Robert Kuttner

A Model of Health

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I n 2005, when Local 6 won its first union contract at the boutique Time Hotel on West 49th Street, Angel Aybar, then a 21-year-old room attendant responsible for checking, cleaning, and restocking minibars, not only got a raise from $10 to $16.50 an hour; he became a member of a uniquely effective health plan. The New York hotel workers’ plan provides comprehensive coverage at its own health centers, including full dental and optical care, with no deductibles or co-pays and a core philosophy that emphasizes primary care, wellness, and prevention. Aybar even credits the health plan for his marriage. “My wife and I had been sweethearts since junior high,” Aybar says. “She was working, and they were taking over $100 a month out of her paycheck for her health insurance. I guess it’s not very romantic of me to say this, but it was the union health plan that pushed us over the edge to get married. She was getting chronic headaches. They kept telling her it was just stress. Her first visit...

Super Dupes

From right to left, former Senate Budget Committee Chairman Pete Domenici, R-N.M., former White House Budget Director Alice Rivlin, and former Sen. Alan Simpson, R-Wyo., and Erskine Bowles, co-chairs of the National Commission on Fiscal Responsibility and Reform, offer their advice to the Joint Select Committee on Deficit Reduction during a hearing on Capitol Hill in Washington, Tuesday, Nov. 1, 2011. The congressional super committee is trying to come up with a package by Thanksgiving that trims the federal deficit by at least $1.2 trillion over 10 years. (AP Photo/J. Scott Applewhite)
With the Congressional Super Committee required to produce a bipartisan budget-cutting plan by November 23, the best possible outcome would be for the committee to collapse of its own weight. With no deal, automatic cuts would kick in beginning in 2013. Those budget cuts would be excessive, but that question could—and will—be reopened after the election. And in the meantime, $4 trillion in Bush tax cuts will expire, solving most of the deficit problem. If Democrats win, it’s all up for grabs. If Republicans win, the cuts will be even deeper. The 2012 election will be a referendum on whether we want growth or austerity, and whether we want tax fairness. For now, the six Republicans on the Super Committee, predictably, want all of the budget savings to be on the spending side and are adamantly opposed to any tax increases. On Thursday, 33 Senate Republicans sent a letter to their colleagues on the committee warning them not to support any form of tax increase. What’s bizarre, however,...

Bravo Papandreou!

Greek Prime Minister Georgios Papandreou startled Europe and the financial world Monday by announcing that he will be calling a referendum on the terms of the latest deal negotiated by European leaders and bankers. What is the Greek leader up to? On one level, Papandreou is simply weary of being the agent of his own country’s economic destruction at the hands of bankers. He also is tired of the political unpopularity that comes with the role of broker of austerity. (AP Photo/Thanassis Stavrakis) Greek Prime Minister George Papandreou says his country will hold a referendum on a new European debt deal reached last week. But more important, Papandreou is resisting a double-cross already being cooked up by the bankers. He is playing the one card he has: If the bankers walk away from the partial debt relief committed in principle at the recent EU summit, Greece will default. And Papandreou wants that decision to be made, knowingly, by the Greek people and not by technocrats. Here is...

Limit Leverage!

The astounding thing about the collapse of Jon Corzine’s gambling venture, MF Global, is the revelation that his bets were leveraged at about 40 to 1. This is like playing poker and borrowing 97 percent of your stake. If you guess wrong on a big bet (as Corzine did), you are wiped out (as he was). The same thing happened to Lehman Brothers. This also shows how utterly feeble Dodd-Frank is and how little the system has changed since the collapse of 2008. The so-called shadow banking system—outfits like Corzine’s—can still bet the house if they have a taste for risk. The only good news was that at $8 billion, Corzine’s MF wasn’t big enough to take down the system or require a government bailout. But it could have been. As a regulatory matter, it would not be difficult to limit all kinds of leverage for any financial institution to, say, 10 to 1. And the more risky the kind of institution and its strategy, the more leverage should be limited. You could require all financial institutions...

Europe Buys Some Time

The stock market liked the European deal that was announced in the wee hours of Thursday morning. At this writing, the Dow is up 268 points. But the market, as is so often the case, could well be wrong. For starters, this is not yet a done deal. The European leaders agreed that the banks will take "voluntary" losses of about 50 percent on their holding of Greek bonds, so that the Greek economy can gain some room to breathe—but the banks did not agree. Charles Dallara, who heads the international bankers' lobby, the misnamed Institute for International Finance, was quoted by The Wall Street Journal as saying that "there is no agreement on any element of a deal." He later told CNBC that the deal was "voluntary," permitting issuers of credit-default swaps (mostly banks) to avoid payments they would have to make in the case of a formal restructuring or a default. But never underestimate the ability of banks to impose their losses on somebody else. Under the proposed deal, the banks also...

Doomed to Fail

Once again, the Obama administration has announced a plan to shore up housing prices and underwater homeowners—and once again the plan is very likely to fail. This latest effort will try to use Fannie Mae and Freddie Mac, now wards of the government, to help homeowners refinance mortgages at lower interest rates. The premise is that with interest rates at record lows, homeowners can save hundreds of dollars a month in their mortgage payments by refinancing. For example, by refinancing a 5.5 percent mortgage to a 4.5 percent mortgage, a homeowner with a $300,000 loan could save about $250 a month. In theory, as many as 1.6 million people could qualify for this kind of refinancing, putting more money in their pockets. So this new program would be a source of economic stimulus as well as housing relief. But the devil is in the details. Fannie and Freddie lost a ton of money in the subprime disaster. That’s why the government had to take them over. So the last thing they want to do is...

High Stakes

This is a fateful week for financial regulation and the financial system. European leaders are trying to reach a consensus on how to give Greece some breathing room to salvage its economy and to recapitalize the continent's banks. Since the banks are heavily invested in Greek bonds, the more relief the Europeans give Greece, the more they will have to spend recapitalizing their own banks. Meanwhile, on this side of the Atlantic, regulators are grappling with two momentous issues: how to implement the so-called Volcker Rule, which seeks to limit the ability of federally insured banks to engage in inherently speculative trading activity; and how to carry out another key section of the Dodd-Frank Act, which gives regulators the authority to take over large failing financial institutions. The Financial Stability Oversight Council, a body created by Dodd-Frank made up of senior bank regulators, is meeting today on the issue of how to deal with failing banks. Meanwhile, the Federal Deposit...

Ben Bernanke's Mostly Right

Fed Chairman Ben Bernanke says the economy is on the verge of another recession -- "close to faltering" was his euphuism of choice in his testimony to Congress Tuesday -- and there only so much the Federal Reserve can do about it. For once, he is mostly right. Bernanke has already cut short term interest rates almost to zero; he has bought up a lot of government bonds under another euphemism -- "quantitative easing" -- and he has been begin exchanging short-term debt for longer-term debt, as a way of locking in low interest rates. This is considered heretical in some financial circles, and several members of the Fed's own policy-setting Open Market Committee fault the Fed chair for courting inflation. The bigger problem, of course, is deflation. A little more inflation wouldn't hurt since it might help levitate housing prices and reduce the burden of past debt. Bernanke could intervene even more aggressively to lock in low interest rates on long-term government debt. He could take a...

The Theory of Power

O ver the past three decades, laissez-faire economics has had an im-mense impact on our society, mostly for the worse. The elements have included privatization of public services, an assault on social benefits, and most important, deregulation of finance. Though free-market ideas are hotly debated in classrooms, op-ed pages, and journals, their influence on events has come not in a Platonic fashion, through the power of argument, but through power itself. Free-market theory has conveniently provided ideological coherence. Elites find laissez-faire an immensely useful fable, because it serves as an expert brief against government interference. In the academy, dissenting economics has had trouble gaining a foothold. The reigning paradigm is simple and elegant: Free markets maximize individual choices and collective well-being, end of story. By contrast, dissenting economics is messy, historical, less like physics, more like sociology or journalism. Because the paradigm assumes...

Desperately Seeking Dirt on Warren

Elizabeth Warren's surprise lead in Massachusetts polls only days after she got into the Senate race to oust Republican Scott Brown has thrown GOP operatives off balance. Their first storyline was that Warren was either a creature of the Beltway or a pointy-headed Harvard professor. Neither seems to be sticking. On Tuesday, when the Democratic-affiliated polling firm, Public Policy Polling, reported Warren narrowly leading Brown, 46 to 44 among likely voters, Brown spokesman Colin Reed put out a statement contending that "we have always known that Scott would be the underdog against whichever candidate wins the Democratic primary next September." But this past summer, before Warren enjoyed decent name recognition, Republicans were touting early polls showing Brown leading Warren 53-28, and declaring him a winner. Now Republicans are putting out the word that there was something duplicitous or corrupt about Warren's leadership of the Congressional Oversight Panel that monitored the...

Forced Fed

The Federal Reserve's announcement that it will sell $400 billion of short-term Treasury securities and buy $400 billion of longer-term government bonds as a way of locking low interest rates and stimulating the economy is a good idea. Unfortunately, it is far from sufficient. The government should be borrowing at least a trillion dollars at today's very low interest rates and investing the money in infrastructure projects as a way of jump-starting a catatonic private economy. But that idea, of course, is off the table. Republicans would block it, and not even President Obama, despite his newly assertive progressive self, is proposing it. So financial markets took the Fed's announcement not as a sign that help is on the way but as a sign of just how bad things are. The Fed didn't really want to do this. Its open market divided 7 to 3 on the move. The more fiscally conservative regional Reserve Bank presidents oppose the central bank's program of buying more government bonds in general...

Our Classy President

Republicans and many pundits have faulted President Obama for engaging in the politics of class warfare. Addressing the realities of class in America is in fact long overdue. Republicans and conservative Democrats are outraged because if class ever becomes a question that can be openly discussed, the right loses, America becomes a more decent society, and Democrats become the normal majority party. You want to know about class warfare? For three decades, the American middle class has been getting whacked. Younger Americans have increasingly found it difficult to get traction in their careers. Job security, health security, retirement security, are all more fragile than in our parents' generation. Our colleague Tamara Draut, has written eloquently about this . There has also been a Great Risk Shift, as Jacob Hacker has put it , from corporations and governments onto individuals and families. Risks that used to be borne socially -- like losing your job, or falling sick, or becoming...

Medicare Cuts: Not the Way to Voters' Hearts

Last week, Obama finally got some traction with a speech that had a clear, consistent message -- jobs, jobs, jobs. Even the Republicans were reluctant to oppose him frontally. Now, once again, Obama will mix his own message by emphasizing belt tightening in general and cuts in Medicare in particular. There is one silver lining: The latest White House leaks suggest that a lobbying effort by progressives in Congress and nationally has persuaded the president not to increase the Medicare eligibility age from 65 to 67 as part of his deficit plan to be released today (Monday). Campaign for America's Future deserves particular thanks for its heroic efforts on this issue. If accurate, these reports also suggest progress on Obama's advisers part in recognizing that blurring party distinctions and throwing social insurance on the deficit bonfire is bad economics and bad politics. Earlier lobbying efforts by progressives kept Social Security cuts out of Obama's deficit-reduction package. This...

Snatching Defeat out of the Jaws of Victory

President Obama's jobs speech last Thursday evening heartened Democrats and progressives, but yesterday's meeting of the "super-committee" reminds us how much Obama has already given away and the traps he has set for himself (and the recovery) going forward. While he tries to coax the economy into producing more jobs with one hand, Obama has set in motion an inexorable process that will lead to more economic contraction. The process will also deprive the Democrats of clarity in defending their most popular crown jewels -- Medicare and Social Security -- against unpopular Republican assault. Ironically, while Republican front-runner Rick Perry was getting hammered by other GOP leaders for playing fast and loose with Social Security -- creating an opening for Democrats with seniors -- President Obama is on the verge of proposing an increase in the Medicare eligibility age from 65 to 67. This would create huge hardship -- it is astronomically expensive for this age group to buy health...

A Good First Step

President Obama's jobs speech was the right narrative and the right tone. It suggested a president who was a capable leader in a crisis, who gets America's pain. He also boxes in the Republicans -- and by offering a plan that includes elements that many Republicans support, he makes it much harder for them to oppose it. Progressive critics who were waiting for President Obama to sound a more urgent note on jobs were happy to treat the speech with generosity. The Times ' Paul Krugman called it "significantly bolder and better than I expected." http://www.nytimes.com/2011/09/09/opinion/setting-their-hair-on-fire.html Demos President Miles Rapaport called the speech "the narrative we've been waiting for," adding the caveat : The overarching question I asked myself after the President's speech concluded was 'Can he, will he, hold this theme?' Can he keep his focus clearly on investing in the future, and not sink back into the deficit and austerity culture where the opponents of government...

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