Wednesday, April 28, 2010

How Corporate Interests and Weak Leadership Result in Confusing and Timid Federal Programs

This is a research paper I wrote for a college English class.

One thing most Americans will agree on is the need for an effective government that is accountable to its citizens. Before that can happen in our democracy, the citizenry must be informed. Increasingly we are seeing corporate interests influencing our elected politicians, both directly through intense lobbying and campaign contributions, and indirectly through the control of the media sources that Americans rely on for news and informed debate. When voters make decisions based on misinformation from major media outlets, when politicians capitalize on that misinformation rather than challenge it, and when those politicians spend considerable time with corporate lobbyists and accept their money, the system fails us. Even though some free market proponents may disagree, for our government to work properly, we must ensure that there exists adequate and sensible regulation, enforcement of antitrust laws, equitably applied taxes, and a robust firewall that prevents corporations from unduly influencing our news media and our politicians.

On corporate power, political activist Ralph Nader once wrote: “Competition, free enterprise, and an open market were never meant to be symbolic fig leaves for corporate socialism and monopolistic capitalism” (Green). However, simply admonishing the corporations will not change anything. Since corporations exist to make profits for their shareholders, it should be no surprise that they will do whatever they can get away with to achieve those ends. It is our government framework within which corporations exist as legal entities, that is flawed and must be changed.

We have seen the repercussions of this to varying degrees in such recent programs as the stimulus bill, “cash for clunkers,” and the health care bill. But first, let’s look briefly at a federal program that preceded those, and was in some respects foundational. As our government’s first major response to the economic downturn, the nature of its failures and successes would set a pattern.

The Troubled Asset Relief Program, commonly known as TARP, is a federal government program intended to assist financial institutions and stabilize the ailing financial sector in the wake of the dramatic drop in the stock market. It was quickly established by the previous administration, and continued under the current administration. Controversial from the start, and sold to the nation as an emergency measure with little time for thoughtful debate, TARP granted unprecedented authority to the Treasury Secretary. While the bulk of the program consisted of buying assets and equity from financial institutions, later uses of remaining funds included home foreclosure mitigation.

It turns out that our government will end up profiting from the program. A January, 2010 projection from the Congressional Budget Office projects a total net profit of $14 billion (Yang). That’s good news considering our current deficit, but the much touted purpose of the bailout—getting banks to resume lending money following the credit freeze—has not happened in any satisfactory way. Critics assert that many of the largest banks used the money for mergers and acquisitions, rather than to make loans (Patalon). Quite ironically, some of the largest institutions that were rescued because they were supposedly “too big to fail,” are now bigger than before. And while many of these big banks have paid back the money and returned to business as usual, and the stock market continues to recover; numerous small banks have gone under, communities across America remain depressed, wage growth stagnates, and high unemployment persists.

Two years after the collapse of Bear Stearns, lax regulatory oversight of the financial industry continues (Siskey). Congress and the administration have yet to institute substantive banking reform, reinstate the Glass-Steagal Act which for decades prevented banks from getting involved in risky investments and speculation, or to push enforcement of anti-trust laws; all crucial in preventing a repeat of the financial crisis.

Had our government officials, when formulating the program, taken more time to consider the larger picture, and less time accommodating the financial industry, perhaps more benefits would have flowed down to the overall economy instead of accumulating at the top.

Let us now examine in a more detailed way, some subsequent government programs, and how corporate interests influenced their design.

While the basic idea of the stimulus program was sound, it is evident more than one year later that the bill attempted to accomplish too much with too little money; suffering from too much compromise, too much corporate influence, too much reliance on popular political positions over thoughtfully applied empirical data, and an overall lack of bold and cohesive vision.
Known officially as the American Recovery and Reinvestment Act of 2009, the bill was quickly signed into law in February, 2009 by the new President as a means to strengthen the economy and reduce unemployment during the worst economic downturn in the U.S. since the Great Depression.

At a time when consumers, businesses, and state and local governments were cutting back severely on their spending, the federal government urgently needed to step in and fill the vacuum. Supporters argued that by providing a source of funding for various “shovel-ready” public works projects that could be quickly initiated, significant numbers of unemployed workers would be put back to work. Those workers could then pay their bills and spend money in their communities (Reich).

However, what ultimately coalesced as the final bill was a wide ranging mix that included tax cuts, unemployment benefit extensions, increases to Pell grants, and numerous other measures (Lieber). While some of those things were clearly needed, as an unfortunate consequence, spending on infrastructure ended up being less than ten percent of the bill, according to the American Society of Civil Engineers (Goldman). This was not nearly enough to bolster the construction sector that had been severely affected by the recession. Nor was it enough to make substantive progress improving our aging, unsafe, and increasingly obsolete infrastructure at a time when prices for concrete and steel were depressed and the number of idled construction workers was exceedingly high. Further reducing its impact is the slow pace at which the funds continue to be spent, as program administrators are cautious about maintaining accountability. One year into the program, less than one-third of the allocated funds had been released (Farley).

For the most part, economists agree that without the stimulus bill, the unemployment rate would be even higher than it stands today (Stolberg). But some—most ardently economist Paul Krugman and former U.S. Secretary of Labor Robert Reich—argue that with unemployment currently hovering around ten percent, additional stimulus is needed (Reich, Krugman).

“When one out of six Americans is unemployed or underemployed, this is no time to worry about the debt,” Reich wrote last fall in his blog (Reich). Comparing federal government deficit spending with household debt, is a false analogy, he contends. Reich calls the federal government “the spender of last resort,” and with no near-term prospect for increased demand from other sectors, sees more federal investments as critical to economic recovery (Reich).

Even before the stimulus bill was signed, Krugman was criticizing it for being far short of what was needed. He thinks the fact that unemployment is higher now than when the bill was signed, shows that the economy was weaker than had been thought. “The source of the recovery is hard to see,” he said early last year. He does not envision a significant upturn in business investing unless some breakthrough technology emerges; nor does he see U.S. manufacturing coming back in a big way. Spending more on public infrastructure, he believes, is a major way of reducing unemployment while preparing ourselves for the future (Earnshaw).

When asked about the consequences of increasing the national debt, Krugman explained: “Belgium has debt equal to 87 percent of its gross domestic product. That's 40 percent higher than ours, with no financial crisis. So we can probably run up another $6 trillion in debt” (Earnshaw).

The infrastructure investment that was the element of the program most heavily promoted by its supporters has come up short. More than a year later, in the face of a stubbornly persistent jobless “recovery,” a second, larger stimulus bill focused on both education spending and large transformative infrastructure projects, is vitally needed. The federal government should also seriously consider implementing a modern-day version of the depression-era Works Progress Administration. Directly hiring unemployed people to perform a variety of socially beneficial activities in their communities, from teaching to constructing basic infrastructure improvements, makes more sense than merely paying them extended unemployment benefits to look for nonexistent jobs. While these measures will no doubt increase the national debt in the short term, with a comprehensive approach that seeks to better prepare us for future economic performance, we’ll have a greater chance of returning people to working, spending, and paying taxes. Once the economy is strong, revenues will rise and the debt can be reduced.

The government’s “Cash for Clunkers” program was another well meaning measure aimed at stimulating the economy that could have been better designed, to focus more on domestic job creation by disallowing cars not made in America, to provide stronger environmental benefits, and to anticipate and plan for its popularity in order to avoid the resulting logistical problems for manufacturers and dealers, and the inconvenience and uncertainty experienced by consumers.

“Cash for Clunkers,” which began last summer, is known formally as the Consumer Assistance to Recycle and Save (CARS) program. It offered vouchers worth up to $4,500 to consumers trading in older model cars and trucks for new, more efficient models. After very quickly running out of cash, it was extended by Congress for an additional few weeks (Leonard).

Though he voted for the bill, Representative Dennis Kucinich had reservations, and said about the program last June, “It is good that we try to create an incentive for people to buy fuel efficient cars. It is bad that the car vouchers will not be expressly for the purchase of cars made in America” (Kucinich). While some car and truck models made by American manufacturers are produced outside the U.S., and while some models made by foreign-based manufacturers are produced in U.S. plants, allowing eligibility only for American-made models would have better benefited American workers in the near term by providing more hours of employment, and in the long term by strengthening a major sector of our shrinking industrial-manufacturing base.

Environmentalists have criticized the measure for both its failure to include the dirtiest cars on the road, and its lax fuel efficiency requirements for new vehicles. Congress yielded to lobbyists for antique auto parts suppliers and classic car collectors, by excluding from trade-in eligibility millions of pre-1984 models that are disproportionately responsible for vehicle-source air pollution. Car collectors defended the age limits by claiming that the old cars are rarely driven, but experts at the California Air Resources Board pointed out that “an old 1965 model Chevrolet Malibu driven only 1,000 miles per year produces as much pollution as a new Malibu would in 400,000 miles” (Vartabedian).

At the conclusion of the program, it was clear that consumers had traded up to more fuel efficient vehicles. “One thing that was very encouraging,” said Sierra Club analyst Jesse Prentice-Dunn, “was that more than 84 percent traded in trucks and other gas guzzlers, and 59 percent purchased cars.” The organization was initially concerned that the fuel efficiency standards were weak and that the program encouraged a “throw-away” mentality (Blake).

Other environmental groups offered more strenuous criticism, though nobody was claiming that the program, considering its limited duration, could ever result in major improvements in our nation’s oil consumption or carbon emissions. In fact, one estimate concluded that the resulting cut in overall gasoline consumption was only 0.04% per year (Carey). Nevertheless, while the principle purpose of the program was to quickly stimulate the economy, there was no reason, given the opportunity, to not also focus on reducing reliance on foreign oil and cutting vehicle pollution, by using stronger mileage requirements to encourage more demand for the models that best met those goals.

The program was almost a victim of its own success, with very strong consumer demand from the start. The government had difficulty processing the reimbursements in a timely manner, dealerships and manufacturers were swamped, and the original funding ran out in just one week. Congress quickly appropriated more money to extend the program, and auto sales for July, 2009 spiked considerably (Leonard).

Such high demand for the program supports the idea that the available funds would have still been spent had stricter standards (American-made vehicles, higher fuel efficiency requirements) been included, though likely at a slower rate that would have avoided some of the chaos experienced by dealers, producers, and consumers.

Some of the program’s critics have characterized it as a complete failure, generally a waste of money, or as a costly way to achieve relatively miniscule environmental benefits (Anwyl). Granted, it may never be known if the program actually resulted in a net increase in auto sales, or merely shifted forward sales that would have occurred anyway a few months later. But at the very least, money was injected into the economy. In states like Michigan where unemployment was 15.2 percent last summer, auto plants were reopened and assembly workers were rehired to meet demand. After investing billions in Chrysler and General Motors, it made sense for the federal government to further their chances of recovery by encouraging consumers to purchase their products.

Much like the stimulus bill, “Cash for Clunkers” was a good idea that could have been better in its design and execution. The end result can be attributed to a combination of competing political interests, the ever-present influence of corporate lobbyists, and a sense of urgency amidst persistent high unemployment.

The health care bill recently signed into law is in many ways an unfortunate piece of legislation resulting from weak leadership from the White House, and members of Congress unwilling to challenge the corporate interests who help fund their election campaigns. Far from the fundamental reform that was promised by our President during his election campaign, its timid language serves to advance the existing private insurance model. With no public option, no allowance for importation of cheaper prescription drugs, no ability for Medicare to negotiate volume discounts on drugs, and a guarantee of 32 million new customers, passage of this bill is a clear victory for the for-profit health insurance firms, hospitals, and pharmaceutical companies, whose stock prices not coincidentally rose decisively on the Monday following the Sunday vote in the House of Representatives (Brickates-Kennedy).

Yet, in spite of its many shortcomings—including the fact that this was not the kind of bill the nation truly needed to finally create a modern and efficient universal health care system—there were enough good elements contained therein, that when considered in the overall context of a contentious, yearlong legislative process, its passage was nevertheless worthwhile.

There are a number beneficial changes that will go into effect later this year, and others that will take up to several years to unfold. There are cost savings that will help our economy, numerous pilot programs to examine better and creative ways of keeping people healthy and delivering care, and new regulations on insurance companies to protect patients. On balance, these changes are modest at best; certainly not transformational. However, it’s a start upon which we can begin the process of building what should eventually be not just one of the world’s better comprehensive health care systems, but the best system, that every other nation can look to as the global standard.

Let us now briefly examine why those in Congress who voted for the health care bill did the right thing, what the law will do in the near and long term, and what improvements and further measures should be pursued in the future.

Had this bill been defeated, with nothing of substance on deck to take its place, there is no reason to think that our dysfunctional system would not have continued to impose rapidly rising costs on businesses, governments, and individuals until the system literally collapsed. Such continued cost increases would mean more Americans would find themselves uninsured or underinsured. The consequences of individuals not having access to quality primary care and preventive services, negatively impacts the overall society when patients seek costly treatment in emergency rooms, or burden the economy because chronic illness or disability reduces their ability to work.

“People think if we do nothing, we will have what we have now. In fact, what we will have is a substantial deterioration in what we have,” explained Karen Davis of the nonprofit health care research group, the Commonwealth Fund (Abelson).

Paul B. Ginsburg, the president of the Center for Studying Health System Change, a nonprofit Washington research group, said of our unsustainable situation: “We have an affordability problem that is moving up through the middle class now” (Abelson).

According to an analysis by the nonpartisan Congressional Budget Office (CBO), the health care bill will cut the deficit by $138 billion in its first decade, and by $1.2 trillion over the second decade, while broadening coverage to 95 percent of Americans. While these savings are estimates, they’re the least politicized source of figures available; and while not as significant as what could be achieved with a public option or a single-payer model, they are still substantial (O’Connor).

Among the many provisions beginning this year, young people up to age 26 can be covered by their parent’s policies. Insurers will no longer be allowed to impose lifetime coverage limits, exclude people because of preexisting conditions, or drop people because they get sick. In later years, a slight Medicare tax increase on individuals earning more than $200,000 annually will be imposed to help pay for the program. Most people will be required to obtain health insurance, while those who cannot afford it will receive subsidies. Preventive services will be covered at minimal or no cost to patients. Medicare will begin basing payments to doctors on the quality of care rather than the number of procedures performed (Smith).

Possibly the most promising part of the health care law are the many little-mentioned pilot programs. In his 2009 piece in The New Yorker magazine, Testing, Testing, reporter Atule Gawande describes a federal program begun in 1903 consisting of hundreds-of-thousands of small experimental farms where comparative-effectiveness research was conducted, and a vast nationwide network of Cooperative Extension Service offices staffed by “extension agents” who worked closely with farmers to help them increase the quality and volume of their crops. At the beginning, there was considerable resistance and cynicism on the part of farmers and the general public. The gains in efficiency came slowly, but were nevertheless dramatic. Decades later, a transformation had taken place. Today Americans devote a much smaller percentage of their incomes to putting food on the table, and the size of the agricultural sector is a mere fraction of what it once was. Gawande presents many parallels between agriculture and health care, then asks the logical question: “Could something like this happen with health care?” (Gawande).

Our current dysfunctional system is problematic not only for the millions of Americans that lack access to health care, but also for its effect on the overall economy. It would have been better if the new health care law removed the private insurance industry from the picture and replaced it with a single-payer system. Private for-profit insurers pursue profits by cutting people’s access to needed care. It is morally troubling to have a for-profit entity between patients and their doctors. No other nation permits such a situation (Manchester). Furthermore, from an economic standpoint, a single-payer system based on the current Medicare program expanded to Americans of all ages, would be cheaper than our existing system due to substantially lower overhead (Fiore).

Some critics claim that the health care law represents a government takeover, or socialized medicine. The facts do not support these assertions. On the contrary, the law simply puts in place needed, reasonable regulation to an existing fully privatized health care system, while beginning to address the problem of the corporate stranglehold over medicine. A government takeover would instead be a single-payer Medicare-for-all model similar to what exists in Canada and several other nations where both costs and outcomes are significantly better than in the United States. Socialized medicine would instead resemble the Veterans Affairs (VA) Health Care System, which has been a leader in the development of electronic medical records and evidence-based medicine and patient practices, and outperforms the private sector in quality according to a RAND Corporation study (Mechanic, RAND).

We need to build upon the health care law by continuing to look receptively at what other countries are doing, accelerating the start of the pilot programs, placing more emphasis on prevention, and realigning our farm subsidies so that they no longer serve to make unhealthy food less expensive.

We see in these programs, a pattern that includes a lack of focus and leadership, and timid and confusing goals. Misinformation and distortions abound as corporate interests and politicians frame these and other programs in ways that best serve them.

Increasingly, Americans have a negative view of the political process, and feel disconnected from their own government. This is not an inevitable situation. This is not a reason to be cynical about government. On the contrary, we can have better government on all levels, if we want it. It sounds simplistic, but ultimately change must start with each of us. In our system, the government is us. If Americans want their government to serve them well, we and those who we elect to public office must have high expectations of government. Conversely, if too many of us have low expectations of government, we'll get exactly what we expect.

In a nation that now consists of more than 300 million citizens, the large size of our government is a problem only to the extent that it’s answering to anything other than its people.

Historian and political activist Howard Zinn once said: “. . . ‘big government’ in itself is hardly the issue. That is here to stay. The only question is: Whom will it serve?” (Zinn).


Works Cited


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Anwyl, Jeremy. “More Cash for Clunkers?” Wall Street Journal 3 Aug. 2009: 9. ProQuest. Web. 9 March 2010.

Blake, Harriet. “Cash for Clunkers edges Americans onto Greener Roads.” greenrightnow.com/wtvd. WTVD 27 Aug. 2009. n. pag. Web. 9 March 2010.

Brickates-Kennedy, Val. “Drug Stocks Rise as Healthcare Bill Passes.” MarketWatch.com 22 March 2010. n. pag. Web. 15 March 2010.

Carey, John. “Cash for Clunkers: How Green Is It?” BusinessWeek 5 Aug. 2009. n. pag. Web. 10 March 2010.

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