Daily Digest - December 19: How Michigan Can Put Its Best Minds to Work

Dec 19, 2013Rachel Goldfarb

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Bill Helps Solve Michigan's Brain Drain (Lansing State Journal)

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Bill Helps Solve Michigan's Brain Drain (Lansing State Journal)

Sonja Karnovsky and Adam Watkins, co-Presidents of the University of Michigan chapter of the Roosevelt Institute | Campus Network, argue that a bill that would create a tax credit to reduce student loan costs for graduates who stay in-state, which is based on a Campus Network proposal, would also improve the state's economy.

Street Protests Can Foil Congress (NYT)

Roosevelt Institute Fellow Dorian Warren suggests that anyone seeking to reform today's Congress should look at the response to the filibusters of the Civil Rights era. Social movement politics pushed through filibuster reform in 1975, and similar pressures could help end today's dysfunction.

Not So Fast: New Budget Deal Leaves a Lot to Deal With (MoJo)

Patrick Caldwell points out that the Ryan-Murray budget is only a broad framework, and Congress still needs to pass an omnibus appropriations bill to set spending levels on a program-by-program basis. With $46 billion to cut, that's not going to be an easy process.

Looking for a Job? Congress Doesn’t Seem to Care (The Root)

Charles D. Ellison points out that while Congress continues to focus on the Affordable Care Act and the budget deficit, polling data shows that the majority of Americans would rather see their representatives shift their attention to jobs. Sadly, Congress seems to have missed these polls.

The Taper is Here, and the Stock Market Seems to Love It (Quartz)

Matt Phillips reports that the Federal Reserve has begun to taper its bond-buying program, and the S&P 500 shot up in response to the news. But the Fed isn't done pushing for low inflation, so Phillips argues that the central bank will remain a major market presence.

The Fed Tapered Perfectly—Here's What It Needs To Do Next (The Atlantic)

Matthew O'Brien explains how the Fed has managed to keep markets from reacting badly to tapering, as they did when the very suggestion was made back in May. He adds that with inflation still below target and unemployment still too high, expanded monetary policy will still be needed.

Charting a Mismatch in Housing Spending (Off the Charts)

Will Fischer looks at federal housing spending, which disproportionately subsidizes wealthier households and favors homeownership over renting. Since low-income renters are far more likely to need support, he says Congress should put more resources into rental assistance.

UAW Wants to Eliminate Two-Tier Wage System: Official (Reuters)

Ben Klayman reports on the United Auto Workers' new push to eliminate dramatically lower pay for entry-level hires compared to veteran workers. A UAW vice president says that to do away with this system, they'll need to organize non-union plants in the South.

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Daily Digest - December 13: Who Has Real Family Values in Politics?

Dec 13, 2013Rachel Goldfarb

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Why Democrats’ Doomed Family Leave Bill Matters (MSNBC)

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Why Democrats’ Doomed Family Leave Bill Matters (MSNBC)

Irin Carmon argues that even though there's almost no chance of Congress passing it, the Family and Medical Insurance Leave Act ensures that issues of caregiving and economic justice are in the news. It also creates an opportunity to push back on the GOP's brand of "family values."

N.Y.U. Graduate Assistants to Join Auto Workers’ Union (NYT)

Steven Greenhouse reports on the graduate assistants' overwhelming support for unionizing. As the only graduate assistants' union recognized by a private university, the union hopes to create better conditions that would also make NYU's programs more attractive to applicants.

Only Progressives Care About Public Investment (The Blog of the Century)

Andrew Fieldhouse writes that while centrists claim to want adequate funding for public investment, their budget proposals suggest otherwise. Increased public investment requires increased revenue, and only the Congressional Progressive Caucus's budget proposal has enough.

The War Over Austerity Is Over. Republicans Won. (MoJo)

Kevin Drum pulls from the work of conservative wonk Yuval Levin to discuss the shift in the conversation on government spending. He notes that the Murray-Ryan budget deal sets spending lower than the original Ryan budget, which was seen as pretty extreme only a couple of years ago.

New on Next New Deal

Stanley Fischer Will Please Centrists, But He's the Wrong Choice for the Fed

Roosevelt Institute Senior Fellow Jeff Madrick says that Stanley Fischer is too much of an austerian and too doctrinaire to be the best choice for Janet Yellen's Vice Chair. He points to the 1997 Asian financial crisis for evidence that Fischer will put ideology first.

Stanley Fischer is the Right Choice to be the Fed's Vice Chair

Roosevelt Institute Senior Fellow Bo Cutter argues in favor of Fischer's diverse background and his experience in difficult policymaking arenas. With the Republicans preparing to evaluate and examine the Fed, Bo suggests that Fischer will be a valuable resource for Yellen.

Local Government is the Secret Weapon in the Fight Against Economic Inequality

Roosevelt Institute | Campus Network National Field Strategist Joelle Gamble argues that it's time to consider new ways to push back against economic inequality. Cities and towns should provide innovative incentives to businesses that encourage the right kind of economic growth.

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Daily Digest - December 12: Too Cooperative for a Tea Party

Dec 12, 2013Rachel Goldfarb

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A Tea Party For Liberals (Majority Report)

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A Tea Party For Liberals (Majority Report)

Sam Seder and Roosevelt Institute Fellow Mike Konczal discuss what has prevented the rise of a liberal equivalent of the Tea Party. Liberal groups would need a lot more funding before they could break the historic partnerships with moderates that have helped them beat Republicans.

US Budget Deal: What Does It Add Up To? (FT)

James Politi gives a full breakdown of the budget deal, complete with numbers. There are no tax cuts, because that's too much compromise for the GOP, so all the increases in revenue come from higher fees. (This article is behind a paywall.)

Federal Budget Deal Hits Worker Pensions (MSNBC)

Ned Resnikoff focuses on how the budget deal will affect federal workers. Even though there are no real concerns about the long-term sustainability of the federal retirement system, the deal increases employee contributions to create savings in the budget.

Don’t Deck the Halls for This One (Other Words)

Mattea Kramer compares the Murray-Ryan budget deal to polling data on what Americans want from the budget, and finds the deal lacking. When 80 percent of Americans want higher taxes on corporations, for example, why is there no new tax revenue?

Tax Dollars for Law Breakers? (Policyshop)

Amy Traub presents what may be the least-controversial policy idea ever: the government shouldn't do business with law-breakers. A new study shows that we've failed to meet even that basic standard, with many federal contractors paying large fines for labor law violations.

ALEC Has Tremendous Influence in State Legislatures. Here’s Why. (WaPo)

Roosevelt Institute | Campus Network alum Alexander Hertel-Fernandez ties ALEC's success to the resources available to legislators. Lawmakers with smaller budgets and shorter legislative sessions are more likely to introduce pre-fab bills from ALEC.

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Corporate Education Reform Won’t Solve the Problems Caused by Poverty

Roosevelt Institute | Campus Network Senior Fellow for Education Raul Gardea criticizes the profit motive in education reform. Inequality causes many of the problems facing education, and those problems won't be solved by getting the market involved in our schools.

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Daily Digest - December 11: Bipartisan Budgets Mean Everyone's A Little Unhappy

Dec 11, 2013Rachel Goldfarb

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There Are Six Big Arguments Against the Volcker Rule. Here’s Why They’re Wrong. (WaPo)

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There Are Six Big Arguments Against the Volcker Rule. Here’s Why They’re Wrong. (WaPo)

Roosevelt Institute Fellow Mike Konczal takes on some of the most common arguments against the Volcker Rule, which claim that the rule is either unnecessary or even counterproductive. In the process, he makes his own case for why the rule is in fact needed.

The Most Important Economic Stories of 2013—in 41 Graphs (The Atlantic)

Matthew O'Brien kicks off the end-of-year round-ups with a list of graphs and charts. Roosevelt Institute Fellow Mike Konczal's contribution shows the year's growth estimates from the Federal Reserve - evidence, Mike says, of a wasted year for returning to full employment.

U.S. Budget Agreement Eases Spending Cuts Over Two Years (Bloomberg)

Heidi Przybyla and Derek Wallbank explain the first bipartisan budget deal since 1986. The deal doesn't extend unemployment benefits and it saves money by increasing federal employees' pension contributions, but it's a deal, and it's likely to prevent another government shutdown.

Boeing Looks Around, and a State Worries (NYT)

Kirk Johnson looks at Boeing's options after the machinist union's rejection of a new contract that would have frozen pensions and harmed future union members. State after state is courting Boeing with special deals, even though it means passing up tax revenue from a massive airplane factory.

  • Roosevelt Take: Roosevelt Institute Senior Fellow Richard Kirsch explains that the Machinists Local 751 rejected Boeing's proposed contract to take a stand for what middle class jobs should look like today and into the future.

Is Service Work Today Worse Than Being a Household Servant? (AJAM)

David Cay Johnston poses this fascinating question along with a comparison of compensation for household cooks in the 1910s and modern fast-food cooks. Few would want to return to the Gilded Age, but many service-sector jobs had more security and stability then.

How The Residents Of SeaTac’s Lives Will Change With A $15 Minimum Wage (ThinkProgress)

Bryce Covert speaks to workers at the airport in SeaTac, Washington who will be getting a raise on January 1 thanks to the town's new minimum wage increase. Even as they plan how they will use the money, they are just as excited for the provision of the new law guaranteeing paid sick leave.

Why Every City Needs Its Own Minimum Wage (The Atlantic Cities)

Richard Florida explains an interesting model for calculating local minimum wages based on a region's median wage. He argues that a minimum wage between 50 and 60 percent of the regional median wage would be a better reflection of local cost of living.

New on Next New Deal

Conservatives and Progressives Agree: Congress Should Not Cut Unemployment Benefits

Nell Abernathy, Program Manager for the Roosevelt Institute's Bernard L. Schwartz Rediscovering Government Initiative, lays out the economic argument for maintaining unemployment insurance almost entirely in quotes from conservatives, demonstrating that this isn't only a progressive cause.

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Daily Digest - November 5: Home Is Where The Affordable Rent Is

Nov 5, 2013Rachel Goldfarb

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Where Millennials Can Make It Now (Atlantic Cities)

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Where Millennials Can Make It Now (Atlantic Cities)

Roosevelt Institute | Pipeline Fellow Nona Willis Aronowitz introduces her two-week series on cities where Millennials afford the costs of achieving their goals. The first piece, on Omaha, points out the higher levels of risk Millennials can take on with low costs of living.

Median Wage Falls to Lowest Level Since 1998 (AJAM)

David Cay Johnston reports that as the median wage falls, average wages are rising, according to new data from the Social Security Administration. That's a sign of gains at the top of the income ladder, with the wealthiest Americans pulling up the average.

How Washington Abandoned America's Unpaid Interns (The Atlantic)

Stephen Lurie explains the legal puzzle that has left unpaid interns without protections. There's serious structural damage happening to the workplace when young people work unpaid and unprotected, but that can't be fixed without laws or regulations.

Where’s the GOP’s Anti-Poverty Agenda? (WaPo)

Ryan Cooper asks why the Republicans have ignored the section of their autopsy report about poverty. A hard line against poverty assistance programs is particularly horrifying when unemployment is still high, and the GOP knows it, but apparently doesn't care.

2014 Cuts Hit Defense Spending, so Obama Has Leverage on Taxes (MSNBC)

Timothy Noah suggests that since the next round of sequestration cuts hit the Pentagon, the Democrats have a lot more budget clout than they think. Republicans don't want to be tied to defense cuts, which makes these cuts a useful negotiation tool.

If the GOP Repeals Obamacare, 137 Million Americans Could Get Cancellation Notices (MoJo)

Erika Eichelberger thinks that the Republicans would face public outrage if they actually managed to repeal the Affordable Care Act. The people getting cancellation notices from their insurance companies today are big news, but a repeal would be exponentially larger.

Meet Preet Bharara, Who Just Won the Biggest Insider Trading Case Ever (WaPo)

Lydia DePillis profiles the U.S. Attorney for the Southern District of New York. His crusade against a culture of corruption on Wall Street led to a major victory in a criminal case against a hedge fund for insider trading yesterday.

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Daily Digest - October 31: Low Taxes Carry Heavy Burdens

Oct 31, 2013Rachel Goldfarb

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The Great American Ripoff: The High Cost of Low Taxes (Bill Moyers)

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The Great American Ripoff: The High Cost of Low Taxes (Bill Moyers)

Joshua Holland argues that low taxes in the United States translate to hugely disproportionate out-of-pocket costs for things that would be covered by the social safety net in other countries. That also means there's nothing to catch people in crisis.

End Corporate Welfare for McDonald's. Better Yet, Raise the Minimum Wage (The Guardian)

Sadhbh Walshe looks at the latest story about McDonald's workers seeking public assistance, which revolves around a phone call to its McResource line. She argues that if McDonald's needs to refer their workers to Medicaid and SNAP, they should be paying better wages.

Another Temporary Funding Bill? (MSNBC)

Jane C. Timm reports that a grand bargain is pretty much out of the question, and at least one Senator thinks that a continuing resolution through the end of the fiscal year is likely. That would bring us to a month before the 2014 elections, which would be rough timing for a budget fight.

C.F.T.C. Approves Tighter Commodity Trading Rules (NYT)

Alexandra Stevenson reports on new rules from the Commodity Futures Trading Commission, designed to protect client money from brokerage firms going bust. After a 2011 case that left customers $1.6 billion short, the need for these rules is pretty clear.

Paypal to Government: Be More Like Us (WaPo)

Lydia DePillis examines a report from Paypal that suggests how government should handle the mobile payment industry. The company calls on regulators to throw out their old methodology, which she thinks is hugely unlikely.

The New Futurism (The New Yorker)

James Surowiecki looks at human-capital contracts, which allow people to raise funds for businesses or education in exchange for a percentage of future earnings over a number of years. The principle is similar to income-based repayment on student loans.

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Maine's Lobster Industry is Dying, But Government Can Help Save It

Roosevelt Institute | Campus Network student John Tranfaglia calls for government intervention in Maine's lobster industry. Instead of criticizing the Canadian government for subsidizing lobster processing, Governor LePage should figure out ways to attract lobster processors to Maine.

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Maine's Lobster Industry is Dying, But Government Can Help Save It

Oct 30, 2013John Tranfaglia

U.S. lobstermen aren't netting the profits they deserve thanks to trade arrangements with Canada.

U.S. lobstermen aren't netting the profits they deserve thanks to trade arrangements with Canada.

It is not very often that the New York Times decides to pen an article about the Maine lobster industry. So when a Canada correspondent based in Ottawa and a New England correspondent based in Boston write two different articles in a span of three days which both appear in the New York edition, it might be smart for Mainers to listen up. All evidence suggests that despite high demand for Maine lobster, the state’s defining industry will continue to die off without greater government support and investment.

Ian Austen, the Canada correspondent who authored the article “Hit by Low Prices, Lobstermen are at Odds in Maine and Canada” describes many of the uncomfortable truths surrounding the industry. The yearly haul of lobster continues to increase while lobstermen are receiving less for their catches. Every year Maine’s iconic business is reminded that the rising costs of fuel and bait and the stagnant or even decreasing price of lobster is unsustainable.

In looking at the issue of oversupply, Austen discusses the newly increased state lobster promotion fund. The fund, which saw its budget go from $400,000 to $2.4 million, is as contentious as it is necessary. In May, I wrote a piece for the Portland Press Herald describing why I believe the fund is essential to putting more money back in hands of the lobstermen. But the marketing funds may not be effective if the lobster is shipped to Canada for processing. Trade rules state that once this transaction has occurred, the lobster is considered a “product of Canada.” That doesn’t bode well for Maine, since 50-70 percent of the lobster caught off its coast (which amounted to 123.3 million pounds in 2012) will be sent to Canada.

Two days later, Jess Bidgood, who is based in Boston, authored “Some Wary as Lobstermen Unite.” The article addresses the division between the established Maine Lobstermen’s Association and the newly formed Maine Lobstermen’s Union. At issue is whether unionization is the right step for lobstermen to take in response to severely decreasing profits. As the article discusses, the 5,000 or so licensed lobstermen in the state operate as independent business owners, not the traditional laborers who historically have combined to join unions, and the the Maine Lobstermen’s Association has made it clear that it does not believe unionization is the right solution to the problem. But it is clear that there is a problem, and it isn't going away on its own.

The underlying issue behind both these articles is that the loss of profits for lobstermen is something that never should have happened. For years, Maine has been overly reliant on its Canadian neighbors to handle its processing needs, and for years we have seen price markups that have increased dealers’ profits while shrinking those of the lobstermen (why else would food trucks in D.C. be charging $18 or a lobster roll?). What might be most striking is that the lobster does indeed come from Maine and there is an overwhelming demand for it. The issue, and what I believe the state legislature should be focused on, is that lobstermen are being paid less than $2 a pound when they should be getting more.

Maine's Republican governor, Paul LePage, is quick to criticize Canada for subsidizing its processing plants. Here’s a wakeup call to the governor: that how governments and businesses interact. States provide tax breaks, subsidies, and other economic incentives to attract businesses. So instead of removing murals, fighting over the “state treat,” disagreeing over the presence of a television monitor in the state house, and all the other petty disputes the legislature and governor have had over the last few years, the state should pursue a progressive approach to supporting its core industry. And while the state is reforming its approach, the federal government should also take note of how industries can suffer when the parties bicker with one another instead of pursuing real solutions.

John Tranfaglia is a senior majoring in political science at American University and a member of the Roosevelt Institute | Campus Network.

 

Man holding lobsters banner image via Shutterstock.com

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Daily Digest - October 29: Remember When the GOP Supported Family Planning?

Oct 29, 2013Rachel Goldfarb

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Richard Nixon Knew Family Planning Saves Taxpayer Dollars, But Today’s GOP Doesn’t Care (Next New Deal)

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Richard Nixon Knew Family Planning Saves Taxpayer Dollars, But Today’s GOP Doesn’t Care (Next New Deal)

Roosevelt Institute Fellow Andrea Flynn argues that Title X funding needs to be increased, because demand for family planning services will go up as more people get health insurance. Unfortunately, the GOP has forgotten that this program is fiscally effective.

  • Roosevelt Take: Read Andrea's new white paper, "The Title X Factor: Why the Health of America's Women Depends on More Funding for Family Planning," here.

Here’s how GOP Obamacare Hypocrisy Backfires (Salon)

Michael Lind draws on a recent piece by Roosevelt Institute Fellow Mike Konczal to discuss the right's plans for the social safety net. If means testing and privatization become part of Social Security and Medicare too, he thinks we're in for some ineffective changes.

  • Roosevelt Take: Mike's piece argues that the struggles of Healthcare.Gov are proof that old-school New Deal-style liberal programs eliminate many potential administrative problems.

Ohio Governor Defies G.O.P. With Defense of Social Safety Net (NYT)

Trip Gabriel reports on Gov. John R. Kaisch's critique of his own party's "war on the poor." The governor worked around the GOP-led legislature to accept the Medicaid expansion, because he knows it will help his neediest citizens.

Food Stamps Will Get Cut by $5 billion This Week — and More Cuts Could Follow (WaPo)

Brad Plumer reports that an automatic cut is going to hit SNAP funding on November 1 with the end of a 2009 stimulus bill boost. Between that cut and current negotiations over SNAP, some Americans will be struggling with how to buy groceries and feed their families.

How Sequestration Gets Even Worse Next Year (ThinkProgress)

Bryce Covert reminds us that the automatic cuts of sequestration get even larger in 2014. With a lot of the accounting tricks that were used to soften the blow this year gone, sequestration part two will hit hard, and it won't be good for the economy.

Why Do Women Do Market Work? (TAP)

Matt Bruenig responds to a recent rant from Gavin McInnes of Vice against working women, bringing up the data that proves why women work. It turns out that in husband-wife families where both work, 54 percent would be in or near poverty without her income.

Yes, There’s a Budget Deal in the Works. Here’s What It Will Look Like (NY Mag)

Jonathan Chait says that a small budget deal is in the works, which will replace sequestration cuts with something more livable for everyone. He thinks there will still be some revenue increases, but they won't be tax rate increases.

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Richard Nixon Knew Family Planning Saves Taxpayer Dollars, But Today’s GOP Doesn’t Care

Oct 28, 2013Andrea Flynn

As the Affordable Care Act helps more Americans get health insurance, it's time to increase funding for Title X, because the need for family planning services is only going up.

As the Affordable Care Act helps more Americans get health insurance, it's time to increase funding for Title X, because the need for family planning services is only going up.

For more than 40 years, Title X has provided family planning and reproductive health services to millions of American women. More recently, conservative lawmakers have targeted Title X as part of their obsession with shrinking the social safety net and restricting access to women’s health care. Those same opponents are now likely to argue that the Affordable Care Act’s (ACA) focus on women’s health renders Title X unnecessary.  But as I argue in my new paper published by the Roosevelt Institute, that is simply not the case. In reality, the success of the ACA and the health of women across the country are dependent on even greater support for existing family planning programs.

Title X is the nation’s only program solely dedicated to family planning. It was passed into law in 1970 with overwhelming bipartisan support and can in fact be credited to two Republican presidents: Richard Nixon, who signed the bill into law, and then-Congressman George H.W. Bush, who led the legislative effort. It provides critical medical care to low-income, immigrant, and young women and enables clinics to pay for and maintain facilities, train and hire staff, and purchase equipment and supplies.

Despite being perennially underfunded, the program delivers incredible health results. Last year it served 4.76 million women, preventing an estimated 996,000 unintended pregnancies, 200,000 of which were among teens. Research has shown that services provided at Title X clinics save federal and state governments more than $3 billion every year.

As millions of Americans gain health coverage for the first time thanks to the ACA, clinics funded by Title X will become an even more critical building block of our nation's health system. Even when individuals obtain coverage, many will continue to choose publicly funded clinics as their main source of care. In the four years following the implementation of Massachusetts’ health care reform, which served as the model for the ACA, publicly funded health centers experienced a 31 percent increase in patients, even though the number of uninsured visiting those facilities fell by more than 15 percent.

Even women who are already fully insured will continue to rely on Title X clinics for family planning because they can do so in complete confidence. Issues like intimate partner violence and religious beliefs of employers, family, and partners, cause many women to circumvent their insurance plans when accessing family planning services and instead rely on public providers.

The fact is, despite the GOP’s relentless strategic misinformation campaigns and the technology problems that bedeviled the rollout this month, the ACA is good for women. It mandates that insurance plans fully cover all methods of contraception, prohibits gender discrimination and denial of care based on pre-existing conditions, and enables young people to stay on their parent’s plans until they are 26. It requires plans to cover pap tests, STD screening, preconception and prenatal care visits, postpartum counseling and breastfeeding support, and one well visit a year. Make no mistake: this is groundbreaking.

Despite these historic advancements, many women will remain uninsured in the years to come. There are lots of reasons for this, not the least of which is the refusal of many states to accept federal funding for the expansion of Medicaid.  

The ACA was intended to be a path to health care for all Americans, and a major pillar of the law was the expansion of Medicaid to all individuals who fall below 138 percent of the federal poverty level ($15,415 for an individual or $26,344 for a family of three), with subsidies for individuals above that level to buy insurance in the marketplaces. But last year the Supreme Court ruled that the federal government could not constitutionally require states to expand Medicaid, and conservative lawmakers pounced on the opportunity to block a major component of the ACA.

Today, 22 states refuse to expand Medicaid even though the federal government will foot 100 percent of the bill for the first three years and cover at least 90 percent of the cost after that. These states are denying care to more than 3.5 million low-income women who badly need it. The New York Times reported that as a result, two-thirds of poor black and single mothers and more than half of uninsured, low-wage workers will remain without coverage.

Basically, women who fall into the coverage gap are not considered poor enough for Medicaid by their states, but because the ACA originally intended for them to be covered by the expansion, they also don't qualify for subsidies. And even if they did, the cost of subsidized insurance would likely still be prohibitive given their income level. These individuals will have no choice but to rely on the social safety net – in this case, Title X-funded clinics – for care.

The very critics who have staked their political careers on sinking the ACA and preventing scores of women from accessing family planning services – and who shut down the government in an attempt to do so – would love nothing more than to do away with Title X. They have tried unsuccessfully in recent years, and the program will certainly be in their crosshairs as they continue to chip away at the host of social programs on which low-income women rely.

The ACA, while an enormous advancement for women’s health, does not eliminate the need for the Title X program. Rather, Title X will maximize the impact and reach of the ACA and ensure quality care for those who will remain uninsured.

In the forthcoming budget battles, women’s health advocates will have to fight tooth and nail to maintain Title X’s current funding level, which has already been diminished by sequestration. The program is as critical today as it was when it was created. Today’s very different breed of GOP lawmakers could use a reminder that it was their own party four decades ago that realized investing in family planning was a critical way to improve the health of women, communities, and the entire nation. Who ever thought we’d be longing for Nixon? 

Read Andrea's paper, "The Title X Factor: Why the Health of America's Women Depends on More Funding for Family Planning," here.

Andrea Flynn is a Fellow at the Roosevelt Institute. She researches and writes about access to reproductive health care in the United States. You can follow her on Twitter @dreaflynn.

 

Woman with pregnancy test banner image via Shutterstock.com

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Larry Klein's Lesson for the Single-Minded Economists Who Rejected Keynes

Oct 23, 2013Jeff Madrick

The late Nobel laureate knew that fiscal and monetary policy worked best together, and that low inflation alone would not sustain a strong economy.

The late Nobel laureate knew that fiscal and monetary policy worked best together, and that low inflation alone would not sustain a strong economy.

Larry Klein, a 1980 Nobel Prize winner in economics, died on Sunday. I interviewed him often when I was an economics reporter, and one of his most vehement beliefs had long stuck in my mind. He was an early Keynesian and built models to simulate the economy that could have predictive power. Because, like Keynes, he believed in the power of aggregate demand to drive the economy, he forecast that there would be no post-World War II Depression because of pent-up demand and the buying power of returning soldiers.

What stuck in my mind was Klein’s anger about evolving government policy. Even Keynesian economists had come to believe that monetary policy was more effective than Keynes’s fiscal policies. Klein argued to me that these stimulus policies only worked well in tandem. You need both monetary loosening, meaning mostly lower interest rates, and fiscal stimulus, meaning government spending or tax cuts, to restore strong economic growth.

The economic consensus did not take this lesson seriously. Most economists were pretty certain across much of the political spectrum that they had already learned how to manage the economy, and it wasn’t Klein’s way. Both Robert Lucas, the rational expectationist, and Olivier Blanchard, who leaned a bit towards Keynes, said with no small trace of hubris that macroeconomists had pretty much solved the big problem. Ben Bernanke also expressed confidence that the profession had at last learned the job.

There were some disagreements between the Lucas school of thought and economists like Blanchard. What they agreed on was that fiscal policies a la Keynes were not needed. Consumers and business would expect a rise in taxes if the federal government ran deficits, and so would save rather than spend, countering any stimulus. This phenomenon is known as Ricardian equivalence. At best, fiscal policy was politically clumsy, requiring Congressional approval for spending and all that.

In a 2010 publication called Rethinking Macroeconomic Policy, written with colleagues for the International Monetary Fund, where he is still chief economist, Blanchard admitted economists had been wrong. It took the housing and financial crash of 2007-2008 and the Great Recession to bring some sense to the profession. Blanchard and his co-authors wrote that what economists thought they knew was wrong. Economists had believed there was a single policy objective for controlling the economy, which was stable inflation, and there was also only a single tool, the interest rate. The 2010 piece was a mea culpa.

What lulled economists into complacency was what many now call the Great Moderation, an economy that was not too hot and not too cold. The way to get to this ideal state was merely to use monetary policies to stabilize inflation, preferably at low levels. It was the justification for what came to be called inflation targeting, either the hard kind with a precise target or the soft kind that was discretionary. Economists noted that the result of these policies since the early 1980s was both less volatile inflation and less volatile output (basically, GDP).

That was it. The major assumption was that stable GDP would push the economy to its optimal rate of growth, or in Blanchard’s more technical terms, “So long as inflation was stable, the output gap was likely to be small and stable and monetary policy did its job.”

But fiscal policy was decidedly secondary. And there is no mention of maximizing employment at all in the Blanchard piece; it wasn’t a thought in a mainstream economist’s mind, apparently. It was believed that the economy operated so efficiently with low, stable inflation that unemployment would automatically settle at its lowest, non-inflationary rate. Moreover, there was no serious discussion of growth, even though economic growth in the U.S. was not especially fast in these years. Here, then, was the general equilibrium model, a central assumption in economics and policymaking, simply taken for granted as true.

One other sentence in Blanchard is worth quoting: “[W]e thought of financial regulation as mostly outside the macroeconomic policy framework.”

Speculative bubbles, these economists believed, should not be deflated by regulators. The mess could easily be cleaned up later.

Macroeconomists were wrong not only about regulations and bubbles, admit Blanchard and his colleagues, but also about placing fiscal stimulus in the back seat. 

It’s by no means clear that macroeconomists have cleaned up their act. They still think low inflation will get us to maximum employment, for example. But at least they are now entertaining more objectives than one.

Their bad theory led us to sequestration today. There is too much water under the bridge for economists who correctly recommend fiscal stimulus to easily win the day when so many argued for so long that Keynesianism did not work. This is why Larry Klein was deeply frustrated.

America’s version of austerity economics is still winning the day, despite recantations like Blanchard’s. In coming months an agreement to cut the deficit over the next 10 years will be discussed, or apparently reckless Republicans will close the government down again. Medicare and Social Security cuts will be on the table. There is absolutely no economic need for this. The deficit is under control, and so is federal debt.

But the misleading macroeconomics practiced by America’s most prestigious university professors has left a long and damaging shadow. Klein would have shed some light.

Jeff Madrick is a Senior Fellow at the Roosevelt Institute and Director of the Bernard L. Schwartz Rediscovering Government Initiative.

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