Healthcare Reform Passes - So What? Taxes, Budget Cuts, Social Unrest, and Financial Reforms

The House is on the verge of rounding up the necessary 216 votes to put the healthcare reform package on the fast track to President Obama's desk. Ok, so what?

Critics point to both procedural and substantive issues for how the bill is being passed and what the bill actually does. I do not find the procedural arguments compelling given the fact that over the decades, each Congress has used a hefty dose of trickeration to push through whatever policy the majority in power deems necessary. However, I still have concerns over some of the substantive portions of the bill. Specifically, the bill doesn't do nearly enough to address price controls and price dynamics.

Tort reform has to happen if there is to be a legitimate effort at reigning in costs. So far, tort reform has received virtually no attention. Further, a public health insurance plan option is a necessary component of lowering health care costs. Critics of the public option make all kinds of absurd "anti-socialist-like" arguments that really make no sense whatsoever. The U.S. Government has been both a primary insurer and a central component of creating competitive pricing environments for decades. Flood insurance, Medicaid, FEHBP (the health insurance plan that our elected Washington politicians receive), Veterans insurance, financial deposit insurance, mortgages, student loans, and farm subsidies are several of the many ways that as a public policy we have used the scale and scope of the federal government to assist with vital services and with creating competitive marketplaces. Failure to include tort reform and a public option in the current healthcare plan is a significant failure. That may not necessarily mean that the plan itself is doomed to failure. It does mean that the plan is doomed to failure if necessary, substantive amendments are not made to the healthcare plan in the immediate future.

My other criticism of the handling of this bill, and pretty much every other bill that has passed since the mid-1980s, is the accompanying plan to pay for it, or lack thereof. Ever since the Reagan Administration, supply-side economic policies have dominated. What supply-side economics seeks to do is lower taxes across the board, to allow people and corporations to spend and invest more money. By lowering taxes up front, naturally the amount of tax revenues that the government is able to collect also declines. If federal budgets are not reduced accordingly, we have deficits. Supply-side economists are not too concerned with up front budget deficits because the belief is that by lowering taxes, economic growth can expand, and that will result in increased tax revenues down the road to compensate for the tax revenues lost up front. In theory, this sounds nice. In practice it has been a catastrophe. Since supply-side economics was implemented back in the mid-1980s, the federal debt went from less than $1 trillion to almost $14 trillion.

Now we are stuck between a rock and a hard place.

To make up the difference between the costs of what we spend as a nation, and the revenues that we use to pay for those costs -- we have to (1) normalize taxes across the board back to their historical rates applied for over 100 years, and (2) reduce expenses across the board to a normalized level. Over the next 10 years will see both, or face a total collapse of the U.S. dollar. We will see the progressive rate scale of the individual taxpayer increase to historical levels where the nation's wealthiest will once again see a 60-90% marginal rate; dividend and capital gains taxes will also increase to historical levels. Further, we will see significant cuts to federal programs, including entitlement programs and war/defense expenses. This is the only answer we have.

But there should be no delusion as to the consequences of even these necessary steps -- it will be a very, very painful process for our nation. What will happen when we make across the board tax increases in conjunction with across the board cuts in spending is (1) slower economic growth, and (2) a loss of vital public services for millions of Americans, that together will lead to increased poverty and increased social unrest. It is quite possible that the remedy to put our nation back onto a path of fiscal responsibility, may itself lead to an ever downward spiral of the economy.

When I say we are stuck between a rock and a hard place, I really mean there are no easy answers to our nation's problems -- either path (staying the same course we've been on the last 30 years, or reverting back to historical tax and reduced expense levels) has the real potential to lead to the same result -- a complete traumatic failure of the U.S. economy.

Before turning to my final criticism of the Obama Administration's handling of the healthcare bill, a couple words on why I believe the U.S. has been making preparations in anticipation of massive social unrest. There are folks within the Pentagon and within the highest level of our military who are tasked with the sole responsibility of thinking up every scenario that puts our national security at stake, and how to successfully implement measures to counter each threat. It had occurred to me that when former Treasury Secretary Poulsen threatened legislators in October 2008 that if the emergency TARP bill isn't passed that something worse than the Great Depression would result and that "marshall law" would have to be used, that when Poulsen stated these things he wasn't talking out of his ass. Our government makes contingency plans for virtually every potential threat to our nation's security interests, it is only reasonable to assume that it has a similar plan in place in the case of total economic failure resulting in massive social unrest. Poulsen's remarks are credible given what we know from other publicly available information: (1) the formation of U.S. Northern Command (USNorthCom) after 9/11 that is charged with protecting the American homeland, (2) as first reported by the Washington Post that the Northern Command will receive 20,000 troops (and later reported, up to 80,000 troops) by 2011 that are being redeployed from the Army's 3rd Infantry Division that had been serving in Iraq, (3) a report from the Army Times stating that Northern Command troops will be retrained to assist with "civil unrest" and "crowd control" and "to subdue unruly or dangerous individuals without killing them," (4) the Defense Authorization Act of 2006 and the 2008 National Defense Authorization Act overriding portions of the Insurrection Act of 1807 and the Posse Comitatus Act of 1878, which essentially grants the sitting president increased power to use military troops on American soil for purposes of martial law, (5) in July 2009, NorthCom's Commander-General Victor Renault spoke before the House Armed Services Committee to begin pushing for centralized authority of the 400,000 National Reserve units that have been traditionally deployed by order of state governors, (6) Clergy Response Teams are being established nationwide to deal with crisis and social unrest (Romans 13 is their go-to chapter of the scriptures), and (7) bill H.R. 645 currently sitting in the House, is designed to "direct the Secretary of Homeland Security to establish national emergency centers on military installations." Earlier this week, ratings agency Moody's issued a new report warning public officials to change their current fiscal planning trajectory otherwise the U.S.'s AAA-rating will be in jeopardy. In the same report, Moody's indicated that severe government spending cuts will be needed, and as a result substantial "social unrest" is likely to ensue (similar to what we are seeing in Greece right now). As evidenced from the above, our military thinkers are ahead of the curve on this one and have measurements in place to deal with this very real possibility. Personally, I welcome these measures. After seeing Columbus residents at a healthcare protest demonstration earlier this week, turn nasty against an old impoverished man suffering with Parkinson's disease, I am convinced that we will need substantial numbers of military personnel to subdue the crazies in times of social unrest.

My final criticism of the handling of the healthcare reform bill, is that by so much attention being shifted toward this subject, that much less attention has focused on the financial nuclear weapons that created the crisis of 2008-2009. I have said many times before, healthcare reform is both worthy and necessary. But, it is possible to spend so much time on it, that sight is lost on other critical measures. This is what has happened over the past year. Every day that major news outlets focus on how Democrats are planning to round up the necessary 216 votes in the House, is another day of little or no discussion on the lobbying war being unleashed by the major banking institutions. Most Americans don't know that what transpired in our financial institutions over the past few years was the byproduct of two events that happened no more than 10 years removed -- (1) the repeal of the Glass-Steagall Act in 1999, and (2) the passage of the Commodity Futures Modernization Act (CFMA) of 2000. How many Americans know that former Republican Senator Phil Gramm of Texas, was primarily responsible for both granting banks an opportunity to set up a hedge fund inside their respective financial institutions, and allow these bank-run hedge funds to invest in highly risky derivatives securities free from any form of government regulation? How many people know that both Gramm's wife and Gramm himself directly benefited from his legislative efforts to assist banking institutions? [Gramm's wife was on the board of directors at Enron, one of the major lobbyists for CFMA; Phil Gramm currently receives a hefty income as one of the heads of the investment division at financial giant UBS]. The financial crisis of 2008 was not a product of inevitability. It was a product of greed and ignorance and self-interests.

To fix the destruction that Gramm and his cohorts created, the Volcker rule (which essentially reinstates the spirit of the Glass-Steagall Act) must be passed, and the CFMA must be repealed. I cannot overstate the fight of historic proportions that this effort entails. We must win this fight, otherwise it is a guarantee that the derivatives market will be the ultimate destroyer of global capitalism. Gramm is conveniently gone from the fight, but in his place is Mr. "Orange Tan Man" Bonehead John Boehner of Ohio (R) and a host of new bank puppets that are trying their damndest to maintain the status quo on Wall Street. If Boehner wins this fight, this nation loses.

Peace

Jeremy