Is the SEC Reaching?

Goldman Sachs offers a pretty thorough defense of its business practices:

We want to emphasize the following four critical points which were missing from the SEC's complaint.

-- Goldman Sachs Lost Money On The Transaction. Goldman Sachs, itself, lost more than $90 million. Our fee was $15 million. We were subject to losses and we did not structure a portfolio that was designed to lose money.

-- Extensive Disclosure Was Provided. IKB, a large German Bank and sophisticated CDO market participant and ACA Capital Management, the two investors, were provided extensive information about the underlying mortgage securities. The risk associated with the securities was known to these investors, who were among the most sophisticated mortgage investors in the world. These investors also understood that a synthetic CDO transaction necessarily included both a long and short side.

-- ACA, the Largest Investor, Selected The Portfolio. The portfolio of mortgage backed securities in this investment was selected by an independent and experienced portfolio selection agent after a series of discussions, including with Paulson & Co., which were entirely typical of these types of transactions. ACA had the largest exposure to the transaction, investing $951 million. It had an obligation and every incentive to select appropriate securities.

-- Goldman Sachs Never Represented to ACA That Paulson Was Going To Be A Long Investor. The SEC's complaint accuses the firm of fraud because it didn't disclose to one party of the transaction who was on the other side of that transaction. As normal business practice, market makers do not disclose the identities of a buyer to a seller and vice versa. Goldman Sachs never represented to ACA that Paulson was going to be a long investor.

Obviously, this is all pretty self-serving. Ezra describes the charges against Goldman this way:

Another way of think about it comes from the Washington Independent's Annie Lowrey, who analogizes it to a housing sale. Imagine a broker shows you a home. It looks good to you. Looks like the other homes, in fact. But when you buy it, it turns out that the foundation is cracked and the roof leaks and the neighborhood is full of crackhouses.

How can this be? You got the home appraised! And your broker knows all about homes!

Well, it turns out that your broker was working for the seller, who did the appraisal himself. And the seller had bet a bookie that whoever he sold the home to would move out within a year, which and your broker knew that but never told you. In this analogy, as you've already guessed, the broker is Goldman, the seller is Paulson, and the buyer is the counterparties.

But that's not a very fair presentation of the facts either. Since Goldman Sachs was also taking a long position on the CDO in question, the "broker" in this analogy would have had a much greater incentive to see the house appraised well. Goldman was gambling way more of its own money on the assumption that this CDO would pay off. The fees it was receiving from Paulson & Co. were paltry in comparison.

To me, this seems like a rather salient point. If the SEC is trying to prove that Goldman was engaging in some kind of nefarious deception, why did it work out so badly for them?

Update: Here is Felix Salmon's take on the whole thing, and here is the SEC's formal complaint.

The big question seems to be whether Fabrice Tourre -- the Goldman employee who helped structure the deal and market it to investors -- mislead ACA into believing that Paulson was taking a long equity position on the ABACUS 2007-AC1 CDO, when in fact Goldman knew all along that Paulson had intended to short it.

Here is the SEC's primary evidence:

On January 10, 2007, Tourre emailed ACA a “Transaction Summary” that included a description of Paulson as the “Transaction Sponsor” and referenced a “Contemplated Capital Structure” with a “[0]% - [9]%: pre-committed first loss” as part of the Paulson deal structure. The description of this [0]% - [9]% tranche at the bottom of the capital structure was consistent with the description of an equity tranche and ACA reasonably believed it to be a reference to the equity tranche. In fact, GS&Co never intended to market to anyone a “[0]% - [9]%” first loss equity tranche in this transaction.

As the key evidence against Tourre, this seems pretty weak. The SEC is essentially quoting one phrase from an email out of context. I suspect that the upshot of this case will depend largely on whether Tourre ever explicitly stated that Paulson would be investing in the CDO alongside ACA. The actual wording of this email matters immensely.

Taxes, Taxes, Taxes

Ezra writes:

[W]hile it's true that we can't solve all our fiscal problems by taxing the rich, we can solve more of them than people realize, as inequality has made the rich a lot richer than people realize. In 2007, the top 1 percent of households accounted for 23.5 percent of the nation's income. That is to say, for every dollar of income in America, the top 1 percent got about a quarter and the rest of us split the other 76 cents.

What are the policy implications of continuing to solve our problems by taxing the top one percent? Of course we can set the top marginal rates as high was we want. The important question is whether this is a good idea.

Ezra is correct that the richest households accounted for 23.5 percent of the nation's income in 2007. But as the Tax Foundation points out, the top one percent of earners also paid 40.4 percent of all income taxes in 2007.

Is it really smart to have such a large portion of our federal income tax revenue coming from such a narrow base? Of course not. In fact, it's more dangerous than many people realize, since earners in top one percent tend to share many common characteristics.

The truth is that it's unwise for the federal government to get most of its revenue from such a narrow subset of the population for the same reason that it's unwise for an insurance company to cover mostly houses in a particular neighborhood. It's bad to have so many correlated risks. You need to diversify.

But how do you diversify when the wealthy have so much and the rest of us have so little?

Debates over tax policy are often framed in terms of rich versus poor. There are, as John Edwards insisted during the 2008 Democratic Primary, "two Americas." President Obama has arbitrarily decided that the division between these two Americas begins around the $200,000 income level. Anyone below this level should be exempt from federal tax increases, while anyone above this level should experience substantial rate increases.

Sounds good to most of us. But is it really fair that those making between, say, $30,000 and $199,000 should be insulated from any kind of federal tax hikes? Is it smart to tell so many people that they can have more services without having to pay more money? Is it good policy?

Politically, it may be wise to tell 95 percent of Americans that they should never expect to see their taxes raised. But, outside the world of electoral gimmickry, narrowing the tax base so dramatically isn't just stupid, it's essentially fiscal suicidal . . . .

What's the Deal with CBO's Scoring?

There's been a lot of wonky discussion about the CBO's scoring methods lately. The other day, Ezra Klein defended the CBO against conservative critics, insisting that the agency's costs estimates represent the "best guess of the town's most rigorous guesser."

Ezra writes:

[B]e very careful with any criticism of CBO that seems to be merited by a particular score rather than a particular methodological difficulty. To put that slightly differently, does anyone think that conservatives would be squawking if CBO had disappointed Democrats by saying the bill would save less money than either the House or Senate incarnations? If not, then keep in mind that this is a political, not technical, dispute. To establish my own credentials on this, here's the post I wrote defending the CBO when liberals were arguing that it was underestimating health-care reform's savings.

I think Ezra is a bit disingenuous when he pretends that he's never engaged in partisan attacks of specific CBO cost estimates. (See here, for example.) But there is a much bigger criticism of Ezra's point, which Greg Mankiw articulates very well here.

By convention, the CBO uses something called "static" budget scoring to determine a bill's impact on the federal budget. This kind of scoring essentially disregards the macroeconomic implications of federal actions.

Here is how former CBO director Douglas Holtz-Eakin explained it:

For every piece of legislation . . . the budgetary impacts are estimated using the same, unchanging baseline projections of overall gross domestic product (GDP) and its aggregate income components. Specifically, the estimates do not include the effects of legislation on the supply of labor or on saving (and hence on overall economic growth); they do not include effects on income that might result from the influence outlays and taxes, say, may have on technological progress; they do not include the increases or decreases in output that are caused by the way subsidies or taxes reallocate resources among various activities; they do not include the effects on national saving and other incentive effects that result from the government’s financing of the budget change; and they do not include the income and employment effects that arise from the impact of fiscal policy on aggregate spending in the economy in a recession.

To steal a premise from Paul Ryan, this means that the CBO's current scoring methods would assume no macroeconomic impact if the federal government increased spending by, say, 50 trillion dollars . . . just as long as that new spending was offset by 50 trillion dollars in tax increases.

The alternative to static scoring is some kind of "dynamic" budget analysis, which would account for macroeconomic feedback effects rather than simply holding baselines GDP estimates constant. This would give us a much more accurate cost estimate for large policy changes.

Under the current assumptions, we're virtually guaranteed to get an faulty score.

Ezra Klein v. Paul Ryan

Ezra Klein and Paul Ryan recently had an excellent back-and-forth on the health care bill.

f you're looking for some seriously wonky discussion of Paul Ryan's comments at the Blair House Summit, see Ezra's critism and Ryan's response.

Ross Douthat also offers his thoughts here.

Krugman Gets Nostalgic

Paul Krugman has a good column today railing against secret holds -- a procedure that enables a small number of Senators to temporarily (and anonymously) block a motion from reaching the floor.

No one really seems to be too fond of holds . . . until they're in the minority:

What gives individual senators this kind of power? Much of the Senate’s business relies on unanimous consent: it’s difficult to get anything done unless everyone agrees on procedure. And a tradition has grown up under which senators, in return for not gumming up everything, get the right to block nominees they don’t like.

Krugman's point is well-taken. But, of course, he couldn't resist throwing in some partisan hackery:

Readers may recall that in 1995 Mr. Gingrich, then speaker of the House, cut off the federal government’s funding and forced a temporary government shutdown. It was ugly and extreme, but at least Mr. Gingrich had specific demands: he wanted Bill Clinton to agree to sharp cuts in Medicare.

Today, by contrast, the Republican leaders refuse to offer any specific proposals. They inveigh against the deficit — and last month their senators voted in lockstep against any increase in the federal debt limit, a move that would have precipitated another government shutdown if Democrats hadn’t had 60 votes. But they also denounce anything that might actually reduce the deficit, including, ironically, any effort to spend Medicare funds more wisely.

This seems a little unfair. The key feature of the Republican alternative health care proposal is tort reform, and the CBO examined this aspect of the Republican proposal in detail:

[I]mplementing a typical package of tort reform proposals nationwide would reduce total U.S. health care spending by about 0.5 percent (about $11 billion in 2009). That figure is the sum of a direct reduction in spending of 0.2 percent from lower medical liability premiums and an additional indirect reduction of 0.3 percent from slightly less utilization of health care services. (Those estimates take into account the fact that because many states have already implemented some of the changes in the package, a significant fraction of the potential cost savings has already been realized.)

Enacting a typical set of proposals would reduce federal budget deficits by roughly $54 billion over the next 10 years, according to estimates by CBO and the staff of the Joint Committee of Taxation. That figure includes savings of roughly $41 billion from Medicare, Medicaid, the Children’s Health Insurance Program, and the Federal Employees Health Benefits program, as well as an increase in tax revenues of roughly $13 billion from a reduction in private health care costs that would lead to higher taxable wages. [My emphasis]

These aren't huge savings, but if Democrats were really interested in bipartisan compromise, why did they exclude any meaningful tort reform provisions from the final version of their bill? There doesn't seem to be any good reason for this. A clear majority of American support caps on medical malpractice lawsuits, and these caps would reduce the deficit and curb health care inflation.

Refusing to incorporate the Republicans' central idea into the health care bill -- even when that idea is popular and sensible -- seems just as petty as anything the Republicans have done.

Update: Ruth Marcus has a wonderful op-ed on this subject:

[A] summit aspiring to be more than show would require Obama to deliver his promised break from politics as usual. A cardinal rule of political negotiation is never to give something for nothing. But what if the president were to offer Republicans an inducement -- say tort reform? He has pointed to defensive medicine as one contributor to rising health costs. If "that's a real issue," as Obama told doctors last June, why not add it to the existing Democratic plans?

I can see them in the White House now, snickering. Would this kind of preemptive strike entice Republicans to cooperate? Not en masse, but enough such flexibility might pick off a few. It would show a Democratic Party willing to stand up to its own special interests for the public good, and a Republican Party -- assuming it balks -- unwilling to compromise.

If you're going to serve chicken soup, Mr. President, you might as well ladle some meat into the bowl.

Ezra Klein scoffs:

Indeed, one of the notable elements of this process is that at no time has a Republican or a group of Republicans released a specific list of policies that Democrats could add to the bill to ensure their vote. Concessions might be good for PR purposes -- unilateral bipartisanship and all that -- but that's all they seem able to do in this process.

This makes almost no sense. Maybe Democrats could, uh, look at the Republican alternative health care proposal to get some sense of the specific policies that they endorse? Or maybe they could listen to what Mitch McConnell said on Meet the Press. It's pretty clear what the Republicans want: tort reform and interstate competition.

There is no question that most Republicans are being deliberately defiant. And it's probably true that many Republican senators will not vote for a health care reform bill, even if clear concessions are made. But the majority doesn't need many Republicans. They need one or two.

Making sensible concessions could easily sway some more moderate Republicans.

Is Ezra Missing the Point?

Ezra Klein is continuing to hurl ad hominem attacks at Joe Lieberman, some of which are reasonable and fair and some of which are absurd and speculative. Regardless of how you feel about Lieberman, I think it's clear that there is something missing from this critique:

[T]ake the public option. Lieberman has cycled through a variety of explanations, none of which made the slightest lick of sense. First, he said the public option would increase the deficit. That's flatly untrue. Not only did CBO say the exact opposite, projecting savings of $25 to more than $100 billion, depending on the construction, but the idea didn't even make conceptual sense -- the cost of health-care reform comes from the subsidies, which apply to private and public insurance equally.

Well, sort of.

Regardless of its construction, the public plan would have probably attracted more people who received federally subsidized care. So, while the subsidies would technically "apply to private and public insurance equally," it's unlikely that they would be allocated equally. The public plan would get an unequal share of the subsidies, but this probably wouldn't be enough to make up for the adverse selection problem.

As Ezra himself explained:

[B]ecause the public option is, well, public, it won't want to do the unpopular things that insurers do to save money, like manage care or aggressively review treatments. It also, presumably, won't try to drive out the sick or the unhealthy. That means the public option will spend more, and could, over time, develop a reputation as a good home for bad health risks, which would mean its average premium will increase because its average member will cost more.

The nightmare scenario, then, is that private insurers cotton onto this and accelerate the process, implicitly or explicitly guiding bad risks to the public option. In theory, the exchanges are risk-adjusted, and the public option will be given more money if it ends up with bad risks, but it's hard to say how that will function in practice.

If this is true, can the "level-playing field" public plan really survive in a competitive exchange without a government backstop? If it can't, will the government attempt bail it out? This would undoubtedly increase the federal deficit.

Moreover, despite what the CBO says, some of the cost-saving provisions in the Senate health care bill are unlikely to actually reduce the deficit because they're not going to be implemented.

Here is what David Brooks wrote in today's NYT:

The bill is not really deficit-neutral. It’s politically inconceivable that Congress will really make all the spending cuts that are there on paper. But the bill won’t explode the deficit, and that’s an accomplishment.

Back in September, CBO director Doug Elmendorf acknowledged this point:

These projections assume that the proposals are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation. For example, the sustainable growth rate (SGR) mechanism governing Medicare’s payments to physicians has frequently been modified (either through legislation or administrative action) to avoid reductions in those payments. The projected savings for the Chairman’s proposal reflect the cumulative impact of a number of specifications that would constrain payment rates for providers of Medicare services. The long-term budgetary impact could be quite different if those provisions were ultimately changed or not fully implemented.

There is fundamental disconnect between the CBO projections and political reality.

Misunderstanding the Public Option

As I've said before, it's a bit disingenuous for so many liberal bloggers -- including Ezra Klein -- to assert that the public option is the most popular aspect of health care reform.

While that it may be true that polling data shows Americans respond positively to the term "public option," that doesn't really tell us much about the kinds of reforms that have genuine public support. Calling a government-run insurance plan a "public option" is simply a way of framing the debate. People tend to like "options."

The important question is: Do most people really understand the public option?

Finally, we have a pretty clear answer to that question.

Update: One of Ezra Klein's readers opines (via Andrew Sullivan):

I have a slight problem with the graph in this post. You have biased this graph to over exaggerate the relative size of 'No' response by starting the graph at 20. Thus it appears as if the No's outweigh Yes's by almost a factor of 8. When in reality it's only about 2.5. (66 vs 26)

Sadly the number of Americans incapable of explaining the public option is so large that there was hardly a need to graphically exaggerate it to make your point.

I agree. I hate when people truncate the Y-axis . . . but, in this case, it's still a pretty huge disparity.

Will the Public Plan Cost More?

The CBO projects that the public option will likely have higher premiums than private insurance options.

Ezra Klein explains:

[T]he public plan will pay prices equivalent to those of private insurers and may save a bit of money on administrative efficiencies. But because the public option is, well, public, it won't want to do the unpopular things that insurers do to save money, like manage care or aggressively review treatments. It also, presumably, won't try to drive out the sick or the unhealthy. That means the public option will spend more, and could, over time, develop a reputation as a good home for bad health risks, which would mean its average premium will increase because its average member will cost more. The public option will be a good deal for these relatively sick people, but the presence of sick people will make it look like a bad deal to everyone else, which could in turn make it a bad deal for everyone else.

The nightmare scenario, then, is that private insurers cotton onto this and accelerate the process, implicitly or explicitly guiding bad risks to the public option. In theory, the exchanges are risk-adjusted, and the public option will be given more money if it ends up with bad risks, but it's hard to say how that will function in practice.

This also illuminates one of the more problematic inconsistencies in the health-care debate. Insurers have been blamed for, among other things, doing too much to discriminate against bad health-care risks and refusing to pay for care far too often. They've been blamed, in other words, for saying "no." But they've also been blamed for doing too little to control costs.

But that is how they control costs. We saw this in the late-'90s, when tightly managed care brought cost growth down to the 4 percent range but also triggered a public backlash (it did not, however, appear to hurt health outcomes).

I agree with every word of that.

Confronting Empirical Reality in the Health Care Debate

Ezra Klein delivers the bad news.

The PWC Report and the Tax on High-Cost Health Plans

Ezra Klein rips into Megan McArdle for her long-winded defense of the PWC report (pdf) that was comissioned by AHIP, a political advocacy group for the American health insurance industry.

He writes:

McArdle goes to bat for the most indefensible element of the analysis: the decision to avoid estimating the response to the tax on high-cost insurance plans (which is, in fact, the whole point of the tax), and simply pretend that everything will remain unchanged except that a lot of people will pay a large new tax that they don't have to pay. Moreover, she conscripts the Congressional Budget Office to help with the argument: "You might think that everyone is going to structure their benefits to get around this tax," McArdle writes. "But the CBO expects us to collect quite a bit of money from this tax."

Not quite. The Congressional Budget Office projections (which are, in this case, the Joint Committee on Taxation's projections, as the CBO doesn't estimate tax revenues) actually suggest that the bulk of the tax's revenues will come from the response to the tax, not the payment of the tax. As the New York Times reports, the JCT believes that "about $142 billion of the 10-year total of $201 billion to be raised by the [excise tax] would come from increased income and payroll taxes." In other words, the vast majority of the revenues would come because employers would "structure their benefits to get around this tax." Workers would receive more of their compensation in wages and less in health-care benefits, and because wages are taxable and health benefits aren't, tax revenues would go up.

(Megan did, in fact, acknowledge this error prior to Ezra's post.)

There is at least one broader issue with Ezra's point. Common sense tells you that a tax on "Cadillac" health insurance plans will encourage employers to offer cheaper benefits packages. It's ridiculous to argue otherwise, unless you have strong empirical evidence to back up your claim. Pigovian taxes are, after all, designed to alter behavior in exactly this way. So Ezra is clearly right on the merits here.

But, if Ezra is right, isn't this a huge problem for the administration? If workers with good health benefits will likely be forced into cheaper plans, how can the president continually claim that those who like their health insurance can keep what they have?

FactCheck has already called out the president for this canard, but his argument seems particularly disingenuous now that JCT is actually basing its revenue projections on the idea that some employers will offer cheaper benefits packages if the America's Healthy Future Act (pdf) passes.

Don't get me wrong, I'm a big fan of taxing health insurance -- especially Cadillac plans. I think it's good policy, and it's a step away from the employer-based health insurance system. What frustrates me is the president's insistence that we can have our cake and eat it, too.

If we want to control health care costs, we have to discourage overuse of the system. That means pushing people away from big benefits packages, not telling them that they can always keep their current health insurance.

Update: One more point about Ezra's previous post on the PWC report. Ezra apparently takes exception to the authors' assumption of "full cost-shifting of cuts to public programs." This is another way of saying that doctors and hospitals will try to make up for cuts to their reimbursement rates from public programs by increasing their reimbursement rates form private programs.

He writes:

Have you ever heard of that before, in any industry? If Blockbuster decides to cut costs to consumers by negotiating lower payments to movie studios, does Netflix send out a sorrowful e-mail explaining that it will have to increase its membership fee because it now needs to make higher payments to movie studios?

Well, no. But that analogy makes absolutely no sense. The health care industry is different from the movie rental industry -- and pretty much every other industry -- for a number of reasons. (I would again encourage you to listen to the latest episode of This American Life.)

Ezra must know this. Paul Krugman -- whom Ezra once interviewed -- has repeatedly argued that the health care market is like no other market . . . and, in fact, shouldn't be treated as a market at all.

So why is Ezra suddenly trying to pretend that buying health care is in any way equivalent to renting videos? Maybe he's right that cost-shifting won't be a problem, but this comparison is totally spurious.

Update II: Ezra takes a more nuanced position on cost-shifting:

To be clear on my position here, I think there's probably some level of cost-shifting that's between the zero percent that some advocates would like and the 100 percent that the insurance industry suggests. The Lewin Group estimated (pdf) 40 percent, and that sounds reasonable enough to me, though I'd be open to further evidence.

He also makes another rather obvious point:

It's true that a hospital's costs are relatively inelastic on a year-to-year basis, but they're more elastic over time: if they had to adjust to less revenue than they'd like, they'd make certain changes to the way they do business.

Well, yeah. Isn't that, like, the definition of the long-run?

Ezra Swallows His Pride

This is why I respect Ezra Klein:

I've been a big proponent of affixing calorie counts to menus. There's substantial evidence suggesting that people wildly underestimate the calorie content of dishes at restaurants, and have a lot of trouble reliably guessing whether one dish is lighter than another dish. There's also evidence that people want to eat better than they do. It seemed like the sort of situation where information could result in action.

The first big study out of New York City, however, suggests that menu labeling has been a bit of a bust in changing ordering habits at fast food restaurants in low-income neighborhoods. The researchers identified 14 outlets and, using Newark (where there's no calorie labeling) as a control group, conducted interviews and receipt checks to see how ordering patterns changed. The answer? They didn't. If anything, the calories per order went up a smidge.

. . .

I'm still a supporter of calorie labeling on the simple grounds that people should have this information, no matter how they choose to use it. But so far, the evidence suggests that it's not going to make a dent in obesity rates.

Why Doesn't Ken Conrad Support the Public Option?

In a recent interview with Ezra Klein, Ken Conrad explained:

I don't think a government-run plan best fits this culture. A plan that's not government-run has the best chance of succeeding in being passed into law.

Second, and this is very important to my thinking, the public option as defined by the committee of jurisdiction in the House, the Ways and Means Committee, is tied to Medicare levels of reimbursement. My state has the second-lowest level of Medicare reimbursement in the country. If my state is tied to that reimbursement, every hospital goes broke. People say, "Just fix it." I've been on the Finance Committee more than 15 years. I've been trying to fix the unfair aspects of Medicare reimbursement all the time. We run into the House. Membership is determined by population, and the big population states write levels of reimbursement that unfairly treat hospitals in states like mine. My hospitals get one-half as much as urban hospitals to treat the same illnesses.

A key argument against the "strong" public option -- one that would pay Medicare reimbursement rates -- is that we already have an enormous degree of cost shifting onto private insurance plans. Another Medicare-like plan could potentially widen the gap between government reimbursement rates and private reimbursement rates, and ultimately do little to reduce aggregate health care costs.

Conrad's position is quite different, and I think far more interesting. He's doesn't seem to be concerned about the cost shifting. Instead, he's focused on the regional variations that we've seen among Medicare reimbursement rates.

According to Conrad, these variations are impossible to correct because the membership in the House of Representatives is, by Constitutional design, proportional. Thus, hospitals in states with larger populations -- and more Congressional representation -- will always see relatively decent Medicare reimbursement rates, while hospitals in states with smaller populations will always get shafted.

The senator suspects that we would see a similar pattern with a "strong" public option that offered a Medicare-like payment scheme.

But what about the "level-playing field" public option proposed by Chuck Schumer, which would not be empowered to dramatically undercut private insurance rates? Why did Ken Conrad vote against this version of the public plan?

My guess would be that Conrad simply doesn't trust the claims of his big-state party members . . . .

What do you think?

The Morality of Grayson

I've never been a big fan of Matt Yglesias -- and I've never understood why Andrew Sullivan apparently finds him so fair-minded that he named an award after him.

Anyway, I'm glad that Sullivan finally called out Yglesias for his strained justification of Alan Grayson's vicious ad hominem against Republicans on the floor of Congress.

Yglesias's defense amounts to: "'So what?' Republicans engage in this kind of abusive rhetoric all the time. That's the real issue."

This seems to be the same moral logic that I used in grade school, when I tried to convince my mother she should overlook my cookie-stealing habit because what I had done was relatively less offensive than some of the things my friends had done.

They were the real problem children, after all . . . .

Update: There is another aspect of this controversy that's been bothering me. In an interview with Wolf Blitzer on Wednesday, Grayson called congressional Republicans "knuckle-dragging Neanderthals."

Grayson said:

What I mean is they [Republicans] have got no plan. It's been 24 hours since I said that. Where is the Republican plan? We're all waiting to see something that will take care of the pre-existing conditions, to take care of the 40 million Americans who have no coverage at all.

I've been hearing a lot lately that health care reform has been stalled by Republican "obstructionists." But are Democrats really waiting for the Republican plan, or is Grayson just posturing?

Right now, there are three bills floating around in committee: the House tri-committee bill, the Senate Finance Committee bill, and the Senate HELP Committee bill.

One major sticking point here is the public option, but there are many other points of contention (Ezra Klein offers a good summary of the main disagreements here). In the Senate, the Finance Committee bill (the "Baucus Plan") does not include a public option, while the HELP Committee bill does.

It's true that the virtually all Republicans (with the possible exception of Olympia Snowe) have refused to support either of the bills in the Senate, but the House Blue Dog Coalition is also largely opposed to a public option. More importantly, Blue Dogs seem to strongly favor the deficit-neutral Baucus Plan. The Democratic leadership, on the other hand, seems to be leaning toward the HELP Committee bill.

If the Democrats could unite on a single plan -- and perhaps convince Snowe to come on board -- they could easily pass health care reform. The problem is that they can't.

It's not Republican "obstructionists" who are holding up health care reform at this point. Most Democrats have already abandoned all hope for a bipartisan compromise.

The central conflict is now within the Democratic party.

Health Insurance and Entrepreneurship in America

Ezra Klein makes a good point regarding private, non-portable health insurance:

We may just have a culture in which people who care about health-care coverage don't think about becoming entrepreneurs, as they know perfectly well that they can't sacrifice the safety provided by a large employer. You've heard of learned helplessness? This is learned corporatism. A culture in which people didn't worry about health-care costs might also be a culture in which they were more willing to consider occupational risks.

So will health-care reform fix this? It will help. The various health-care plans under consideration all make life better for a would-be entrepreneur who wants to buy health insurance. The subsidies will help him afford coverage. The regulations will make sure insurers can't deny his family outright our jack up their rates. The exchanges will give him purchasing power and choice.

The question is really whether this renewed entrepreneurial spirit could make up for the deadweight loss from government-mandated coverage. Certainly, there are some people who choose not to buy health insurance. Taxing them would mean a loss of efficiency and, potentially, a loss of entrepreneurship. (Though the president denies that an insurance mandate would be equivalent to a tax increase, many economists aren't buying it.)

Ezra seems to be considering only the upside of mandated coverage. But, you may say, opponents of the plan tend to consider only the pitfalls, so can you really blame him?

Well, yes. I try to hold Ezra to a higher standard . . . .