Charlie Arlinghaus

January 31, 2014

As originally published in the New Hampshire Union Leader

New Hampshire is complacent. As a state we seem to have accepted stagnation as a way of life and are just trying to figure out how to adapt to it. The vision of New Hampshire as an island of prosperity is receding as policymakers increasingly decide they must adopt rather than fight economic mediocrity.

In the not too distant past, New Hampshire was a beacon of economic growth and opportunity. We spent decades as one of the fastest growing states in the country. More people and more jobs went hand in hand.

Part of the growth came from Boston sprawl, high cost of housing in North Shore suburbs, and the spread of the exurbs across the state line. But much of the growth and in-migration came from explosive job growth. The number of people employed in New Hampshire grew by 30% in the 1980s and another 17% in the 1990s.

We experienced recessions but we responded to them by assuming growth was still possible. The recession of the early 1980s was in many ways as bad as the most recent recession. New Hampshire’s budget crisis at the time was just as bad as it was recently.

But we were still a people at the time who thought of New Hampshire as different and competitive. Policy leaders decided job growth was essential. Our Business Profits Tax, then only a dozen years old had gotten out f hand and was the among the highest in the country. Then-governor John Sununu, himself a tax refugee from Massachusetts, signed a gradual reduction of the BPT. It was cut three times reducing the rate by 16%.

State economies don’t run counter to economic tides but they can slow them or enhance them. We led other states out of the recession and jobs grew by 25% in five years. There was a significant migration into the state, a large business tax cut, and a large job increase. Different policymakers will assign different factors as the cause. I suspect that the economy was ready to grow, the tax cuts sent a strong message to businesses pre-disposed to like New Hampshire’s then-reputation anyway and the jobs led to the migration.

The next recession in the early 1990s was in many ways the worst recession this state has ever faced. Jobs had actually declined three years in a row. The new governor, Steve Merrill, talked about jobs almost exclusively. He had a jobs plan and pursued significant workers compensation reform. But the centerpiece of his plan was to send a message about business taxes.

Merrill’s business tax reform was revenue neutral but coupled a new very small Business Enterprise Tax (one-quarter of 1%) with two pro-growth cuts in the BPT, a 12.5% rate decrease. Again New Hampshire took advantage of the coming recovery and led the region out of its worst recession. The next five years saw a 12% increase in jobs, the last time the state has seen job growth anywhere close to that rate.

Again, cutting the key business growth oriented tax led to the jobs being added landing disproportionately in New Hampshire.

Since that time, we’ve been in stagnation. Over the last thirteen years, jobs have risen a bit and fallen a bit but have averaged annual growth of just three-tenths of 1%. Our lost decade is now thirteen years and counting.

Some will blame the stagnation on a lack of migration into New Hampshire but I suspect that is a symptom rather than a cause.

It is also worth noting that at the beginning of this stagnation the state increased the Business Profits Tax twice, a 21.4% rate increase. Policymakers also tripled the smaller Business Enterprise Tax which may have had a lesser effect on decision making but certainly sent a psychological message.

Sometimes the stagnation of our last years is presented as a new reality which must be accepted and processed. But the truth is New Hampshire is still a nimble state and can easily begin adopting pro-growth initiatives.

Economic stagnation is not a new reality. It is the most important problem that no one is doing anything about.

Thirty years ago and twenty years ago, policy leaders made a job-attracting climate a priority and jobs and people followed. Fifteen years ago, we reversed course and did almost exactly the opposite. It had almost exactly the opposite effect.

Charlie Arlinghaus

March 26, 2014

As originally published in the New Hampshire Union Leader

The great economic principle of our time comes not from an economist or a banker but from the great Mr. Micawber, a somewhat comic character created by Charles Dickens.  Wilkins Micawber had figured out the central organizing fact of modern life when he suggested to young David Copperfield, “Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, the God of day goes down upon the weary scene, and  – and in short you are for ever floored.”

The importance of spending just sixpence less than you earn is of course just as true for the individual as it is for lawmakers. Sadly, neither individuals nor lawmakers have any intention of listening to Mr. Micawber. I don’t think they object to Mr. Micawber’s use of an archaic, non-decimal monetary system nor do they have objection to the fundamental wisdom within.

Instead, the modern citizen and the modern lawmaker object for the same reason – it’s inconvenient. It is far easier for each of us, enabled by the modern temptation of easy credit, to spend more than we know we should. Certainly many of us will quite rationally buy a house or a car on time. It becomes simple to extend that rationalization of capital expenses to a giant television, a vacation, or even a shirt and a pair of socks. We shouldn’t buy the socks on time but we can’t help ourselves.

Government is the same way. It’s like a small child on a grand scale but without any of the counterbalances and disciplines even the least responsible child is subject to. On the contrary, the incentive structure in modern political life rewards the politician for dismissing Mr. Micawber as an amusing but irrelevant artifact of another time. Instead we reward them for acting like small children.

The classic example of bad behavior is debt. There is nothing inherently wrong with government debt. Governments like the rest of us might sometimes buy a thing or two over time. At the state level, we have an entire separate budget for such things. We pay for some office building, large highway projects like bridges, and other capital expenditures over a 20 year debt cycle. We make payments from the regular budget to pay for the loans in the capital budget.

But even our generally restrained locals can’t resist adding on. In economic downturns we pile on. Remember when we took out a loan to pay for debt payments? Or we borrowed the money to pay for things we used to pay out of the operating budget? This was simply an attempt to avoid Mr. Micawber’s truth.

He risked debtor’s prison if he overspent. We just add debt to be paid off at a future date. I suppose that we avoid his predicted result of misery by sending that misery forward to our children and grandchildren. In bad economic times, debt even in New Hampshire ratchets up. But it is in fact a ratchet. It never comes back down.  Flat debt for ten years is followed by a four year explosion of 43% which is then followed by a flat period. We don’t slowly bring debt back down, we create a new normal.

The nightmare in Washington DC is often described and perhaps too depressing to mention here. I think we best not even mention Mr. Micawber to them lest they try to tax him or name a bridge after him.

But  we should blame ourselves not the poor feeble minded politicians. They merely behave following our example and our incentives. We reward them by getting excited when they do something big and bold – a new bridge or a new program. Politicians talk during elections about all of our money they spent because it makes us happy.  No one wants to talk about the borrowing that produced the funny money nor does anyone ask a question about the debt we’re passing to our grandchildren (our kids are tapped out at this point).

Would you even listen if a politician told you about realigning priorities so we can do maintenance on the assets we currently have? Do you care about the Micawberian analysis? No, you want a nice shiny new bridge, you don’t want to pay for upkeep on the old one. Paving is boring, rainy day funds don’t earn votes. We can’t pay to keep up the things we already have but let’s build new ones anyway.

Wilkins Micawber first emerged in print in 1849. He is long gone and long forgotten. That’s a shame.

 

March 2014

Josh Elliott-Traficante

Household Survey:

  • Unemployment rolls increased 233,000
  • Unemployment rate increased slightly to 6.7%, from 6.6% in January
  • Those “not in the labor force” fell by 93,000
  • Participation Rate held steady at 63.0%

Establishment Survey:

  • 175,000 payroll jobs were added
  • 162,000 were private sector positions
  • Small growth seen across most industries, with a few exceptions
    • Food Service and Temp jobs saw large gains
    • Biggest losses seen among Couriers, Movie/Record Production, and Retail Sales at electronics stores.

So, what does this all mean? Oddly enough, if a full-fledged recovery were underway, the unemployment rate would actually start to increase. Given the anemic job growth since the recession officially ‘ended’, many job seekers gave up looking for work entirely and dropped out of the labor force. The current method of calculating the unemployment does not count those people as unemployed, leaving roughly 1,500,000 million people out of the equation.

As these people feel the hiring market is getting better, they will re-enter the pool and start looking for work again. Once they start looking, they are considered ‘unemployed’ again, driving the unemployment rate up. While the critical Participation Rate held steady this month, (an indicator of people leaving or entering the workforce) it is still fluctuating at 36 year lows.

The upshot is that while it is not bad news in the sense that jobs situation is getting worse; it also does not seem to be getting better. However the leveling off of those ‘not in the labor force’ and the gradual decline of “those not in the labor force, but would like a job” are encouraging signs.

Turning to the Establishment Survey, 175,000 new jobs is a decent number, but not a great one, though it is still ahead of estimate. However, at that rate of job creation, it would take roughly 12 years to get back to full employment.

It is encouraging that the industries experiencing losses are very narrow (say as opposed to construction or durable goods), which indicates problems within the specific industry rather than the economy as a whole.

Looking at the 175,000 new jobs, it is troubling that the 45,600 of them were either at Temp Agencies, or in the Food Service industry. Temp Agency hiring is indicative that companies need capacity, but are unwilling to bring on full time employees permanently, usually due to uncertainty about future economic growth. Food Service on the other hand, tend to be lower paying, non-benefit providing jobs.

Charlie Arlinghaus

December 18, 2013

As originally published in the New Hampshire Union Leader

This week, New Hampshire achieved the dubious distinction of being put of the “Judicial Hellholes” watch list. New Hampshire’s economic competitiveness depends on more than taxes and on being something slightly more compelling than “better than New Jersey.”

The phrase New Hampshire Advantage is bandied about so often that it has become a foggy description for politicians to use as a generic aspiration. In reality, the phrase is meant to acknowledge that economic development is a contest for jobs in which states seek a competitive advantage over other states.

New Hampshire’s has long enjoyed a tax advantage over other states. But our advantages go beyond that. There is a general perception – and perceptions matter a great deal in the competition for jobs – that New Hampshire is not overregulated and puts up fewer obstacles to business operation than other states.

In recent years, business look more and more to some other measures as a sign of whether a state is a good location. Worrisome trends don’t threaten all at once. Instead they slowly eat away at your advantage and you gain fewer jobs than you might have. The difference between slow growth and strong  growth is never dramatic. Rather it’s cumulative over time.

The American Tort Reform Association this week released its annual list of judicial hellholes. Fortunately, New Hampshire doesn’t join the likes of West Virginia in this avoid-at-all-costs group. However, depressingly, we’ve been added the watch list as a sign that things aren’t going well and people who care about this things may want to tread cautiously with regard to New Hampshire.

The concern for policymakers is that the phrase people-who-care-about-these-things describes a demographic that includes not a few random cranks but instead most business leaders and economic development professionals. When your reputation gets out of your control, you become, well, New Jersey.

Consider that New Hampshire, despite being on the ATRA watch list still manages a slightly better than mediocre rating from the most important legal climate report – The U.S. Chamber of Commerce’s Legal Climate Rankings. New Hampshire is 21st in the country. Unfortunately, over the last five years we’ve slipped gradually from 6th in the country.

Trends mater and ours isn’t good. We’ve fallen behind Delaware and Maine and Vermont and Massachusetts and New York. The good news for us: we still get to claim “better than New Jersey” and hold that basket case out as a cautionary tale.

New Jersey is 32nd in the nation and an example for us of what might happen if we aren’t careful. While we hit the watch list this year, New Jersey and Atlantic City in particular regularly shows up of the Judicial Hellhole poster list. More important, their status hurts jobs.

In New Hampshire, according to the National Center for State Courts we have about 4000 civil cases per 100,000 people. New Jersey almost triples that at 11,000. The impact of that litigation frenzy is predictable.

At one time, New Jersey was a very competitive state. Their tax and business climate attracted jobs from their neighbors like New Hampshire has done in recent decades. Today, the last vestige of that is low gas prices.

At one time, the pharmaceutical was centered in New Jersey making it the envy of states in the region and around the country. But litigation is at the core of that industry fleeing. Although 20% of all Pharma jobs used to be in New Jersey, that number has been declining for years.

There is a clear market signal that indicates why. Over 90% of all tort plaintiffs in pharmaceutical cases are from out of state. Plaintiffs who are venue shopping and then decide to choose your state is a message to companies to get out and getting out they’ve been doing. New Jersey isn’t doing much about it except losing jobs that have to go somewhere.

Historically, New Hampshire looks for just this sort of opportunity. Something that makes business flee a state that can’t get its act together should be food for our development. Unfortunately, we’re moving in the wrong direction. Sliding from 6th to 21st sends almost as bad a market signal as New Jersey and encourages companies to seek other pastures.

Any economic development plan can look to New Jersey as a wonderful example – of what not to do. But we should do more. It’s all well and good to be “better than New Jersey” but sometimes better than a pathetic basket case isn’t quite enough.

Josh Elliott-Traficante

December 19, 2013

The aerospace giant Boeing is shopping around for a new location to produce one of its new wide body jets, the 777X. Rather than a design a new plane from scratch, Boeing has opted to reinvent and update its popular 777 model; hence the ‘X’. The company is running into trouble with its unions at its major plant in Everett, Washington, over a host of issues but largely over a switch from a traditional pension to a 401(k) style plan for retirement.

These difficulties have led the company to start looking at other states and locations to either build major components or the entire plane. It has already sent out requests for proposals to between 12 and 15 states. Included is a list of what Boeing is looking for in a location, such as an airport with a 9,000 foot runway, as well as easy road, highway, rail, and port access. These are requirements that one would expect most large manufacturing companies to look for when looking to relocate.

Where it gets interesting is what Boeing expects each state to offer as sweeteners (read bribes) to get the 777X plant. Among other ‘desired incentives’ (again, read bribes) is a “(s)ite and facilities at no or very low cost and infrastructure improvements provided by the location.” The company anticipates that the cost of upgrading existing facilities and machinery alone to run about $10 billion. Basically Boeing wants a state to pay all, or most of the costs for building and equipping a new production line.

As if that were not enough, once built, the company also wants preferential tax treatment with all relevant tax liabilities being “significantly reduced.”

Over the top as these requests are, states are actually submitting proposals. Washington State recently passed a package consisting of $8.7 billion in tax breaks for Boeing over 16 years; Missouri is offering $1.7 billion. Due to the confidential nature, most of the dollar figures for proposals from the other states responding is largely unknown.

While it is understandable that many states would be eager to entice a major manufacturer to relocate, these onetime perks not only often become permanent, but it encourages companies to come back asking for more.

Take Washington State for example, Boeing already has a massive facility there and the state is offering nearly $9 billion just for the company to stay put. Illinois in particular is littered with examples. After an income tax hike in 2011, Caterpillar, Sears, and John Deere all announced they were considering moving their headquarters to states with a more favorable tax environment. In response, Illinois passed nearly $300 million in incentives for the companies to remain in the state.

These types of policies not only encourages other companies to do the same but emboldens those that did get breaks to ask for more the next time around. If you give a mouse a cookie….

Beyond the sticker shock and poor policy behind these tax payer financed incentives is an issue of fairness. By offering incentives, the state picks winners and losers in the market, with the large and well-connected companies getting the reward. The result: a tax and regulatory system that favors a select group of companies, chosen by the government. Smaller companies on the other hand, are not only left without support but have to pay higher taxes and abide by stricter regulations as well. One of the key tenants of a free market is that there is one set of rules that all players abide by.

Thankfully, New Hampshire has, for the most part, resisted the temptation of offering these bribes to relocate here, instead relying on the New Hampshire Advantage to encourage companies to set up shop.

Are there changes that states can make to improve the state’s business climate to not only keep existing businesses but draw new ones as well? Absolutely. Low taxes, educated workforces, low energy prices, and common sense regulatory burdens are just a few of the qualities that companies look for when choosing where to open a new facility.

These types of reforms help all of the businesses in the state, not just the chosen few. Just say no to crony capitalism.

Grant D. Bosse

As Originally Published in the Concord Monitor

I don’t think I would have done well in 1621. I haven’t been hiking or camping in years. My shooting skills are limited to paper silhouettes. And the only fires I’ve lit recently have been in a barbecue grill or a wood pellet stove. I don’t even want to think about going through the day without hot and cold running water.

The Pilgrims of Plymouth who survived two months at sea and a brutal New England winter celebrated their first harvest in the autumn of 1621, inviting the nearby Wampanoag tribe for a feast of thanksgiving. The Pilgrims likely went out “fowling” for local ducks, while the Wampanoag brought several deer. The meals would have likely included squash, onions, cabbage, shellfish and a mashed corn porridge known as samp. Following the feast, the Detroit Lions began an annual tradition by losing by three touchdowns.

In a letter back to England, future colonial governor Edward Winslow described the abundance of the New World:

“For fish and fowl, we have great abundance. Fresh cod in the summer is but coarse meat with us. Our bay is full of lobsters all the summer, and affords a variety of other fish. In September we can take a hogshead of eels in a night, with small labor, and can dig them out of their beds all the winter. We have mussels and others at our doors. Oysters we have none near, but we can have them brought by the Indians when we will. All the springtime the earth sends forth naturally very good salad herbs. Here are grapes, white and red, and very sweet and strong also; strawberries, gooseberries, raspberries, etc.; plums of three sorts, white, black, and red, being almost as good as a damson; abundance of roses, white, red and damask; single, but very sweet indeed.”

Winslow lost his wife over the first winter. He soon married Susannah White, who had just been widowed as well. Yet his letter proclaims the bounty and opportunity of his new home, and gives advice for the “industrious men” who would join them.

We laud the resilience of this small band of religious refugees, seeking freedom of worship across the ocean from civilization.

Yet we should not glorify the harsh conditions that they survived. Self-sufficiency is a path to abject poverty. I’m thankful I can rely on strangers for my daily needs, and don’t have to worry about where I’m getting my food, water and firewood as the days become shorter and the nights colder.

I have no idea who installed the plumbing in my house, or who designed the two-in-one showerhead that helps clear the cobwebs out of my brain each morning. No one at Crest or Oral B went to work out of altruistic concern for my dental hygiene. I didn’t promise anyone I’d go get a coffee and a bagel this morning, but both were conveniently available on command.

We owe our current prosperity, literally unthinkable in 1621, not to self-sufficiency or charity, but through the self-interested actions of people we’ll never meet. The tremendous efficiencies unleashed through trade and specialization are the true American cornucopia.

Living standards are higher for everyone, and so are our standards for what is acceptable.

Fortunately, the wealth created through the free market affords us the opportunity to help those less fortunate. Capitalism is not incompatible with charity, or with safety-net programs funded through government taxation. But it is voluntary private action that creates the resources we would like to redirect to the poor.

The lesson I take from that first Thanksgiving was the cooperation between two very different tribes. The Pilgrims and the Wampanoag helped each other survive, enriching both groups. We have fallen tragically short of that standard so often in the past 400 years, and not only with our treatment of Native American tribes. Our mercantile shortsightedness has led to wars, and slowed the growth in our prosperity.

Civilizations advanced before the spread of economic and political freedom, and we’ll keep moving forward even with an oversized government stifling innovation. But the pace of progress quickens only through trade. Free exchange of goods, services, and most importantly ideas, drives economic expansion. The self-organizing economy vastly outperforms the command economy, as it relies of the diffuse talent and drive of millions, rather than the limited knowledge of a few well-meaning elites. And that’s before we account for the inevitable corruption of central planning.

The Pilgrims would have starved without trade. When I rail against government interference in markets, whether it’s through excessive regulation, protectionism or favoritism toward unions and incumbents firms, it’s not really because I object to the short-term costs of these bad policies. And it’s not because of the corporate conspiracy theories that obsess the modern left. It’s because I don’t want to sacrifice the invisible possibilities of free market progress.

Where we’ll be in 100, or 400 years, is as incomprehensible to me as it would be for Edward Winslow walking into Market Basket. I’m thankful to be living in his unimaginable future, and for what’s next.

If you’ll excuse me, I have to plant some rye seeds if I want to have any bread next spring. Happy Thanksgiving.

– See more at: http://newhampshire.watchdog.org/12292/thankful-to-be-living-in-the-future/#sthash.q9Cgl5dT.dpuf

Charlie Arlinghaus

October 30, 2013

As originally published in the New Hampshire Union Leader

Ray Burton’s political legacy is unusual and unique. Burton made his mark over almost forty years as a public figure like no other in an institution that doesn’t exist anywhere else. While there is much other politicians would do well to copy, it is unlikely he will ever be replaced or duplicated and the state will be poorer because of it.

As America celebrated its bicentennial, Ray Burton was elected for the first of a record 18 times to an office that predates the United States and has now vanished in every other state. Ray’s attention to the details of politics mirrors the detail oriented focus of the institution he serves.

New Hampshire’s Executive Council is a vestige of the old royal councils that existed in England and all of her colonies. One by one the state’s around us eliminated their councils. Maine’s was eliminated in 1975. There is still a council in Massachusetts but it is largely ceremonial.

In New Hampshire, an executive council with five members elected in districts of about 265,000 people must confirm gubernatorial appointments not just for department heads but for hundreds of deputies, division directors, bureau chiefs and oversight board members. In addition, and uniquely, they must approve transfers of funds, contracts, and expenditures greater than $10,000 for the entire five billion dollar state budget.

That level of detail can be tedium for some but puts New Hampshire’s state government under the microscope at a more detailed level than most states.

Ray Burton has become legendary for embracing the detail to the benefit of his North Country district and for making that the defining aspect of his political life and reputation.

Today, most politicians carve out a name in one area and then jockey to parlay that into something else or try to climb the political greasy pole. In forty years, Ray Burton never had a shadow campaign for governor, a manufactured congressional boomlet, or seemed to be jockeying for some lucrative appointment. Instead he became known more and more as the voice and presence of the North Country.

Elected to represent the North of the state, he moved the field of play for the council from the old chamber inside the State House to the mountains and valleys of the state at large.

While the districts are equal in population, Burton’s district is geographically more than half the state. Nonetheless, it is not possible to attend an event of any sort with more than a handful of people anywhere in his district without bumping into Ray Burton. His presence at so many events should be surprising but has come to be expected.

Although Ray always campaigns “as if he’s five votes behind,” he hasn’t had a close election in decades and his frenetic pace is not electoral in nature. His election is assured but just as the council immerses itself in the details of the state so Ray immerses himself in the details of his district. He’s not running for re-election when he goes everywhere instead he’s like the mayor of a giant swath of territory making sure that every pothole gets filled and every bridge is on the list.

When most politicians enter a room people ask “what’s he running for?” and smile politely until that guy leaves and we get on with our business. But Ray’s presence was different. His speeches were never about him but about making sure people knew what was happening and that he could be counted on if they needed help. Tellingly, his retirement announcement this week makes sure people know they can contact his office for anything they need even as he’s battling cancer.

Burton’s humility and dedication to service is unusual in politicians today. It is easy to describe him as old fashioned as if he’s an anachronism and a bit of a switchboard operator in an iPhone world. But that misses what Ray Burton is entirely.

Attention to detail is what modern politics lacks. Ray Burton wanted to know every issue in every town he represented. When the state develops its highway plan, he makes sure small town bridges aren’t overshadowed by large superhighways.

Too often, the biggest and most dramatic projects crowd out little ones that can make more of a difference at lower cost. Too often, powerful people from the biggest cities move to the top of appointment lists over good people from tiny towns far from the media centers.

 

The Ray Burton approach to detail isn’t archaic, it’s detail oriented. It is the opposite of modern blow dry politics in every good way. Ray’s retirement leaves a hole that must be filled and a personality we’re all going to miss.

Charlie Arlinghaus

October 23, 2013

As originally published in the New Hampshire Union Leader

The federal government doesn’t work because it doesn’t have to. Politicians are not capable of compromise in a natural state. They only compromise – or at least seek some vague common ground – when they are required to and have no other choice. Right now, competing politicians can’t even talk to each because they aren’t working on the same problem. State politicians aren’t nobler than the federals. They just have a common goal imposed on them externally.

Washington has long been a dysfunctional circus. Sometimes a new personality enters the mix but the broad insanity continues along more or less the same lines. In recent years, the same insanity seems to occur but slightly more frequently.

Every few months, we are treated to cable news channels blaring very serious with dramatic concern about the latest fiscal cliff or impending government doom. Tax cuts may be about to expire, some automatic spending cut may be about to take place, or perhaps 18% of the federal government might shutdown.

People should be forgiven for thinking each one of these scenarios is partly real but mostly exaggerated for the sake of ratings wars among the half of a percent of the population who bothers paying attention to cable news stations.

I want to believe these are real crises but we seem to have one every few months and they all sound about the same. One party or the other thinks we’ll have Armageddon if we don’t raise something or cut back something. And no one is quite sure the exact day of the supposed deadline. As the deadline approaches, someone clarifies that the actual deadline is a few weeks later than we first thought.

Ultimately, every crisis is averted. The solution is always about the same. As a temporary measure we do some slight variation of what we’ve been doing all along and it buys us another five or six months until we have the debate again. The cable channels will have new music and a new logo. The crisis will have a slightly different name but the big picture is about the same: nothing much changes.

Congress has some trouble changing because this is what they do. They all walk around a really nice old building surrounded by sycophantic staff holding their bags, an array of servants rarely seen outside Downton Abbey, and a very serious press corps talking to them in hushed tones about how statesmanlike they are compared to the other people who are causing the problem. It’s all very intoxicating and theatrical.

What they lack is an agreement on what exactly their job is. These fiscal cliffs all have a nominal deadline but it’s not clear what must be accomplished before the deadline. You would be excused for thinking they had to produce a budget, a balanced and binding document detailing spending and the revenues to pay for that spending. This is what states produce and it makes them functional even when they hate each other every bit as much as the federal patricians do.

But at the federal level we move from one stopgap to another, one temporary fix to another. There are no requirements or real deadlines.

This is their ultimate failure. They don’t act because they don’t have to act. For a politician, nothing is as painful as having to balance a budget. It involves saying no. Not everything can be done. Decisions have to be made, priorities balanced, and someone will be unhappy. No politician in his natural state wants to balance a budget. They do it at the state level because they are forced to. By a date certain, a balanced budget must be passed. No ifs, ands, or buts. If they fail, generally speaking the lower, pre-inflation level of spending for each agency and program continues. Saying yes to a couple of things always trumps saying no to everything so they act.

At the federal level, the consequence of not acting is happy. No decisions, fewer angry people, and all the hard stuff left for future generations. It is conventional wisdom among the establishment of both parties now that actually balancing the budget is both impossible and unnecessary.

Ultimately, federal politicians are children and they need to be treated like children. They need rules imposed on them from the outside. A balanced budget amendment shouldn’t be needed but it is. They need to have a goal imposed on them because they can’t be trusted to do anything responsible.

The sooner we start treating them like adolescents, the sooner they might clean their room.

 

Charlie Arlinghaus

October 2, 2013

As originally published in the New Hampshire Union Leader

We are treated this week to the news that federal politicians of both parties are quite often unable to discuss issues like adults. The quasi-shutdown of the government is the inevitable result of two groups trying very hard to disagree.

On Tuesday, the latest federal deadline came and went the Democratic Senate and Republican House unable to agree on a temporary budget extension. While some news stations treated this as if it were some sort of apocalyptic end of civilization, the truth is slightly less scary. Programs deemed essential, necessary for security, the protection of property, and most major entitlement programs operate unabated. More than 80% of federal employees will still be on the job.

Nonetheless, the country will operate for a brief period without a budget for the first time in 17 years. Although it’s worth noting that in the twenty years prior to that there were 17 shutdowns.

The fight between the House and Senate stems around whether the next temporary budget (Congress has trouble actually budgeting so we needs lots of temporary budgets) should be a clean bill or not. Bills in Congress are generally laden with all sorts of unrelated items, partly as a sort of compromise. To get you to support my idea, we add it into a bill with something else you may care about.

There is no obvious general rule about whether legislatures, federal or state, should govern this way. In divided governments of the sort we have in both Washington and Concord today, some sort of negotiation is necessary and the final product will rarely be ideal for both sides.

Politicians tend to want as narrow a bill as possible if they believe their opposite number can be forced by circumstance to accept something he doesn’t really want. I am fond of quoting Margaret Thatcher’s compelling lament about consensus: “To me consensus seems to be the process of abandoning all beliefs, principles, values and policies in search of something in which no one believes, but to which no one objects.”

The difficulty in finding so-called consensus is just as Thatcher described. Generally, I expect you to abandon what you believe in so that we can do some subset of what I want. I don’t want compromise, I want to get a lot and give up nothing.

The debate over how narrowly constructed a bill should be is that sort of consensus-seeking. Quite often a politician insisting on a clean bill is just as intransigent as one trying to add his pet project to the bill. There is one thing I want to do and I won’t entertain a discussion of anything else.

Sometimes, a political or policy debate occurs in a cleaner environment. At the state level gambling is one of the issues. Gambling doesn’t have to happen and not doing it today doesn’t forestall the option of doing it in the future. There isn’t a window of opportunity we miss. So that debate tends to be self-contained.

Things like budgets and debt ceilings are different. At the federal level, there is a fixed deadline that causes a rush. It can be used by both sides. One side can insist on other issues of importance to them being dealt with in exchange for avoiding the latest fiscal cliff. The other side, because there is another deadline, can refuse the other discussion and insist that no other issues be allowed in.

If there is to be a deal, the deal probably can’t be clean. But it also can’t be a hostage negotiation where one side is asked to accept things they can’t possibly agree to or to which they are fundamentally opposed.

When both sides are relishing a fight, sometimes the honest deal gets lost. Republicans are eager to fight the next election on the very unpopular ObamaCare law and so continually inject it. Democrats refuse to consider anything because they think the partial shutdown will be blamed on Republicans and distract from the unpopular ObamaCare. Each side thinks it is served by its current course of action.

Ideally, every bill would be narrow and discretely focused with no gamesmanship. But that’s impossible in a world of divided government. A good compromise would include something we each want that doesn’t violate fundamental principles. Sadly, the usual path is the one Margaret Thatcher feared and we only agree on the futility of the final product.

 

Charlie Arlinghaus

September 26, 2013

As originally published in the New Hampshire Union Leader

The government-sponsored insurance plan offered through the Obamacare exchange has come under fire this week for leaving behind some of the hospitals in the state to provide a competitive advantage to the others. People naturally bristle at the government picking winners and losers through its plan, but the situation is more complicated than it first appeared.

Under the new federal health care law, every state must have an “exchange” to offer subsidized health insurance. The latest public relations spin would change the name of these exchanges to “marketplaces” but recent events have revealed they aren’t marketplaces and aren’t subject to market forces.

In New Hampshire, only one company signed up to offer the policies to be subsidized through the exchange. That company, Anthem, is the dominant player in the regular market, issuing 56 percent of policies.

Some had hoped for competition in the new federal exchange, but there would be none. To make matters worse, the new plan, with its additional mandates and required coverages, would manage to find affordability only by limiting access to certain providers. If your doctor or hospital is in, you’re happy. But nearly half of the hospitals (and the doctors they own — most doctor’s practices are owned by hospitals) are left behind.

Let’s start by saying that limited networks are a perfectly reasonable way to save some money. Providers are limited as a way to get them to accept below-market prices. Even so, rates will increase for most consumers. Anecdotally, one consumer I know will see his rates double even with none of his doctors in the plan any longer. On the other hand, he’ll get new coverage he doesn’t want, but still has to pay for.

We’re told by Anthem that despite the increased costs over your old plan, the new, limited plan has costs that are 25 percent lower — not lower than what they were but than what they would have otherwise been.

So Anthem chose to offer a plan with limited providers who have all agreed to accept a much lower payment than they would currently receive for private insurance. Currently, Medicaid pays roughly 1/3 of the price charged to regular consumers. The new plan would be closer to Medicaid than regular insurance.

Why would a hospital accept lower payments? First of all, because if the new health care law is unchanged, the exchange will occupy a greater and greater share of the insurance market each year. It’s easier to be in from the beginning than to be left behind and try to claw your way in from the outside. Second, by leaving so many providers behind, those favored by the government-sponsored plan will get a greater share. A hospital can make less money on each patient if it has more of them and its regional competitors start to wither away.

There would be much less consternation about this plan if there were an alternative in the exchange. If one competitor chose to offer a limited network, consumers with such an interest could instead move to a perhaps more expensive but less-limited network. But consumers have no such choice. There is one company offering plans that vary slightly by deductible size. There are no alternatives, no choices, no competition.

At first, public reports seemed to indicate that the hospital left behind had opted out themselves because they chose not to accept lower rates. Instead, we learn that the opposite is true. Hospitals perfectly willing to accept lower rates were nonetheless not allowed in.

Last weekend on Josh McElveen’s public affairs show on WMUR-TV, we saw the head of the hospital in Rochester (New Hampshire’s sixth-largest community) tell Anthem’s CEO he was willing to accept her rates and ask to be allowed onto the list. She pointedly ducked the question, but the answer is clearly no.

The hospitals cut out of the plan are left with two choices: hope the new system fails miserably and is repealed, or quietly go out of business. Consumers like you and me can look forward to higher insurance rates and only hope that our providers make it onto the government approved list.