Is Inflation About to Run Wild?

By Yuval Rosenberg

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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