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3 Ways a Corrupt Chinese Military Hurts the U.S.

April 22nd, 2014

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China’s military, the People’s Liberation Army, is currently engulfed in the worst corruption scandal in its history. Two of its top officials have been detained and accused of bribery, embezzlement and abuse of power, including a cash-for-promotion racket that benefited hundreds of officers. More heads will roll as dozens of senior personnel must have offered bribes — or had been bribed — to get ahead in the ranks, calling into question the very leadership of the 2.3 million-strong army.

It’s easy to look across the Pacific and feel a twinge of schadenfreude. But if Beijing can’t get this metastasizing scandal under control, it’s bad for America’s strategic interests for three basic reasons.

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An Election Democrats Can Win

April 11th, 2014

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Obamacare versus Ryanomics. That’s the battle line for 2014. It’s also a battle Democrats can win.

Why? Because most Americans are pragmatists. Pragmatists believe that whatever works is right. Ideologues believe that if something is wrong, it can’t possibly work — even if it does work. That’s the Republican view of Obamacare: It’s wrong, so it can’t possibly work.

But it now looks like Obamacare may work. More than 7 million people signed up for health insurance by the March 31 deadline, meeting the Obama administration’s original goal. Senate Majority Leader Harry Reid (D-Nev.) said, “The Affordable Care Act, whether my Republican friends want to admit it or not, is working.”

Republicans admit nothing. “Even though the Democrats are trying to take some victory lap, it’s very short term,” Senator John Thune (R-S.D.) told the New York Times. “The bad news continues. The hits keep coming.”

Do they? The Affordable Care Act continues to be unpopular, though some polls show a slight uptick in public support. “House Republicans will continue to work to repeal this law,” House Speaker John Boehner (R-Ohio) promised last week. (They have already voted to repeal all or parts of the law 55 times.) The Republican view is simple: It’s wrong, therefore it can’t possibly work.

It will be difficult, if not impossible, to repeal a law that gives health insurance to so many Americans. A recent Rand study estimates that 9.3 million American adults were added to the insurance rolls as of March, a figure that includes those who signed up in the new marketplace, received new employer coverage or enrolled in Medicaid. They are all being helped by Obamacare.

Still, it’s too early to conclude that the law will work. There are many challenges coming. The employer mandate goes into effect next year, and some employers may use the requirement to cover their employees’ health insurance as a pretext to reduce workers’ hours and wages.

Moreover, insurers will announce new premiums for 2015 this fall. If the risk pools do not include enough young and healthy people, premiums could skyrocket.  That would set off a backlash among those currently insured — just in time for the midterm elections.

In the public’s view, the Affordable Care Act should be mended but not ended. What people don’t want to lose are the two most popular provisions of the act — requiring insurers to cover people with pre-existing conditions and allowing young adults to stay on their parents’ policies until age 26.

Representative Paul Ryan (R-Wis.), chairman of the House Budget Committee, said those provisions would be too expensive to include in any Republican replacement measure.

The least popular component is the individual mandate requiring every American to purchase health insurance or pay a penalty. If you do away with the mandate, however, the entire plan falls apart. So mending the law won’t be easy.

Then, seemingly out of nowhere, Democrats had a stroke of luck.  On April 1, Ryan came out with a 10-year budget plan involving massive cuts in popular federal programs like Medicare, Medicaid, food stamps, education, student loans and environmental protection. Ryan’s proposal would eventually change Medicare — the most popular of all federal programs — from an insurance policy to a “premium support” program, where seniors would be given subsidies to purchase private insurance. GOP presidential nominee Mitt Romney proposed doing that in 2012. Look where it got him

“Thank you, thank you, Congressman Paul Ryan for reminding us what Republicans would do if they had control,” Senate Majority Whip Richard Durbin (D-Ill.) remarked. Representative Steny Hoyer (D-Md.), the House Democratic whip, called it “a bad April Fool’s joke.”

Ryan’s proposal, which includes repeal of Obamacare, is a severe austerity plan aimed at achieving a balanced budget by 2024. There is no evidence that most Americans are willing to make the kinds of sacrifices necessary to get a balanced budget. Nor is Ryanomics likely to be signed into law.

What it does is give Democrats something to run against. “The choice is stark,” Reid said, as he stood on the Senate steps flanked by more than 30 Democratic senators. “The American people are watching.”

Democrats will run against Ryanomics. Republicans will run against Obamacare. Remember the rule of pragmatism: Whatever works is right.

If Americans come to believe Obamacare works, they will be reluctant to throw it out.  Especially the millions who will already have a stake in Obamacare. On the other hand, Ryan is threatening to do away with programs like Medicare that people know are working. Why? Because he and his fellow Republicans think those programs are wrong. Attacking programs that work is pure ideological bloodlust. And a losing battle for sure.

This piece was originally published via Reuters.

‘Back to the Future’ Foreign Policy

April 11th, 2014

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The 1980s are all the rage once again—from neon clothes to Robocop and the Teenage Mutant Ninja Turtles. Even America’s 1980s foreign policy is back in fashion amongst Neo-Cold Warriors longing to return to the Reagan era.

President Barack Obama quipped to Mitt Romney during the 2012 election that, “The 1980s called—they want their foreign policy back,” and he’s giving the military more money, even adjusted for inflation, than President Ronald Reagan ever did. But, the Neo-Cold Warriors still can’t abandon their Reagan nostalgia, especially after Russia’s invasion of Crimea, which has led some to ask “Was Mitt Romney right about Russia?”

Obama’s military outspends Russian President Vladimir Putin’s by more than seven to one. Yet, Rep. Paul Ryan, R-Wisc.,) rails against the president because, “For decades, defense spending made up roughly 50 percent of the federal budget. Today, it’s just 18 percent.” While ignoring the fact that defense spending hasn’t made up more than 50 percent of the federal budget since we put a man on the moon, Ryan is also concerned about the decline in defense spending as a percentage of GDP. Sen. Lindsey Graham, R-S.C., similarly bemoans the fact that America’s defense spending falls short of the 6% percent of GDP it was under Reagan, and The Wall Street Journal claims that by this metric Obama will leave his successor a “weaker” country than he inherited.

Whether or not you think the current level of spending is sufficient, defense spending as a share of GDP measures militarization of our society, but that does not necessarily mean strength.  Applying Reagan’s magic percentage today ignores changes in our economy, the threat environment and our capabilities.

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More on our Minimum Pension

April 10th, 2014

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We appreciate EPI’s comments on our New York Times op-ed in which we unveil a new proposal for a minimum pension. Ms. Morrissey poses several questions and calculations that we wish to answer.

Ms. Morrissey argues that a life-cycle account with its mix of stocks and bonds is too aggressive an investment for worker pensions. We respectfully disagree. However, this is immaterial because investors in our Savings Plan for Universal Retirement (SPUR) accounts would have a choice of fund options just as federal employees have today under the Thrift Savings Plan (TSP). Individuals could choose less aggressive or more aggressive options, but each fund would be well-diversified. The TSP, with fees only a fraction of those charged for 401 (k) plans, is working well for millions of current and former federal employees. A similar set-up, with low fees and diversified funds, should work well for everyone else.

Ms. Morrissey’s estimated cost to business is wildly inflated. She asserts the plan would generate new costs for the employers of all 165 million workers covered by Social Security. To reiterate from the op-ed, any employer that provides a retirement plan that is at least as generous as our proposal would face no new requirements. That would include virtually every public employee, teacher, cop, nurse, firefighter, municipal trash collector, and congressional employee. Practically any private company that provides a defined benefit or defined contribution to a plan would fulfill the requirement. That includes most white collar jobs, most union jobs, as well as jobs at think tanks like Third Way and, presumably, EPI. And as our forthcoming idea brief will explain, those who have already reached retirement age, would not have to participate.

According to the Employee Benefit Research Institute, 43 million full-time, full-year workers ages 21-64 are not currently enrolled in an employer-sponsored plan. Another 30 million part-time or part-year workers in the same age group would be affected, but their enrollment would be less expensive since the cost is based on hours worked. So in total, the magnitude of required new contributions would be about one third of what Ms. Morrissey estimates. More importantly, this is not a lost cost to businesses. It will improve the quality of their employment packages and raise the compensation of their workers. And, unlike health premiums, a minimum pension is a fixed, predictable, cost.

Still, the cost to business is real, particularly in the near-term, because wages are “sticky-down.” That is, employers are averse to cutting wages in nominal terms. So they are likely to bear most of the cost in the early years. To help employers start contributing—and to keep even modest downward pressure on working people’s wages at bay—government can pick up some of the tab. For example, modest adjustments to the maximum allowable contributions to 401 (k)-type plans would raise nearly $100 billion, according to the CBO. This revenue could be applied to help offset the costs to small and medium-sized businesses.

Ms. Morrissey also writes that workers could still outlive their savings if they opt out of an annuity and take their nest egg in a lump sum at retirement. Our plan’s default option is an annuity, which would last for the life of the owner, because we think that’s best. But if a worker prefers to take a lump sum or withdraw at her own pace, she should have that right. After all, it’s her money.

Finally, there is Social Security. Our proposal has no more impact on Social Security than private sector retirement plans do now. And nothing in our proposal will change the fact that Social Security is scheduled to become insolvent in 2031. Some believe solvency should be achieved by raising taxes alone. Some believe it should be achieved solely by cutting benefits. And some believe it will require a combination of the two. We fall into the latter category and believe it can be done while increasing benefits for low-income seniors. But that is separate and apart from our minimum pension proposal.

Capitalize Workers!

April 7th, 2014

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Raising the minimum wage has justifiably captured policy makers’ attention, but if the goal is to materially raise living standards for every American worker, we should also be calling for a minimum pension. Done right, this would not only create real wealth for the middle and working classes, it would use the power of financial markets to reduce wealth disparity instead of widening it.

There is a vast difference in the way the wealthy and the rest of Americans earn their money. In 2010, 60 cents of every dollar earned by those in the top 1 percent came from investments and businesses they owned. For the middle class, it was 6 cents.

For decades, the returns to capital have far outstripped the returns to labor. Before the mid-1980s, worker salaries constituted 65 percent of national income. In 2012, they were 58 percent. Economists rightly fret over how this contributes to wealth inequality. Well, if you can’t beat ’em, join ’em. If all working people, whatever their wage, could get a piece of these gains, it would improve their financial well-being exponentially. This is where the minimum pension comes in.

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As the ACA Stands Up, Can Programs for the Uninsured Stand Down?

March 25th, 2014

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It is clear that HealthCare.Gov is working better. Enrollment figures are climbing. Over 5 million Americans have selected a plan through the federal and state marketplaces, and another 6.3 million are getting coverage through Medicaid. While problems remain, the level of interest in getting coverage has grown—to as many as 2 million visits to the federal website in one day.

But amid these public proof points will be another less obvious measure of success—a decline in the need for a patchwork of programs designed to help the poor who continue to lack coverage despite the Affordable Care Act (ACA).

One of those programs, called the 340B Drug Pricing Program, however, shows no signs of slowing down. The 340B program supports clinics and hospitals that serve a high proportion of low-income and elderly patients. 340B requires drug manufacturers to provide discounts to hospitals and clinics that generally serve low-income patients or other groups like HIV-AIDS patients. The program allows hospitals and clinics to dispense the drugs purchased through 340B to their patients who may have their own private insurance coverage and pocket the difference between their deeply discounted purchase price and the amount that a health plan reimburses for the drug. For example, hospitals like Denver Health, which is the public safety-net provider for the city, have used 340B to expand services for at-risk patients. The discounts range from 20% to 50% off the cost of drugs. Those discounts are often bigger than the discounts required of drug manufacturers for Medicaid patients. Federal auditors have found that Denver Health is compliant with program requirements. But they also have found many other facilities to be out of compliance under current federal policy. Moreover, current law and regulations may be inadequate to ensure 340B is truly helping vulnerable Americans.

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