Economy

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The State of the Obama Presidency

All of our expectations were so high when Barack Obama took office 18 months ago.  He was going to fix the economy, end the wars in Iraq and Afganistan, give us health care reform, fix the schools, walk on water….

After 8 years of George W. and after the wasted Clinton years, we progressives were ready.  So where are we now?  This Doonesbury cartoon says its all.

We are like his kids and think he can do anything.  Unfortunately, there is the Senate to deal with and the fall elections which still look difficult for the Democrats.  I’m hoping they can just hang on to enough seats to keep control and Obama’s agenda has a fighting chance.

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West Virginia: Mining and Basketball

I read this piece at lunch today and it brought tears to my eyes.  Denise Giardina’s Mourning in the Mountains was an op-ed in today’s New York Times. 

PEOPLE in West Virginia had hoped that on Monday night we would gather around televisions with family and friends to watch our beloved Mountaineers face Butler in our first chance at the men’s N.C.A.A. basketball title since 1959. Men working evening shifts in the coal mines would get to listen thanks to radio coverage piped in from the surface. Expectations ran high; even President Obama, surveying the Final Four, predicted West Virginia would win.

Then, on Tuesday morning, we would wake to triumphant headlines in sports pages across the country. At last, we would say, something good has happened to West Virginia. The whole nation would see us in a new light. And we would cry.

Instead, halfway through Saturday night’s semifinal against Duke, our star forward, Da’Sean Butler, tore a ligament in his knee, and the Mountaineers crumbled. And on Monday evening, while Duke and Butler played in what for us was now merely a game, West Virginians gathered around televisions to watch news of a coal mine disaster.

On Tuesday, the headline in The Charleston Gazette read instead: Miners Dead, Missing in Raleigh Explosion. And we cried.

Families and friends wait alongside emergency pers...

Families and friends wait alongside emergency personnel after a mine explosion occurred at the Upper Big Branch Mine, in Montcoal, W.Va., on Monday April 5, 2010. (AP Photo/Jon C. Hancock)
4:33 a.m. ET, 4/6/10

Like most people I haven’t spent a lot of time in West Virginia, but I have spent time in Southwest Virginia where Massey Energy also has mines.  It is beautiful countryside, scarred in places by strip mines.  I wonder what besides mining could drive the economy.  While I was working for the Department of Corrections in Virginia, we planned a prison for one of the mountain tops.  The jobs to be created were such a boon to the area, the community college started classes to train correctional officers before we even broke ground.  But prisons are not the answer.  What about eco-tourism?

Back to Giardina

Despite the sunny skies and unseasonably warm weather, the mood here in southern West Virginia is subdued. As of Tuesday afternoon, 25 men have been confirmed dead, two are critically injured, and four are missing and presumed dead. Their fellow West Virginians work round the clock and risk their own lives to retrieve the bodies.

Already outrage is focused on Massey Energy, owner of the Upper Big Branch mine. Massey has a history of negligence, and Upper Big Branch has often been cited in recent years for problems, including failure to properly vent methane gas, which officials say might have been the cause of Monday’s explosion.

It seems we can’t escape our heritage. I grew up in a coal camp in the southern part of the state. Every day my school bus drove past a sign posted by the local coal company keeping tally, like a basketball scoreboard, of “man hours” lost to accidents. From time to time classmates whose fathers had been killed or maimed would disappear, their families gone elsewhere to seek work.

We knew then, and know now, that we are a national sacrifice area. We mine coal despite the danger to miners, the damage to the environment and the monomaniacal control of an industry that keeps economic diversity from flourishing here. We do it because America says it needs the coal we provide.

West Virginians get little thanks in return. Our miners have historically received little protection, and our politicians remain subservient to Big Coal. Meanwhile, West Virginia is either ignored by the rest of the nation or is the butt of jokes about ignorant hillbillies.

Here in West Virginia we will forget our fleeting dream of basketball glory and get about the business of mourning. It is, after all, something we do very well. In the area around the Upper Big Branch, families of the dead will gather in churches and their neighbors will come to pray with them. They will go home, and the same neighbors will show up bearing platters of fried chicken and potato salad and cakes. The funeral homes will be jammed, the mourners in their best suits and ties and Sunday dresses.

And perhaps this time President Obama and Americans will pay attention, and notice West Virginia at last.

As I write this it is still too dangerous to send rescue teams down into the mines.   And there are no signs of life from the four miners who are still missing.

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Union negotiations and health care benefits

Next week my bargaining unit will have an all employee meeting to prepare for bargaining for a new contract.  Our current contract, like a lot of city contracts, ends September 30.  So what will be the most contentious issues:  Wages and Health Care.

Last year, we narrowly voted to support the Mayor by putting off a scheduled 2.5% raise what was to be effective at the beginning of the current contract year.  What will happen to that raise?  We gave up money under the general threat of layoffs – a ridiculous proposition in my unit which is about 95% federally funded and with stimulus funds to hand out, we are swimming in money compared to general funded agencies like the libraries, police and  schools.  The teachers and police, by the way, voted against a freeze and no one was laid off – at least not yet.  I judge our changes of getting any kind of COLA to be slim to none – except maybe that elusive 2.5%.

So that leaves health care benefits.  I admit we do have a great deal.  The employee paid part is low and the co-pays small but it does cost the city a bundle.   This is a chart from the Boston Globe.

Looking at the chart it makes sense that we would agree to joing GIC.  And certainly retirees whould join Medicaid.  (My bargaining unit agreed to that last year for future retirees.)  But here are the political problems.

Sean Murphy, in his series of Globe articles, writes

Public employee unions are leery of changes to municipal health care plans.

Brad Tenney, secretary-treasurer of the Professional Fire Fighters of Massachusetts, an umbrella group of local unions, said his members are willing to “sit down with leaders on Beacon Hill and in the municipalities to reach a meeting of the minds.’’

“We recognize the significant cost of health care,’’ he said. “But we feel it is unfair to look at health insurance in a vacuum. Members gave up pay raises or accepted smaller pay raises through the years for the health care benefits they have.’’

Public employee unions and retiree groups, which make generous donations to the treasuries of many state officer-holders, are well-connected on Beacon Hill.

In brief interviews on Monday, House Speaker Robert DeLeo and Senate President Therese Murray expressed little desire to strip union employees of long-held collective bargaining rights. Murray also said she did not believe the GIC was capable of accepting cities and towns without increasing its staff.

The GIC provides health insurance for about 300,000 state employees, retirees, and elected officials, including employees and retirees of numerous independent authorities. State law allows the GIC to adjust the amounts subscribers pay in premiums and copayments without union negotiations.

I think that last sentence is at the heart of why a lot of unions, including mine, are reluctant to endorse the move to GIC, but I think it will be a big part of the bargaining this year.  I also think Tenney has it right that health insurance isn’t something to be looked at in a vacuum.  I was on the bargaining team last round and we worked very hard to make sure that the combination of wage increases and health care costs did not result in a negative amount for any employees.

Kevin Cullen sums it all up in his column in the Sunday Globe

In the case of cities and towns, we taxpayers are the owners, and we’ve got no gun. Taxes come out of a spigot we can’t shut off. And if we don’t pay taxes, we’ll be escorted to jail by some guy whose health plan we’re paying for. The idea that taxpayers are forced to underwrite health care plans that the vast majority of us can only dream about is more than galling.

But aside from being good doobies, and in some cases averting layoffs, what’s the incentive for the unions to give up their benefits?

Before you go bashing the unions, which is irresistible in this case, would you, short of having that gun to your head, give up benefits?

After Murphy’s stories ran, the Boston Foundation put out a report saying that the only way we can stave off the financial ruin of many cities and towns is for the Legislature to stand up to the vested interests and change the law, forcing municipal employees to shoulder more of their health care costs. The report also urged mayors and other municipal executives to force retirees onto Medicare at 65.

So the financial solvency of many cities and towns rests on the premise that politicians will do the right, as opposed to the expedient, thing by going after two of the most politically active demographic groups in the state, the unions and retirees.

God help us.

Murphy’s stories have caused understandable anger. But they should also cause everybody to pick up the phone and tell the pols in Washington they have to put aside the ridiculous charade that has passed for debate and produce something that will improve the way health care gets doled out and, just as important, rein in runaway costs.

It is hard to say what will happen with municipal unions.  I have a feeling that since we can’t strike, we will be working without a contract for a while.  But there is some hope.  The workers from one of the largest supermarket chains have announced just a short while ago that a strike had been avoided.

Grocery workers this morning approved a new contract with Stop & Shop Supermarket Co., ending months of tense negotiations and averting a threatened strike.

A day after reaching a tentative agreement with the supermarket chain, some 2,000 union members agreed to a three-year deal that will boost wages and preserve benefits, said a spokesman for the area branch of the United Food and Commercial Workers.

“Through the hard work of negotiators, we were able to reach an agreement that maintained our great health and pension benefits and provided general wage increases,” said Jim Carvalho, a spokesman for UFCW Local 1445, which represents 36,000 Stop & Shop employees in southern New England.

So maybe there is hope.  And the bottom line is everyone should have access to the kind of benefits government workers have.

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Gordon Brown, Tory Madrasas, and the British Elections

I listen to BBC radio sometimes at night before I go to sleep and was surprised a couple of days ago to hear story that Gordon Brown and the Labour party may actually do well in the upcoming elections.  Then I read this story in today’s Washington Post.  Anthony Faiola writes

Only a few months ago, British Prime Minister Gordon Brown seemed a figure living out a Shakespearean tragedy. An ill-tempered Caesar surrounded by disloyal aides, an out-of-touch King Lear about to lose his throne. But Brown may not yet be ready to make his curtain call.

In fact, the dour Scotsman is staging an unlikely comeback, with his Labor Party rebounding in opinion polls only weeks ahead of a general election. Depending on the poll, Labor is clawing back from a 20 percentage-point deficit last year to within two to six points of the opposition Conservative Party, led by the eloquent and fresh-faced David Cameron.

Though Labor is still trailing in the polls, the party’s defeat after 13 years in power is no longer a foregone conclusion here. And Brown, long seen as far more clumsy and ham-handed than his flashy predecessor, Tony Blair, has recently been garnering rare praise. On Friday, pundits said Brown was more empathetic and politically skilled in answering tough questions before a high-level inquiry on the Iraq war here than Blair was when he appeared before the commission in January.

Yet the biggest reason for the new momentum of the incumbent party in Britain may hearten the Democratic Party in the United States. More than anything else, analysts attribute Labor’s recent rebound not to Brown himself but to the nascent economic recovery here.

There seems to be agreement that Brown also helped himself and Labour with his testimony yesterday before the British panel looking into the Iraq War.  The Guardian story by Patrick Wintour was a bit surprised at Brown’s performance.

Gordon Brown took a major political gamble yesterday by describing Tony Blair‘s decision to go to war in Iraq as “the right decision for the right reasons” and insisting that “everything that Mr Blair did during this period, he did properly”.

Dogged by a reputation for disowning unpopular decisions, Brown used his appearance at the Chilcot inquiry into the Iraq war to deliver a firm defence of Britain joining the US-led invasion, a decision taken and executed when Blair was prime minister and Brown was chancellor.

In his most prolonged inquisition on Iraq since the invasion seven years ago, Brown accepted he had been fully involved in the run-up to the invasion, underlined the gravity of going to war, praised the military and, unlike Blair, expressed his sadness at the huge loss of civilian life in Iraq. His only major equivocation was regret at the way in which he had failed to persuade the Americans to handle the aftermath differently.

The New York Times offers essentially the same facts with a little more color

The hearing was billed as a defining opportunity for Britain to get some answers on the war from Mr. Brown, who as finance minister was the most senior member in the cabinet of his predecessor, Tony Blair. But he kept an even keel and dodged the type of knockout blow that could have hurt him in the national elections widely believed to be coming in May. He reaffirmed the rationale for entering the war while taking care to pay respects repeatedly to the dead and rebuffing critics who accused the Treasury of underfinancing the military during the war.

After his final statement, Mr. Brown let loose with a rare public smile, apparently sending a message that he had nothing to hide and had done nothing to apologize for. As he walked out the front door of the conference center, he took care to shake the hand of a security guard — a marked contrast to an embarrassing moment a year ago when he failed to shake hands, as President Obama had, with a guard at the door of 10 Downing Street. His appearance also contrasted sharply with that of Mr. Blair, who entered the building in secret during his hearing this year to avoid the many protesters who blamed him for Britain’s involvement in the war.

While Brown is busy rehabilitating his dour Scots image and helping Labour, the Conservative candidates are busy studying at a Tory Madrasa according to the Guardian. 

Tory parliamentary candidates have undergone training by a rightwing group whose leadership has described the NHS [National Health Service] as “the biggest waste of money in the UK”, claimed global warming is “a scam” and suggested that the waterboarding of prisoners can be justified.

At least 11 prospective Tory candidates, an estimated seven of whom have a reasonable chance of winning their seats, have been delegates or speakers at training conferences run by the Young Britons’ Foundation, which claims to have trained 2,500 Conservative party activists.

The YBF chief executive, Donal Blaney, who runs the courses on media training and policy, has called for environmental protesters who trespass to be “shot down” by the police and that Britain should have a US-style liberal firearms policy. In an article on his own website, entitled Scrap the NHS, not just targets, he wrote: “Would it not now be better to say that the NHS – in its current incarnation – is finished?”

Blaney has described the YBF as “a Conservative madrasa” that radicalises young Tories. Programmes have included trips to meet neo-conservative groups in the US and to a shooting range in Virginia to fire submachine guns and assault rifles.

The group’s close ties to the Tories were cemented this week when the Conservative party chairman, Eric Pickles, and the shadow defence secretary, Liam Fox, spoke at the annual YBF parliamentary rally at the House of Commons, which was chaired by Blaney.

I wonder what David Cameron, the Conservative leader, thinks.

Eric Pickles at the Tory conference

The picture is of the Conservative Party Chairman, Eric Pickles, speaking at a Young Briton’s rally, kinda like Cantor or Boehner at a tea party I think.  I had to include his picture because he reminds me of Karl Rove even though he is their Michael Steele.

The elections have to be called for sometime before June and it should be interesting.  Democrats take heart – and pass Health Care Reform.

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Can we listen to the old guys?

I ran across this piece in the New York Times last week while I was sitting at my desk eating my sandwich and surfing around the papers and I’ve been thinking about it ever since.  Headlined “Elders of Wall Street Favor More Regulation” it discussed the  financial regulation reforms now stalled in the Senate.

Around the same time, Paul Krugman wrote a short entry in his The Conscience of a Liberal blog.

At this point the odds are that in response to the most devastating financial crisis since the Great Depression, we will do … nothing.

And while there is plenty of blame to spread around, it’s important not to be too even-handed. The fact is that the Democrat-controlled House has already passed a pretty good reform bill. But in the Senate, well, here’s what the FT reports:

Senate Republicans are resisting a fundamental tenet of the Obama administration’s financial regulatory reforms in another obstacle for the stalled legislative process.

Several aides from both parties involved in reform negotiations told the Financial Times that Republicans had opposed in private a plan to impose tougher capital and liquidity requirements on companies that posed a risk to the financial system.

That’s tantamount to opposing any real reform.

Into the fray step the old guys.  Old, white and mostly Republican (I presume).

Put aside for a moment the populist pressure to regulate banking and trading. Ask the elder statesmen of these industries — giants like George Soros, Nicholas F. Brady, John S. Reed, William H. Donaldson and John C. Bogle — where they stand on regulation, and they will bowl you over with their populism.

They certainly don’t think of themselves as angry Main Streeters. They grew quite wealthy in finance, typically making their fortunes in the ’70s and ’80s when banks and securities firms were considerably more regulated. And now, parting company with the current chieftains, they want more rules, Louis Uchitelle writes in The New York Times.

While the younger generation, very visibly led by Lloyd C. Blankfein, chief executive of Goldman Sachs, lobbies Congress against such regulation, their spiritual elders support the reform proposed by Paul A. Volcker and, surprisingly, even more restrictions. “I am a believer that the system has gone badly awry and needs massive reform,” said Mr. Bogle, the 80-year-old founder and for many years chief executive of the Vanguard Group, the huge mutual fund company.

Mr. Volcker, 82, signed up the support of nearly a dozen peers whose average age is north of 70 and whose pedigrees on Wall Street and in banking are impeccable. But while Mr. Volcker focuses on a rule that would henceforth prohibit a bank that takes deposits from also buying and selling securities for its own account — risking losses in the process — most of his prominent supporters see that as a starting point in a broader return to regulation. And most do not hesitate to speak up in interviews with The New York Times.

A younger elder, John Reed (he’s only 71) even talks about bringing back Glass-Steagall

Nor does it bother John S. Reed, a former Citigroup co-chairman, who played a role in building Citi into a powerhouse that mingled commercial banking and all sorts of trading activities. That mix helped to precipitate the current credit crisis, requiring a costly federal bailout of Citigroup, among others, in 2008.

Mr. Reed, now 71, was long gone by then, and from retirement he has second thoughts. He even thinks about resurrecting the Glass-Steagall Act of 1933, which prevented banks from engaging in any sort of trading activity involving stocks and bonds. (It was revoked in 1999, partly at the behest of Citigroup, then run by Sanford I. Weill.)

So going back to Krugman’s comments,

You might think that the GOP would pay a political price for this. But it already has its strategy: insist that black is white.

The right-wing group “Committee for Truth In Politics” seems to have taken the advice of the postmodernist Frank Luntz, and cast new regulations on Wall Street, which Wall Street is furiously attempting to kill, as a giant favor to Wall Street.

And they’ll probably get away with it.

Unless someone starts listening to the old guys.

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The Recession Effect

Two stories in today’s papers, one in the Boston Globe and the other in the New York Times, combined with a sudden flurry of foreclosure activity at the office reminds me that the lagging  job creation numbers are not just statistics for economists and government agencies to toss around.  The effects are real and are clearly taking their tolls.

This from the Boston Globe this morning

Requests for reduced alimony and child support payments have surged, and the emotional toll of lost jobs, slashed pay, and uncertain futures appears to be driving an increase in other family problems.

“People are increasingly agitated, and it’s incredibly emotional,’’ said Paula M. Carey, chief justice of the Probate and Family Court. “They are out of work, struggling to keep their homes, and all of that takes a toll. Every day, in every court, you can see it.’’

The same economic turmoil that has prompted more families to seek judicial relief has also made courts less equipped to provide it. Steep budget cuts have left the family courts roughly 40 percent understaffed. There have been cutbacks in court-appointed guardians and probation officers who try to mediate disputes before they are brought to judges, increasing judges’ caseloads and creating delays. Financial constraints have forced more clients to represent themselves, which has tended to further slow proceedings.

You have to worry about the impact on children and teenagers.

One day last week in Courtroom 2 of Boston’s Edward W. Brooke Courthouse, more than 50 cases came before Judge Joan Armstrong – an unrelenting succession of single mothers pleading for more support, some fathers saying they can’t pay, and couples grimly agreeing their marriages were beyond repair. Some had lawyers with expensive suits and leather briefcases by their side; others stood alone. Most traded accusations. Few found common ground.

Looming over nearly every case was the heavy weight of financial distress, and parent after parent described for the judge an economic situation hanging by a thread. As the day began, stacks of thick folders were piled high on the judge’s desk, and in quick succession a mother won permanent guardianship of her daughter, a 19-year-old with Down syndrome; an elderly woman in a shawl, after gazing imploringly at the ceiling as though for guidance, won her motion to extend by a year a restraining order against her former husband; a woman requested a hearing on reducing her child support payment.

What I really fail to comprehend is the Republican position that we can’t increase the deficit to create jobs and to fund a jobs program.  Don’t they understand that putting people back to work not only helps reduce the stress on them, but also means that they help support the economy by paying taxes?  Putting funds into the Highway Trust Fund and other transportation projects as my congressman, Mike Capuano, has proposed would allow states to proceed with infrastructure programs and hire people.  The current stimulus programs are a start, but much more is needed.

More than half of the nation’s unemployed workers have borrowed money from friends or relatives since losing their jobs. An equal number have cut back on doctor visits or medical treatments because they are out of work.

Almost half have suffered from depression or anxiety. About 4 in 10 parents have noticed behavioral changes in their children that they attribute to their difficulties in finding work.

Joblessness has wreaked financial and emotional havoc on the lives of many of those out of work, according to a New York Times/CBS News poll of unemployed adults, causing major life changes, mental health issues and trouble maintaining even basic necessities.

These are the results of a new poll announced today in the New York Times.

With unemployment driving foreclosures nationwide, a quarter of those polled said they had either lost their home or been threatened with foreclosure or eviction for not paying their mortgage or rent. About a quarter, like Ms. Newton, have received food stamps. More than half said they had cut back on both luxuries and necessities in their spending. Seven in 10 rated their family’s financial situation as fairly bad or very bad.

But the impact on their lives was not limited to the difficulty in paying bills. Almost half said unemployment had led to more conflicts or arguments with family members and friends; 55 percent have suffered from insomnia.

This graphic illustrates some of the results.

And of course many of the long term unemployed can’t afford health insurance – even the COBRA payments – so they are unable to take care of the health issues resulting from the stress and anxiety creating even more stress. 

Nearly half of respondents said they did not have health insurance, with the vast majority citing job loss as a reason, a notable finding given the tug of war in Congress over a health care overhaul. The poll offered a glimpse of the potential ripple effect of having no coverage. More than half characterized the cost of basic medical care as a hardship.

I realize that the Obama administration is trying to talk banks into lending to small businesses which create jobs, but without a real public jobs program to put people to work so they can begin spending and paying taxes I am afraid that foreclosures will continue increase, domestic violence will rise,  and the overall level of violence will continue to increase.

One very interesting result of the poll was who got the blame.

In terms of casting blame for the high unemployment rate, 26 percent of unemployed adults cited former President George W. Bush; 12 percent pointed the finger at banks; 8 percent highlighted jobs going overseas and the same number blamed politicians. Only 3 percent blamed President Obama.

Those out of work were split, however, on the president’s handling of job creation, with 47 percent expressing approval and 44 percent disapproval.

The Republicans may seem to have forgotten who allowed the economic crisis to happen, but it appears that the unemployed have not.  But clearly, the Obama administration and Congress need to act quickly.

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Jobs and the Recovery

Very interesting blog entry today from Floyd Norris, Chief Financial Editor of the New York Times.   We all know that the last unemployment figures showed a rise to 10.2% and that President Obama keeps trying to explain that jobs are the last thing to return after a recession.  But Norris argues that maybe things have already started to turn.

The economic reactions over the weekend to Friday’s employment report all started from the assumption that things grew much worse in October. The unemployment rate leaped to 10.2 percent from 9.8 percent. Another 190,000 jobs vanished.

Actually, none of that happened.

In reality, the government report says unemployment rates remained steady at 9.5 percent. And the number of jobs actually rose, by 80,000. And the number of jobs for college-educated Americans rose more than in any month in the last six years.

If those were the numbers in the articles, we would hear about the economy stabilizing, and talk about the Obama stimulus plan starting to have the intended effect.

Why the disparity in numbers?  Because of something called “seasonal adjustment”.

…For some reason, October is the month with the largest seasonal adjustment down in jobs. So the increase in the unemployment rate does not reflect people actually losing jobs. It reflects the belief that seasonal factors should have added more jobs than they did.

So if there were no seasonal adjustment factor, jobs would have actually increased.

Studying the unadjusted numbers provides some indication that the hiring is starting to improve for better jobs. The number of jobs for college graduates, according to the household survey, rose 755,000 in October, before seasonal adjustments. That is the third-largest increase since the government started counting those figures, in 1992. (It trails increases of 895,000 in February 2002 and 755,000 in October 2003.)

On the other hand, the number of jobs fell for those with less education. If this report does indicate that the job recession is ending, it is an end that is providing immediate benefits for the educated, not for many of the people who most need help.

So when the stimulus funding really gets out on the street, probably in the spring, employment for construction jobs should increase.  In the meanwhile, we need to make sure unemployment benefits remain available.

 

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The “Recovery”

It is just before 6 am and I logged on to the New York Times.  Two headlines say it all:

“Federal Pay Czar Tries Again to Trim A.I.G. Bonuses”  and  “Still on the Job, But Making Only Half as Much”

The first story is about the difficulties in getting A.I.G to reduce or not pay $198 million to employees of the trading unit.  The same unit that is part of the cause of this recession.

But the Treasury’s special master for compensation, Kenneth Feinberg, is running into legal hurdles because those bonuses fall outside new rules against bonus payments at companies receiving government assistance. The bonus agreements at issue were struck before last year’s emergency rescues by the Treasury and the Federal Reserve, and thus are not directly covered by the new rules.

The problem is a recurring one. A.I.G. payments early this year to the same employees elicited public outrage, though government officials said then that they had little legal authority to rescind pre-existing contracts.

The second story is about people who still have jobs, but have taken deep pay cuts and/or demotions in pay grade to keep their jobs.

In recent decades, layoffs were the standard procedure for shrinking labor costs. Reducing the wages of those who remained on the job was considered demoralizing and risky: the best workers would jump to another employer. But now pay cuts, sometimes the result of downgrades in rank or shortened workweeks, are occurring more frequently than at any time since the Great Depression.

State workers in Georgia are taking home smaller paychecks. So are the tens of thousands of employees in California’s public university system. The steel company Nucor and the technology giant Hewlett-Packard have embraced the practice. So have several airlines and many small businesses.

Let’s face it.  AIG is not solely responsible for the economic crisis.  Many of the rest of us were also riding high and spending beyond our means. The couple in the paycut story is an example.  Both seem to have their self esteem tied up in the amount of money they make. 

But most of the rest of the world must now scale back while a company which played a large role in the collapse still gives out bonuses.  Makes you wonder.  Hope the bonus recipients save the money for their rainy day.

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Health Care as a Subprime Mortgage

I have been staying out of the health care reform debate in part because I didn’t know how to say that one of the problems with cost is greedy doctors.  As the cliche goes, “some of my best friends are doctors” and I understand how costly thier education was and how far they are in debt.  I have also read that contrary to what we hear from doctor and hospital interest groups, the care one gets in Europe and Canada and many other places results in similar outcomes for the patient as we achieve but for a much lower cost.  We tend to talk aobut low cost health care as if cost were directly related to quality as in the higher cost the better the care.

Then I began reading the June 1 New Yorker on the train this week.  It has taken me all week to get through “The Cost Conundrm: What a Texas town can teach us about health care.”   (My summary is long also but I hope you will read it, even if you don’t read the whole article.)  Atul Gawande writes about the difference in the health care costs between McAllen, Texas and El Paso, Texas which are neighboring towns and wonders why the cost of care are so much more expensive in McAllen. 

And yet there’s no evidence that the treatments and technologies available at McAllen are better than those found elsewhere in the country. The annual reports that hospitals file with Medicare show that those in McAllen and El Paso offer comparable technologies—neonatal intensive-care units, advanced cardiac services, PET scans, and so on. Public statistics show no difference in the supply of doctors. Hidalgo County actually has fewer specialists than the national average.

Nor does the care given in McAllen stand out for its quality. Medicare ranks hospitals on twenty-five metrics of care. On all but two of these, McAllen’s five largest hospitals performed worse, on average, than El Paso’s. McAllen costs Medicare seven thousand dollars more per person each year than does the average city in America. But not, so far as one can tell, because it’s delivering better health care.

Gawande also looked other models like the Mayo Clinic “which is among the highest-quality, lowest-cast health-care systems in the country.”

The Mayo Clinic is not an aberration. One of the lowest-cost markets in the country is Grand Junction, Colorado, a community of a hundred and twenty thousand that nonetheless has achieved some of Medicare’s highest quality-of-care scores. Michael Pramenko is a family physician and a local medical leader there. Unlike doctors at the Mayo Clinic, he told me, those in Grand Junction get piecework fees from insurers. But years ago the doctors agreed among themselves to a system that paid them a similar fee whether they saw Medicare, Medicaid, or private-insurance patients, so that there would be little incentive to cherry-pick patients. They also agreed, at the behest of the main health plan in town, an H.M.O., to meet regularly on small peer-review committees to go over their patient charts together. They focussed on rooting out problems like poor prevention practices, unnecessary back operations, and unusual hospital-complication rates. Problems went down. Quality went up. Then, in 2004, the doctors’ group and the local H.M.O. jointly created a regional information network—a community-wide electronic-record system that shared office notes, test results, and hospital data for patients across the area. Again, problems went down. Quality went up. And costs ended up lower than just about anywhere else in the United States.

Grand Junction’s medical community was not following anyone else’s recipe. But, like Mayo, it created what Elliott Fisher, of Dartmouth, calls an accountable-care organization. The leading doctors and the hospital system adopted measures to blunt harmful financial incentives, and they took collective responsibility for improving the sum total of patient care.

This approach has been adopted in other places, too: the Geisinger Health System, in Danville, Pennsylvania; the Marshfield Clinic, in Marshfield, Wisconsin; Intermountain Healthcare, in Salt Lake City; Kaiser Permanente, in Northern California. All of them function on similar principles. All are not-for-profit institutions. And all have produced enviably higher quality and lower costs than the average American town enjoys.

So what happened in McAllen to make it so expensive?

About fifteen years ago, it seems, something began to change in McAllen. A few leaders of local institutions took profit growth to be a legitimate ethic in the practice of medicine. Not all the doctors accepted this. But they failed to discourage those who did. So here, along the banks of the Rio Grande, in the Square Dance Capital of the World, a medical community came to treat patients the way subprime-mortgage lenders treated home buyers: as profit centers.

And we all know what happened to the subprime mortgage lenders. 

Gawande believes that the focus of the health care debate is misplaced.

As economists have often pointed out, we pay doctors for quantity, not quality. As they point out less often, we also pay them as individuals, rather than as members of a team working together for their patients. Both practices have made for serious problems.Providing health care is like building a house. The task requires experts, expensive equipment and materials, and a huge amount of coördination. Imagine that, instead of paying a contractor to pull a team together and keep them on track, you paid an electrician for every outlet he recommends, a plumber for every faucet, and a carpenter for every cabinet. Would you be surprised if you got a house with a thousand outlets, faucets, and cabinets, at three times the cost you expected, and the whole thing fell apart a couple of years later? Getting the country’s best electrician on the job (he trained at Harvard, somebody tells you) isn’t going to solve this problem. Nor will changing the person who writes him the check.

This last point is vital. Activists and policymakers spend an inordinate amount of time arguing about whether the solution to high medical costs is to have government or private insurance companies write the checks. Here’s how this whole debate goes. Advocates of a public option say government financing would save the most money by having leaner administrative costs and forcing doctors and hospitals to take lower payments than they get from private insurance. Opponents say doctors would skimp, quit, or game the system, and make us wait in line for our care; they maintain that private insurers are better at policing doctors. No, the skeptics say: all insurance companies do is reject applicants who need health care and stall on paying their bills. Then we have the economists who say that the people who should pay the doctors are the ones who use them. Have consumers pay with their own dollars, make sure that they have some “skin in the game,” and then they’ll get the care they deserve. These arguments miss the main issue. When it comes to making care better and cheaper, changing who pays the doctor will make no more difference than changing who pays the electrician. The lesson of the high-quality, low-cost communities is that someone has to be accountable for the totality of care. Otherwise, you get a system that has no brakes. You get McAllen.

The conclusion to Gawande exploration:  We need to fundamentally change the culture of our health care system, to figure out what medical protocols are the most effective, to look at what makes the best health care delivery systems successful.  His final paragraphs are chilling.

Something even more worrisome is going on as well. In the war over the culture of medicine—the war over whether our country’s anchor model will be Mayo or McAllen—the Mayo model is losing. In the sharpest economic downturn that our health system has faced in half a century, many people in medicine don’t see why they should do the hard work of organizing themselves in ways that reduce waste and improve quality if it means sacrificing revenue.

In El Paso, the for-profit health-care executive told me, a few leading physicians recently followed McAllen’s lead and opened their own centers for surgery and imaging. When I was in Tulsa a few months ago, a fellow-surgeon explained how he had made up for lost revenue by shifting his operations for well-insured patients to a specialty hospital that he partially owned while keeping his poor and uninsured patients at a nonprofit hospital in town. Even in Grand Junction, Michael Pramenko told me, “some of the doctors are beginning to complain about ‘leaving money on the table.’ ”

As America struggles to extend health-care coverage while curbing health-care costs, we face a decision that is more important than whether we have a public-insurance option, more important than whether we will have a single-payer system in the long run or a mixture of public and private insurance, as we do now. The decision is whether we are going to reward the leaders who are trying to build a new generation of Mayos and Grand Junctions. If we don’t, McAllen won’t be an outlier. It will be our future.

You may not agree with Dr. Gawande’s conclusion, but everyone who has a stake in the health care system should read his article and think about what he says.

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Updates on Recent Posts

Today’s Wasserman cartoon in the Boston Globe is a perfect follow up to my recent post on Banks and Our Money.

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And then you have even more trending toward Marriage Equality.  This happened today.

The Maine House of Representatives approved a bill to legalize same-sex marriage Tuesday, bringing the state one step closer toward legalizing the practice.After an emotional three-hour debate, the Democratically-controlled House voted 89 to 57 in favor of the bill.

“The country is watching us, to see how a small proud, independent state will stand on issue of equality,” said Rep. Sean Flaherty of Scarborough, who supported the bill.

The State Senate, which is also controlled by Democrats, approved the bill last week in a 21 to 14 vote. The vote was mostly along party lines, though one Democrat opposed the bill and one Republican voted in favor. The body must now give final approval to the bill.

Everyone is now waiting to see what the Democratic governor, John Baldacci, will do.  It seems to be a race between Maine and New Hampsire.  And also today, Washington D.C. City Council voted to recognize gay marriages.  We continue to make progress.