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The VA--too big to fail;The Ex-Im bank to fail;Obama's Katrina moment?

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Ruminations, July 13, 2014

VA Health system: Too big to fail
The Veterans Administration (VA) runs a health care system that runs 153 hospitals, 773 Veteran Outpatient Centers, 260 Veteran (counseling) Centers and serves over 8 million veterans. Is it too big to fail? Probably.

(Full disclosure: I have been using the VA as my primary health provider for more than 10 years and believe that, in both facilities I have used, they have done an outstanding job.)

In any organization of that size, there are bound to be failures. For example, it is nearly a universal opinion that the armed services of the United States are the best in the world. Yet, have you ever met a serviceman or woman who didn’t complain about inefficiencies and gross mistakes. Indeed, the term “snafu” (an acronym, loosely translated as “situation normal; all fouled up”) is derived from the military.

There have been many serious charges against the VA recently that need to be investigated. But those have been followed by a virtual piling-on. Unverified charges have been accepted as fact as both the political left and right try to show that they really care about veterans. And then there have been opinions voiced by those who should know better that the VA should be razed to the ground and vouchers provided to vets who could then choose their hospitals.

Practically speaking, these suggestions for razing the VA and providing vouchers have little to recommend them. Taking 8 million veterans and adding them to the current health care system would overburden them to the extent that all patients would suffer. And those who work at VA hospitals would have to seek new jobs at other health care providers, losing any pension benefits that they may have accrued. And then there are the VA facilities; what do we do with them? And what happens to the veterans’ medical records? Maybe we could reopen the old VA facilities as new hospitals; rehire the VA staff and direct veterans to these “new” facilities? Hmm. Sounds like the same thing with names changed to confuse the innocent.

Issuing a voucher requires that the issuer be a qualified medical professional who has the proper diagnostic tools and abilities to direct the individual to a provider – either that or give the veteran a blank check. The VA in fact does issue vouchers today for services that they cannot provide – but that is all under the VA as the primary provider.

While a voucher system sounds appealing and more appropriate in a capitalist economy, medical care is different. A capitalist economy requires that the consumer be knowledgeable enough to select vendors and services. Many times choice of a hospital is dictated by its proximity to the patient. And how many of us are capable of negotiating with a doctor on medical fees and procedures?

There is no question that the VA requires improvement. But those who suggest razing it to the ground and providing vouchers just have to think through their alternatives. In the meantime, the VA is too big for us to allow it to fail.

Export-Import bank
The renewal of the charter for the Export-Import Bank (EIB) that expires on September 30 is now a serious issue. In the past, its approval has been in effect rubber-stamped. But now some conservatives are questioning its necessity.

The EIB has existed for 80 years and its charter has been periodically renewed. Renewal of its current charter is supported by the U.S. Chamber of Commerce, National Association of Manufacturers, and the International Association of Machinists, among others. The EIB provides low-cost loans to foreign buyers of American goods and guarantees American exporters against defaults. In 2013, it turned over a profit of over $1 billion to the Treasury. 59 other nations support their own versions of the EIB and with loans and guarantees hitting $400 billion as compared with the EIB’s $30+ billion. Many of these nations provide subsidies to their nationals and below-market loans to buyers of its products. The Obama Administration says that charter renewal is essential (although, when he was running for president in 2008, Obama called the EIB “corporate welfare”).

According to its website, the EIB has done pretty well for Americans. After covering loan loss reserves, the EIB has earned over $2 billion while ensuring “that U.S. companies never lose out on a sale because of attractive financing from foreign governments.” Its default rate was “0.2111 percent—less than one quarter of one percent.” Furthermore, the EIB says it does not compete with but rather augments private banks (last year, the EIB says that “98 percent of Ex-Im Bank's transactions involved commercial banks”).

James McDevitt, who runs a small oil rig manufacturer in Texas that grosses $70 million a year, says that the EIB is essential to his company. Without it, his customers would turn to Chinese rigs financed by the Export-Import Bank of China and the China Export & Credit Insurance Corporation. The result would be, McDevitt estimates, that his company would lay off half of its staff of 500 and its suppliers (mostly American) would lose business as well.

Boeing, the lone American maker of large aircraft, has one competitor – state sponsored Airbus. Without the EIB, Boeing says that they would be at a serious disadvantage.

What’s not to like about the EIB? Well, according to its critics, (Heritage Action for America, the Club for Growth and Generation Opportunity, among them) the EIB smells like corporate welfare and crony capitalism. It disrupts markets, and picks winners and losers (it picked Enron as a winner and backed them to the tune of $385 million from 1995 to 2000). 76 percent of the value of loans and guarantees went to just ten recipients. Boeing alone received over $8 billion in 2013 – about one third of the EIB’s $27 billion loans and guarantees.

But the EIB does help U.S. exports, doesn’t it? Sure. Kind of. In 2013, the U.S. exported $2.271 trillion worth of goods and services an increase over the previous year of almost 5 percent. And EIB covered 1.2 percent of it. If it went away, would anyone notice?

But it does earn money for the U.S., right? Well. That all depends on how we calculate it. A recent paper by Debbie Lucas of the Massachusetts Institute of Technology says that the EIB actually guarantees a loss for tax payers $200 million in 2012 and would add $2 billion to the national debt over the next decade rather than reducing it by $14 billion as the EIB claimed. Lucas used what is called the “fair-value accounting rules,” developed by the National Bureau of Economic Research and recently approved by the House of Representatives and endorsed by the independent Congressional Budget Office.

But the EIB claims that it created 205,000 jobs last year. In this economy, that’s surely worth it, isn’t it? Charles Lane, writing in the Washington Post says that “This is not evidence of job creation; it’s evidence of governmentally-assisted job allocation. Resources that Ex-Im helped steer to Boeing, et al., might have created the same number of jobs, or more, at other firms.”

But helping Boeing is a plus, isn’t it? Delta Airlines says no. They filed a complaint that stated that by helping foreign airlines buy Boeing jets, the EIB put Delta at a competitive disadvantage vis-à-vis foreign airlines.

What about James McDevitt’s Texas oil rig company? He couldn’t get loans and guarantees from a bank so isn’t that enough to justify the EIB? If a bank won’t loan money at interest to a company then it has adjudged that company as high risk.

This is clearly a moment in time. According to Time, the congressional votes are there to renew the EIB’s charter – if it comes up for a vote. Representative Kevin McCarthy (R, CA), the majority leader, has said that it was doubtful if the EIB charter renewal would come up for a vote.

It is certain that if the EIB renewal does not pass, exporters will adjust to the new reality and trade will continue. If, on the other hand, it is renewed, we can rest assured that future congressional leaders will make enhancements to make it more palatable to their big constituents, such as Boeing and Enron.

Katrina moment vs. Obama’s border moment
In 2005, Hurricane Katrina hit the Gulf Coast of the United States in an unprecedented natural disaster. President George W. Bush, in a calculated decision, did not visit the site in New Orleans.

After discussing the situation with the governors of Louisiana (Blanco) and Mississippi (Barbour), they and Bush agreed that the time was wrong for a presidential inspection. As Bush wrote in Decision Points, “A presidential arrival would have required dozens of law enforcement officials to provide security at the airport, an ambulance and medical personnel on standby and numerous other resources. Neither governor wanted to divert rescue assets to prepare for my arrival. I agreed.”

It was the right decision. Yet Bush’s opponents seized the opportunity to take political advantage and said that the fact that Bush did not land and inspect New Orleans was indicative of the fact that he cared little for New Orleans and less for the majority African Americans who inhabited the city.

This past week, many on the political left and right urged President Obama to visit the Mexican/U.S. border in order to see for himself the humanitarian problems caused by the mass influx of immigrant children. Obama declined to go, saying that he didn’t need another “photo op.”

He was right, too. Seeing first hand hundreds of children (he would not be able to see the totality of the problem) would add nothing to his understanding of the situation – but it would provide a photo op. Of course Obama will be criticized for not going – payback time for Republicans – and having his “Katrina moment.”

It’s also been a source of wonderment that Rudolph Giuliani, while mayor of New York, was able to get so much political mileage out of walking down the street in the immediate aftermath of the September 11 attacks. What did he actually accomplish? Maybe we just like to see our guy on the spot, whether or not he does any good or, indeed, sometimes makes the situation worse.

Will this be Obama’s “Katrina moment?” It probably will hurt him a little, although this is not nearly as emotional a moment as was Hurricane Katrina or September 11. He could probably do more good in the White House.

Quote without comment
Clemens Wergin, foreign editor of Die Welt and contributing editor to the New York Times, writing in an op-ed piece in the Times, July 8, 2014: “I have long been a critic of the German foreign policy debate -- of its freeloading on the American security umbrella, coupled with moral grandstanding… But while Europeans are loath to admit it, they know that European soft power often doesn’t work either -- and that it is a luxury that they could afford only because America’s hard power always loomed in the background. And when they dropped the ball, America would pick it up.Therein lies the lesson to our American friends who seemingly want to become less involved and more European: There is no second America to back you up when you drop the ball."

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