Which Beast to Starve?

Today brings a sharp contrast in political philosophies and economic reality. As Paul Krugman discourses on three decades of Republican attempts to shrink government and "drown it in the bathtub," President Obama discloses his intention to stop feeding the free-market monster that has devoured American health care.

In advance of Thursday's summit, the White House leaks a proposal to oversee and limit double-digit health insurance rate increases such as those the President denounced in his weekly address Saturday.

Legislation introduced last week by Sen. Dianne Feinstein would create a seven-member rate board, the Health Insurance Rate Authority--consumer, industry and medical representatives and experts in health economics--to determine which increases are justifiable and which are unconscionable by insurers who are siphoning off one out of every three dollars spent for "overhead" and profit.

This attempt, finally, to rein in a greedy industry, along with restrictions on denying care to policy holders, should become the centerpiece of streamlined reform legislation to replace last year's fiasco of a bill.

Its thrust, to protect Americans from private greed, is revealing in the light of GOP efforts to "protect" them from their own government, starting in the Reagan era.

The starve-the-beast strategy, Krugman writes, was "a game of bait and switch. Rather than proposing unpopular spending cuts, Republicans would push through popular tax cuts, with the deliberate intention of worsening the government’s fiscal position. Spending cuts could then be sold as a necessity rather than a choice, the only way to eliminate an unsustainable budget deficit."

They did just that in the Bush II years, but his tax cuts for the wealthy and unfunded wars ballooned the deficit, even as Congress couldn't muster the courage to cut popular programs like Social Security and Medicare.

Now both messes, budget deficits and health care, have been inherited by a Change president who is struggling to deal with them over the adamant opposition of those who played the biggest part in creating them.

This week will show how far he can get in trying to slim down the private beast, but it will take his new budget deficit commission a long time to start putting government on a subsistence diet.

The Bumpy Year to Come

Barack Obama is reaching for the controls of an economy in a fog bank, flying blind to who-knows-where with huge numbers of job losses, business failures, home foreclosures and, above all, fear of worse to come.

Unlike the late 1970s during the Gerald Ford interregnum, when a helpless government was reduced to sloganeering with WIN (Whip Inflation Now) buttons, the administration that takes over in ten days has a multitude of plans and proposals for economic stimulus, but with each day, there is mounting anxiety over what kind and how much and for how long.

The bottom line: Nobody knows. And with so much at stake, politicians and economists are in their least favorite mode--uncertainty.

“This is not an intellectual exercise, and there’s no pride of authorship,” the President-Elect told a news conference yesterday. “If members of Congress have good ideas, if they can identify a project for me that will create jobs in an efficient way--that does not hamper our ability to, over the long term, get control of our deficit; that is good for the economy--then I’m going to accept it.”

Republicans are scrambling to look cooperative but wary of the huge federal spending to come, while some Democrats are starting to push back against Obama's concessions on tax cuts to get bipartisan support.

The "experts" are uncharacteristically iffy. “We have very few good examples to guide us,” said a Brookings wonk and Paul Krugman writes about the "Obama Gap," claiming that his economic plan "falls well short of what’s needed," a $775 billion answer to a $2 trillion shortfall of lost production in the next two years.

Success or failure will hinge on developments outside the control of Obama or the Congress, according to Thomas Donohue, president of the US Chamber of Commerce. In his annual State of American Business speech, Donohue said this week that at least 12 major economies are now deeply in trouble.

Meanwhile, the confusion is underscored by jockeying between the outgoing Bush Administration and the new Congress over spending the second half of October's $700 billion financial rescue package. Nobody is sure of exactly what happened to the first installment or whether it did much good, but one way or another, the money will get shoveled out the door.

In his inaugural address, Barack Obama will be in the position of an airline pilot reassuring passengers that the turbulence will eventually subside and that they will get to where they want to go.

But in the meantime, fasten your seat belts. It's going to be a bumpy year.