The Crazy Right

I note that the US is again leading the way in showing the world how great democracies work.

Yes, the Republicans are once more holding the country to ransom, this time blocking the passing of a new government budget unless the Affordable Care Act (ACA) is postponed/reworked/abolished etc. What this means is that the Republicans are happy for hundreds of thousands of government employees to go on unpaid leave, for markets to panic, for GDP to take a hit and for many public services to be unavailable, if it means a chance of hijacking a law that has nothing whatsoever to do with passing the new government budget.

And the ACA, (or Obamacare as it has become commonly known), is a law. It was passed into law by both houses in 2010. Having failed to prevent it being passed into law and having prevented getting it repealed, Republicans have now resorted to using the American people as hostages in an act that is nothing short of shameful.

But what is the ACA? I’ve had a look and on the face of it, it’s hard to understand why someone would hate it so much. Prior to it, if you couldn’t afford private health care in America you were pretty much stuffed. Even if you could do you were by no means safe. The ACA makes it illegal for insurance companies to refuse to continue to insure you if you become sick. It makes it illegal for insurance companies to refuse to insure you if you have a pre-existing condition. It allows sons and daughters to remain on their parents’ insurance policies until they are 26 rather than having to finance the cost of health insurance themselves.

Why would Republican voters hate those things? It’s a good question and guess what? They don’t! When asked about the individual elements of the ACA, Republican voters actually support them. But the Republican Party has spent so much money on convincing people that “Obamacare” is a terrible thing, that their voters still think they don’t want it. Please do watch this short video by Jimmy Kimmel to show how ridiculous this situation is.

Yes, you didn’t imagine it – there was someone in there whose primary reason for not liking Obamacare was that it was “Un-American”, whatever the hell that means.

Moving on from voters though, Republican politicians know that the ACA and Obamacare are the same thing and they do know all of the initiatives that make it up. So why do they hate it?

Firstly, being a politician in America is an expensive business – getting elected means huge campaigns, TV commercials, travel, televised addresses. That money’s got to come from somewhere and health insurance companies donate millions of dollars to political parties and guess who gets the vast majority of it? Yep the Republicans. Why would Health Insurance companies donate lots of money to political campaigns? Well, it could be that they just like a particular politician’s stance on peace in the Middle East. Or perhaps… maybe… just maybe… they expect to get something back. Yeah – democracy my arse.

It’s not just a question of funding though. The Republican Party are what we call “Starve the Beasters” – that is that they believe that the lower the tax revenue the government takes, the better off things will be. By starving “The Beast” the private sector will surely expand to fill its place! The ACA is clearly at odds with this, as health care for those who can’t afford to go private is financed by the government.

The thing that the “Starve the Beast” rhetoric always ignores is that some things do work better when paid for through taxes. I mentioned a few of those towards the end of this post and the idea that everything works better when private than public is as stupid as the opposite scenario. The question is then, is healthcare one of the things that should remain entirely private for the US or could some government intervention help? The fact that 60 million Americans have no private health insurance, plus the fact that even Republican voters actually like all of the individual parts of the ACA probably tell you something about the answer to that question. If you feel that 60 million people shouldn’t have access to health care because they can’t afford it but state intervention would be “Un-American” then you are entitled to that view, but I would counter it by saying that you are a massive twat.

You might wonder why, as a British person, I care so much about what’s going on in the US. After all it doesn’t affect me, does it? Three points on that:

Firstly, 60 million people without access to healthcare in a country, where it could so easily be provided, saddens me greatly. Whether or not it is the country in which I live is irrelevant. Yes, of course there are many poor countries where people have no access to health care but remember folks, this is the largest economy in the world and it is a problem for which the means to solve it are easily understandable and easily available.

Secondly, the world economy is still very much dependent on the health of the US economy. When Republicans decide to screw it up for nothing more than their own nefarious agenda that affects all of us in some way.

Thirdly, when I look at the Republican party, I don’t just see some crazy people at whom to laugh. I see a party whose only concern is to make the rich richer at the expense of everyone else and that just strikes too close to home for comfort. At the moment I’m just watching the Tories going in exactly the same direction. Simon Wren-Lewis is similarly concerned. Could that really be the future to which we have to look forward? It’s not looking good:

Taxes for rich people? Let’s reduce those. Benefits for poor people? Let’s reduce those too. Public healthcare? Well, we can’t just bin it overnight but we can dismantle it bit by bit. Public education? Make schools “Academies” and then make them private. Climate change? Not a priority. Starve the Beast? Absolutely – we’ll cut the public sector throughout our next term too, whatever the state of the economy!

The Conservative party is undoubtedly moving swiftly to the right, but there is a strategy out there to try to hide that. Both they, with their “Red Ed” campaign and their friends in the right-wing press, with their attack on Ed Miliband’s “Britain Hating” dead father, are trying to position the whole thing not as their own move to the right but as the opposition’s move to the left.

It’s not hard to see the reality though and if the present weren’t bad enough, the trend suggests that the future will be worse with the gap between the moderately crazy Conservatives and the thoroughly crazy Republicans narrowing more and more. When I look at the US political right I don’t just see a bunch of nutters – I see our future.

By the way, you might be interested to know that the term, “Obamacare” was coined as a pejorative term by the Republicans – an attempt to debase it without having to directly address all those good things in it. Sadly, as you can see from the Jimmy Kimmel clip, that initiative has been effective. My hope, however, is not that this term will be disbanded. My hope is that with the rare victory over the crazy right that the ACA was, the name “Obamacare” not only replaces ACA in popular use, but remains in popular use for a very long time to come, as a tribute to a man who managed to do something great. Something that, in the face of such opposition from the crazy right, gave millions of poor people access to healthcare that they’d never otherwise have been able to afford.

And what Obamacare shows is this. No matter how crazy they are, no matter how extreme they get, no matter how much private funding they can muster and no matter how strongly they campaign for the interests of the 1%: Good things can still get done.

Perhaps, after the way things have gone recently in the UK, those of us outside the crazy right should take something from that.

RedEaredRabbit

Debt, Deficit, Default and Bugatti Veyrons

The other day @WH1SKS tried to bully me into writing a blog post. Normally I don’t give
in to cyber-terrorism but he has big muscles and he could snap me like a twig so I’ve broken the rules a bit.

I have forgotten exactly what the brief said but I think it was something like, “what would happen if the US and Europe didn’t repay their debt?” I couldn’t write it at the time as I had a hangover (because I am cool.)

I don’t have a hangover at the moment (I am still cool though) so I’ve briefly written down my thoughts. I should state that I don’t really know much about this and wouldn’t even have attempted it if @WH1SKS hadn’t made me, so it might be nonsense – these are really just my uneducated thoughts. I do think the US and Europe are very different though so I will look at each in turn….

The United States

The USA has about $14.6 trillion of debt. A number like that is impossible for the brain to comprehend so I’ll tell you what it looks like. The world’s most expensive road car is the Bugatti Veyron Super Sport (BVSS), which costs $2.4m and is 1.19m tall (that’s about $2,000 per millimetre). If you bought $14.6 trillion of BVSSs and stacked them on top of each other they would form a tower 818 times the height of Mount Everest.

(If you then drove them all forwards at the same time the one on top would probably achieve 30 or 40 million miles per hour which would be pretty cool. Still, it would almost certainly end in a nasty accident, so please don’t try this.)

I’ve forgotten my point. Oh, yes. The amount of money they owe is very big. So what would happen if they decided not to pay it back?

Firstly, the US would find it pretty tricky to borrow any money ever again because no one would trust them. You might wonder why this is a problem – they just became better off by $14.6 trillion so who cares? It’s a problem because even with the debt cleared off they would still have the deficit. The deficit is the amount by which their spending exceeds their income and last year the US added 95 Mount Everests worth of BVSSs onto their pile of debt. This means that if no one would lend them any money any more they couldn’t finance their deficit and would therefore need to take immediate action to make the books balance. You are all aware of Labour’s “too much too soon” argument against Conservative spending cuts. Labour’s position is that we are trying to reduce our deficit too quickly and by doing so harming economic growth thus costing us more overall.

When considering the size of the cuts being implemented by the Conservatives this point is debatable. But the Conservatives are not proposing to eradicate the deficit overnight or anything even close.

In our fictional scenario, the US would need to reduce it by 100% with immediate effect. They could do this by massively reducing spending or massively increasing taxes. Either way this would send their economy into a devastating recession, 100 times worse than the last one and they wouldn’t come out of it for a long time. Because the US is so important in the global economy we’d all be back in recession too and again it would be much worse than the last one.

So although paying back 818 Mount Everests of BVSSs it not pleasant it is actually much better than the alternative, so we could therefore say that if a country can pay off their debt then they will do. And in reality the US can afford its debt at the moment without any major risks. It’s a lot of debt but it is a very large economy and the markets are happy to lend it a lot more before they start to worry about its solvency. What the markets were concerned about (and what led to the S&P downgrade) was more a plausible situation in which the US made some interest payments late because its politicians were too incompetent to govern the country properly. The effects of this would have been far less severe than the situation described above where the US outright could not repay any of its debt.

That said it would still cause a major problem. Lenders would be much more nervous about lending going forward, so would require a higher interest rate to compensate for this. More expensive borrowing would slow down the US’s recovery further that alone might not actually be much a disaster were it not for the fact that markets always over-react to everything. The markets would see late payment as bad news and when bad news happens, people in the financial sector all turn into Beaker from the muppets and panic and make everything a thousand times worse.

A banker dealing with bad news
A banker dealing with bad news

So yes, it would be bad for the US to miss a payment but maybe the biggest problems would be caused indirectly by the market’s reaction, rather than from the direct problems of the person who didn’t receive the cash.

That’s America. Let’s move on….

Europe

Everyone has been talking about Greece. Greece’s situation is, I think, a lot worse than what’s going on in the US. Greece’s debt is only (!?) 19 Mount Everests of BVSSs but its economy is tiny in comparison with that of the US and there is a very real possibility of Greece not being able to make its debt repayments. The market realises this and unlike the US no one really wants to lend Greece any more money. This is why they are continually asking for bailouts to keep things going.

If Greece defaults on its debt then it will have serious implications for the rest of Europe. The Greek banks would all fail overnight but it’s worse than that. Most of the major European financial institutions have also lent a lot of money to Greece and some of them will most likely be in trouble. As we saw in 2008 when Lehman’s went bust, a major default causes the banks to completely lose trust in each other. As soon as they lose trust in each other, interbank lending stops and then they get into even more trouble:

  • Bank#1 needs to borrow some money from Bank#2 to pay back a loan to Bank#3.
  • Bank#2 has the cash available but doesn’t know if Bank#1 is ok or not so won’t lend it any money.
  • Bank#1 therefore can’t pay #Bank3
  • Bank#1 goes bust
  • Bank#3 didn’t receive their cash! Are they in trouble now too?
  • No one lends to Bank#3
  • etc etc etc

The other very shaky economies, Portugal, Spain, Ireland and Italy would be hit quickly afterwards because no one is going to risk pumping further money in there.

The European Central Bank would effectively be left holding the bomb when the ticking stopped and would only be able to stop those countries collapsing by printing lots of money (thus screwing the Euro) or by taking significant funding from the more healthy economies (Germany and France) which would screw them up quite a lot too.

The UK would probably be happy that it didn’t join the Euro but its banks would be severely hit and additionally, the EU is the UK’s biggest trading partner, so the UK economy would take a big hit too. I have no idea by how much but it wouldn’t be good.

Markets would react by everyone turning into Beaker from the muppets again.

So, in summary, I think the US is actually ok financially and its problems are caused more by its crazy politicians than by its debt. I am much more worried by Greece, Portugal, Ireland, Spain and Italy, a situation where there I think there is a significant risk of a second global financial crisis.

And if that happens we are not all going to be driving Bugatti Veyron Super Sports any time soon.

RedEaredRabbit