demandside

Does health care reform need to be deferred?

http://www.pbs.org/now/shows/447/video.html

KUTTNER

You have to give Robert Kuttner his due.  He has tracked the economic downturn at least as well as Nouriel Roubini and he has been on top of the appropriate policy responses.  At the turn of 2007 into 2008,Kuttner was talking up the Home Owners Loan Corporation as a way to get a floor under housing prices and stabilize the system.  That suggestion has still not made it into practice on a wide enough scale.  To be fair, Congress tried the Hope for Homeowners Program (as distinct from the Hope Now wishful think by Paulson and Company), which failed only because of the skewed incentives and screwed up mechanics of the privatesecuritization process.  As Kuttner mentions here, Shiela Bair has made it an article of rehabilitating defunct banks to work with homeowners.

The disagreements I have with Kuttner here are on two points, One, is basic health care reform really so far away in the current environment?  Two, is there really any return to the consumer economy we have known, even with a ten percent deficit boost.

First, health care is a basic cause of insecurity and feelings of vulnerability and so is a basic motivation for hoarding.  Basic social services, retirement and disability programs put a floor under national economic activity by their spending, but they also loosen the bonds of fear that would otherwise paralyze the free flow of economic activity.  This current economic collapse will traumatize the consumer like nothing we have seen.  And by current, I mean the collapse of GDP and employment over the next three quarters.

So health care will be welcomed by a new army of the vulnerable, but will also be a necessary support for consumers across the board to be willing to consume.

Second, and following from this, the public sector needs to become a much greater proportion of the overall economy.  The consumer sector has become upwards of seventy percent of all economic activity in the last years of the Bush administration.  Were health care and necessary investment to combat global warming and infrastructure needs to be fully funded under the government, it would not be unreasonable to see that number fall to fifty or fifty-five percent.

And it is not unreasonable.  Health care is fifteen percent of economic activity, though probably one-third or more is already under the government umbrella.  Infrastructure and green energy are investments in a future that without them will be very bleak.  If as a householder we are willing to pay thirty percent of our income for shelter, as a nation, we should be willing to invest, yes invest, in facilities and technologies we will need to survive.  And there must be a reduction in consumption.  Consumption of goods has become consumption of our environment.  We are eating the seed corn.  Reduced and reallocated consumption has to be a lifestyle choice we make as a people.

So.  Robert Kuttner can hardly be described as timid, but here we are on the outside of his projections on those two scores — the need for reform of health care to come sooner rather than later and the need for a resizing of the public sector relative to the private sector.  Again, the context for these decisions is not the economy you see out the window, where people are still going to restaurants, shops and jobs.  The context is the economy in six months. when we are hit in the forehead by the financial sector collapse now in full swing.

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