US Policy Strategies » Healthcare

Republicans, Stand Up for Health Freedom

mariel — Thu, 19 Oct 2017 13:16:03 +0000

As a precondition for any bailout deal, families should be permitted to opt out of ObamaCare.

By Phil Gramm

Oct. 18, 2017 6:17 p.m. ET

While there is plenty of blame to go around for Republicans’ inability to repeal and replace Obama Care, the effort was all but doomed as soon as the GOP chose to fight on the wrong battlefield. Trying to pass a replacement through the budget process known as reconciliation was powerfully attractive, since it would have permitted the Senate to act on ObamaCare with only 51 votes.

But under the Senate’s rules for reconciliation, the debate was limited to actions that would directly affect revenues and expenditures, thereby forcing Republicans into an argument about how much to spend on ObamaCare beneficiaries.

Using reconciliation therefore precluded Senate debate on meaningful changes in policy that could have helped the millions of Americans harmed by ObamaCare. Since the debate turned on spending instead of health-care freedom, Republicans lost.

To understand where ObamaCare is vulnerable, first consider why President Obama succeeded in collectivizing American health care when President Clinton had failed. So long as the debate over ClintonCare centered on new benefits, support grew. At the high-water mark in 1993-94, as many as 74 senators supported ClintonCare or something very close to it. Concerns over cost and efficiency were shrugged off. The proposal fell apart only when Americans realized that ClintonCare would take away their freedom, forcing them into a system where government would largely control their health care.

Republicans might have forgotten that lesson, but Mr. Obama didn’t. To prevent a debate about coercion and lost freedom, he employed the most consequential lie in the recent history of American governance: “No matter how we reform health care, I intend to keep this promise: If you like your doctor, you’ll be able to keep your doctor; if you like your health-care plan, you’ll be able to keep your health-care plan.” This calculated falsehood, repeated by every congressional Democrat, focused the debate on providing new health-care benefits—and Democrats won.

Shortly after ObamaCare’s enactment, the nation discovered the truth: Millions of Americans had lost the freedom to choose their doctors and insurance plans, while many young and relatively healthy families found themselves coerced into a collectivist program designed to exploit them. In 2010 they went to the polls and elected a Republican House.

As rising premiums drowned out more of ObamaCare’s massive subsidies, the number of Americans who benefited from the law declined and the number hurt by it increased. The surging number of ObamaCare “losers” elected a Republican Senate in 2014 and helped put Mr. Trump in office two years later.

Fulfilling the GOP’s mandate to end ObamaCare, the House passed a bill that would restore health-care freedom, expand consumer choice, and pass control of Medicaid and the exchange subsidies back to the states. But then the bill was sent over to the Senate, where the parliamentarian dutifully enforced the rules of reconciliation. Thus, all the significant policy reforms adopted by the House were struck.

Republicans lost their most powerful issue in the health-care debate: giving Americans the freedom to refuse to participate in ObamaCare. When Republicans tried to put together a fallback plan under the rules of reconciliation, the argument degenerated into a bidding war. Republicans could not match ObamaCare’s benefits without preserving ObamaCare’s taxes, coercion and endless commitment to additional funding.

The GOP’s original strategy of defunding ObamaCare via reconciliation—a bill to that end had previously passed Congress and been vetoed by President Obama—might have been the first step toward success. By first defunding ObamaCare, Republicans could have forced a debate on a bipartisan replacement. That strategy worked for President Obama when he allowed the Bush tax cuts to expire at the end of 2012 and then engaged in bipartisan negotiations to rewrite the tax code.

President Trump has now created another such opening for compromise by announcing he will end ObamaCare’s cost-sharing payments to insurers. Without a constant injection of additional money, ObamaCare premiums will spiral upward, and the number of Americans who benefit from the program will continue to fall.

But the initial bipartisan bill, offered by Sens. Lamar Alexander (R., Tenn.) and Patty Murray (D., Wash.), is more of a capitulation than compromise. It resuscitates ObamaCare but hardly provides a fig leaf for Americans who want their health-care freedom back—the very people who elected Republicans.

Any agreement to restore funding for cost-sharing payments should be tied to provisions allowing families to opt out of ObamaCare and buy coverage that meets their individual needs. The compromise should also grant insurers the right to sell such plans independent of ObamaCare’s rules and its rigged risk pool.

A money-for-freedom compromise would at last provide an opportunity to debate health-care freedom, something the public was denied by the great ObamaCare lie. If Democrats refuse to allow ObamaCare’s losers to escape in return for funding for the program’s beneficiaries, it will be Democrats who let the program collapse. Throughout the debate they will be forced to argue against the very health-care freedom they falsely promised when they adopted ObamaCare.

If Republicans seize this high ground, they can quit fighting each other and the Senate parliamentarian and instead engage the one issue Democrats have successfully avoided for eight years: freedom. When the freedom debate begins, ObamaCare’s end will not be far behind.

Mr. Gramm, a former chairman of the Senate Banking Committee, is a visiting scholar at the American Enterprise Institute.

WSJ: Replace ObamaCare, Don’t Rename It

mariel — Fri, 03 Feb 2017 14:52:58 +0000

Trying to cure all the program’s ills will only make them worse—and the GOP will get the blame.

By PHIL GRAMM

Feb. 2, 2017 7:23 p.m. ET

So powerful is the political appeal of entitlement programs that modern democracies routinely choose bankruptcy over curtailing them. That’s even true of ObamaCare. Despite surging premiums, lagging enrollment, the growing burden on the economy, and the enduring opposition of most voters, the debate is about replacing rather than simply repealing it.

If the objective were simply to prove why something as important as health insurance should never be turned over to the government, lawmakers would simply pass a health-care freedom amendment allowing people to buy insurance outside ObamaCare, as they were originally promised, and let the program die of its own weight. But since Republicans have promised to protect Americans from the consequences of ObamaCare’s failure, what might have been a valuable learning experience is not a viable option.

ObamaCare subsidized small employers to provide health insurance, funded massive subsidies on the health exchanges, and imposed increasing penalties on the uninsured who did not buy insurance on the exchanges—spending $67 billion to subsidize the purchase of private insurance in 2016 alone. From its adoption in 2010 through 2016, according to data from the Centers for Disease Control, the number of Americans with private health insurance has risen by 14.6 million, or 8.9%.

That’s not as impressive as it sounds. Even though HillaryCare was defeated, the number of Americans with private insurance rose 7.5% between 1992 and 1998, through wage and job growth alone. Applied to the 2016 population, the growth-induced increase in the percentage of Americans who obtained private health insurance during the comparable stages of the Clinton recovery would have been 12.3 million. To put it another way, compared with what a strong recovery would have been expected to produce without new subsidies, ObamaCare added only 2.3 million people to the private insurance rolls at a cost of $29,130 each.

The comparison brings home two important points. First, subsidies are a poor substitute for economic growth, even in providing health insurance. Second, the exorbitant cost of ObamaCare shows how inefficient government subsidies are in helping people meet even basic needs.

But ObamaCare’s problems are not just the result of poor government engineering. They are the result of the financial physics of massive government overpromising. By allowing people to buy subsidized health insurance after being diagnosed with a major illness, ObamaCare encourages them to delay buying insurance until they are sick. Its massive subsidies pay 75% of premiums for families earning the median household income and provide subsidies to families of four earning as much as $97,200. It will add 18.6 million people to Medicaid over the next five years, bringing almost a quarter of the U.S. population under the program.

These entitlement expansions come at a time when Medicare faces insolvency in 11 years and Social Security in 17 years. Further, when interest rates simply return to their historic norms, the cost of servicing the post-Obama national debt will more than double, sending the annual federal deficit permanently over $1 trillion a year if nothing else changes.

Democrats could have continued providing ObamaCare benefits only by doing three things Republicans don’t want to do: First, coerce more relatively young, healthy people into the system to be exploited. Second, suppress the explosion of health insurance premiums by using the powers granted in the Affordable Care Act to ration care—something Mr. Obama delayed out of fear of political blowback before the election. Third, preserve the antigrowth ObamaCare 3.8% dividend and interest tax on investors and small businesses.

The hard truth is that Republicans cannot come close to matching ObamaCare’s extraordinary benefit package and its massive expansion of Medicaid while having any hope of avoiding ObamaCare’s taxes, rationing, coercion and economic stagnation.

The Republicans’ best option is to make good on the Democrats’ broken promise by allowing those Americans who believe ObamaCare is a bad deal for their families to leave the program and buy health insurance in the private market, independent of ObamaCare’s constraints. As younger, healthier families obtain lower premiums by fleeing ObamaCare, those who remain in the program would be forced to pay a larger share of the cost of the benefits they receive.

That would re-create some of the same dynamics that existed when Congress repealed the Medicare Catastrophic Act in 1989, a year after its enactment. The MCA was overwhelmingly repealed with no grief or attempt at resuscitation. It died from the rarest of government diseases: honesty. Because it became law during the Gramm-Rudman era of budgetary discipline, the supplement to Medicare had to be fully paid for. President Reagan further insisted that those who benefited should pay for the program. When the beneficiaries had to pay for what they were getting, they revolted—literally chasing the House Ways and Means Committee chairman, Dan Rostenkowski, down a Chicago street.

As beneficiaries pay an ever increasing share of the cost of the benefits they receive, support for ObamaCare will plummet and Democrats will have a strong incentive to negotiate a replacement. Ultimately, Republicans will probably need to use reconciliation—a procedure requiring only 51 Senate votes—to terminate ObamaCare funding. That would follow the precedent Democrats set when they allowed the Bush tax cuts to expire at the end of 2012 and then negotiated a revision on their own terms in just three days.

ObamaCare could never have survived without forcing many more healthy Americans into the system to subsidize those benefiting from the program—exactly what the single-payer program Bernie Sanders and Hillary Clinton endorsed would have done. In scrapping ObamaCare, Republicans should be careful not to shoulder more than the objectives of finding a cost-efficient way to deal with pre-existing health problems, strengthening Americans’ ability to keep their insurance when they get sick or change jobs, and block-granting Medicaid to the states.

If they try to do more, they will be in danger of only changing the name of ObamaCare. They would then own a program that is detrimental to freedom, fiscal responsibility and economic growth.

Mr. Gramm, a former chairman of the Senate Banking Committee, is a visiting scholar at the American Enterprise Institute.

Where Clinton Will Take ObamaCare

mariel — Tue, 18 Oct 2016 14:54:22 +0000

As with HillaryCare, a single payer, national health-care system has always been the goal.

By PHIL GRAMM

Oct. 17, 2016

In claiming earlier this year that the current U.S. health-care system “was HillaryCare before it was called ObamaCare,” Hillary Clinton was telling the truth—but not the whole truth. In 1993, while first lady, Mrs. Clinton led a task force to deliver universal health care to the voters who elected her husband. She failed. After many revisions, the final bill stalled in the Senate for lack of Democratic votes.

HillaryCare was a comprehensive plan for the government to take over the health-care system, with program details and cost-control measures precisely defined. Having learned from that defeat, the Obama administration left as many details as possible to be written during implementation after ObamaCare became law. With few details to defend and the clear falsehood that “if you like your health-care plan you can keep it,” President Obama pushed through his “signature” legislation.

While Bill Clinton recently denounced the Affordable Care Act’s effect on the health-care market as “the craziest thing in the world,” ObamaCare was never anything more than a politically achievable steppingstone. As with HillaryCare, a single payer, national health-care system has always been the goal.

Hillary Clinton’s Health Security Act of 1993 would have broken the nation’s health-care system into regional Healthcare Purchasing Cooperatives, which would have collectively set treatment guidelines and implemented cost-control measures. In the abstract, HillaryCare was just as popular as ObamaCare would be 16 years later, with some 20 Republican senators initially supporting an alternative plan that would have largely implemented HillaryCare.

That’s when Sen. John McCain, the late Sen.Paul Coverdell and I took our fight against the bill to regional media markets. When we attacked HillaryCare as inefficient, people yawned. When we showed that the program was unaffordable, people checked their watches. But when we focused on the extraordinary loss of freedom that HillaryCare entailed, where the federal government decided the doctor you could see and the services that could be provided, our rear-guard action became a crusade.

The stone that slew the HillaryCare Goliath was freedom. Even the Democrat-appointed head of the Congressional Budget Office was forced to conclude that under HillaryCare health-insurance premiums were federal revenues and all health-cooperative expenditures were federal outlays.

The decisions of HillaryCare’s National Control Board, which would have determined every allowable benefit and treatment, would have been final—not reviewable by any agency or judge. What finally broke the back of HillaryCare was the provision imposing civil penalties for providing treatments not allowed by the regional cooperative and criminal penalties for accepting a separate payment for providing such care within a cooperative.

Families were forced to pay into the regional cooperatives and medical providers had to provide all medical care through the cooperatives or operate completely outside them. Since few families could afford to pay the cooperative for health care and then pay for additional care, and few providers could afford to operate totally outside the system, any real health-care choice would have been extremely limited, very expensive and available only to the highest-income families. When challenged to defend the loss of freedom HillaryCare entailed, congressional support collapsed and no effort to resurrect it was made until ObamaCare.

President Obama left out the politically dangerous details of how the program would be structured and how costs would be controlled. But in the end ObamaCare passed because he neutralized the freedom issue that had killed HillaryCare by lying about the ability of Americans to keep their health insurance. Seldom in any free society has a purposeful lie led to a greater loss of freedom.

In 2008, candidate Obama attacked HillaryCare repeatedly, claiming in a speech in Ohio that Mrs. Clinton’s approach would “have the government force you to buy health insurance, and she said that she’d consider going after your wages if you don’t.” But the very coercion he condemned became the cornerstone of ObamaCare, with an “individual shared responsibility payment” of up to $2,085 levied by the IRS on anyone without health insurance.

The Achilles’ heel of ObamaCare today is the same weakness that felled HillaryCare—the coercion required to force millions of young, healthy people into the exchanges where they can be exploited. Why the Republican majority in Congress has never forced a vote on health-care freedom, giving families the right—promised by President Obama and his Democratic allies—to choose not to participate in ObamaCare and to buy the health care of their choice independent of the exchanges, remains the greatest mystery of the 114th Congress.

ObamaCare’s plan was always to cook the frog slowly. It didn’t immediately close the individual market or shut down the small-group market as HillaryCare did. President Obama granted substantial flexibility in implementation, such as suspending penalties for individuals and employers, waiving income-verification requirements and easing the premium shock on young enrollees by administratively adjusting the community-rating system. But the result of delaying the coercion ObamaCare requires has been an explosion in health-care premiums and massive losses by insurers.

Except for the fact that it is occurring right before the elections, the four largest national health insurers dropping out of ObamaCare is not a problem. This is the plan. Eliminating the facade of private insurance is how ObamaCare “morphs” into HillaryCare and ultimately into a single-payer plan like Medicaid or Medicare. This is exactly what Mr. Obama and the Clintons wanted to begin with. Right on cue, they are now campaigning for a Bernie Sanders-type nationalized health-care system.

For the ObamaCare of today to be transformed into the HillaryCare of 1993 and finally into a nationalized health-care system, a president is needed who has the willpower to impose the coercive details, nail down hard deadlines and unleash agencies to tighten controls and squeeze the life out of private insurers. In 1993 Hillary Clinton unapologetically proposed to do just that. If she is elected president she will have the unilateral power under ObamaCare to do it. The loss of what remains of Americans’ health-care freedom is an election away.

Mr. Gramm, a former chairman of the Senate Banking Committee, is a visiting scholar at the American Enterprise Institute.

WSJ: A Simple Cure for ObamaCare: Freedom

mariel — Tue, 24 Feb 2015 16:14:59 +0000

The GOP needs a politically defensible alternative if the Supreme Court overturns federal-exchange subsidies.

By: PHIL GRAMM

Feb. 23, 2015 6:26 p.m. ET

On March 4 the Supreme Court will hear oral arguments in King v. Burwell, with a decision expected in late June. If the court strikes down the payment of government subsidies to those who bought health insurance on the federal exchange, Republicans will at last have a real opportunity to amend ObamaCare. Doing so, however, will be politically perilous.

The language of the Affordable Care Act states that subsidies should only be paid through state exchanges. The bill’s authors perhaps believed that pressure from citizens and the health-care providers who would benefit would entice states to set up exchanges. But, faced with mounting technical problems in setting up the exchanges, the Obama administration decided—legally or illegally—to allow subsidies to be paid through a federally run exchange. Therefore, political pressure that might have convinced states to set up exchanges never developed.

The political pressures to set up state exchanges if federal subsidies are now struck down will be enormous. The Kaiser Family Foundation used Congressional Budget Office data to estimate that 13 million people will receive subsidies in 2016 through the federal exchange. If the Supreme Court strikes down these subsidies, 13 million people would lose an average of $4,700 a year, and health-care providers would certainly fight to protect some $60 billion a year in subsidies.

The president’s most likely response to an adverse court decision would be to refuse to work with Congress to fix ObamaCare. Instead he will likely mount an effort to force the 37 states now using the federal exchange to set up state exchanges to qualify for the subsidies. His administration could make it easy for states to continue to use the federal exchange while nominally taking ownership through a shell state entity. Ten states already have some form of partnership with the federal exchange.

Absent a strong Republican alternative, the president’s strategy would unleash powerful political pressure on Republican governors and legislators and force them to establish state exchanges. Such a result would saddle Republicans with a partial ownership of ObamaCare, alienating their political base and producing substantial fallout in the 2016 elections.

Republicans need a strategy that is easy to understand, broadly popular and difficult to oppose. It must unite Republicans and divide congressional Democrats, while empowering Republican governors and legislators to resist administration pressure. I believe that strategy is what I would call “the freedom option.” Every American should have the right to decide not to participate in ObamaCare: If you like ObamaCare and its subsidies, you can keep it. If you don’t, you are free to buy the health insurance that fits your needs.

The freedom option would fulfill the commitment the president made over and over again about ObamaCare: If you like your health insurance you can keep it. If Republicans crafted a simple bill that guarantees the right of individuals and businesses to opt out of ObamaCare, buy the health insurance they choose from any willing seller (with risk pools completely separate from ObamaCare), millions of Americans would rejoice and exercise this freedom. Such a proposal would be easy for Republicans to articulate and defend. And it would be very difficult for Democrats to attack.

Of all potential Republican proposals, the freedom option seems the most likely to garner the six Democratic votes in the Senate needed to break a filibuster, pass the bill and put it on the president’s desk. If the freedom option were combined with a provision that allowed federal-exchange subsidies or state actions setting up state exchanges, existing providers and recipients of subsidies would not be threatened.

The opposition would come solely from those who understand that ObamaCare is built on coercion—and that unless young, healthy Americans are forced into the program to be exploited with above-market insurance rates, the subsidies will prove unaffordable. That will be an exceedingly difficult case to make to the public.

By extinguishing coercion, the freedom option would put ObamaCare on the path to extinction. Without the ability to exploit the young and healthy, the Affordable Care Act will collapse under its own funding weight, all but guaranteeing a 2017 revision of the entire law.

Whether in large states like Florida and Texas—with 2.5 million and 1.7 million people receiving subsidies through the federal exchange, respectively—or in small states like North Dakota and Iowa—with 26,000 and 70,000 recipients—Republican governors should have the political high ground in demanding that their citizens be given the right to opt out of ObamaCare.

Restoring this freedom would be what Republicans demand for setting up state exchanges or supporting the restoration of federal-exchange subsidies. Public opinion would strongly favor the Republican position and put pressure on the Obama administration to relent.

Adopting the freedom option will require a level of discipline that Republicans have yet to show in this Congress. It is imperative that the message not be muddled with other amendments that Democrats and Mr. Obama could use as an excuse for opposing it. The leadership that will be required in this effort will test the courage of a Republican congressional majority and Republican governors across the country; victory will require a determination to govern. The alternative will almost certainly be a long or a short path to capitulation.

Mr. Gramm, a former Republican senator from Texas, is a visiting scholar at the American Enterprise Institute.

A 2014 Health-Care Strategy: Freedom

mariel — Fri, 25 Jul 2014 13:38:53 +0000

ObamaCare repeal is out until 2017, but here’s an agenda to unite the GOP and offer Americans relief.

By Phil Gramm

Contradictory rulings this week by the D.C. and Fourth Circuit Courts of Appeals mean that ObamaCare will probably return to the Supreme Court. The crucial issue is whether the government can subsidize premiums for health insurance bought on federal exchanges, though the Affordable Care Act’s plain language authorizes subsidies only for policies purchased on “an Exchange established by the State.”

If the Supreme Court decides that ObamaCare must be implemented as written, Democrats will have to bring the legislation back to Congress. This gives Republicans an opportunity to develop a new strategy to rid the country of ObamaCare.

President Obama and virtually every congressional Democrat believed that once the Affordable Care Act passed it would become popular, thanks to the law’s massive subsidies. Many Republicans believed this as well. It hasn’t worked out that way. Four years later 59% of Americans still oppose ObamaCare, according to the most recent CNN poll. It has become clearer over time that the president’s health law has made many problems in health care worse. Judged by the deeply flawed roll out and the necessity for endless illegal waivers, merely implementing the law as written seems to be far beyond the capacity of the U.S. government.

“Repeal and replace” has been a long-standing Republican position, but there is no way to repeal ObamaCare as long as Mr. Obama is in office. This leaves Americans to suffer from the mess he created at least through noon, Jan. 20, 2017. So what should Republicans do now?

Letting people suffer might appeal as good politics to some cynics, but Americans surely expect Republicans to protect them from the worst abuses of the law they resolutely opposed. Offering a comprehensive substitute for ObamaCare may seem reasonable. But since it can’t become law for at least three years, during which the American health-care system will suffer the distortions of ObamaCare, any plan written now would be of little relevance by the time it could be adopted.

Instead, there is one unifying principle that Republicans can and should rally around now: the right of American families to choose their own health-care coverage. In other words, the right to refuse to participate in ObamaCare. The freedom principle will provide relief from the worst manifestations of the Affordable Care Act—and debating the issue will unite Republicans and divide Democrats. As the midterm election approaches, Democrats will find it harder to oppose such an effort.

This freedom is anathema to the president and his party because coercion is at the very heart of ObamaCare. Harry Reid might be able to shield Senate Democrats from having to vote against freedom to choose for now. But a Republican Senate majority after the November elections could put this proposal front and center before President Obama and the nation.

Americans should have the right to buy insurance that meets their own needs. Part of the problem with the insurance plans that were available even before ObamaCare was that state government let special interests and a paternalistic instinct force individuals and families to buy health coverage they didn’t need, didn’t want and couldn’t afford. The Council for Affordable Health Insurance recently found that the number of state-coverage mandates grew to 2,271 from 850 over 20 years. These mandates, ranging from massage therapy to drug rehabilitation, have increased the cost of basic health insurance by as much as 50%, depending on the state.

A freedom option would let families buy and insurance companies sell coverage families believe meets their needs. This option would significantly reduce the cost of basic health insurance and thus increase the number of Americans who buy it without the law forcing them to. And it would allow a cost-effective private health-insurance system to develop independent of ObamaCare.

The president and congressional Democrats will strenuously object. They will claim this would drain the risk pool that ObamaCare needs to hold down costs.

But ObamaCare’s risk pool is not about sharing risk, it’s about redistributing income. Even with its new taxes on dividends and capital gains and the pillaging of Medicare, ObamaCare will collapse under its own weight without the ability to exploit the young and relatively healthy to subsidize the rest of the system. The freedom option will expose this grim truth.

By the time Republicans can debate a comprehensive replacement for ObamaCare, the public will know what it really costs and exactly how it doesn’t work. Having rediscovered the price of freedom lost, Americans will be ready for an alternative that preserves freedom and helps people who need help in a transparent, efficient and affordable way.

The opportunity to restore freedom of choice may arise well before January 2017. If the Supreme Court decides to let Congress clarify its own intent on federal exchange subsidies, Republicans should demand that all American families be guaranteed the freedom to opt out as a precondition to bringing up any legislation to “fix” ObamaCare.

Republicans should not underestimate the power of freedom in the health-care debate. In 1994, when 74 senators had either co-sponsored President Clinton’s health bill—or a very close alternative—Sens. John McCain, Paul Coverdell and I set out to try to defeat HillaryCare. The media in Washington largely ignored our opposition, but we conducted over 40 public forums around the country in hospitals and other medical settings. We talked about efficiency and people looked at their watches. We talked about costs and they yawned.

But in Atlanta, when my mother attended the meeting and I started to talk about her freedom to make her own health-care choices, people started to respond and HillaryCare started to die. In the end the debate was not about money or efficiency. It was about freedom. This same principle offers our only real hope of stopping the suffering under ObamaCare now and repealing it in 2017.

Mr. Gramm, a former Republican senator from Texas, is senior partner of US Policy Metrics and a visiting scholar at the American Enterprise Institute.

Cavuto-Phil Gramm: Find ObamaCare’s weakest link and go for that

mariel — Fri, 27 Sep 2013 15:19:18 +0000

September 26, 2013 Former Sen. Phil Gramm, (R-Texas), on the debt ceiling debate and efforts to defund ObamaCare.

Watch the video

WSJ: The Obama Growth Discount

evren — Sat, 16 Apr 2011 00:31:03 +0000

Policy matters. If Barack Obama matched Ronald Reagan’s post-recession recovery rate, 15.7 million more Americans would have jobs.

By Phil Gramm

Updated April 15, 2011 12:01 a.m. ET

Had the U.S. economy recovered from the current recession the way it bounced back from the other 10 recessions since World War II, our per-capita gross domestic product (GDP) would be $3,553 higher than it is today, and 11.9 million more Americans would be employed.

Those startling figures are based on the average recovery rate of real GDP and jobs three years after the beginning of each postwar recession. Some apologists suggest that the current recovery is so weak because the recession was so deep. But the totality of our experience in the postwar period is exactly the opposite—the bigger the bust, the bigger the boom that follows.

On average, three years after the four deepest previous recessions started, real GDP was 7.6% higher than the pre-recession level. During the Obama recovery, real GDP is up only 0.1%. Forty months after the start of the 1953, 1957, 1973 and 1981 recessions, total employment was on average 4.7% higher than the pre-recession peaks, while total employment today is still down 4.7%—that’s a total employment gap of 13.9 million jobs.

The problem is not just the weak recovery but increasing evidence that the economy is now on a growth path far different from the previous quarter century. Despite the largest monetary and fiscal stimuli in American history, in 2009 the capital stock of the nation actually shrank for the first time in the postwar period. Our current economic underperformance seems so likely to continue that many economists and pundits have difficulty visualizing an America of tomorrow that looks like the America of the past half-century.

Nothing is better documented in the world economy than the principle that the economic system of a nation is the primary determinant of its success. In America, changes in economic policy have generally been so gradual that recessions and ensuing recoveries have simply brought the economy back to the same growth trend line. But there are exceptions. Would anybody seriously deny that the Reagan policies of the early 1980s had such a significant effect on economic growth and employment that they changed the growth trend line?

In 1982, unemployment reached 10.8% as the Federal Reserve tightened monetary policy in order to put the brakes on inflation. Conditions were hardly conducive to recovery and yet the strong, sustained recovery that followed is permanently identified in our collective memory as the good old days.

If we had matched the 1982 recovery rate, today annual per-capita income would be $4,154 higher than before the recession—that’s an extra $16,600 for a family of four—and some 15.7 million more Americans would have jobs. That’s enough jobs to employ 100% of the 13.5 million Americans currently classified as unemployed. In addition, we would have provided jobs for 30% of both the 2.4 million discouraged or marginally attached workers and the 4.8 million who have totally dropped out of the work force since January 2008.

A compelling case can be made that Reagan’s tax cuts, Social Security reforms, regulatory reforms, and limits on the growth and power of the federal government not only helped the economy shake off the malaise of the 1970s but generated an economic growth premium that bore dividends for Americans until 2007.

And if the Reagan policies of the 1980s were sufficiently different from those of the previous decade to generate a growth premium, cannot a case be made that the policies of the Obama administration are sufficiently different from those of the previous quarter-century to alter the growth trend and impose a growth discount?

Under President Obama’s policies, federal spending has exploded like never before. If his 2011 budget were implemented, this president would increase the outstanding federal debt more than the previous 43 presidents combined. Government control of the health-care system and the financial system has been greatly expanded. The administration also supported last year’s failed “card check” legislation, an attempt at the most dramatic expansion of the power of organized labor since the Great Depression; launched diatribes against wealth accumulation; undertook a massive expansion in the regulatory power of the federal government; and proposed the largest tax increases in American history. Those tax increases were aimed almost exclusively at America’s entrepreneurs, risk takers and small businesses.

The Obama administration arrived in Washington with a mandate from voters in one hand and a blank check from Congress in the other. How convenient it was to assume that government could take over the health-care system, raise taxes, hugely expand regulatory power and unleash a deficit spending orgy without producing a significant deviation in the growth trend of the previous quarter century. Apparently, Mr. Obama failed to notice that President Bill Clinton saw his strongest period of economic growth only after his health-care takeover and stimulus bills were defeated, welfare rolls were pared, the capital gains tax was cut, and the budget was balanced.

The recovery is being stifled by the unprecedented policy changes undertaken by this administration and the previous Congress. Whether in absolute or relative terms, whether in comparison to our own experience or the performance of our competitors, America’s wealth-producing ability has been diminished.

Until last November’s elections and the December compromise in the lame-duck Congress, it seemed certain that marginal tax rates on income, dividends and capital gains would rise dramatically. It was not until the off-year election results provided business with some confidence that the administration’s ability to further implement its policies through legislative action was at an end that the recovery began to show modest improvements. In short, the 2010 elections imposed a cap on the downside risk associated with the administration’s policies and slightly reduced the Obama growth discount.

A good trial lawyer might argue that the star-struck millions who voted for Mr. Obama knew or should have known that his election would mean a larger, more powerful federal government, a massive increase in social spending, and higher taxes on the most productive members of American society, and that the voters got exactly what they voted for. Elections have consequences.

But it is equally clear that Americans did not realize that the price they might pay for big government would be 15.7 million fewer jobs and $4,154 less in per-capita income. Big government costs more than higher taxes. It is paid for with diminished freedom and less opportunity. You can’t have unlimited opportunity and unlimited government.

Mr. Gramm is a former U.S. senator from Texas and former professor of economics at Texas A&M University.