Power, legitimacy and the nature of political capital

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Pitti Palace, Florence Italy, Home to the Medici Family

“At the end of the Middle Ages Italy was an area of enormous geographical, cultural and above all political fragmentation.” Two hundred years later, “the political geography of Renaissance Italy was above all one of powers that did not trust each other … and this created a climate of mutual suspicion.” In other words, not much had changed, according to historian Marco Follin.

Indeed, the leadership of every city-state within Italy to include the Pope had two things in common; an ongoing quest for legitimacy and power. Politics has not changed even as we approach the modern era. All of us are too young to remember Franklin Roosevelt’s first election that was as hard fought and ill tempered as the Clinton Trump election. H.W. Brands, a noted historian writes that the Republican leadership, “hated Roosevelt during the campaign and … even more after the election … refusing to believe that the landslide for Roosevelt (He won by 7 million votes) conferred legitimacy on Roosevelt’s approach to governance; it simply demonstrated that the American people could be deluded by false promises of an easy return to prosperity.”

But Mr. Trump did not win by 7 million votes. Indeed he lost by several million and while his victory in the Electoral College is a fact, he won Michigan by only 10,700 votes, Wisconsin by 22,200 and Pennsylvania by 72,000. Those three states carried the election for the incoming President by the narrowest of margins. Indeed, Karl Rove, writing in the Wall Street Journal, notes that, “Mr. Trump will enter the Oval Office with less political capital than any recent President.”

America remains both culturally and politically divided. The Republican leadership and the President – elect know that. Thus, they recognize the need to act decisively in the early days of the administration in order to create a sense of momentum that can define both their legitimacy and their power, for in politics the next election is always just around the corner.

Success and in particular long term success comes only to those who have a clear cut strategy, remain focused on that strategy and execute plans that only result in accomplishing their strategy. It isn’t that mistakes don’t happen; they do, but leaders must learn from for those mistakes. Those that repeat them are doomed to failure.

In politics it means using political capital carefully and conserving as much of it as possible as often as possible. Easy wins use little capital, difficult issues use a lot and mistakes require even more to fix them.

Thus, we must take the Republican House member’s initial effort out of the box in 2017 to abolish and weaken the ethics oversight of them as a mistake. In this instance it was one that was against the wishes of their leadership, which is a good thing, but it was a mistake nevertheless and a demonstration of what mattered most to these elected officials … greed! If you believe they are there for your benefit, I believe you must think again. They will only benefit you when it benefits them. That is the nature of political capital and greed. That, by the way, is the truth regardless of the party in power.

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In  Florence you hid your power, legitimacy and capital INSIDE, away from the public

We must keep that in mind as we discuss how the critical issues of the new Administration are likely to be framed. Despite President-elect Trump’s desire to drain the swamp, nothing has changed in Washington politics nor is it likely to.

It is in that context that I turn to the panoply of issues to be tackled by the new Administration; Obama Care, trade and taxes, the wall with Mexico, infrastructure spending and the Supreme Court.

I want to set the Supreme Court Justice decision aside. A conservative will be nominated, they will be qualified and they will take their place on the Court. There will certainly be a great deal of ‘news’ and debate associated with the nomination but at the end of the day no political capital will be spent by either side. In other words Michigan, Wisconsin and Pennsylvania won’t be in play over this issue.

That is absolutely not the case with the first of our issues, Obama Care. In Michigan 313,000 people use Obama Care; 174,000 in Wisconsin and 412,000 in Pennsylvania. Lose 6% of those votes because individuals lose their coverage or cannot afford it under a new plan and the future election results in Michigan and Wisconsin would be different making the election of 2020 a crapshoot for both parties. That’s how close the election really was.

Those three States and how their citizens react to President Trump’s legislation will frame what defines legitimacy and power in perhaps as little as two years time but certainly at the four-year mark.

I believe there is certainty that the Republicans are going to repeal Obama Care. They have the power to do so without a single Democratic vote. They will act as quickly as possible to do so. In fact, they have already started.

According to the Washington Post, “President-elect Donald Trump said in a weekend interview that he is nearing completion of a plan to replace President Obama’s signature health-care law with the goal of “insurance for everybody,” while also vowing to force drug companies to negotiate directly with the government on prices in Medicare and Medicaid.”

Regardless of what plan the Republicans adopt it will be a free market plan. There will be no penalties for going uninsured. But the cost of those plans is far from certain and health care companies, providers and insurers will have far more room to adjust pricing.

The Fiscal Times notes, “The problem lies in the basic economics of the health insurance market. Without a mandate to purchase insurance, the people who see the least value in it — younger, healthier consumers — are likely to decline to buy it.” Should that occur the price to those who remain in the insurance programs will rise and perhaps substantially so.

Even if young people choose to accept insurance they are going to take the cheapest plans with the least coverage. It is almost a certainty, as a result, that costs for older Americans will rise under such a scheme.

According to CNN, “Trump could put Republican leaders in a bind, as they have already been fielding widespread concerns from rank-and-file members about moving too fast to dismantle Obama Care when there is little consensus on an alternative.” Mr. Trump has said he is just waiting for Representative Price to be confirmed as Secretary of HHS.

Representative Price, it was noted in the Wall Street Journal, traded more than $300,000 in shares of health-related companies over the past four years while sponsoring and advocating legislation that potentially could affect those companies’ stocks. In at least one of those trades, he obtained private placement pricing, which is below what the general public can receive. It’s legal but it is also a demonstration of how our elected officials behave. What benefits them is what they do first. Then they take care of their donors. We are last. We must keep that in mind as we think about how those in power will create any of the new legislation to come.

According to NPR, “Price’s plan offers fixed tax credits so people can buy their own insurance on the private market. The credit starts at $1,200 a year and rises with age (up to $3,000), but isn’t adjusted for income. States would get federal money to create so-called high-risk pools under Price’s plan. These are government-run health plans for people with existing medical conditions who can’t get affordable health insurance on the private market. Critics say high-risk pools have been tried in as many as 34 states and largely failed because they were routinely underfunded.”

But, according to The Fiscal Times, “Price appears to be seriously low-balling the scope of the problem by proposing to invest a mere $3 billion into state risk pools over a three-year period. Ryan’s “Better Way” plan, for instance, would provide $25 billion over the coming decade, and even that might prove to be woefully inadequate.”

Politico notes that, “In theory, that logic works just fine,” said Sam Glick, a partner at Oliver Wyman, a consulting firm. The problem is funding the high-risk pool. “The temptation over time, when budgets get tough, is to provide less and less coverage for people,” Glick said. “You see higher deductibles, lifetime maximums, narrowing of networks.”

But, that’s an issue for down the road because my guess is that for the first four years the Republicans will fund what it takes to make ‘their’ plan work. They can’t do otherwise and still hope to hold those three critical power States. But you can begin to feel how the winds of political capital, legitimacy and power flow.

It’s unlikely that the Democrats will lift a finger to help the opposition. It isn’t in their best interest. The free market Republican plans are the complete opposite of the Democratic Obama Care program.

In my view, it is difficult to believe that costs will actually be less under such a plan. That requires a belief that the health care and insurance industries will not act to maximize profits. As for profit firms, many of which are on the stock exchange, their legal requirement to their stockholders is to maximize earnings not minimize them. In the Pharmaceutical industry we have already seen the effects of free market pricing. The Democrats know that and they believe that time is on their side.

While the House can pass new legislation with any Democrats, the Senate cannot. There, as New York Magazine notes, “a majority can pass a bill that only changes taxes and spending. Any bill that does anything beyond change taxes and spending is subject to a filibuster. The Republicans could eliminate the subsidies that make Obama Care’s coverage affordable without any Democratic votes, but writing a replacement plan would mean changing regulations on insurance, which means they need enough votes to break a Democratic filibuster.”

If the Democrats do filibuster, President Trump will argue that that his Administration has put up a replacement plan and it is the Democrats who are standing in the way. The Republicans will put great pressure on those Democrats up for reelection in 2018. Without question, if individuals lose their insurance or the existing marketplace runs amuck, there will be an immense amount of finger pointing on both sides.

And, there’s plenty of ammunition on both sides. The Democrats will argue, “that the Republican plan … involves imposing large doses of pain on millions of Americans,” the ones who are most at risk. They will argue with some degree of accuracy that the new plan, “would load a lot more cost on people with expensive medical needs … or (depending upon what is proposed) even eliminate, the list of essential treatments that insurance must cover.” (New York Magazine)

On this latter point the Congressional Budget Office, a non partisan group, has already weighed in saying that, “If there were no clear definition of what type of insurance product people could use their tax credit to purchase, everyone who received the tax credit would have access to some limited set of health care services, at a minimum, but not everyone would have insurance coverage that offered financial protection against a high-cost or catastrophic medical event; CBO and JCT (Joint Committee on taxation, also non partisan) would not count those people with limited health benefits as having coverage.”

David Harsanyi, senior editor at The Federalist.com, however, writes cogently that, “In the end … Republicans will have to sell the American people on market-based solutions. They will have to contrast that vision with the top-down economics adopted by the Left. They will likely adopt some of the more popular aspects of Obama care (ones they’ve consistently supported) like coverage for preexisting conditions. I’m not sure how they plan to pay for it without a mandate.”

The political capital at risk over this issue is huge. Thus the rhetoric, horse – trading and back room deals will be intense.

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Where the ‘deals were done in Medici Florence

Therefore it is back to our basic rule of elected officials that I turn. They will look out for themselves first and foremost. Then, they will favor what their major contributors, both corporate and individual want. The health care and insurance industries will certainly spend whatever they need to in order to obtain a favorable outcome for them. We will bear the brunt of those negotiations.

We may see lower drug prices because the pharmaceutical companies have been allowed to operate freely for too long and that has now become a bipartisan issue. However, we will not see overall lower health care costs. The poor will be taken care of for at least four years. The Republicans must do that to hold those three critical States. But for the rest of us, the vast middle of America, quality insurance coverage and quality medical care is only going to get more expensive as the free market transfers more of the costs directly to the individual.

In my old days as a CEO I used to place a $1 bet on the table when I believed strongly that something would occur and others did not. In my view, a free market based health care system guarantees higher prices with the sole exception of the youngest and healthiest. Thus, I believe that your health care costs in both 2018 and 2020 will be higher than they are today. My dollar is on the table for any of you that wish to bet on that outcome.

If I am right this singular issue will put both Michigan and Wisconsin back into play. Both Speaker Ryan and Mr. Price also want to address Medicare costs and raise prices for that program as well. We have already tackled that issue some time back. It can be done without raising costs but that is not the approach these two leaders have signaled. I believe that debate and the attendant political capital would be far greater than what is in play with Obama Care. But we’ll have to wait and see on that one.

So, if you are in for a dollar let me know and we’ll mark the bet! In our next issue we will tackle the political winds of trade and taxes. Following that we’ll talk about the wall and infrastructure spending.

 

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