Baseline Scenerio -- Health Care Update

The take-away from the second piece: Americans are solidly behind the house version of the health care bill.

The Baseline Scenario
Credit Conditions In The Absence Of Consumer Protection
Posted: 10 Aug 2009 04:29 AM PDT
Even some of our most sophisticated commentators doubt a link between consumer protection and any macroeconomic outcomes. Consumer protection, in this view, is microeconomics and quite different from macroeconomic issues (such as the speed and nature of our economic recovery).
Officially measured interest rates are down from their height in the Great Panic of 2008-09 and the financial markets, broadly defined, continue to stabilize. But are retail credit conditions, i.e., the terms on which you can borrow, getting easier or tougher?
On credit cards, there’s no question: it’s getting more expensive to borrow, particularly because new fees and charge are appearing. Of course, lenders have the right to alter the terms on which they provide credit. We could just note that this tightening of credit does not help the recovery and flies in the face of everything the Fed is trying to do – although it fits with Treasury’s broader strategy of allowing banks to recapitalize themselves at the expense of customers.
But there is an additional question: will these changes in lending conditions be reflected in the disclosed Annual Percentage Rate (APR)? Historically, the rules around the APR – overseen by the Federal Reserve - have not forced lenders to include all charges in this calculation. Why is this OK?
It’s not OK. This would be like cereal manufacturers including only some ingredients on their labels. Or makers of children’s toys not telling you that some dangerous chemicals are involved.
Why has this been allowed to happen? Essentially, because nobody watches out for the consumer of financial products. Our regulation of financial institutions is byzantine and completely out of date; our banks game the system with impunity (e.g., nationally chartered banks are not subject to state usury laws; see this BusinessWeek article, section on payday loans).
Historically, the most powerful overseers of the system thought that this kind of detail didn’t matter – or that any changes in what banks did were a form of “financial innovation” that must naturally benefit everyone. But this is exactly the attitude that brought us to subprime, Alt-A, and other ”exotic” (i.e., misleading rip-off) mortgages.
And it is, sadly, the attitude among existing regulators that still predominates today. This implicit attitude towards consumers is in no way helpful, if we want an economic recovery, jobs, and a reasonably stable growth going forward. But it’s what we appear to be stuck with.
Our financial regulatory system is a disaster. The Obama administration should have called it by its proper name, proposed to close it down entirely, and argued to replace it with a more integrated and completely rationalized approach. That at least would have moved the bargaining position of the regulators – they would now be too busy trying to save their jobs to oppose Treasury on substance.
If you think I am wronging credit card companies, lenders, or regulators in any way, post details below. And if any representative of these institutions or their associated lobby groups is willing to debate these issues in public, just give me a call.
By Simon Johnson

What Do the People Want?
Posted: 09 Aug 2009 12:08 PM PDT
To the New York Times’s credit, they asked them. And this is what they found (from the beginning of the article, entitled “New Poll Finds Growing Unease on Health Plan”):
President Obama’s ability to shape the debate on health care appears to be eroding as opponents aggressively portray his overhaul plan as a government takeover that could limit Americans’ ability to choose their doctors and course of treatment, according to the latest New York Times/CBS News poll.
Americans are concerned that revamping the health care system would reduce the quality of their care, increase their out-of-pocket health costs and tax bills, and limit their options in choosing doctors, treatments and tests, the poll found. The percentage who describe health care costs as a serious threat to the American economy — a central argument made by Mr. Obama — has dropped over the past month.
The article does cite several statistics from the poll, and does show several signs that are favorable to President Obama, including that the public overwhelmingly favors him over the Republicans when it comes to health care, and overwhelmingly thinks that he is trying to work with Republicans more than the converse. But the overall impression you get is that Americans are afraid of health care reform.
But are they?
Here are some of the raw numbers:
The government should guarantee health insurance for all Americans, by 55-38.
The government should “offer[] everyone a government administered health insurance plan,” by 66-27.
Insurers should have to cover anyone regardless of medical history, by 76-19.
It is true that 68% of people think that health care reform could limit their access to treatment; but 66% are concerned that without reform, they could lose coverage at some point.
Similarly, 76% think that health care reform could increase their taxes; but 75% think that without reform, the cost of their health care will go up.
It seems to me that on the most important issues, America is solidly behind the House versions of health care reform.
But although Americans favor health care reform, by 59-31 they think the current bill will not benefit them personally – presumably, as I’ve argued before, because they are under the probably-mistaken assumption that they currently have good coverage and will not lose it. Now, this does not necessarily mean they would not favor the bill. As Ezra Klein wrote a while back, the administration could have made the argument for reform in moral terms – society has a moral obligation to provide basic health care to all people, and if it costs the better-off among us a few bucks, then that’s the price we should pay. But instead, it went for technocratic arguments instead – we have to “bend the curve” of health care costs. (In 2007, people thought that universal coverage was more important than reducing health care costs by 65-31; after months of being told by both sides that it is costs that matter, universal coverage still wins by 53-43.)
So at this point, I think the key message has to be that health care reform is good for everyone (at least everyone under 65; those over 65 already enjoy the benefits of reform), because it protects you against the risk of losing your job and getting sick.
By James Kwak