Ezra Klein answers Brad Plumer's question

First Brad Plumer asks: "Why won't Obama just declare the debt ceiling unconstitutional?" Ezra Klein follows with "Whom will the public blame for debtageddon?" concluding that while the debacle isn't helping Obama, it is killing the Republicans. So Obama's just following the old piece of political advice, when you're opponent is being an ass, don't interrupt him. (Or something like that.)

Golly this is funny

Courtesy of Moveon.org via Ralph.

Government spending

A little perspective on the debate over government spending. In Fiscal Year 2011 federal government spending is about $3.7 trillion, or roughly 24.7 percent of GDP. That's high - the average for 1971-2010 is about 21 percent. This is why Republicans are making such a fuss about getting spending under control.

At the same time, tax revenues are currently $2.2 trillion or 14.8 percent of GDP. That's low - the average for 1971-2010 is about 18 percent. So it's ridiculous for Republicans to say "we don't have a revenue problem, we have a spending problem." We have both problems.

Why has spending increased so much during the Obama Administration? Well, most of the increase was a result of the recession and financial crisis: TARP, unemployment compensation, food stamps, etc. have all contributed. But I think that when Republicans talk about runaway spending they're thinking of the government programs that fall in the category of "nondefense discretionary" spending. Roads, education, environment, all of those special programs that were part of ARRA like green technology investments. But let's look at that spending. Here's the data from the Congressional Budget Office:



The red line is nondefense discretionary spending from 1990 to 2012 (the 2012 figure is from the President's 2012 budget proposal). From 1990 to 2008, nondefense discretionary spending rose at an average rate of 5.3 percent per year. The solid green line on the graph shows this trend. Spending jumps above trend under the Obama administration. But all of the increase is in 2009 and 2010 and reflects the temporary spending under ARRA. Nondefense discretionary spending in 2011 was only $3 billion higher than it was in 2010, and the President's budget calls for no increase in 2012. By FY 2012, if Congress were to pass the President's budget as proposed (not very likely), spending would be just about back to the 1990-2008 trend line (the dashed part of the green line).

This actually overstates the spending increase under Obama because the 2009 budget was passed in 2008 when Bush was president. I've attributed it to Obama here because some of the spending under ARRA went in the FY 2009 budget, but some of the increase in 2008-09 was probably Bush's doing, not Obama's.

So where's the spending crisis? As Paul Krugman shows, a big chunk of the increase is in the category of "income security" - food stamps, unemployment compensation, and so on. But Republicans have wisely, I think, framed their arguments in terms of spending in general, not programs like food stamps. I don't imagine that threatening to default on our debt unless Democrats agree to cut spending on food stamps would poll very well.

Of course there's also the issue of entitlement spending (Medicare, Medicaid, Social Security). But the increase in spending on those programs is not Obama's doing, it's a decades-old structural problem. It's important to do something about these programs, but I'm going to suggest it's not a good idea to cobble together a solution four days before a government shutdown.

The platinum option

In addition to declaring the debt ceiling unconstitutional under the 14th Amendment, Jack Balkin at Yale University Law School suggests two ways that President Obama could work around the debt ceiling in the event that an agreement isn't reached by next week.

One:

Sovereign governments such as the United States can print new money. However, there's a statutory limit to the amount of paper currency that can be in circulation at any one time.

Ironically, there's no similar limit on the amount of coinage. A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds.

This seems right to me, with the caveat that there is no legal limit that I am aware of on the amount of paper currency that can be in circulation. Maybe he means to refer to the amount of Treasury bonds issued? To the extent that the Fed issues reserves by purchasing mainly Treasury securities, and banks buy paper currency with reserves, this puts a practical limit on the amount of currency in circulation. But it's not a legal limit. Anyhoo, the Treasury does have an account at the Fed from which it pays its bills, and if it deposited $2 trillion in platinum doubloons into that account it would be good to go.

Two:

The government can also raise money through sales: For example, it could sell the Federal Reserve an option to purchase government property for $2 trillion. The Fed would then credit the proceeds to the government's checking account. Once Congress lifts the debt ceiling, the president could buy back the option for a dollar, or the option could simply expire in 90 days. And there are probably other ways that the Fed could achieve a similar result, by analogy to its actions during the 2008 financial crisis, when it made huge loans and purchases to bail out the financial sector.

Sure, why not? The Fed is a powerful agency, with extraordinary powers it can deploy in an emergency (see 2007-09). If the Fed can make loans to Bear Stearns or AIG in an emergency, why not the Department of the Treasury?

But of course the time for the Administration to drop hints that it was considering doing this kind of thing was months ago, not the weekend before debtmaggedon. Doing so months ago would have deprived the Republicans of the soap box that they've used to take over the political debate and would have assured financial markets and businesses that the government wasn't going to throw nails onto the road to recovery.

Again: the issue is the economy, not default

Two important events with importance to financial markets have occurred in the last 24 hours. Last night John Boehner pulled his debt ceiling bill for lack of Republican votes. This event adds to the chaos surrounding the debt ceiling and increases the chance that no agreement will be reached by Tuesday, when Treasury borrowing hits the legal ceiling. This morning the Bureau of Economic Analysis reported that GDP grew only 1.3 percent in the second quarter, following a miserable 0.4 percent gain in the first quarter (in normal times with full employment we want something like 3 percent growth; to get out of our current recession in a reasonable amount of time we need something like 5 percent for awhile).

So what did the financial markets do? So far, stock prices are falling while Treasury bond prices are rising. Wait, rising? That means yields are falling. Let me check that - yep, interest rates on ten-year Treasury bonds fell from 2.95 to 2.88 percent this morning. I thought that the prospect of default was supposed to drive bond yields up because no one wants to lend to a government that doesn't seem to want to pay its bills. That's odd.

Well, it really isn't odd. Everyone knows that the Treasury is going to continue to make payments on its debt. Even if the debt ceiling is reached on Tuesday with no agreement, the Treasury will have enough money coming in from tax revenues to make those payments. At risk is the rest of the budget: Social Security payments, payments to government contractors, federal government employee salaries, electric bills for government agencies, and so on. If that spending is curtailed it will be incredibly damaging to the American economy. The total amount of spending cuts amount to something like 10 percent of GDP. Given that GDP growth is already perilously close to zero, it almost certainly would push us back into another recession. That's why the stock market is dropping. And if the economy weakens further the Federal Reserve is likely to begin another round of quantitative easing to push interest rates down - that's why bond rates are falling now.

It's quite likely that the chaos over the debt ceiling was a contributor to the slowdown in the second quarter and this month. News reports claim that businesses are putting off purchases and hiring to hoard cash in case of a disruption of payments or an economic slowdown. Go back a few posts to see what this does to the economy: more demand for money means less demand for goods and labor. The solution is for the Fed to add reserves to the banking system to satisfy people's desire for money. If it does this by buying long-term bonds of various kinds it reduces interest rates enough to encourage people to stop hoarding and start spending. But QEII ended in June - the Fed is keeping reserves constant for now.

So this looks to be another strategic blunder on the part of the Obama Administration. Months ago the administration should have made it clear that it would not default on the debt, that it would not let Congress' failure to pass a debt ceiling bill prevent it from paying its bills. It could have been coy about how it was going to do this - invoke the 14th Amendment? the platinum option? surely there are enough creative minds in the White House Counsel's office to come up with a way around the debt limit. I guess the reason the Administration did not do this was that it thought that by generating a sense of crisis it could force Republicans to sign onto a budget deal that would resolve some long-term fiscal issues. Turns out that is not the case, and now we're left with the crisis without the deal. Well played!

The Bush Administration: the gift that keeps on giving

With the tax cuts, wars, regulatory failures, Katrina, US Attorney scandals, and so on, I thought I had a complete picture of all of the disastrous policy decisions that were made by the Bush Administration. Ah, but I'd forgotten about the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

Thinking back to those halcyon days, I recall that the BAPCPA seemed to me a gratuitous slap at consumers by the financial industry (and their tools in Congress and the Bush Administration). Consumers are running up huge balances on their credit cards, said the big credit card issuing banks. Let's make it more difficult for them to squirm out of these debts if they ever get in over their heads (not "let's stop sending 15 year olds multiple credit card offers with teaser introductory rates," but rather "let's make sure they're totally screwed if they keep taking the money we're sending them").

So the BAPCPA changed the bankruptcy laws to tighten restrictions on who may file for Chapter 7 bankruptcy. If I declare Chapter 7 bankruptcy, my credit card and other unsecured debt is discharged, freeing money up so that I can continue to make payments on secured debt like my home mortgage. The BAPCPA prevented people whose pre-bankruptcy income exceeded the state median from declaring Chapter 7 bankruptcy and imposed other impediments. As a result, more people who declare bankruptcy now must do it under Chapter 13. The key difference between Chapter 13 and Chapter 7 is that when I file under Chapter 13 I must continue to pay off my credit card debt, which means that I have less money available to keep up with my mortgage.

Hmm, I wonder if the BAPCPA increased the number of homes under foreclosure due to the more stringent treatment of credit card debt? Well, it turns out that Donald Morgan, Benjamin Iverson, and Matthew Botsch at the New York Fed have run the numbers. What did they find?

The estimated impact of BAR on subprime foreclosures is substantial. For a state with average home equity exemptions, the average subprime foreclosure rate over the seven quarters after BAR was 11 percent higher than the average rate before BAR. This translates to about 29,000 more subprime foreclosures nationwide per quarter attributable to the reform.

And in a footnote:

BAR may have indirectly contributed to foreclosures via lower home prices. To the extent that cash-flow-constrained borrowers were forced to sell their homes in lieu of filing Chapter 7, the downward pressure on home prices would contribute to foreclosures by leading to underwater” mortgages.

Oh, the creative ways the banks and Republicans find to screw up our economy never ceases to amaze me.

Where's my carbon tax again

Matthew Yglesias also notes the bizarre disappearance of a carbon tax from the debate over the debt ceiling.

This is another Democratic failure. The Democrats should be holding to the line that our number one concern now is jobs, not deficit reduction. They should trade stimulus now for future spending cuts. A carbon tax ought to be part of their long-range plan for what to do with the tax code - surely in a sane world we could all agree that as long as we're taxing people to finance our government, we should be taxing consumption instead of labor, and consumption of fossil fuels most of all.

Austerity

A likely outcome of the debt negotiations is large cuts in government spending to reduce the debt burden. How would this affect the economy? Well, in fall 2010 the conservative government of the UK announced a program of austerity intended to reduce the government's debt load and restore business confidence so that businesses would start to hire and invest again (sort of what Republicans argue will happen if the US reduces spending). How's that worked out so far? See for yourself:



Caution: you never want to attribute every squiggle in the data to a single event. Lots of stuff contributes to movements in GDP. Still...

What's motivating Obama and the Democrats?

President Obama is once again stirring up the ire of liberals for his handling of the debt ceiling mess. Paul Krugman is calling him "President Pushover," echoing Elizabeth Drew's critique that Obama has decided that ruling like a moderate Republican is the key to winning the independent vote in 2012. That may very well be true. Obama has put up no struggle as Republicans have turned the economic debate from creating jobs to reducing spending. His proposals for resolving the debt embroglio are heavily weighted toward big spending cuts. It does indeed seem crazy, as Krugman writes, for Obama to be pinning his reelection hopes on a set of programs that seem to guarantee continued high unemployment going into the 2012 election while forcing Democrats to share the stain of cutting Medicare with Republicans.

But what explains Harry Reid and Nancy Pelosi? In their current negotiations with John Boehner they are apparently offering spending cuts in exchange for lifting the debt ceiling with no guaranteed increase in taxes. As David Kurtz says, "Dems to GOP: If we give you everything you want, will you finally raise the debt ceiling?" I don't see how their position is any better than Obama's.

It seems to me there are three possible interpretations. (1) The Democratic Party in general is just as hapless as Obama. They've all bought into the arguments of what Krugman calls the Very Serious People who think that deficit reduction is good for the economy; they are all pushovers before the Republicans' scorched earth tactics. (2) Reid and Pelosi believe that the independent vote is also key to their maintaining / regaining control of their respective houses in 2012. (3) Reid and Pelosi, like Obama, are simply calling the Republicans' bluff. They know the Republicans won't take yes for an answer so their offer of significant spending cuts is so much cheap talk. They also know that they have an ace in the hole - it will require legislation to extend the Bush tax cuts, and without such legislation they're guaranteed big revenue increases.

My money is on (2) or (3). At any rate, all of the criticism of Obama seems misplaced to me. Senate and House leaders have not acquitted themselves any better than Obama since the health care fiasco of 2009-10 and the failure to pass a budget in 2010. Obama's missteps are not the product of his own unique failings - they are either symptomatic of problems in the Democratic Party as a whole, or are actually not missteps at all but shrewd political gamesmanship on the part of all of the major players in the party.

Let's not make a deal

It's probably time to acknowledge that no deal - no deal favorable to Democratic political or economic interests at any rate - is going to arise from the current negotiations on the debt ceiling. It's clear that Republicans will not at this time agree to one penny's worth of tax increases. Part of the reason for this is because of the anti-tax religion that has swept over the party. But there's a pragmatic reason as well: Republicans at some point will be willing to close tax loopholes and special preferences like the tax break for corporate jets, but they plan to use that concession to finance reductions in marginal tax rates in a coming round of tax reform. At any rate there's really no sense in continuing to hope and bargain. The only agreement that seems plausible is one where Democrats agree to some modest spending cuts and Republicans structure the agreement so that we have to go through this same ordeal several more times before the 2012 election.

In that case, I think it's time for Barack Obama to say that negotiations have collapsed and he's going to take a nice long vacation in Hawaii. When he gets back he expects to see a no-strings-attached bill to lift the debt ceiling that carries us through the 2012 election on his desk. In the same breath he can say that he is committed to carrying out negotiations with Republicans int he context of the FY 2012 budget using the Bowles-Simpson / Gang of Six framework as a starting point. He can make the point that the debt ceiling debate was never the proper forum for these negotiations anyway: Congress passed a budget resolution, which the President signed, that committed the US to a certain amount of borrowing during FY 2011. If Republicans don't want the government to borrow more, they should pass a budget that doesn't require it to. Until then, I think everyone can agree that the government should pay for what it buys.

Will the Republicans balk? Yes they will. On August 2 Congress will fail to pass the resolution lifting the debt ceiling. The DJIA will then fall 700 points and the Federal Reserve will announce that it will essentially guarantee the US debt by purchasing any amount anyone wants to sell. Congress will then meet again and pass the resolution, resolving the crisis. I think this is probably what's going to happen anyway, but with a bill that cuts spending and worsens the recession. Under my plan, we get the same day of total panic but none of the harmful spending cuts.

That's not to say that spending doesn't have to be cut sometime. I don't think it will be the end of the world if the government decides to save a few hundred billion dollars on Social Security by using the chained CPI instead of the current CPI to index payments. But if we do that, it should be in the context of a serious budget deficit reduction program that includes meaningful tax increases. We don't cave on that issue in exchange for a closing of the tax break on corporate jets. With time, perhaps Congress and the Administration can actually come up with a sensible multi-year fiscal plan. The plan should absolutely include a carbon tax (Brad DeLong notes its strange disappearance from the debate, something I've been wondering about myself). President Obama has a strong hand to play in negotiations over a real deficit agreement. Without some legislation to the contrary, the biggest of the Bush tax cuts expire in 2012 and rates go back to what they were in 2000. The expiration of these tax cuts will do more than any proposal out there to restore long-term balance to the budget. If the Republicans want some of the current tax rates to stay in place, they will have to deal or make it a campaign issue in 2012.

One more strategic consideration. If the Democrats get a deal on the budget now, the budget declines as an issue in 2012. And then what will the campaign be about? It'll be about the fact that the unemployment rate is still 9%. If there's no deal, then the 2012 campaign is all about Medicare, taxes, and the budget - I think the Democrats will be pleased if that's the case. I'm willing to sacrifice the Democrats' electoral interests for a good budget deal, but not the lousy kind I think we're likely to get if we try to agree to something in time for a lifting of the debt ceiling.

And now for something completely different:

Male Organ and Economic Growth: Does Size Matter?

Tatu Westling
University of Helsinki
Discussion Paper No. 335
July 2011
ISSN 1795-0562

Abstract
This paper explores the link between economic development and penile length between
1960 and 1985. It estimates an augmented Solow model utilizing the Mankiw-Romer-Weil
121 country dataset. The size of male organ is found to have an inverse U-shaped
relationship with the level of GDP in 1985. It can alone explain over 15% of the variation in
GDP. The GDP maximizing size is around 13.5 centimetres, and a collapse in economic
development is identified as the size of male organ exceeds 16 centimetres. Economic
growth between 1960 and 1985 is negatively associated with the size of male organ, and it
alone explains 20% of the variation in GDP growth. With due reservations it is also found
to be more important determinant of GDP growth than country's political regime type.
Controlling for male organ slows convergence and mitigates the negative effect of
population growth on economic development slightly. Although all evidence is suggestive
at this stage, the `male organ hypothesis' put forward here is robust to exhaustive set of
controls and rests on surprisingly strong correlations.

Job-killing spending cuts

During the debt ceiling battle the Republicans have shown once again how much better they are than Democrats at the rhetorical aspect of politics. When Republicans talk about government debt, they never fail to claim that reckless spending is costing jobs, whereas the Democrats' proposals for "job-killing tax hikes" on "families" and "job creators" will just make matters worse. Democrats weakly counter that cutting spending during a recession will slow down the recovery, but their words lack the force that comes from endlessly repeating phrases like "job-killing tax hikes", "failed economic stimulus", and so on. I recommend that from now on, no Democrat ever mentions spending cuts without attaching the modifier "job-killing".

To bring the matter home: this spring President Obama, caving into pressure from Republicans for spending cuts, slashed funding for community action programs. These federal budget cuts and similar cuts at the state level have forced the South Central Community Action Program, which provides social services in Adams County, to terminate some important programs. Most crucially, Wee Care, my kids' day care center which also serves a lot of low income people in Gettysburg, is closing at the end of the summer. They need something like $100,000 a year to operate, and they're no longer going to get it from the state and federal government. So they close - and with their closing, a dozen or so hard-working, patriotic Americans who have devoted their lives to educating our children, will lose their jobs. Jobs killed by our politicians' obsession with cutting spending and unwillingness to raise taxes even a little bit to preserve essential programs. To quote Charlton Heston: "Damn you! Goddamn you all to hell!"

This episode is really a microcosm of what's happening all over this country. The recession is grinding the life out of low income communities while the well-healed protect themselves from the pain. Over the next few years I suspect that the class divide in this country is going to be more and more obvious, and eventually too toxic to ignore. Let's put this in perspective: Gettysburg College is gearing up for another fund-raising campaign with a goal of raising something over $100 million dollars. I wish us luck. That kind of money will allow us to continue to (start to?) pay competitive salaries for faculty, offer new programs for our students, and overall sustain the quality of our college. But an endowment of just $2 million or so - the kind of generous donation Gettysburg gets every year or so - would save the SCCAP programs permanently and, I'd argue, do much more good at the margin than anything Gettysburg College is going to do with this money. Will anyone step up? Will anyone even think of asking? No, I'm afraid Gettysburg College and society's upper crust in general will continue to get along just fine while the bedrock beneath us crumbles away.

I think the biggest risk is recession, not financial crisis

So on August 2, if no deal has been reached to lift the debt ceiling, the US government has to start deciding which bills to pay and which to delay or renege on. My guess is that the Treasury will announce unequivocally that it will honor the debt. Otherwise there will be another financial collapse and horrible recession. The long term consequences for the terms on which the US can borrow and the role of the dollar as the world's main reserve currency would also be severe. I'd also expect the Federal Reserve to buy US government securities in whatever amounts are needed to prevent a major spike in interest rates.

Consequently, I think the main danger posed by a funding crisis is what happens if the Treasury stops making payments to other claimants on the government budget -- Social Security checks, reimbursements to doctors and hospitals for Medicare and Medicaid, payments to government contractors, etc. The total impact is estimated to be about 10 percent of GDP -- enough to throw the economy into another major recession. Of course, that is also about what the effect would be of a resolution of the crisis on Republican terms.

The bright side

The bright side of June's dismal employment report is that perhaps the obvious signs of stagnation will strengthen Obama's hand in pushing for new stimulus measures as part of the debt ceiling agreement. John Boehner at last seems to recognize the problem:

In a political role reversal Friday, House Speaker John Boehner (R-OH) warned that Congress risks severely harming the economy and exacerbating the unemployment crisis if it fails to raise the national debt ceiling in the next four weeks.

"While some think we can go past August 2nd, I frankly think it puts us in an awful lot of jeopardy, and puts our economy in jeopardy, risking even more jobs," Boehner told reporters at his weekly Capitol briefing.

By contrast, I think if the employment report had shown growth in jobs around 150,000 as expected, the mood in Washington would have been that the recovery, while not as strong as we would want, is self-sustaining and we can continue on our merry budget cutting way.

Issue Paper #3: Climate Change

It is not “conservative” to ignore the clear scientific evidence that global temperatures are increasing at least in part due to the burning of fossil fuels by people and businesses. There is, however, a great deal of uncertainty about the severity of the problem and the effects of reducing carbon emissions now. In light of that uncertainty, it is prudent to take measured actions to begin reducing carbon emissions. These actions should phase in gradually to minimize the economic costs. The measures we take should allow us to accelerate emissions reductions as evidence of humankind’s contribution to global warming strengthens, and be reversible in case new scientific evidence shows that humans are not a major cause of global warming.

The Obama Administration has proposed strict new regulations on carbon emissions from electrical utilities that threaten to raise costs and hurt the employment prospects for millions of American workers. At the same time, the Administration is following the example set by the G.W. Bush administration in introducing costly government subsidies for untested technologies such as ethanol, wind power, and solar power. This amounts to a radical industrial policy under which government is tasked with picking winners and losers. It is a vast intrusion into private business decisions that violates time-honored conservative principles. The Administration’s proposed new mileage standards for automobiles is industrial policy on steroids. If elected I will push for a reversal of these programs and their replacement with a more sensible approach to dealing with the problem of climate change.

My approach reduces carbon emissions by relying on private enterprise and the prudent decisions of American households working through markets. Basic economic theory tells us that if the price of emitting greenhouse gases rises, businesses and households will find the most efficient ways of reducing emissions. All government needs to do, then, is to impose a tax on carbon emissions (or, equivalently, to require companies and households to purchase permits to emit greenhouse gases and then let them purchase these permits through auctions). The tax or “cap-and-trade” system will raise the price of emissions. Businesses and households, faced with higher costs of emissions, will make the changes required to reduce their emissions that are best for them, as opposed to the current “one size fits all” industrial policy approach. At the same time, I will support the elimination of all of the green technology subsidies and regulations on carbon emissions that the Obama Administration has imposed.

Under my proposal, the tax on carbon emissions will be phased in gradually over a ten year period. This will allow us to avoid wrenching changes now that will slow the recovery. It will also provide an incentive for businesses to invest in new technologies such as electric cars and solar power that will be profitable when the taxes are fully phased in, stimulating growth. A tax on the carbon content of all products bought and sold in the US will apply equally to goods imported from countries like China, so American manufacturers will not be put at a disadvantage relative to foreign competitors. If in the years to come new scientific evidence emerges showing that carbon emissions are not a major cause of global warming, the taxes can be reduced or eliminated.

Pricing carbon emissions through taxes or a cap-and-trade system is the conservative solution to problems like climate change. A cap-and-trade system was applied successfully to the problem of sulfur dioxide emissions under the G.H.W. Bush administration in the early 1990s. The market-based solution has been endorsed by many conservative economists, including Gregory Mankiw, the Chairman of the Council of Economic Advisors under George W. Bush. It is an efficient approach to a serious environmental problem and accomplishes its objectives with as little government interference in private business decisions as possible.

Issue paper #2: Health care

It has long been a principle in our society that people should not be denied health care simply because they cannot pay. Doctors are required by oath to give emergency care to anyone who comes to them. Hospitals are required by law and by basic principles of Judeo-Christian morality to do the same. Having made the commitment to provide people with medical care, the question is how to do this in the most efficient manner.

As a conservative Republican, I believe that to the greatest extent possible we should leave the allocation of resources to markets rather than government. In general markets are the most efficient mechanism to accomplish this. Economic theory and years of experience demonstrate that when markets are competitive, government interference only leads to inequity and inefficiency.

Markets for health care and health insurance, unfortunately, are unlike other markets. Consumers are not willing or able to weigh costs and benefits of treatment, especially in emergency situations. Health insurance markets are plagued by the problems of moral hazard and adverse selection. As a result, a free, unregulated health care market delivers excellent care for the majority of people, but young people and people with low incomes typically do not get coverage. When they get sick and require care, the cost of care is borne by those with insurance. This raises the cost of health insurance, raises costs for business, and makes our economy less competitive.

To deal with these problems, liberals have long advocated a system of universal health care modeled on Medicare. But government-run health insurance will inevitably fail to control costs. The most popular measures to control costs under Medicare, such as placing price controls on pharmaceuticals and forcing doctors and hospitals to accept lower reimbursement rates, merely shift costs to health care providers and in the long run will destroy the incentives to invest and innovate.

Republicans have a better plan. In Massachusetts, Republican governor Mitt Romney implemented a system under which government provides vouchers to individuals to buy health insurance from private insurance companies. Insurance policies were made more uniform and are sold on "exchanges" that closely approximate competitive markets. As a result, almost all residents of Massachusetts are now covered by health insurance, and the plan remains popular. A version of this plan has been proposed by Republican Congressman Paul Ryan to transform Medicare. The voucher system is similar to conservative proposals for reform of public schools. Given the success in Massachusetts, I propose applying this plan nationwide.

Now, Democrats passed a health care plan modeled on the Massachusetts experiment in 2010. In this case, Democrats were adhering more closely to conservative principles than my fellow Republicans. However, the Democratic plan included a smorgasbord of taxes and fees on things like medical devices that represent a harmful and unnecessary intrusion into private enterprise. I propose eliminating these onerous taxes and fees and other regulations contained in the bill (though the elements of the law forbidding insurance companies from setting lifetime limits for coverage and denying care to people with pre-existing conditions need to stay). The Democrats' law also did not include tort reform. I will insist that Congress amend the law to ensure that there is a predictable system of compensation for medical malpractice that is fast and efficient, treats like cases in the same way, and provides meaningful incentives for doctors and hospitals to maintain high quality without imposing excessive costs on them.

Reform of our health care system did not end with the passage of ACA in 2010. Republicans need to be at the table when the new system is modified, as it must be, in the years and decades to come. We need to resist costly add-ons to the system while maintaining the market emphasis of the legislation and ensuring that states have the flexibility to experiment with alternative arrangements. Republicans can best accomplish this if they are active participants in reform rather than taking the nihilistic approach of the current Republican leadership. I pledge, if elected, to be such a positive voice for reform.

Weise announces formation of exploratory committee

My fan base is clamoring for me to challenge Congressman Todd Platts (R, PA-19) in the Republican primary next year. (Ok, one person suggested jokingly that I do this – that’s all it takes, there’s no stopping me now.)

The basis for my challenge is that Platts and other Washington Republicans have abandoned the core principles of American conservatism. In doing so, they have turned their backs on our founding fathers. My candidacy is an appeal to Todd Platts and all Republicans: come back home to America!

I have assembled a crack team of conservative intellectuals and policy wonks to help me craft position papers on the important issues of the day. Let’s begin with the hottest of hot topics: the debt ceiling.

Issue paper #1: the debt ceiling

I am astonished, appalled, and, frankly, saddened, that my friends in the Republican party have toyed so recklessly with the good credit of the United States. Tim Pawlenty, Paul Ryan, and Pat Toomey are among the Republicans who have argued that a brief default would be acceptable. But a default would be unconstitutional: the plain language of Section 4 of the Fourteenth Amendment states that “The validity of the public debt of the United States… shall not be questioned.” As Treasury secretary, founding father Alexander Hamilton insisted that the federal government assume and honor the debt that the states had run up under the Articles of Confederacy; indeed, under his leadership the federal government borrowed the money needed to pay off the debts of the states. Defaulting on the debt – indeed even threatening to default for political gain – is unpatriotic and un-American.

If I am elected, I will vote to honor America’s debts by authorizing an increase in the debt ceiling. I will support re-imposing the Gephardt Rule, under which budget resolutions authorized the Treasury to issue debt to cover the borrowing that they implied. I will fight for the conservative principles of small government, low taxes, and balanced budgets, but I will do so in the context of debate over the annual budget, not by holding hostage the good credit of the United States of America.

I will describe my proposals for restoring fiscal discipline to the budget in coming issue papers.