+ EMR/electronic health record vendors. Realistically, there will be closer to 200 after mergers, acquisitions and failures. Yet the US Government is trying to incentivize/penalize providers into making a significant investment in the next 12 months with a vendor that could very well not be around 12-18 months after investing. In order to hit a break-even point the provider must realize a 1:1 return on investment (ROI) within 18 months or there will be no savings. In fact, to stay ahead the provider needs closer to a 2:1 ROI in order to absorb the costs of migrating data from the obsolete system to a new system. Failure to do so would require hiring IT staff to maintain the obsolete system in-house (assuming that is an option) or risk not practicing in accordance to the latest evidence-based guidelines for any number of disease states or lab values associated with those disease states. These considerations completely eliminate any savings purported to be gained by using an EMR.

The belief that technology is the holy grail of controlling healthcare expenditures needs to be reassessed. Rushing to adopt technology as a cost-savings tool before it has proven itself is careless. Several aspects not addressed in many cost-savings assessments include: integration costs with practice-management systems, data-migration costs, costs associated with system failures, costs associated with power failures, integration of EMRs with PHRs (personal health records), upgrade costs to ICD-10, and the continuation of human factors (errors & omissions). In addition, EMR technology does virtually nothing to involve consumers more directly in their healthcare decisions, create more transparency relative to procedure costs at different facilities, provide tools to help consumers determine if the procedure being recommended is truly required, or better address end-of-life issues (which is where the highest percentage of healthcare dollars are spent).

EMR adoption is unlikely to become universal and efficient by throwing government money and penalties at medical providers. When economic incentives are properly aligned and there is consumer and/or provider demand for EMRs, widespread adoption will occur with little need for government intervention. Until then, payer demands for improved quality, as measured by meeting various benchmarks regarding immunizations, depression screenings, etc, and the government’s pressures to adopt and show meaningful use of an EMR will continue to be met with resistance from the provider community. That it may ultimately be a good idea does not mean that it is a good idea now.

How bad is the national debt really?

David Walker, the non-partisan former Comptroller of the United States declared that if we were each handed our own personal share of the national debt, we’d each owe five to six times what we earn in income each year.

As bad as that sounds, it gets much worse. When unfunded entitlements like Medicare and Social Security are added to the equation, each and every citizen owes 25 to 30 times what he or she makes each year.

Let Walker’s numbers sink in for a moment.

A family making $50,000 per year owes between $1,250,000 and $1,500,000.

Only a nuclear Armageddon could harm the United States more than our own fiscal negligence. But unlike an attack from abroad, the looming catastrophe will be entirely self-inflicted.

It is more than a little discouraging to note that only a minority of our elected leaders have demonstrated through their actions any real commitment to address this great fiscal crisis.

Senators Kent Conrad (D-ND) and Judd Gregg (R-NH) were the sponsors of a bill that would have mandated a special bipartisan commission to address the federal deficit. The commission would have been composed of eight Democrat and eight Republican Members of Congress, plus two representatives from the Administration, including the Secretary of the Treasury. If 14 of 18 members of the commission had agreed to a proposal to restructure Social Security, Medicare and / or Medicaid, the law would then have required the proposal to be put before Congress for an “up or down” vote, no amendments allowed.

The Congressional vote would have required a super majority of 60 votes, perhaps an unnecessary and unwise burden, but the commission would have focused the government’s attention on the deficit. The clean “up or down” vote on the commission’s recommendation would have compelled every Member of Congress to take a stand on a bipartisan proposal to address the nation’s fiscal crisis. The deficit hawks could easily be separated from the at-the-trough hogs and rapid ideological dogs.

The Republican leadership in the Senate had long supported the commission proposal. Senate Minority Leader Mitch McConnell explained in May why it was so important to act:

We must address the issue of entitlement spending now before it is too late. As I have said many times before, the best way to address the crisis is the Conrad-Gregg proposal, which would provide an expedited pathway for fixing these profound long-term challenges. This plan would force us to get debt and spending under control. It deserves support from both sides of the aisle.

Then inexplicably, when it came time for a vote, Mitch McConnell along with John McCain and four other Republicans flip-flopped on the commission and voted against it.

Did the Republicans cave to pressure from the Tea Party movement? John McCain and other incumbents are facing challenges for their seats from the right. Did the Massachusetts special election convince them that they were better off waiting for the fall elections in hopes of capturing a majority in at least one chamber of Congress? In any case, it’s hard to construe the Republican betrayal as anything but politically motivated.

Conrad – Gregg was defeated in bipartisan fashion on February 4 by a vote of 52 to 42 in the US Senate. Here is a roll call list for the vote to help separate the deficit hawks from the other political animals.

Left-leaning groups mobilized against the measure warning that it would probably lead to means-testing entitlement programs. Right-leaning groups opposed the legislation because it would surely call for higher taxes. For practical as well as political reasons, both means testing and higher taxes will likely be necessary to tame the deficit.

President Obama, who had initially failed to support the commission idea, finally came on board. Obama explained that he was disappointed by the bill’s defeat, but intends to go forward with his own similar commission, though it will not have the force of law behind it. Suddenly the President sounds more serious about deficits than the Republicans.

The problem here is that the President always sounds serious about addressing the federal deficit. The fact is that the President’s $3.8 trillion budget is $700 billion higher than the last W. Bush budget and twice as large as the last Clinton budget. Commission or no commission, the best policy would be to simply spend less.

Senate Budget Committee Chairman Conrad believes that the high deficits proposed by the Obama Administration in the short run are a necessary Keynesian stimulus to help revive the economy. But the Administration’s long-term projections are another matter. Conrad tried to be gentle with his criticism of an Obama budget that would be balanced by 2020 but omitted interest payments on the debt, which would equal $800 billion. “Put me down as a skeptic,” Conrad said. “When we start excluding things for any purpose we tend to mislead ourselves about the gravity [of the situation].”

Gregg, for his part, called the Obama Budget “fiscal insanity.” He became particularly agitated when in a recent visit to Nashua, NH, the President proposed to take repaid TARP funds and loan them out again. Here is Gregg reading the riot act to White House Budget Director Orszag.

Of the Obama budget, Gregg stated that while the budget in the short run is a problem,

Spending continues to go up, and taxes can never catch it because the spending is going up so fast. They’re taking the size of the government from 20 percent of the Gross National Product up to 25, 26 percent of the Gross National Product. That’s simply not affordable. That means you’re adding a trillion dollars of debt to our kids’ backs every year for the foreseeable future. And at the end of 10 years, not only is it not coming down, it’s still going up!

Gregg gives the United States five to seven years to begin to get its fiscal house in order before the Chinese and other foreign lenders begin to demand higher interest rates. At that point the United States will either have to monetize the debt, which will lead to significant inflation, or raise taxes to such crippling levels that the economy will grind to a catastrophic crawl.

Just how pernicious the deficits are in the short term is obviously open to some dispute, but not so the long-term structural deficits that will result from exploding entitlement outlays.

Reflecting on the rejection of the deficit commission idea, Walker declared:

Frankly, a number of senators caved to pressure from the far right and far left and voted against the commission proposal. We have people on the fringes with rigid ideologies that aren’t in touch with reality.

On the other hand, Walker seems more optimistic than usual. He is certainly feeling less lonely. When asked what can be done he replied:

You have to go over their head and outside the Beltway. Go to the American people. And, believe me, they get it.