Obama vs. Clinton on regulation

[BzaDem]

Obama and Clinton have very different approaches for healthcare (which is talked about all the time) and the housing crisis. I think their approaches for both issues are related.

At the risk of rehashing what has been discussed ad-nausium, I'll be brief on healthcare. Clinton is in favor of an individual mandate with subsidies to reduce costs, and Obama is in favor of subsidies/market reforms to reduce costs. Clinton says that her plan is the only one that will actually produce afforable healthcare, since it requires everyone (the healthy and sick) to join (which she feels is the only way to make healthcare affordable). She argues that it will be affordable because she will limit premiums to a certain percentage of income. Obama claims that Hillary's plan will force those who can't afford healthcare to pay for it (i.e., that Clinton's subsidies won't make it affordable for everyone).

On the housing crisis, Hillary favors a 90-day freeze on forclosures, and a 5-year freeze on mortgage interest rates. Obama opposes any sort of freeze, and favors market reforms (such as a 10 billion dollar fund to help homeowners avoid forclosure).


On both of these issues, Hillary favors the more direct, regulatory approach, while Obama favors a more market-based approach (and disfavors direct regulation).

My problem with Obama's position on both issues is that I don't think it goes far enough. On healthcare, Obama has not explained how costs will be reduced if healthy people can avoid purchasing insurance. If only sick people have to buy insurance, then the costs to the insurance companies of treating everyone is very high (as it is now), which forces insurance premiums to be very high. This is one of the most basic facts of healthcare economics. That is the reason why Social Security is required for everyone. If rich people could opt-out of social security, then the only money going in is the money of lower-income people, making it completely infeasible to run. The Republicans made the same arguments back then about how people shouldn't be forced to do anything (similar to what Obama is arguing here), and they failed. And because of that, we have social security.

On forclosures, a 10 billion dollar fund doesn't come anywhere near solving the problem. I'm not going to write pages and pages of economics, but most economists predict that the housing crisis is going to get very bad (much worse than a normal recession). If that pans out, a voluntary fund will not do anything to solve the problem. Forclosures will continue, and massive rate increases will continue (resulting in more forclosures). Clinton actually puts the break on forclosures and rate increases. This again is similar to what happened in the depression. Democrats favored direct regulation, and Republicans favored letting everything fix itself. The Republican plan failed horribly in the 30s, and it has also failed now (deregulation of the housing market is a major cause of the housing crisis now). Obama doesn't support direct regulation as a means to fix the problem.

So on both of these issues, Obama's plans don't call for direct regulation, and Clinton's plans do.

For those of you who support Obama, does this worry you? Or is the Democratic party moving towards a market-reform based approach? It seems to me that direct regulation and action were always cornerstones of progressives, even though most progressives on this forum are supporting Obama. This is such an important issue, given the trajectory of the economy and the state it will be in come 1/09.

[dkf]

1. Staving off foreclosures is not the problem

The problem is that our entire financial system is teetering on the brink because of the collapsing value of the mortgages.

Bear Stearns became illiquid because nobody wanted their mortgage backed securities. The Fed had to swap out these securities for Treasuries to let Bear Stearns survive another day.

Saving people from foreclosures is nice, but it won't help if our entire financial system seizes up.

I don't see how Hillary's freezing of foreclosures and rates will solve anything. It sounds like it will save the little guy, but when the big guys are falling then it really gets scary.

Here is some background on the Bear Stearns situation:

http://www.nytimes.com/2008/03/15/business/15risk.html?_r=1&hp=&adxnnl=1&adxnnlx=1205578973-vLads8Aq19ssGOgvpI+PWA&oref=slogin

http://www.bloomberg.com/apps/news?pid=20601087&sid=aY2RvFA.yO_Q&refer=worldwide

[Drachasor]

2. Market-based solutions have proven extraordinarily effective in the past

Often they work out much better than mandate-based regulation (because market-based regulation can still be strong regulation). On housing, most economists think a freeze would be disastrous. Personally, I think the pragmatic market-based regulation is the way to go.

On healthcare, Obama has a plan that most Americans will accept and support. That plan can pass congress and get implemented. After that, if there are problems, it can be further refined and fixed (and already being on the books it won't be easy to get rid of). Clinton's plan and how she says she won't compromise (and didn't back in 1992) leaves open the possibility she just won't be able to get her plan passed and waste a huge amount of political capital working on it. It also has the problem of forcing people to get insurance even if they can't afford it -- that's a big problem.

[BzaDem]

3. Market-based regulation can still be strong regulation. But not Obama's current proposals.

I would even hesitate to call many of Obama's proposals actual regulation. There is disagreement about the forclosure freeze, but from what I've seen, most economists also think Obama's 10 billion dollar fund will not do anything to solve the huge (and rapidly-growing) problem. The forclosure freeze and interest rate freeze won't be the magic cure-all, but neither was any single proposal of regulation during the depression. It was a combination of everything that made it work (not a hands-off approach).

The problem with the healthcare plan is that even if it is passed, it won't work. He already goes in saying that healthy people can feel free not to buy healthcare. This means even if his plan passes without modification, the market will force costs to remain prohibitively high. But then consider that his plan will likely be whittled down, as would any plan any president would propose. So it would go from an ineffective patch to a huge problem, to an even more ineffective patch to a huge problem. Certain things are non-negotiable if we want to lower healthcare costs, and one of them is everyone has to be in the system. If everyone is not in the system, it just won't work. Whether that's through single-payer, individual mandate, job-mandate + unemployment subsidies, or whatever, it needs to have everyone in the system. Just like social security.

[Drachasor]

4. You are mischaracterizing things

First, a freeze would arguably make the economic situation a lot worse. Since it would discourage any sort of housing loan from happening, as it increases the risk of new or refinanced loans and so the interest will increase. If you can find experts that like Hillary's plan, I'd love to see it. Obama's plan has no chance of making the situation worse, and while it isn't a magic cure-all, it does help the neediest. I will say that maybe more needs to be done, but no one is sure on what (as far as I have seen). It is almost always better to do nothing or little, than to do something big badly.

As for his Health Care plan, all people 25 or younger will be covered by their parents. Most people older than that know they need health insurance for regular doctor visits. If they have none and then have an emergency, Obama has said they can still get insurance by paying back-fees/a fine. The fact is, the vast majority of Americans want insurance, and this will provide a way for them to get it. Having almost everyone on the same/similar insurance will reduce claims processing costs and overall rates as well. It does this a lot more than a plan that doesn't pass (which Hillary risks) -- indeed, she risks not passing anything if she holds the line and refuses compromise like she did in 1992, or does meetings behind closed doors outside of public view. Obama is committed to having open negotiations that the entire country can see if they wish, and that's likely to get a lot done. Will the passed plan be the same as what Obama has proposed? Maybe not, but it might be a good deal better since how to solve the problem would be discussed in full view of everyone. (To say nothing of the fact Hillary doesn't have ANY plan on how to handle people who don't make enough money for her plan).

[gravity]

5. Obama has the correct views on regulation

Markets based solutions have been proven to be more effective for most regulation purposes.

The truth is that markets are better at delegating some tasks, while the government is better at delegating others. The best solutions use both the advantages of free markets and the government to create balanced regulation policies. You have to make your regulations in sync with the markets instead of against them, or else you are just going to create new problems.