Is Inflation About to Run Wild?

Is Inflation About to Run Wild?

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Plus, how Biden could save billions
Wednesday, May 26, 2021

New Watchdog Report Identifies Billions in Potential Government Savings

A new report from the Government Accountability Office identifies dozens of ways the federal government can save billions of dollars while improving the effectiveness of its spending – a task that will become all that much more pressing as the coronavirus crisis comes to an end and lawmakers begin to look for ways to reduce the budget deficit.

“The federal government has made an unprecedented response to significant public health and economic challenges as the country continues to battle Coronavirus Disease 2019 (COVID-19),” the GAO says in its report. “Once the pandemic recedes and the economy substantially recovers, Congress and the administration should develop and swiftly implement an approach to place the government on a sustainable long-term fiscal path.”

As in past reports, the GAO digs into the nitty-gritty of the federal budget, looking for areas of overlap and duplication that could be eliminated, as well as areas of fragmentation, where agencies could improve efficiency by pulling disparate efforts into one. The results can be remarkably detailed, and a good reminder of just how diverse federal spending can be.

In the current report, areas under review include everything from the management of “cell-cultured meat” production by the Food and Drug Administration and U.S. Department of Agriculture to potential savings in Medicaid claims processing and information retrieval systems.

The GAO says its reports have been quite effective, with its recommendations producing $429 billion in benefits from 2011 to 2019.

Speaking to a Senate committee earlier this month, Gene L. Dodaro, the government’s comptroller general, highlighted the savings that are available. “This year, we have over 112 new recommendations for consideration by the Congress and the executive branch,” Dodaro said. “The first has to do with leveraging the government’s enormous potential purchasing power by pulling together to purchase common items, medical supplies, office supplies, etcetera. There’s been some progress in this area, but there can be much, much more that result in significant savings.”

Read the full GAO report here and an analysis by The Washington Post’s Joe Davidson here.

Point/Counterpoint: The Inflation Risk

Former Treasury Secretary Larry Summers expressed his growing concerns about inflation in a Washington Post op-ed this week, arguing that the Biden administration’s Covid-19 rescue package is too large given current economic conditions, which could result in higher than expected and potentially dangerous price increases throughout the economy in the coming months.

Summers’ comments are providing ammunition for those who oppose Biden’s ambitious spending plans, with Senate Minority Leader Mitch McConnell (R-KY) quoting him more than once this week as he presses his case that Biden is proposing too much spending.

Here’s the nub of Summers’ argument, along with a critical reply from economist Dean Baker, who runs the liberal-leaning Center for Economic and Policy Research.

Summers raises a red flag: “The covid-19 chapter in U.S. economic history is coming to a close more rapidly than almost anyone expected, including me. Within weeks, gross domestic product will reach a new peak, and it is likely to exceed its pre-covid trend line before year’s end, as the economy enjoys its fastest year of growth in decades. Job openings are at record levels, and unemployment may well fall below 4 percent in the next 12 months. Wages and productivity growth are increasing. ...

“Now, the primary risk to the U.S. economy is overheating — and inflation. Even six months ago, it was reasonable to regard slow growth, high unemployment and deflationary pressures as the predominant risk to the economy. Today, while continuing relief efforts are essential, the focus of our macroeconomic policy needs to change.”

Baker says it’s too soon to tell: “Starting with the inflation that we have seen to date, it is important to remember that this follows the very low rate of inflation we saw in the pandemic. Much of this is just catch up. The overall Consumer Price Index (CPI) jumped 0.8 percent in April. That sounds scary, but it is up just 3.1 percent since February of 2020, which translates into a 2.6 percent annual rate of growth. The core index, which excludes food and energy prices, is up just 2.5 percent since before the pandemic started, translating into a 2.2 percent annual rate of increase.

“We can see a similar story in many of the sectors that were hard hit by the pandemic. Hotel prices jumped 8.8 percent in April, but are still almost 6.0 percent below the level of February, 2020. Air fares rose 10.2 percent in April, but are 17.7 percent below their pre-pandemic level.

“Everyone knew these big price jumps were coming, so they really should not be cause for panic.”

Top Dems Call for a 'Public Option' Health Care Plan

Two key Democratic lawmakers overseeing health policy on Wednesday announced they will look to craft legislation to create a government-run “public option” for health coverage, pushing ahead on one of President Joe Biden’s campaign promises even as the president has focused on other parts of his agenda.

Rep. Frank Pallone (D-NJ), chairman of the House Energy and Commerce Committee, and Sen Patty Murray (D-WA), chair of the Senate Health, Education, Labor and Pensions Committee, put out a call for ideas on how to design the legislation.

“We believe bold steps are necessary in order to achieve universal coverage and lower health care costs,” the lawmakers wrote in a letter addressed “to all interested parties.” “As we work to craft legislation, our priority is to establish a federally administered public option that provides quality, affordable health coverage throughout the United States.”

Their request asks for answers to eight broad questions, such as who should be eligible to enroll in a government-run plan, how benefits and payments should be structured and what kind of premium assistance should be offered.

Biden campaigned on creating a Medicare-like public option, pitching the idea as part of a plan to build on Obamacare — an alternative to calls from Sen. Bernie Sanders (I-VT) and others to eliminate private coverage entirely and transition to a single-payer “Medicare for All” system. But, despite some pressure from fellow Democrats, Biden has left a public option out of his major policy proposals thus far and reportedly will not include it in his forthcoming budget request even as he reiterates his support for the idea. The president has instead pushed plans to make Obamacare plans more affordable and accessible.

Insurers and hospitals oppose a public option and critics have argued that it would ultimately lead to “a one-size-fits-all” government health insurance system. The American Hospital Association said in a statement Wednesday that it opposes a public option because “inadequate reimbursement rates” would raise the risk of hospital closures.

Why it matters: The letter from Pallone and Murray “is the first indication that Democrats are still serious about the idea” of a public option, says Vox’s Dylan Scott. And Larry Levitt, executive vice president for health policy at the Kaiser Family Foundation calls it “a serious effort by Senator Murray and Representative Pallone to take the public option from bumper sticker to workable legislation.”

A public option enjoys broad support in polls, with more than two-thirds of adults in an October 2020 Kaiser Family Foundation tracking poll — including 40% of Republicans — saying they strongly favor or somewhat favor the idea. But, as the questions in the Pallone-Murray letter suggest, a host of issues still need to be addressed, with reimbursement rates for doctors, hospitals, and drug companies atop that list. “A public option has the potential to reduce prices and make health care more affordable, but the further it goes in that direction, the bigger the blowback will be from the health care industry,” Levitt told the Associated Press. And while the industry pushes back, Republicans may also be likely to renew their attacks labeling the Democratic proposals as “socialist.”

The bottom line: While it’s notable that two leading Democrats are working on a public option, there’s no sign any legislation has a chance of passing in the near term.

Defense Budget Battle Looms

Lawmakers on the left and the right are already taking positions on the upcoming defense budget, Joe Gould and Leo Shane III of Defense News report, pushing in opposite directions on the single largest component of discretionary spending in the federal budget. Progressive Democrats are looking for ways to trim spending, while conservative Republicans are raising alarms about potential threats as they push for increases in the Pentagon’s budget.

One point of contention involves the U.S. withdrawal from Afghanistan, which could be completed as soon as July. The move is expected to produce savings of as much as $50 billion, and House Progressive Caucus Co-Chair Mark Pocan (D-WI) wants to use that “peace dividend” for domestic purposes, including health insurance and housing.

At the same time, Republicans in the Senate are calling for more spending on the military. “China’s long-term military investments are paying dividends that should alarm us. But Democrats want to pump the brakes on our own?” Senate Minority Leader Mitch McConnell (R-KY) said last week. “Fewer resources for our own men and women in uniform? Less defense innovation? What sense does that make?”

Sen. Jim Inhofe (R-OK), the ranking member on the Senate Armed Services Committee, also invoked China as he called for more spending. “We know the best signal we can send China is a strong military, but a strong military is not free,” he said last week. “I’ll continue working with my colleagues to ensure we are giving our military the resources they need to deter Chinese military aggression and defend our country.”

Ultimately, moderate Democrats including Rep. Adam Smith (D-WA) and Sen. Jack Reed (D-RI) will have to find a way to satisfy both camps on a defense bill that could be upwards of 4,000 pages long. “The bill never passes if it’s not bipartisan, we all understand our responsibility,” Smith told Defense News. “And that’s [Republicans’] incentive: we want to pass a bill. And there are thousands of things in that bill ― or hundreds ― that are important, on a whole series of policy levels, on a bipartisan basis.”

Biden Wants to Spend More on Cyber Warfare: Report

President Biden’s budget request is expected to include an increase in funding for a military unit that focuses on cyber warfare, Politico reports.

Located within U.S. Cyber Command, a joint military group that draws on multiple branches of the armed forces, the Cyber Mission Force is charged with coordinating “cyberspace operations in defense of U.S. national interests.” Biden will reportedly call for an increase in the size of the force by about 10%, up from its current level of 6,200, at a cost of at least $100 million. If Congress agrees, it would be the first expansion of the force since 2012, when it was first created.

The expansion has been under discussion for some time but has likely received new impetus in the wake of recent cyberattacks on the U.S., including one ransomware attack on the Colonial Pipeline that resulted in fuel shortages in some parts of the country, Politico’s Martin Matishak and Lara Seligman say.

In congressional testimony earlier this year, Gen. Paul Nakasone, chief of Cyber Command, said it was time for the force to expand. “Recent demand across DoD has demonstrated that the original 133 teams in the CMF are not enough,” he wrote, referring to the current structure of the force. “The strategic environment has changed since the original CMF was designated in 2012. Added forces will ensure USCYBERCOM can fulfill its responsibility as both a supported and a supporting command.”

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