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Abandoning health care after the Brown election, and other Washington nonsense

By Steven Pearlstein
Friday, January 22, 2010; A12

People, let's get a grip!

Okay, so Massachusetts voters elected a hunky, unknown Republican to fill Ted Kennedy's Senate seat. That's no reason to ignore the result of a national general election, throw out a year's worth of hard work on a range of important issues and rush to embrace a bunch of simple-minded solutions meant to mollify an angry electorate.

Honestly, in a city that thrives on nonsense, we've heard more of it in the past few days than you normally do in a year.

One of my favorite bits of Monday morning quarterbacking is that President Obama should have put health care and Afghanistan and climate change and everything else on the back burner for the past year and insisted that he and everyone else focus exclusively on jobs, jobs, jobs. What do you call a $787 billion stimulus package of tax cuts and increased spending, a $50 billion auto industry bailout, a $1 trillion prop to the housing sector and nearly another $1 trillion in old-fashioned monetary stimulus -- chopped liver? And how exactly do you square the idea that the president and Congress should be working 24-7 to "create" jobs with that other nugget of conventional wisdom, that Americans are demanding smaller government, less spending and lower budget deficits?

Then there is the big question of what to do about health care now that the voters have allegedly turned against the president's proposal.

One reasonable-sounding idea is that the president should reduce it down to just a few of its most popular provisions, such as the one requiring that insurance companies be barred from refusing to cover people with preexisting conditions or charging them sky-high premiums.

The problem with that, of course, is that if you don't require everyone to buy insurance, then there will be lots of people who will wait to buy their policies until they get sick and then demand coverage at the "community" rate. That's a great way to drive up premiums, which in turn will drive even more healthy people to drop coverage, which will raise premiums even further.

To prevent this kind of debilitating "insurance spiral," you could add one more feature -- a mandate requiring everyone to buy at least a basic insurance package. Unfortunately, there are lots of low-income households for which the newly mandated premiums could eat up as much as a half of after-tax income, which hardly seems fair. So you'd probably want to make sure that there's enough competition among insurers to keep premiums down, which is what those government-supervised exchanges are all about. And you'd want to have some subsidies to limit the financial hit to low-income families. To pay for the subsidies, you'd either have to raise taxes or cut spending in other areas.

And that, basically, is the outline of Obama's health plan, just as it was Clinton's health plan and the Nixon plan before that. In fact, if you want a health-care system that's universal and affordable and based on a competitive market of private insurers and health-care providers, that's pretty much where you have to start. There is no simple solution to this puzzle.

Of course, there are plenty of details that we can talk about -- how comprehensive the basic insurance plan should be, how the insurance exchanges should be structured, how big the subsidies should be and what combination of taxes and spending cuts should be used to pay for them. In fact, we've had a rather vigorous debate on those issues for more than a year now, which ought to put the lie to another piece of nonsense put forth by the Republicans -- namely that health reform has been "rushed" through Congress without any input from them or the public.

Instead of moving to take back the health-care issue, however, President Obama on Thursday seemed more interested in changing the subject, launching another broadside against the big Wall Street banks

In the populist imagination, the root of the recent financial crisis was the decision in the 1990s to allow commercial banks, which take deposits and make loans, to get into the riskier but more lucrative investment banking business, where firms underwrite and trade securities on behalf of their customers and themselves. For months, liberals have been pushing to reinstate the old rules to separate the two activities. And for months, Treasury Secretary Tim Geithner has pushed back, arguing that many of the banks that got in trouble did so the old-fashioned way, by making stupid loans, while many of the institutions that contributed most to the crisis -- Bear Stearns, Lehman Brothers and AIG -- weren't in commercial banking at all.

However, Obama suddenly reversed course and embraced the populist critique, demanding that commercial banks give up their risky investment activities. In truth, the new rules probably would not do much to reduce the chance of another crisis, or another bailout. The president's motives seemed less substantive than they were political, allowing him to shift from defense to offense and put Republicans in the uncomfortable position of having to defend the Wall Street status quo.

This is a leadership moment for the president. It is a chance to show he can respond to setbacks not by running for cover or resorting to political gamesmanship, but by calmly and confidently reasserting his control over his party and the public debate.

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